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Dow Futures Slump As Powell's Recovery Warning Echoes; Weekly Jobless Claims Nearly 3 Million

With Wall Street down for a third straight consecutive session, and billionaire investors debating the value of U.S. stocks amid an unprecedented economic downturn, Thursday's jobless data could prove to be crucial for near-term sentiment.

The Thursday Market Minute

  • Global stocks slide as Fed Chair Powell says economic recovery from coronavirus pandemic "highly uncertain and subject to significant downside risks"
  • Powell's dismissal of negative rates drives dollar higher, but flight-to-safety pushes bond yields lower as investors question recent equity market rally.
  • U.S. Weekly jobless claims show 2.98 million Americans filed for unemployment benefits last week, while the four-week average slipped to 3.616 million.
  • Oil prices bump higher after a surprise decline in domestic crude stocks, while the IEA forecasts a modest second half recovery in global demand.
  • U.S. equity futures suggest another weaker open on Wall Street ahead of weekly jobless claims data at 8:30 am Eastern time.

U.S. equity futures fell for a third consecutive session Thursday, while global stocks slumped and the dollar tested three-week highs, following a grim assessment of the domestic recovery from Federal Reserve Chairman Jerome Powell and a worrying rise in trade tensions between Washington and Beijing.

Powell's speech to the Peterson Institute of International Economics yesterday, during which he described the current downturn as "without precedent" and warned of an uneven path to recovery, continues to echo around financial markets.

The Fed Chair's dismissal of negative interest rate, which he said were "not something we're considering', helped push the U.S. dollar index to a near three week high against a basket of its global peers, but his assessment that both the current Fed response, and fiscal support amounting to trillions more, "may not be the final chapter" in the coronavirus pandemic triggered defensive moves in overnight trading and pushed U.S. equity futures back into the red.

President Donald Trump's repeated insistence that China's lack of transparency in dealing with the outbreak should be punished with trade retaliation, and Beijing's response that any moves to seek legal redress will result in tariffs of its own, also has investors in a cautious mood heading into what another grim reading of the job market.

Just under 3 million Americans filed for unemployment benefits last week, a reading that boosts the two-month total closer to a staggering 40 million, or nearly a quarter of the country's entire workforce. 

Against that backdrop Wall Street futures weakened with contracts tied to the Dow Jones Industrial Average, which has lost more than 1,000 points this week, priced for a 300 point pullback and those linked to the S&P 500 suggesting a 30 point dip for the broader benchmark at the opening bell.

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Benchmark 10-year Treasury bond yields were marked at 0.619% in early European dealing, while the dollar index rose 0.3% to a three-week high of 100.55 against a basket of its global peers after Trump told Fox Business News that "everybody wants to be in the dollar because we kept it strong." 

Global oil prices bucked the risk market trend, however, after the U.S. Energy Department reported a surprise decrease in domestic crude stocks yesterday, and the International Energy Agency said global demand could return in the second half of the year as economies recovery and OPEC production cuts take hold.

WTI contracts for June delivery, which expire next week, were marked $1.22 higher at $26.51 while Brent futures for July delivery, which benchmark around 60% of global crude purchases, were marked $1.18 at $30.37 per barrel.

European stocks, however, were firmly on the back foot Thursday, following a week of grim economic data and modestly rising infection rates in countries that have eased lockdown restrictions. 

A Reuters report that EU officials are considering a plan to purchase equity stakes in key regional companies failed to provide support, nor did a weaker euro, which traded at 1.0816 against the firmer greenback.

The Stoxx 600 was marked 2.8% lower in mid-morning trading, lead by a 3% decline for the CAC-40 in Paris, while Britain's FTSE 100 slumped 3.3% even as the pound slipped to a multi-week low of 1.2182 against the U.S. dollar.

Overnight in Asia, the follow-on from Wall Street's accelerated declines washed over Japan's Nikkei 225, which closed 1.75% lower at 19,914.78 points, while the region-wide MSCI ex-Japan benchmark was last seen 1.3% lower thanks in part to notable slumps in Hong Kong and Sydney.