The intense expectation of more fiscal and monetary stimulus wouldn’t let a downside correction develop healthily despite the continuous flow of news getting from bad to worse.
Major US stock indices rebounded more than 1% on Thursday, even though the business reopening was halted in Texas due to the rapidly rising new cases. Infections jumped in Arizona and California and Apple closed 14 shops in Florida.
Meanwhile, the US jobless claims rose 1.480 million last week, more than the analyst forecasts hinting that the post-Covid recovery in the jobs market isn’t as strong as expectations, and more damage is to come with the renewed containment measures in several places.
Today’s data should confirm a robust rebound in US consumer spending in May, despite a significant loss of revenue due to the business lockdown and depressed labour market conditions.
US banks (+2.71%) led gains after the Federal Reserve’s (Fed) stress test found them solid enough and ‘well capitalized under even the harshest’ of downside scenarios. Still, the Fed capped dividends and banned the banks from share buybacks to preserve healthy capital levels in the coming months. Latter measures could be discouraging for bank stock investors as they would prevent banks from tempering a negative price shock if the global sell-off were to intensify.
On the other hand, the US Senate passed a legislation aiming to penalize banks doing business with Chinese officials who ‘seek to undermine Hong Kong’s autonomy or erode the basic freedoms promised to HongKongers’ via the new national security law. But the legislation should be approved by the House to spark reaction from China and investors.
By Ipek Ozkardeskaya
