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Beyond the Numbers

EU Stimulus Agreement May Generate Early Buying Interest
7/21/2020 8:55 AM

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to extend the upward move seen in the previous session.

Early buying interest may be generated in reaction to news that European Union leaders agreed on a package of measures to tackle the exceptional nature of the economic and social situation posed by the coronavirus pandemic.

After four days of talks in Brussels, EU leaders agreed to the package worth 750 billion euros. Accordingly, the bloc will jointly issue debt that will be provided to member nations hit hardest by Covid-19.

Out of the 750 billion euro recovery plan, 390 billion euros will be in the form of grants and 360 billion euros of low interest rate loans. Now the deal needs to be approved by the parliaments of the 27 member states.

Upbeat earnings news from IBM Corp. (IBM) may also lead to continued strength among technology stocks, which helped lead the advance on Monday.

Shares of IBM are moving sharply higher in pre-market trading after the tech giant reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

Beverage giant Coca-Cola (KO) is also likely to see initial strength after reporting better than expected second quarter results.

Stocks moved mostly higher over the course of the course of the trading session on Monday following the mixed performance last week. The tech-heavy Nasdaq showed a particularly strong upward move, reaching a new record closing high.

The major averages all closed in positive territory, although the Dow underperformed its counterparts, inching up just 8.92 points or less than a tenth of a percent to 26,680.87. The Nasdaq soared 263.90 points or 2.5 percent to 10,767.09 and the S&P 500 climbed 27.11 points or 0.8 percent to 3,251.84.

The spike by the Nasdaq came as traders cycled back into big-name tech stocks after the index slumped by 1.1 percent last week.

Shares of Amazon (AMZN) skyrocketed by 7.9 percent after Goldman Sachs and Jefferies both raised their price targets for the online retail giant to $3,800 per share.

Software giant Microsoft (MSFT), Google parent Alphabet (GOOGL) and tech giant Apple (AAPL) also posted standout gains.

The jump by Microsoft also contributed to significant strength in the software sector, with the Dow Jones U.S. Software Index soaring by 4.1 percent.

Retail stocks also showed a substantial move to the upside on the day, driving the Dow Jones U.S. Retail Index up by 3.5 percent to a new record closing high.

Considerable strength was also visible among gold stocks, as reflected by the 2.9 percent jump by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid an increase by the price of the precious metal.

Semiconductor, biotechnology and networking stocks also saw notable strength, contributing to the spike by the tech-heavy Nasdaq.

On the other hand, airline stocks moved sharply lower over the course of the session, dragging the NYSE Arca Airline Index down by 2.8 percent.

Tobacco, utilities, and chemical stocks also came under pressure on the day, partly offsetting the strength seen in the aforementioned sectors.

The strength on Wall Street also came following positive results from trials of experimental COVID-19 vaccines by Oxford University and AstraZeneca (AZN) and Pfizer (PFE) and BioNTech (BNTX).

The positive news on the vaccine front came as some states continue to see spikes in coronavirus cases, with Florida reporting 12,523 new cases on Saturday, reflecting the fifth consecutive day the state reported more than new 10,000 infections.

Commodity, Currency Markets

Crude oil futures are spiking $1.11 to $41.92 a barrel after rising $0.22 to $40.81 a barrel on Monday. Meanwhile, after climbing $7.40 to $1,817.40 an ounce in the previous session, gold futures are soaring $23.40 to $1,840.80 an ounce.

On the currency front, the U.S. dollar is trading at 107.17 yen compared to the 107.27 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1447 compared to yesterday’s $1.1448.

Asia

Asian stocks rose on Tuesday as positive results from trials of experimental Covid-19 vaccines helped ease worries about the spike in coronavirus cases worldwide and investors welcomed an EU accord on a landmark stimulus package to fight the aftershocks of the pandemic.

Chinese shares ended a choppy session higher as hopes for a coronavirus vaccine helped lift healthcare stocks. The benchmark Shanghai Composite Index edged up 6.75 points, or 0.2 percent, to 3,320.89, while Hong Kong's Hang Seng Index surged up 577.67 points, or 2.3 percent, to 25,635.66.

