Blackmount Market Report

What we should expect from the Market in the coming week.

After a sell-off two weeks ago, the major U.S. stock indexes resumed their previously upward momentum, following the Fed’s announcement that it will begin buying a broad portfolio of U.S. corporate bonds. The purchases will be made by the Fed’s Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only ETFs. U.S. May retail sales surge 17.7% in the biggest monthly jump ever, after two straight months of sharp declines as businesses reopened. Economists polled by Reuters had forecast retail sales would rise 8% in May. However, even with May’s surge, sales were still down 8% from February. Clothing and accessories stores reported the biggest percentage gain at 188%. 

Jobless claims last week totalled 1.51 million, bringing the 13-week total to 46 million. The latest reading was higher than 1.3 million that economists surveyed by Dow Jones had been anticipating. The elevated claims number remains even as all states have reopened to varying degrees and nonfarm payrolls grew by 2.5 million in May. 

For the week ahead in US, we are expecting Tuesday’s preliminary Markit PMIs for June to move higher to reflect the re-opening in most states, ahead of Thursday’s durable goods orders for May. Personal income and spending data for May, as well as the core PCE price index – Fed’s preferred inflation reading – for that month, will all hit the markets Friday. At the moment, inflation remains low, and a return of inflation, which seems unlikely, could pose a significant risk as central banks will not be able to justify doing QE, which could lead them to tighten monetary policy, unwind QE and hike interest rates. 

In UK, the Bank of England (BoE) expanded its bond-buying program by £100 billion and left its key interest rate at a record low of 0.1%. It also stated it would slow the rate of purchases and expected to meet the new target of £745 billion by the end of the year. The language of the Monetary Policy Committee was more hawkish than it was anticipated. Futures markets signaled that traders no longer expect negative interest rates in the UK throughout 2021. UK and EU institutional leaders held talks on a post-Brexit trade accord and agreed to step up the pace of negotiations, which have produced little so far. Boris Johnson will negotiate a new plan with senior ministers this week targeted at clearing talks on UK’s future relationship with the EU, with hopes mounting that a month of “intensified” negotiations starting on June 29 will bring in a breakthrough. 

The Bank of Japan (BoJ), as widely expected, kept its monetary policy mostly unchanged. BoJ maintained its yield curve control targets, which aim to keep the 10-year Japanese government bond yield around 0%. The BoJ also resumed its purchases of ETFs and Japanese real estate investment trusts at current levels. In a change, the central bank did expand the amount of loans available in a lending program that is intended to boost smaller businesses. 

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October 21, 2020

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