Stocks whipsaw as investors weigh odds of stimulus


Investors consider the chances of a compromise on stimulus amid concern over an uptick in virus cases
Newsfeed25 Sep 2020
Photo credit: AFP Photo


US

Stocks whipsawed as investors weighed the chances of a compromise on a new stimulus package amid concern over an uptick in global coronavirus cases. The dollar fell.

The S&P 500 Index pared most of its earlier rally after optimism faded that Congress would reach a spending deal with the White House. Stocks surged midday on news that Treasury Secretary Steven Mnuchin and the Democratic House leader were open to fresh talks. But a report that Speaker Nancy Pelosi’s fresh overture deviated only slightly from previous offers sparked concern that the two sides would remain far apart. The stock gauge still closed above a key support level: Its average price of the past 100 days.

House Democrats have started drafting a stimulus proposal of roughly USD2.4t, according to multiple officials. While smaller than the USD3.4t package the House passed in May, the new proposal remains much larger than what Senate Republicans have said they could accept. President Donald Trump has indicated he would be willing to go as high as USD1.5t.

“The odds of Phase 4 stimulus are a close call,” wrote a market watcher. “While still possible, there is a high risk that it does not happen this year. Without it, we would expect the economy to hit a major speed bump in Q4.”

The risk of a slowdown in the economic recovery has risen with the lack of another stimulus package, prompting economists to cut their forecast for US growth in the fourth quarter. Federal Reserve Chairman Jerome Powell reiterated that “it’s likely that additional fiscal support will be needed”, while Fed Bank of St. Louis President James Bullard said the economy may be close to a “full recovery” by year-end.

High-frequency data that tracks economic activity show a slowdown in the recovery from the height of the lockdowns, with Americans again cutting back on flights and going out to eat less often. – Bloomberg News.

The S&P 500 Index inched 0.30% higher to close at 3,246.59 on Thursday (24 September), the Nasdaq Composite Index gained 0.37% to 10,672.27, and the Dow Jones Industrial Average increased 0.20% to 26,815.44.

 

EUROPE

Europe stocks closed lower after mixed US economic reports did little to reassure investors worried about the recovery slowing without further stimulus.

The Stoxx Europe 600 Index fell 1.02% to 355.85 in London on Thursday (24 September), deepening losses after Wall Street trading began. The S&P 500 Index entered a correction earlier following disappointing jobless claims data, but erased intraday losses after new home sales figures unexpectedly advanced. Most European sectors fell, including banks, which had rallied after receiving fresh targeted loans from the European Central Bank.

The Stoxx 600 is on track for its worst week since June, hurt by fresh virus-related restrictions in Europe and pessimism about the prospect of further US fiscal stimulus.

“More fire-sale atmosphere across risk assets, which, at the end of the day and quite crucially pertains a lot more to pragmatic profit-taking than to a real inflection of fundamentals,” an analyst said.

In stock specific news, Cineworld Group Plc (CINE LN) plunged after warning lending covenants could be breached at the end of the year. German military supplier Hensoldt AG raised EUR400m (USD466m) in an initial public offering that priced at the bottom of the range. – Bloomberg News.

 

JAPAN

The leaders of South Korea and Japan reaffirmed the importance of strong ties, in an ice-breaking phone call after Yoshihide Suga’s ascension to the prime minister’s job last week (ended 18 September).

The call between Suga and South Korean President Moon Jae-In provided an opportunity for the two neighbours to rebuild trust after a long simmering feud over historical issues boiled over into a trade war last year. The conversation was the first of its kind since Suga’s predecessor, former Prime Minister Shinzo Abe, met Moon in China in December.

Speaking to reporters afterward, Suga said he told Moon that ties were in a difficult state, but could not be neglected. The two countries needed to cooperate with one another and with the US to tackle issues of shared concern including North Korea, he added.

“Japan and South Korea are extremely important neighbours for one another,” said Suga, who was installed as prime minister on 16 September after poor health forced Abe to step down. The South Korean side requested the conversation, Japanese Chief Cabinet Secretary Katsunobu Kato said.

Moon described Japan as South Korea’s “closest friend”, with which it shares basic values and strategic interests, according to a statement by presidential spokesman Kang Min-seok in Seoul. The two agreed to improve communication to resolve their problems, Kang said.

Ties between the two Asian neighbours dipped to new lows last year after Japan removed South Korea from its “white list” of trusted export destinations and curbed exports of several items vital to production in the country’s high-tech manufacturing industry. – Bloomberg News.

The Nikkei 225 Index added 0.53% to 23,210.87 in early-Friday (25 September) trading. It fell 1.11% to 23,087.82 on Thursday.

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