Market movers today
The Federal Reserve concludes its two-day meeting tonight. We do not expect any major policy changes at this meeting, although we know the Fed is working hard on strengthening its forward guidance. Based on the minutes from the last meeting, we expect the Fed to give outcome-based forward guidance, tying the Fed Funds rate to the inflation rate at the September meeting, although Fed chair Powell hinted more discussions are needed, see Fed Monitor: Fed favours outcome-based forward guidance over yield curve control, 1 July. For the same reason, we do not expect big changes at this meeting. We expect the Fed to continue to express concerns about the economic recovery not least with the indication that the recovery has halted the past month or so amid COVID-19 outbreaks in Texas, California and Florida.
Yesterday, the Fed announced that it will extend its lending programmes by three months to year-end. We think this is positive, as the US recovery has been stagnating the past month and probably will not be self-sustainable and robust by September when the programmes were set to expire.”
Focus also continues on a new US stimulus bill. Congress continues to struggle to find agreement ahead of the expiry of extended unemployment benefits this week.
In Sweden NIER (National Institute of Economic Research) business and consumer confidence data for July are due today. Confidence indicators have improved somewhat over the past two months although outright levels remain depressed compared to normal. Expectations rather than actual outcomes of business activity have picked up so far but maybe we will see some actual recovery.
Selected market news
The US’s top health expert Anthony Fauci yesterday said expectations for a safe and effective COVID-19 vaccine were ‘reasonable’. On the treatment front, Bill Gates stated there could be substantial reduction in the death rate from COVID-19 by the end of the year. The positive news on the medical front helps to explain the resilient equity markets in the midst of new virus outbreaks globally. While the short-term outlook for the global economy is murky, the outlook for next year is better as a vaccine could help the significant stimulus to have a stronger impact on consumption and investments.
Stock markets retreated somewhat yesterday with S&P500 dropping 0.7%. The rally has stalled a bit over the past week, but the underlying trend is still up. US and German 10-year bond yields continue to drift lower, now reaching the lowest levels since May at 0.58% and -0.51%, respectively.
On the COVID-19 front, China saw a further rise in local infections to 98 on Tuesday from 64 on Monday, the majority in the Xinjiang province. In Hong Kong, the leader Carrie Lam warned of a ‘collapse’ of the hospital system if the outbreak continues. New cases in California were the lowest in three weeks adding to the picture of gradual improvement in some of the worst hit US states. Other states in the Midwest have seen a pick-up, though.
