August 6, 2020

Dow Futures Await US Jobless Claims, BOE Left Rates Unchanged

Dow Futures Await US Jobless Claims, BOE Left Rates Unchanged

Dow Jones Futures: U.S. Jobless Claims, Second Stimulus Deal Weigh On Coronavirus Stock Market Rally; Gold Price Up

The Dow Jones Industrial Average futures are trading higher, as traders seem glad that the second stimulus talk is finally heading in the right direction. The U.S. Private Payroll number missed the forecast by a long shot yesterday, but some investors are still feeling confident about the stock market. Investors are focused on the U.S. Initial Jobless Claims data, which is due later.

Stock Market Paying Attention to U.S. Economy

The S&P 500 and Dow Jones futures ignored the weak ADP data, which reported that private payroll growth in the U.S. is nowhere near enough expectations. The ADP data came in at 167K, against the forecast of 2.3 million. The bad news for the U.S. economy didn’t stop there though, the employment component of the non-manufacturing ISM fell to 42.1 from 43.1, which further confirmed the narrative that the U.S. economy has stalled. This represents a real threat to the U.S. stock market.

Second Stimulus Package Negotiations Moving Forward

Investors are largely ignoring the dismal economic numbers in the U.S. and maintaining their interest in the stock market. For them, the real panacea for the U.S. economy, the second stimulus package, is on its way, and this will hopefully resolve all the issues. Historically, every time we had a stimulus support, the U.S. stock market rallied on the back of it. There is no reason to believe that the stock market won’t rally, as long as the second stimulus package is half decent.  

On the second stimulus package front, Democrats have made it clear that they require more concessions from the White House if a deal is going to see the light of day. The White House has floated the idea of $400 per week, in addition to unemployment benefits, until December 14th. The Democrats are still pushing for $600 per week supplemental unemployment benefit. The U.S. Treasury Secretary, Steven Mnuchin’s current offer is also short of Democrat’s expectation of $1 trillion. Mnuchin has offered $200 billion in local and state aid. Democratic leader Chuck Schumer said, “While we have started to generate some forward momentum, we need our partners in the White House to go much further on a number of issues.”

U.S. Jobless Claims Data to Keep Pressure on Dow Jones

Speaking of unemployment benefits, today is the day that we are going to see another reading of the Initial Jobless Claims and the Continuing Jobless Claims. For the last few weeks, we have seen an uptick in the Initial Jobless Claims data, which has made investors feel uncomfortable about the stock market, especially the level it is trading at. For them, if the U.S. labor market isn’t on the right track, the stock market doesn’t deserve this much affection, and it must face a reality check—a sell-off. The forecast for today’s number is 1.410 million, while the previous reading came in at 1.435K. If we get a better number than the forecast, the stock market is likely to rally on the back of it, as traders will say that the previous two readings were nothing but a blip.

Stock Market May Not See Big Bets

Stock futures will likely maintain some caution, and this is because the mother of all economic numbers, the U.S. NFP, is due tomorrow. No one wants to trade big ahead of this data, but once the data is released, it sets the trend, and this attracts the capital inflow. One inevitable thing is that investors will not be able to ignore weak U.S. NFP data, and the stock market is highly likely to face severe punishment if the U.S. NFP data misses expectations.

Bank of England’s Interest Rate Decision

European futures, especially, the FTSE 100, are also paying extra attention to the Bank of England’s monetary policy decision. The Bank of England kept the interest rate unchanged, as it is already sitting at a record low level. The BOE found comfort in the fact that the Covid-19 situation is not as bad in the U.K. as it is in the U.S., and the coronavirus infection curve is still relatively flat.

Having said this, the second coronavirus wave is emerging as the lockdown measures have eased off. The BOE knows that it needs to maintain its dovish tone while the V-shape recovery remains out of reach. With little to no progress on Brexit matters, things are likely to remain challenging for the U.K. economy. The Bank is ready to do more if there is a need for further help, but for now, the BOE will reduce its bond-purchase pace to GBP 4.4 Billion per week, starting from August 11th.

