Boeing leads Turnaround before Powell & Mnuchin

MARKETS

There is a brighter mood heading into Tuesday after a mid-day turnaround on Monday saw shares in Europe and on Wall Street finish higher. Asian indices closed mostly lower Monday but a first rise in Chinese industrial profits in 6-months boosted sentiment. 

Germany’s DAX index led the gains in Europe, rising 1.2% as shares of embattled Wirecard surged over 150%, albeit from a low base. Shares of Boeing set the pace for gains on the Dow on hopes its 737-Max jetliner may soon return to the skies. The Dow rose 472 points and the S&P 500 was up 1.3%.

Interestingly, the dollar also rebounded off lows of the day. Concerns over the spread of the coronavirus in the US has bolstered demand for a haven while simultaneously strong data including pending home sales jumping 44% m/m- the most on record in May, fuelled expectations that the US economic recovery would not be derailed by higher coronavirus cases in some states.

Gold prices were stable underneath 8-year highs as the dollar and stock markets oscillated. Demand for government debt kept yields low, something that has correlated with strong precious metal prices. UK 10-year yields struck a record low.
The price of oil rose in line with the better than hoped economic data, with WTI crude finishing just under $40 per barrel.

GURUS

“The four most dangerous words in investing are ‘this time it’s different’” – Sir John Templeton

Powell & Mnuchin

Both will testify before the US House of Representatives Financial Services Committee to talk about the coronavirus response. The Fed has already released the script for Chair Powell’s pre-prepared statement so it will all hang on the unscripted Q&A. 

The Fed has taken extraordinary steps to sure up the US economy and financial market so politicians may have similar questions to investors- namely: how well is it working? and when will you stop? Powell will likely stick to the script that monetary stimulus is here to stay until the economy is on its feet but if he gets unstuck it will be a risk to markets.

Similarly, the US Treasury Secretary has overseen the biggest ever fiscal stimulus package and Mnuchin will want to keep the hope alive that a second one is coming too. With coronavirus cases surging in certain states, investors may well be looking for comfort in the hope of extra government support. Whether Powell and Mnuchin deliver could set the tone for the rest of the week.