(30 JULY 2020)DAILY MARKET BRIEF 1: Bad news is good news for markets.
As expected, the Federal Reserve (Fed) maintained its dovish policy stance at this month’s meeting, as Chair Jerome Powell painted a gloomy picture of the economy, emphasizing that the global economy is faced with the most severe recession of our lifetime, that the path forward is ‘extraordinarily uncertain’ and that the most recent data points at a slower pace of recovery. Investors only heard that more stimulus is on the way.
We are back to those days where bad economic news is perceived as good news for the market as deteriorating financial conditions mean more monetary and fiscal support, a longer period of cheap liquidity which can only result in a bigger balloon in equity prices.
So, the irony is, the US GDP data should confirm near 35% slump in the second quarter and the worse GDP read on record could have a further boosting effect on US and global equities.
The Dow Jones (+0.61%), the S&P500 (+1.24%) and Nasdaq (+1.35%) gained on dovish Fed, while US policymakers announced that Republicans and Democrats are not ready to agree on the next fiscal stimulus package just yet. But we believe that a $1.5-2 trillion deal will soon see the daylight.
Meanwhile, the second quarter earnings announced yesterday were mixed, and US tech giants’ CEOs testified before the Congress on their questionable practices to eradicate competition in the sector. But the investor focus remains on these companies’ financial performances during the Covid crisis rather than the antitrust allegations in the absence of any material news that could damage profits.
Sentiment in Asia was mostly positive. Stocks in Hong Kong (+1.05%) and China (+0.50%) advanced, the ASX 200 (+0.74%) gained, while the Nikkei (-0.12%) failed to consolidate gains even with significantly better-than-expected retail sales data in June.
