NEW YORK, NEW YORK - MAY 26: The New York Stock Exchange (NYSE) stands in lower Manhattan on the ... [+]
The Dow Jones Industrial Average futures are trading higher, as traders seem glad that the second stimulus talk is finally heading in the right direction. The U.S. Private Payroll number missed the forecast by a long shot yesterday, but some investors are still feeling confident about the stock market. Investors are focused on the U.S. Initial Jobless Claims data, which is due later.
Stock Market Paying Attention to U.S. Economy
The S&P 500 and Dow Jones futures ignored the weak ADP data, which reported that private payroll growth in the U.S. is nowhere near enough expectations. The ADP data came in at 167K, against the forecast of 2.3 million. The bad news for the U.S. economy didn’t stop there though, the employment component of the non-manufacturing ISM fell to 42.1 from 43.1, which further confirmed the narrative that the U.S. economy has stalled. This represents a real threat to the U.S. stock market.
Second Stimulus Package Negotiations Moving Forward
Investors are largely ignoring the dismal economic numbers in the U.S. and maintaining their interest in the stock market. For them, the real panacea for the U.S. economy, the second stimulus package, is on its way, and this will hopefully resolve all the issues. Historically, every time we had a stimulus support, the U.S. stock market rallied on the back of it. There is no reason to believe that the stock market won’t rally, as long as the second stimulus package is half decent.
On the second stimulus package front, Democrats have made it clear that they require more concessions from the White House if a deal is going to see the light of day. The White House has floated the idea of $400 per week, in addition to unemployment benefits, until December 14th. The Democrats are still pushing for $600 per week supplemental unemployment benefit.
The U.S. Treasury Secretary, Steven Mnuchin’s current offer is also short of Democrat’s expectation of $1 trillion. Mnuchin has offered $200 billion in local and state aid. Democratic leader Chuck Schumer said, “While we have started to generate some forward momentum, we need our partners in the White House to go much further on a number of issues.”
U.S. Jobless Claims Data to Keep Pressure on Dow Jones
Speaking of unemployment benefits, today is the day that we are going to see another reading of the Initial Jobless Claims and the Continuing Jobless Claims. For the last few weeks, we have seen an uptick in the Initial Jobless Claims data, which has made investors feel uncomfortable about the stock market, especially the level it is trading at. For them, if the U.S. labor market isn’t on the right track, the stock market doesn’t deserve this much affection, and it must face a reality check—a sell-off.
The forecast for today’s number is 1.410 million, while the previous reading came in at 1.435K. If we get a better number than the forecast, the stock market is likely to rally on the back of it, as traders will say that the previous two readings were nothing but a blip.
Stock Market May Not See Big Bets
Stock futures will likely maintain some caution, and this is because the mother of all economic numbers, the U.S. NFP, is due tomorrow. No one wants to trade big ahead of this data, but once the data is released, it sets the trend, and this attracts the capital inflow. One inevitable thing is that investors will not be able to ignore weak U.S. NFP data, and the stock market is highly likely to face severe punishment if the U.S. NFP data misses expectations.
Bank of England’s Interest Rate Decision
European futures, especially, the FTSE 100, are also paying extra attention to the Bank of England’s monetary policy decision. The Bank of England kept the interest rate unchanged, as it is already sitting at a record low level. The BOE found comfort in the fact that the Covid-19 situation is not as bad in the U.K. as it is in the U.S., and the coronavirus infection curve is still relatively flat.
Having said this, the second coronavirus wave is emerging as the lockdown measures have eased off. The BOE knows that it needs to maintain its dovish tone while the V-shape recovery remains out of reach. With little to no progress on Brexit matters, things are likely to remain challenging for the U.K. economy. The Bank is ready to do more if there is a need for further help, but for now, the BOE will reduce its bond-purchase pace to GBP 4.4 Billion per week, starting from August 11th.
Trump Administration Continues its Pressure Against China
Steven Mnuchin is going hard on U.S. companies and asking them to bar Chinese applications from their app store. Every action has a retaliatory action when it comes to U.S.-China relations. Chinese officials are likely to come back with a similar response if U.S. companies are forced to ban Chinese applications from their platforms. The question for traders is how much more adverse this relationship can become, and where the limit is before permanent and non-repairable damage occurs.
Coronavirus Update
The global coronavirus tracker confirms nearly 702K deaths due to Covid-19 and more than 18.6 million cases. Anthony Fauci, who has served as the director of the National Institute of Allergy and Infectious diseases, said that coronavirus testing is too slow, which directly contradicts Trump’s belief—nothing new here then. Trump believes that coronavirus testing is the “best ever”.
Overall, the coronavirus situation continues to restrain the economic recovery efforts, as North Carolina extends its reopening pause by another five weeks. It will remain in its phase 2, and this means bars, movie theaters, and bowling alleys will remain closed along with the limit on people gathering.
Gold Prices Made Another Record High
Gold prices are holding on to their gains and trading above the $2,050 mark. The upcoming U.S. Initial Jobless Claims is the main event for gold prices and it is likely to bring greater volatility to the gold market. The next immediate level of resistance for the gold price is $2,200 and it can get close to this level if the jobless claims data fails to impress the markets.
