Dow Futures Extend Gains As China Data Offsets Trade Tensions, George Floyd Protests: ADP Employment Data Surprises

US stocks will test three-month highs Wednesday even as the economy continues to suffer the affects of the coronavirus pandemic and dozens of cities endure an eighth night of protests over the death of George Floyd.

The Wednesday Market Minute

  • Global stocks extend gains, lifting shares in key markets to the highest levels in three months, as central bank and government stimulus continue to offset US-China tensions and unsettling protests in the United States.
  • ADP payroll data shows a much better-than-forecast 2.7 million private sector job losses last month.
  • Some 18,000 National Guard troops across 29 states have been deployed to quell at-times violent protests in major American cities over the the death of George Floyd, with the Pentagon deploying 1,600 troops in Washington DC.
  • PMI data from China indicates a surge in services activity in May, while improving figures in Europe suggest a slow but steady post coronavirus recovery.
  • Global oil prices test three-month highs ahead of Energy Department data on domestic crude stocks, while demand bets continue to boost prices as the dollar lags. 
  • U.S. equity futures suggest a firmer open on Wall Street as the Dow approaches 26,000 and the S&P 500 tests the highest levels since March 4.

U.S. equity futures extended gains for a fourth consecutive session Wednesday, lifting the S&P 500 to the highest levels in nearly three months, as economic data from around the world continues to suggest a slow but steady recovery in the wake of the worst of the coronavirus pandemic.

Stocks were further boosted by a better-than-expected reading of private sector job losses from payroll group ADP, which came in at 2.76 million for the month of May, compared to a Street consensus estimate of 9 million.

Gains were capped, however, by the uncertainty surrounding both tensions between Washington and Beijing and the fate of the Phase 1 trade agreement signed earlier this year now that China is moving to tighten its security grip on Hong Kong. Further unsettling investors was the sight of sometimes-violent demonstrations in the United States, who took to the the streets for the eighth consecutive night to protest the killing of George Floyd by Minneapolis police on May 25.

Around 18,000 National Guard troops have been deployed across 28 states, according to government figures, while some 1,600 Federal troops were deployed around the Washington DC  to help restore order and impose a 7 pm curfew in the nation's capital.

Still, with protests raging and President Donald Trump's approval rating in free-fall, U.S. stocks have relentlessly added to gains on the back of trillions in Federal Reserve and government stimulus, while a weaker U.S. dollar has help boost the value of stocks that rely on overseas sales. 

The S&P 500, which has gained nearly 28% since its March 23 trough, it set to rise around 22 points at the opening bell Wednesday, a move that would take the broadest measure of U.S. shares to the highest level since March 4.

Futures contracts tied to the Dow Jones Industrial Average, meanwhile, suggest a 260 point opening bell gain that would lift the 30-stock benchmark past the 26,000 point mark. 

Two key data points from China this week -- Caixin PMI readings of both manufacturing and service sector activity-- have indicated a return to growth for the world's second-largest economy. with the services number published today rising to the highest levels since 2010.

European activity is also on the rise, albeit at a much lower level, as national stimulus begins to kick-in and the European Central Bank's €750 billion bond buying program continues to mop-up assets and hold down risk-free yields.

The Stoxx 600 Europe was marked 1.35% higher in early Wednesday trading in Frankfurt, testing the highest levels in three months, while Britain's FTSE 100 was last seen 1.1% higher even as the pound traded at 1.2584 against a weakened U.S. dollar.

The greenback, in fact, was marked 0.28% lower against a a basket of its global peers Wednesday, as the dollar index traded at 97.397, a move that extends its three-month decline to around 5%.

A weaker dollar, as well as data from the American Petroleum Institute yesterday that showed a surprise -- if modest -- decline in domestic crude stocks helped bump oil prices higher Wednesday, as well, as traders continue to bet on solid China recovery that will boost world demand. 

WTI contracts for July delivery were marked 63 cents lower from their Tuesday close in New York and changing hands at $38.94 per barrel while Brent contracts for August, the new global benchmark, were seen 54 cents lower at $36.27 per barrel.

Overnight in Asia, China stocks lead the region-wide MSCI ex-Japan benchmark to a 1.7% gain heading into the final hours of trading following the stronger-than-expected services PMI reading, while Japan's Nikkei booked its third-straight session gain to close 1.3% higher at 22,613.76 points.