News: US futures slide after Fed stimulus clash
US futures slid in Asian trading Friday (20 November) after a clash between Treasury Secretary Steven Mnuchin and the Federal Reserve on its emergency lending facilities.
S&P 500 Index contracts retreated after the Trump administration and the Fed publicly disagreed over whether to extend the pandemic programmes. Technology shares had led US benchmarks higher as investors weighed the impact of tougher virus restrictions against the prospect of a vaccine rollout in the months ahead. Shares of companies poised to do well during lockdowns outperformed.
Treasury yields retreated and the dollar dipped after US weekly jobless claims came in higher than forecast. Gold extended a drop amid a drawdown in bullion-backed exchange-traded funds. Tesla Inc rose to a record as investors bet that the global car market will be dominated by electric cars in decades ahead.
Mnuchin on Thursday sought the return of unused funds from the Fed’s emergency lending facilities, but the central bank pushed back and said the programmes served a vital role. Mnuchin sought a 90-day extension for four programs, but requested others expire on schedule on 31 December and the Fed return USD455b to the Treasury so Congress can spend the money elsewhere.
Some of the investor optimism over vaccine progress that lifted global stocks to an all-time high Monday has ebbed, amid a surge in virus cases and strain on public health facilities in many parts of the world. California imposed a curfew across the vast majority of the state, one of the world’s toughest lockdowns is underway in South Australia and Tokyo raised its virus alert to the highest level.
The International Monetary Fund (IMF) and G-20 nations warned that fresh restrictions on households and companies due to the resurgence of COVID-19 are a risk to the global economic recovery. The IMF noted progress on a vaccine, but also said elevated asset prices point to a disconnect from the real economy and a potential threat to financial stability. – Bloomberg News.
The S&P 500 added 0.39% to 3,581.87, the Dow Jones Industrial Average inched 0.15% higher to 29,483.23, and the Nasdaq Composite Index gained 0.87% to 11,904.71.
Europe equities fell from an almost nine-month high as investors weighed rising coronavirus cases and the extent of recent gains fuelled by optimism about vaccine progress.
The Stoxx Europe 600 Index closed down 0.75% to 387.60, with miners and travel and leisure shares leading a broad retreat in industry groups.
Europe stocks have surged 13% in November on positive vaccine updates and reduced political uncertainty after the US elections. With the gains exceeding strategists’ previously held expectations for 2020, prognosticators are turning to the outlook for next year. The average of nine forecasts is for the Stoxx 600 to finish 2021 about 2% higher than Wednesday’s (18 November) close.
Among notable single-stock movers, Thyssenkrupp AG slid after skipping a dividend and forecasting a full-year loss. Royal Mail Plc gained after saying a turnaround at its main UK business is picking up pace as the pandemic spurred a boom in parcel traffic. Norsk Hydro ASA advanced after Pareto raised the stock to buy. – Bloomberg News.
Warren Buffett’s USD6b investment in Japanese trading companies is paying off amid the global rotation into value stocks.
Shares of the five commodity-centric Japanese conglomerates in which Buffett’s Berkshire Hathaway Inc announced its stake purchase in August have all climbed at least 8% so far in November, with Sumitomo Corporation leading the way with an advance of more than 15%.
The so-called “sogo shosha” had all incurred losses over the two-month period ended 30 October as the coronavirus pandemic eroded demand for commodities and investors continued to show a preference for growth stocks over their value peers.
Euphoria over a vaccine breakthrough has boosted optimism about the global economic recovery, prompting investors to snap up beaten-down cyclical stocks, of which Japan has plenty. Buffett’s stake purchase in Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co Ltd, and Sumitomo is one of his largest ever forays into Asia’s second largest economy.
The recent outperformance of these diversified conglomerates is tied to the wider rotation into cyclical value in Asia and around the world, according to an analyst. The improving economic outlook is starting to show in the performance and projections by some of the trading firms. Marubeni Corporation earlier this month boosted its net income forecast for the full year, with the guidance beating the average analyst estimate. It also raised its full-year dividend. Meanwhile, Itochu Corporation reported record quarterly earnings.
Still, challenges to the outlook remain, especially as a wave of COVID-19 cases in the US and Europe threatens to cause more disruptions in commodity markets and hinder a sustained recovery in demand.
Japanese stocks slumped Wednesday to lead losses in Asia after a report showed Tokyo had a daily record of coronavirus cases. The city is planning to raise its COVID-19 alert to the highest level, according to a separate report.
The benchmark Topix Index is up 9% so far in November, just behind the 10% rise in the MSCI Asia Pacific Index. – Bloomberg News.
The Nikkei 225 Index declined 0.72% to 25,449.99 on Friday (20 November) morning, extending the previous session’s 0.36% fall to 25,634.34.
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