(02 JULY 2020)DAILY MARKET BRIEF 1:Vaccine hopes, Fed minutes, jobs data.
US indices finished mostly higher on Wednesday on promising Covid vaccine trial from Pfizer and BioNTech, that maintained the hope of having a vaccine by January and dashed worries regarding the mounting new infection cases in the US.
Tech stocks hit another record. The S&P500 advanced 0.50%, but the Dow (-0.30%) remained on the backfoot. If gains remained timid, it was certainly because the investors didn’t get what they hoped from the latest FOMC meeting minutes. It appears that the US policymakers weren’t too motivated to move on to a yield curve control tool just yet, they simply want to improve their forward guidance – the communication with the market to maintain a healthy financial system.
While more guidance sounds good, over the past years, it has rather been the markets that have guided the Fed policy towards where it stands today. Therefore, Wednesday’s minutes were like telling a spoiled child that she can’t have that extra candy.
On top, the People’s Bank of China (PBoC) is dragging its feet amid signs of economic recovery and the governor Yi is already talking about an ‘exit’ strategy. As long as the data remains strong, this should be little annoying for investors who prefer seeing the EM giant getting back on its feet. But if the improvement in data were to slow, there would be an increased risk to the market sentiment.
Anyway, for now, investors remain focused on satisfactory economic data and vaccine hopes.
Yesterday’s PMI read was better in most places, except Italy and Switzerland. The ADP report printed 2.3 million new private jobs in the US last month, a touch short of analyst expectations but in line with what investors were ready to hear.
The US nonfarm payrolls, due today, is expected to show that the US economy added 3 million new jobs in June, but the market has an improved tolerance to deviations from consensus in such extraordinary circumstances. Hence, a relatively good read, ideally above 2 million, should keep the risk assets on track for more gains.
The factory orders are expected to have jumped near 9% in May, versus a 13% slump a month earlier due to the Covid shutdown.
Major Asian stock indices followed up on US session gains. Equities in Shanghai advanced more than 1% and the Hang Seng (+1.48%) gained despite the threatening changes to its political system and despite seeing its special relationship with the US falling apart. Gainis in the Nikkei (+0.18%) remained timid.