Trump Administration Continues its Pressure Against China

Steven Mnuchin is going hard on U.S. companies and asking them to bar Chinese applications from their app store. Every action has a retaliatory action when it comes to U.S.-China relations. Chinese officials are likely to come back with a similar response if U.S. companies are forced to ban Chinese applications from their platforms. The question for traders is how much more adverse this relationship can become, and where the limit is before permanent and non-repairable damage occurs.

Coronavirus Update 

The global coronavirus tracker confirms nearly 702K deaths due to Covid-19 and more than 18.6 million cases. Anthony Fauci, who has served as the director of the National Institute of Allergy and Infectious diseases, said that coronavirus testing is too slow, which directly contradicts Trump’s belief—nothing new here then. Trump believes that coronavirus testing is the “best ever”.

Overall, the coronavirus situation continues to restrain the economic recovery efforts, as North Carolina extends its reopening pause by another five weeks. It will remain in its phase 2, and this means bars, movie theaters, and bowling alleys will remain closed along with the limit on people gathering.

Global Stock Market Today

The global stock market had a down day today with the exception of the Aussie and Korean stock markets. The Nikkei stock index closed lower by 0.43%, the Shanghai stock index dropped 0.45% while the HSI index declined 1.42%. The Korean Kospi stock index advanced 1.1.25% and the Aussie ASX stock index soared 0.68%.

Gold Prices Made Another Record High

Gold prices are holding on to their gains and trading above the $2,050 mark. The upcoming U.S. Initial Jobless Claims is the main event for gold prices and it is likely to bring greater volatility to the gold market. The next immediate level of resistance for the gold price is $2,200 and it can get close to this level if the jobless claims data fails to impress the markets.

Dow Index and S&P500 Index: Market Breadth

The U.S. stock market’s breadth shows no major shift among stock traders, as bulls remain in control of the price. 47% of the Dow Jones stocks traded above their 200-day moving average yesterday. 

The S&P 500 stocks show more bullish market breadth. 54% of the shares traded above their 200-day moving average yesterday. 

Dow Jones and S&P 500 Futures Today

The Dow Jones Industrial Average futures are trading higher by 80 points. Caution is the name of the game among stock traders today.  

The Dow Jones futures have broken yesterday’s high. The Dow futures have made the highest high since early June and this confirms Dow stocks have a support from the bulls. The Dow Jones’s futures are trading above the 50, 100 and 200-day SMA on a daily time frame and this confirms a bull trend.

The DJIA index’s weekly candle is immensely bullish and confirms that there is a lot of enthusiasm among stock traders. The 50-week moving average has provided the support for the Dow. The Dow Jones futures are also trading above 100, 50, and 200-week Simple Moving Averages. This further strengthens the bull trend that we are seeing for the Dow stocks.

The S&P 500 index futures, a broader representation of the U.S. stock market, are trading higher but with small gains. The S&P 500 stocks continue their journey towards a record level and now they are only a whisker’s distance from an all-time high. This is an encouraging sign for the coronavirus stock market rally. The S&P 500 stock index is trading above the 50, 100 and 200-week SMA and this confirms the fact that the bulls are in control of the stock market rally. 

Stock Market Rally 

The S&P 500 index continued its advance yesterday, the S&P 500 stock index soared 0.64%. The industrial sector led the gains for the S&P 500 stocks yesterday and eight out of eleven sectors closed with gains. Assurant stock contributed the most gains, up 14.1% and Arista Networks stock was the biggest drag, declined 10.6%. The S&P 500 stock index is 1,94% below its 52 weeks high.

The Dow Jones industrial average index jumped 373 points yesterday and the Dow stocks advanced the index by 1.39%. 19 stocks of the Dow Index soared, and 11 shares of the Dow jones index fell. Disney stock jumped higher by 8.8% and it was the biggest gainer for the Dow while Walmart stock declined 1.39%, the biggest drag for Dow Jones industrial average index.  

The NASDAQ composite, also known as tech index, gained 28 points yesterday.