Japanese markets closed higher, led by technology stocks. The Nikkei 225 Index rose 166.74 points, or 0.7 percent, to 22,884.22 ahead of a four-day weekend, while the broader Topix closed 0.4 percent higher at 1,582.74.

Tech stocks led the surge after Amazon and Microsoft drove the tech-rich Nasdaq Composite Index to another record closing high overnight. Heavyweight SoftBank Group surged 3.1 percent, while Tokyo Electron advanced 2.3 percent and Screen Holdings added 4.1 percent.

Drug maker Shionogi climbed 2.8 percent on a Nikkei report that it was expanding its capacity to produce vaccines.

On the data front, consumer prices in Japan were up 0.1 percent year-on-year year in June, a government report showed, matching expectations and unchanged from the May reading.

Core CPI, which excludes volatile food prices, was unchanged on an annual basis versus forecasts for a drop of 0.1 percent.

Australian markets posted strong gains as trial data from three potential vaccines showed positive results and the Reserve Bank governor said the country's economy has passed its low point.

In his annual speech to the Anika Foundation, Philip Lowe pointed to last week's June jobs numbers as evidence that the economy has turned the corner but faces a bumpy path ahead.

Minutes from the central bank's July 7 meeting released earlier in the day revealed that board members want the target for three-year yields to be maintained until progress is made towards full employment and inflation.

The benchmark S&P/ASX 200 Index jumped 154.70 points, or 2.6 percent, to 6,156.30 as the government said it will extend record stimulus spending into next year. The broader All Ordinaries Index ended up 156.50 points, or 2.6 percent, at 6,268.80.

Tech stocks followed their U.S. peers higher, with buy-now-pay-later firm Afterpay surging as much as 8 percent.

Miners rose for a third straight session, tracking higher commodity prices. BHP gained 1.1 percent despite flagging waning demand. Rio Tinto rose 0.9 percent and Fortescue Metals Group advanced 3 percent.

Gold miners surged after bullion prices jumped overnight to their highest level since September 2011. Evolution Mining gained 3.1 percent and Northern Star Resources added 4.6 percent.

Energy company Santos jumped 3.5 percent after announcing it will record non-cash impairment charges of up to A$800 million in its 2020 interim results. Oil Search advanced 4.3 percent despite reporting a nearly 30 percent fall in second-quarter revenue.

Downer EDI shares entered a trading halt after the engineering and services provider announced a A$400 million capital raising to bolster its balance sheet.

Seoul stocks gained ground as more promising news emerged in the search for a coronavirus vaccine and EU leaders reached a landmark deal on a post-coronavirus recovery package to support pandemic-hit economic activities.

The benchmark Kospi surged up 30.63 points, or 1.4 percent, to 2,228.83. Samsung Electronics, SK Hynix and Naver all rose over 2 percent.

Europe

European stocks have risen on Tuesday as the euro hit its strongest level since early March after the European Union struck an historic deal on a €750 billion ($857 billion) coronavirus recovery fund and the bloc's long-term budget.

Hopes for a coronavirus vaccine and expectations of more fiscal stimulus in the U.S. also helped underpin investor sentiment.

While the German DAX Index has jumped by 1.5 percent, the French CAC 40 Index is up by 1 percent and the U.K.’s FTSE 100 Index is up by 0.3 percent.

Logitech International SA, a Swiss manufacturer of computer peripherals and software, has moved higher after raising its outlook for fiscal 2021.

UBS AG has also moved to the upside after the banking giant said it plans to resume share repurchases in the fourth quarter.

Tech shares have surged after Amazon and Microsoft drove the tech-rich Nasdaq Composite index to another record closing high overnight.

Bayer AG has jumped after a California appeals court greatly reduced the amount of damages in a case claiming its Roundup weed killer caused cancer.

Meanwhile, GVC Holdings has slumped on news the HMRC ordered the firm to hand over info relating to its former Turkish facing gambling business.

On the data front, the U.K. budget deficit increased sharply in June, data from the Office for National Statistics showed.

Public sector net borrowing excluding public sector banks increased GBP 28.3 billion to GBP 35.5 billion, which was the third highest deficit in any month on records. Borrowing for May was revised down by GBP 9.8 billion to GBP 45.5 billion.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.
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