News: The Fed signals stimulus to continue
US stocks advanced with Treasuries, while the dollar retreated after the Federal Reserve signalled continued stimulus to prop up the world’s largest economy.
The S&P 500 Index extended its July rally with a 1.24% jump to 3,258.44 on Wednesday (29 July) as the Fed kept rates near zero in a widely anticipated decision, pledging to use all of its tools to support a recovery from the coronavirus pandemic. Chairman Jerome Powell said there are signs the increase in infections is starting to weigh on activity while noting that the path forward for the economy is “extraordinarily uncertain”. Investors also sifted through a batch of corporate earnings, with Qualcomm Inc surging in extended trading on a strong sales forecast.
Powell praised Congress for earlier, strong fiscal action, saying the money was “well spent” because it helped keep businesses open and consumers in their homes during what he described as “the biggest shock” to growth in living memory.
As the pandemic continues to rage in parts of the US, hot spots in Europe, and across big emerging economies, governments are having to double down on the USD11t worth of stimulus and unprecedented central bank support unleashed since the crisis began. The Fed has kept rates pinned near zero since the outbreak’s onset in March and rolled out several emergency lending programmes geared toward fostering liquid trading conditions in financial markets.
Some 19% of S&P 500 companies that have posted results so far have reported per-share profits that beat or missed estimates by 50% or more. That is the highest proportion of companies with surprises of this magnitude since at least 2010, data compiled by Bloomberg Intelligence show. – Bloomberg News.
The Dow Jones Industrial Average upped 0.61% to 26,539.57 and the Nasdaq Composite Index gained 1.35% to 10,542.94.
Europe stocks closed slightly lower after swinging between gains and losses amid earnings and ahead of the Federal Reserve’s rate decision.
The Stoxx Europe 600 Index lost 0.06% to 367.45 at the close on Wednesday (29 July). Banks underperformed, with Barclays Plc down 6.1% after saying it expects a prolonged stretch of economic contraction and bad loans. Banco Santander SA dropped after suffering a EUR12.6b (USD14.8b) impairment charge.
The region’s equity rally has faltered since European Union (EU) leaders agreed on a EUR750b stimulus package on 21 July, as investors switched focus to the second-quarter earnings season and rising COVID-19 cases globally.
In other corporate news, Gucci-owner Kering rose 4% after its revenue beat estimates. Schneider Electric SE added 2.9% after resuming buybacks and re-establishing 2020 targets. Carmakers were the worst performers as Renault SA fell after partner Nissan Motor Co Ltd forecast a wider-than-estimated loss. – Bloomberg News.
Fitch Ratings cut the outlook on Japan’s sovereign debt rating to negative from stable while keeping the rating unchanged, following a similar move last month by S&P Global Ratings.
“The coronavirus pandemic has caused a sharp economic contraction in Japan, despite the country’s early success in containing the virus,” Fitch said in a statement Wednesday (29 July).
“Sharply wider fiscal deficits in 2020 and 2021, as we project, will add significantly to Japan’s public debt, which even before the pandemic was the highest among Fitch-rated sovereigns as a share of gross domestic product (GDP),” the ratings firm added.
Japan’s policymakers, like their global peers, are wrestling with spiralling deficits after ramping up spending to fight the impact of COVID-19. Virus cases have risen recently in Tokyo and a slow economic recovery could prompt more government stimulus.
Fitch affirmed Japan’s rating of A for long-term debt. But the firm sounded alarms over the country’s rising number of COVID-19 cases, and the possibility of further containment measures and risks to the economic outlook.
The ratings report had little impact on the yen, which was trading at around 105.07 per dollar Wednesday (29 July) in Tokyo.
Japan has pushed up its tally of economic measures to combat the virus impact to around USD2t, roughly 40% of the size of its economy. Still, Fitch and other ratings firms recently said there probably would not be any ratings consequences if the government drops a pledge to balance its budget by 2025. The bigger concern, they said, was how fast the economy can recover from the pandemic.
Fitch projects Japan’s economy to contract by 5% for the full year in 2020, before rebounding to 3.2% growth next year. But the firm did not expect GDP to return to pre-pandemic levels until the fourth quarter of 2021. – Bloomberg News.
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