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Dow Futures Cautious Ahead of Fed Statement, Dollar Extends Slump as Coronavirus Spike Rattles Recovery Hopes

With six U.S. states recording record coronavirus death rates, $18 billion in government stimulus set to expire later this week and the dollar at a two-year low, the Fed faces a very different economic backdrop from its last policy meeting when it meets today in Washington.

The Wednesday Market Minute

  • Global stocks mixed against a sagging U.S. dollar as investors await a key Federal Reserve policy statement at 2:00 PM eastern time.
  • The dollar falls to a fresh two-year low against a basket of its global peers ahead of the Fed statement, with traders spooked by a collapse in July consumer confidence and the looming cliff-edge of government stimulus.
  • Congressional lawmakers remain $2 trillion apart on their rival coronavirus rescue plans, just days ahead of the expiry of unemployment benefits worth $18 billion.
  • Six U.S. states record record coronavirus deaths Tuesday, adding to concerns that the resurgence could trigger fresh business and travel restrictions, as well as school closures, in the weeks ahead.
  • U.S. equity futures suggest a modestly firmer open on Wall Street ahead of earnings from Boeing and General Electric before the start of trading.

U.S. equity futures edged higher Wednesday, while the dollar returned to fresh two-year lows and bond yields continued to fall, as traders prepared for a busy session highlight by bluechip corporate earnings, a key statement from the Federal Reserve and ongoing stimulus negotiations in Washington.

Global stocks were mixed in the overnight session, with gains in Asia offset by a two-and-a-half week low for the Nikkei 225 in Japan and bumpy markets in Europe, where the euro is trading at a two-year high against the dollar and corporate earnings have been largely disappointing this season.

In the U.S, where a resurgence of coronavirus infections — which has brought record death rates to at least six states this week — has added to concerns that the recovery in world’s biggest economy is starting to sputter, the greenback is trading at at two-year low against a basket of its global peers ahead of today’s Federal Reserve policy statement at 2:00 PM eastern time.

The dollar, in fact, has fallen some 2.6% since the last Fed meeting in June, and is down a staggering 8.8% since the central bank started aggressively expanding its balance sheet — which currently sits at $7 trillion — in late March.

No major changes to interest rate or extraordinary monetary policy is expected from Chairman Jerome Powell, who will speak to the media at 2:30 PM eastern time, but the Fed is likely to acknowledge the recovery’s key risks, which include a slowdown in hiring, a collapse in July consumer confidence and the looming cliff-edge of government stimulus, $18 billion of which is set to expire this week in the form of unemployment insurance payments.

With Congress still some $2 trillion apart in their rival rescue plans, and businesses in Texas, Florida and California assessing re-opening plans in the face of elevated infection rates, risk appetite might be in short supply prior to the Fed statement, although earnings from Boeing  (BA) – Get Report and General Electric  (GE) – Get Report before the opening bell could spark some early-market action.

Contracts tied to the Dow Jones Industrial Average suggest a modest 637 point gain to start the session, while those linked to the S&P 500, which has gained 3.8% so far this month, suggest an 8 bump at the opening bell.

Benchmark 10-year Treasury note yields held at 0.587% in overnight trading, while the dollar index slumped 0.2% to 93.50. Gold, which hit an all-time high of $1,980.57 yesterday, eased to $1,958.00 in European dealing.

European stocks, however, were modestly firmer, even with the elevated euro, as the Stoxx 600 gained 0.1% in early trading and Britain’s FTSE 100 added 0.4%.

Asia stocks, too, clawed their way to a positive session, paced by a 2% gain for the Shanghai Composite that lifted the region-wide MSCI ex-Japan index to a 0.21% advance heading into the final hours of trading.

Japan’s Nikkei 225, however, fell 1.15% to a two-and-a-half week low after a series of disappointing bluechip earnings, including Nissan Motor Co., which fell 10.4% after forecasting a record annual operating profit and its worst global vehicle sales in at least a decade. 

Global oil markets used the sagging U.S. dollar to boost prices in overnight trading, as well as data from the American Petroleum Institute which showed a 6.8 million barrel decrease in domestic crude stocks for the week ending July 24. The Energy Department will publish official figures at 10:30 am Eastern time today. 

WTI contracts for September delivery, the U.S. benchmark, 34 cents higher from their Tuesday close in New York and were changing hands at $41.38 per barrel in early European dealing while Brent contracts for September, the global benchmark, were seen 42 cents higher at $43.64 per barrel

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