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Optimism About Fiscal Stimulus May Generate Early Buying Interest
US Market
The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to move back to the upside after ending the previous session mostly lower.
Optimism about additional fiscal stimulus may generate early buying interest after Treasury Secretary Steven Mnuchin said Republicans have finalized their new coronavirus relief legislation.
Mnuchin told “Fox News Sunday” the GOP intends to introduce the $1 trillion bill on Monday after delaying the planned rollout last week.
Despite the vast gap in the price tags of the Republican plan and a $3 trillion bill passed by the Democrat-controlled House, Mnuchin said he expects lawmakers can move “very quickly” to address the differences.
“We’ve moved quickly before and I see no reason why we can’t move quickly again,” Mnuchin said. “And if there are issues that take longer, we’ll deal with those as well.”
In a separate interview with CNN’s “State Of The Union,” White House economic advisor Larry Kudlow said the GOP relief bill includes another $1,200 stimulus payment to Americans.
Traders may also react positively to a Commerce Department report showing durable goods orders continued to move sharply higher in the month of June.
Stocks fluctuated after an initial move to the downside but maintained a negative bias throughout the trading session on Friday. With the drop on the day, the major averages extended the sharp pullback seen in afternoon trading on Thursday.
The major averages finished the day off their lows of the session but still firmly in negative territory. The Dow slid 182.44 points or 0.7 percent to 26,469.89, the Nasdaq slumped 98.24 points or 0.9 percent to 10,363.18 and the S&P 500 fell 20.03 points or 0.6 percent to 3,215.63.
For the week, the tech-heavy Nasdaq tumbled by 1.3 percent, the Dow sank by 0.8 percent and the S&P 500 dipped by 0.3 percent.
A sell-off by shares of Intel (INTC) weighed on the markets, with the semiconductor giant and Dow component plunging by 16.2 percent to a four-month closing low.
Intel came under pressure after reporting better than expected second quarter results but warning of further delays in production of its next-generation chips.
The weakness on Wall Street also came amid concerns about rising tensions between the U.S. and China after Beijing decided to revoke the license for the establishment and operation of the U.S. Consulate General in Chengdu.
The move comes just days after the U.S. government ordered China to close its consulate in Houston, Texas, amid accusations Chinese diplomats aided in economic espionage and the attempted theft of scientific research.
A statement from China’s Foreign Ministry claimed the move by the U.S. violated international law and seriously damaged U.S.-China relations and called the closure of the U.S. consulate in Chengdu a “legitimate and necessary response to the unreasonable actions of the United States.”
“The current situation between China and the United States is something China does not want to see, and the responsibility rests entirely with the United States,” the statement said, urging the U.S. to immediately revoke the “erroneous decision.”
Worries about the continued spike in coronavirus cases also generated some negative sentiment, with the U.S. reporting 68,663 new cases on Thursday, according to data compiled by Johns Hopkins University.
According to analysis by CNBC, daily new cases are rising, on average, by at least 5 percent in 25 states and the District of Columbia as of Thursday.
On the U.S. economic front, the Commerce Department released a report showing new home sales in the U.S. continued to spike in the month of June.
The Commerce Department said new home sales soared by 13.8 percent to an annual rate of 776,000 in June after skyrocketing by 19.4 percent to a revised rate of 682,000 in May.
Economists had expected new home sales to jump 3.6 percent to a rate of 700,000 from the 676,000 originally reported for the previous month.
With the much bigger than expected increase, new home sales continued to rebound after falling to the lowest annual rate in well over a year in April and reached their highest level since July of 2007.
Computer hardware stocks turned in some of the market’s worst performances on the day, dragging the NYSE Arca Computer Hardware Index down by 2.9 percent. The index reached a five-month intraday high on Thursday before pulling back sharply.
Substantial weakness was also visible among airline stocks, as reflected by the 2.2 percent nosedive by the NYSE Arca Airline Index.
Biotechnology, semiconductor, and networking stocks also came under considerable selling pressure, reflecting weakness in the broader technology sector.
On the other hand, gold stocks moved sharply higher over the course of the session, driving the NYSE Arca Gold Bugs Index up by 3.4 percent. With the jump, the index ended the day at a seven-year closing high.
The rally by gold stocks came as the price of the precious metal climbed to a new record closing high.
U.S. Economic Reports
Following the substantial rebound in new orders for U.S. manufactured durable goods reported for the previous month, the Commerce Department released a report on Monday showing durable goods orders continued to move sharply higher in the month of June.
The Commerce Department said durable goods orders surged up by 7.3 percent in June after skyrocketing by a downwardly revised 15.1 percent in May. The continued increase comes following the nosedive seen in March and April.
Economists had expected durable goods orders to soar by 7.2 percent compared to the 15.7 percent spike that had been reported for the previous month.
Excluding another substantial increase in orders for transportation equipment, durable goods orders still jumped by 3.3 percent in June after shooting up by 3.6 percent in May. Ex-transportation orders were expected to surge up by 3.5 percent.
At 11:30 am ET, the Treasury Department is due to announce the results of its auction of $48 billion worth of two-year notes.
The Treasury Department is also scheduled to announce the results of its auction of $49 billion worth of five-year notes at 1 pm ET.
