Stocks higher today on hopes for US stimulus

Stocks higher today on hopes for US stimulus 150 150 Realm

Investors are hoping that a deal can be reached and an additional stimulus bill can be passed in the US. Goldman Sachs say this is unlikely if House Democrats vote on their proposed package. In the UK, Prime Minister Boris Johnson warned that a critical moment had been reached with the largest rise in daily coronavirus cases since the pandemic began and said he
would not hesitate to “take further measures” if necessary.

 

Global Macro

  • The MNI Chicago Business Barometer in the US jumped to 62.4 in September of 2020 from 51.2 in August and easily beating market forecasts of 52. The reading pointed to the strongest expansion in Chicago business activity since February of 2019 as all five main indicators saw monthly gains, with production and new orders leading the way. Through Q3, business sentiment recovered sharply to 55.2, the strongest reading since Q1 2019.
  • Crude oil pared early gains to trade around $39.4 a barrel on Wednesday, supported by hopes of further stimulus in the US. In addition, latest data from the API showed crude oil inventories in the US fell by 0.8 million barrels last week, compared with market forecasts of a 0.7 million build. Still, for the month the WTI crude is on track for its first loss since April amid mounting concerns over fuel demand recovery as the number of coronavirus infections continue to rise worldwide. Meanwhile, for the quarter crude oil is set to book a near 0.5% gain. Investors now await for the EIA report due later in the day.
  • The current environment of lower inflation needs to be reflected in the central bank’s inflation aim, as the concerns policymakers face are different from those in previous years, ECB President Christine Lagarde said at a press conference on September 30th. “The wider discussion today, however, is whether central banks should commit to explicitly make up for inflation misses when they have spent quite some time below their inflation goals. If credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound.”, Lagarde said. Since 2003, the central bank has targeted an inflation rate “below, but close to 2%”, aiming to curb rising consumer prices. However, a persistent weak inflation amid subdued growth has worried ECB officials in recent years.
  • The British economy contracted 21.5% year-on-year in the second quarter of 2020, slightly less than initial estimates of a 21.7% drop. Still, it is the biggest contraction since comparable records began in 1956 and the second consecutive quarterly decline in GDP, officially entering a recession, amid a widespread disruption to economic activity due to the coronavirus pandemic and the government’s efforts to contain it. Fixed investment fell 26.1%, below a 27% drop in the preliminary estimates while household spending sank at a faster 26.2% (vs 25.2%).
  • Corporate profits in the United States tumbled by 10.7% to an over four-year low of USD 1.59 trillion in the second quarter of 2020, compared to an initial estimate of an 11.8% decline. It was the sharpest decline in corporate profits since the last quarter of 2008, amid the coronavirus crisis. Undistributed profits slumped by 43.8% to USD 0.23 trillion and net cash flow with inventory valuation adjustment, the internal funds available to corporations for investment, dropped by 9.5% to USD 2.10 trillion. Also, net dividends were 1.1% lower at USD 1.36 trillion. The Federal Reserve sees the US economy shrinking by 3.7% in 2020, lower than an initial estimate of a 6.5% drop. Still, the outlook for 2021 remains uncertain as the coronavirus pandemic is far from controlled and a vaccine is not ready yet.
  • The US economy shrank by an annualized 31.4% in the second quarter of 2020, slightly lower than a 31.7% plunge in the second estimate and a 32.9% fall in the advance one. It reflects mainly an upward revision to personal consumption expenditures (PCE) that was partly offset by downward revisions to exports and to nonresidential fixed investment. Still, it remains the biggest contraction ever, pushing the economy into a recession as the coronavirus pandemic forced many businesses including restaurants, cafes, stores and factories to close and people to stay at home, hurting consumer and business spending.
  • On Wednesday: European stocks closed broadly lower as the continued surge in coronavirus cases, the uncertainty surrounding the U.S. election result, and concerns about Brexit deal outweighed positive economic data out of China. US stocks moved sharply higher in morning trading before seeing considerable volatility late in the session. The major averages pulled back well off their highs but moved back to the upside going into the close of trading.

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