The Wednesday Market Minute
- Global stocks extend gains as hopes of a V-shaped recovery offset geopolitical tensions in Asia and a worrying increase in coronavirus infections in China.
- British scientists' claim of a 'major breakthrough' in coronavirus treatment with the use of the dexamethasone prods WHO to update guidelines.
- Japan sees worst slump in May exports since 2009 as sales to US nearly halve amid coronavirus shutdowns.
- Oil prices hold gains as investors bet on renewed demand: API posts 3.9 million barrel increase in domestic crude stocks.
- U.S. equity futures suggest a notably firmer open for Wall Street ahead of Fed Chairman Jerome Powell's second day of testimony to U.S. lawmakers at 10:00 am Eastern time.
U.S. equity futures traded firmly higher Wednesday as investors looked to signals a quick recovery for the global economy even as officials continue to warn of an uneven path ahead over the next few months.
Tuesday's much-stronger-than-expected reading for U.S. retail sales growth in May, a key driver of growth in the world's largest consumer economy, pushed stocks higher in Asia last night, and look to support gains again today as investors bet on a so-called V-shaped recovery in the months ahead.
That optimism, alongside what scientists in the U.K. are calling a 'major breakthrough' in coronavirus treatment with a study of the use of dexamethasone in severely ill patients, has stocks on the move again Wednesday, with the Dow Jones Industrial Average back to testing the 27,000 point mark.
An undertone of caution continues to cap potential gains, however, following a grim assessment of U.S. growth prospects from Federal Reserve Chairman Jerome Powell yesterday to the Senate Banking Committee, as well as worrying rise in new COVID-19 infections in the Chinese capital of Beijing.
The June Bank of America Fund Managers' Survey, a closely-tracked poll of more than 190 investors controlling $560 billion in assets over the second week of the month, noted 'collapsing' cash levels and a surge in risk appetite, even as participants worried about the pace of the current market rebound.
In fact, a net 78% of those polled felt that stocks are currently 'overvalued', a record high reading that tops the previous mark set in 1998, while more than half -- 53% -- still peg recent gains as a 'bear market rally' that continues to face the risk of a second wave of coronavirus infections.
Powell -- who will speak to Congressional lawmakers later today -- told Senate leaders that there was a "reasonable probability that more will be needed both from you and from the Fed" before the economy full recovers from its historic downturn, which has taken nearly 25 million Americans out of regular employment.
"Those people are going to need help going forward to get back to work," he added.
The Fed's ongoing support, as well as pledges and spending from central banks around the world, continues to buoy global stock markets, with futures contracts tied to the Dow suggesting a 200 point opening bell gain for the Wednesday session.
Contracts tied to the S&P 500, which is now up 2.6% for the month, are priced for a 23 point advance while those linked to the tech-focused Nasdaq suggest an 80 point opening bell jump.
European stocks were also adding to gains Wednesday, albeit at a slower pace, with the Stoxx 600 rising 0.75% in Frankfurt on the strength of a 0.8% gain for the DAX performance index in Germany and a 0.85% gain for the FTSE 100 in London.
Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, nudged 0.2% higher to 97.15 while benchmark 10-year U.S. Treasury note yields held at 0.745%.
Global oil prices trended modestly higher, supported by bets on a V-shaped recovery in world crude demand, but reversed as the dollar gained, with traders also citing data from the American Petroleum Institute late Tuesday which showed a 3.9 million barrel increase in domestic crude stocks as of last week.
WTI contracts for July delivery were marked 52 cents lower from their Tuesday close in New York and changing hands at $37.86 per barrel in early European trading while Brent contracts for August, the global benchmark, were seen 43 cents lower at $40.55 per barrel.
Overnight in Asia, Japan's Nikkei 225 bucked the global market trend with a 0.56% Wednesday following data showing the largest month-on-month decline in Japanese exports in at least a decade.
Rising tensions between North and South Korea, as well as renewed concerns over a potential coronavirus resurgence in Beijing after 137 cases have been recorded over the past six days, kept Asia stocks in check, as well, with the region-wide MSCI ex-Japan bumping 0.47% higher heading into the final hours of trading.