Stocks in Focus
Shares of Moderna (MRNA) are moving sharply higher in pre-market trading after the biotechnology company said announced up to $472 million in additional government funding for development of its potential coronavirus vaccine, with a Phase 3 trial of the vaccine candidate getting underway today.
Clothing company Kontoor Brands (KTB) is also likely to see initial strength after Goldman Sachs upgraded its rating on the maker of Lee and Wrangler jeans’ stock to Buy from Sell.
Meanwhile, shares of Under Armour (UAA) may come under pressure after the athletic apparel company said it received a “Wells Notice” from the SEC relating to a previously disclosed investigation regarding the use of “pull forward” sales.
Europe
European stocks are mixed on Monday as investors weigh the possibility of additional fiscal stimulus from the United States against rising coronavirus cases around the world and escalating U.S.-China tensions following the closures of consulates in Houston and Chengdu.
While the German DAX Index is up by 0.1 percent, the U.K.’s FTSE 100 Index is down by 0.3 percent and the French CAC 40 Index is down by 0.4 percent.
In economic news, a survey showed German business confidence strengthened in July. The ifo institute’s business confidence index rose more than expected to 90.5 from revised 86.3 in June. The reading was forecast to rise to 89.3.
Tour operator TUI has moved sharply lower. TUI UK announced that it would cancel all holidays to mainland Spain up to and including Sunday 9th August 2020.
Airline easyJet and British Airways-owner IAG are also posting steep losses after Britain announced an unexpected 14-day quarantine on travelers coming from Spain because of a surge of coronavirus cases.
Ryanair Holdings has also come under pressure. The company said it expected air travel to be depressed in Europe for the next two to three years due to the Covid-19 pandemic.
HSBC Holdings has also moved to the downside. Responding to Chinese media reports over dealings with Huawei Technologies Co., the bank denied media reports that it had “framed” the Chinese telecom giant and played a role in the arrest of the company’s chief financial officer.
Meanwhile, software group SAP has moved notably higher after it unveiled plans to spin off and float Qualtrics, a U.S. specialist in measuring online customer sentiment.
Asia
Asian stocks turned in a mixed performance on Monday as signs that coronavirus infections may be slowing and hopes for a new stimulus deal in Washington offset simmering U.S.-China tensions.
Chinese shares eked out modest gains after official data showed the country’s industrial profits increased at a faster pace in June. Industrial profits grew 11.5 percent on a yearly basis in June following a 6 percent rise in May, as easing of the coronavirus containment measures boosted manufacturing activity.
The benchmark Shanghai Composite Index rose 8.46 points, or 0.3 percent, to 3,205.23 despite China reporting its highest number of coronavirus cases in three months.
Meanwhile, Hong Kong’s Hang Seng Index dropped 102.07 points, or 0.4 percent, to 24,603.26 on concerns that the economy could take longer than expected to recover.
Japanese shares fell slightly as trading resumed after a four-day holiday. Investor sentiment was dampened after the Tokyo Metropolitan Government reported 239 new coronavirus infections on Sunday, topping 200 cases for the sixth straight day.
However, 131 new cases were reported today, marking the first time in seven days that the capital’s single-day tally has totaled fewer than 200.
The Nikkei 225 Index recouped much of the day’s losses to end the session down 35.76 points, or 0.2 percent, at 22,715.85. The broader Topix closed 0.2 percent higher at 1,576.69.
Tech stocks such as Advantest, Screen Holdings and Tokyo Electron dropped 1-3 percent, tracking losses in their U.S. counterparts on Friday.
Australian markets edged up slightly, with gold miners surging after Australia took a significant stance in an ongoing maritime dispute over China’s attempt to claim ownership of islands and surrounding waters in the South China Sea.
The benchmark S&P/ASX 200 Index inched up 20.20 points, or 0.3 percent, to 6,044.20, while the broader All Ordinaries Index ended up 21.60 points, or 0.4 percent, at 6,169.60.
Evolution Mining, Newcrest and Northern Star Resources surged 3-5 percent after safe-haven gold prices rose to a new record high on Friday.
Mining heavyweight BHP Billiton rose 0.9 percent and smaller rival Fortescue Metals Group added half a percent, while the big four banks ended down between 0.2 percent and half a percent.
In the oil sector, Oil Search, Woodside Petroleum and Santos lost around 1 percent. Fund manager Perpetual entered into a trading half after it agreed to acquire U.S.-based investment management business Barrow, Hanley, Mewhinney & Strauss LLC for $319 million.
Lynas Corp. soared 12 percent after the rare earths producer signed a contract with the U.S. Department of Defense to begin initial work for a heavy rare earth separation facility in Texas.
Seoul stocks ended notably higher as hopes of a stimulus-led economic rebound offset worries over deepening U.S.-China tensions. The benchmark Kospi gained 17.42 points, or 0.8 percent, to finish at 2,217.86.
Market bellwether Samsung Electronics rallied 2.6 percent, internet giant Naver advanced 1.3 percent and steelmaker POSCO added 1 percent.
Commodities
Crude oil futures are climbing $0.25 to $41.54 a barrel after rising $0.22 to $41.29 a barrel last Friday. Meanwhile, after advancing $7.50 to a record closing high of $1,897.50 an ounce in the previous session, gold futures are spiking $29.20 to $1,927.70 an ounce.
On the currency front, the U.S. dollar is trading at 105.41 yen versus the 106.14 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1742 compared to last Friday’s $1.1656.
