News: The Fed signals stimulus to continue


The S&P 500 extends its rally as the Fed keeps rates near zero
Newsfeed30 Jul 2020
Photo credit: AFP Photo


US

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

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.

 

JAPAN

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.

Japan’s Nikkei 225 Index opened 0.39% higher at 22,483.47 on Thursday morning. The benchmark closed 1.15% down to 22,397.11 the previous session.


GENERAL DISCLOSURE/DISCLAIMER 

This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) (“DBS”) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the “MAS”).