Dow Futures Flat As Third Quarter Kicks-Off Amid Record Rise in U.S. Coronavirus Infections; Oil Jumps on Improving Factory Activity Data

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U.S. stocks booked their best quarter since 1998 over the three months ending in June, but are still looking at the worst half-year start since the global financial crisis.

The Wednesday Market Minute

  • Global stocks add to second quarter gains as factory activity data shows slow, but steady, improvement as coronavirus lockdown orders ease.
  • China’s central bank cuts two targeted lending rates, adding to a global liquidity lake that has supported the strongest quarter for stocks in at least two decades.
  • U.S. infections rise by a record 47,000 on Tuesday, with Dr. Anthony Fauci warning that figure could double in the coming months.
  • Oil adds to gains following the market’s best quarter in 30 years as API data shows a surprise 8.2 million barrel decrease in domestic crude stocks.
  • U.S. equity futures suggest a flat open on Wall Street ahead of ISM manufacturing data at 10:00 am Eastern time and pre-market earnings from Constellation Brands.

U.S. equity futures edged lower Wednesday, following yesterday’s solid close which catapulted stocks to their strongest quarterly gains in more than two decades, as investors continue to track rising domestic coroanvirus infection rates alongside the global economic recovery.

A near 20% quarterly advance for the S&P 500 — most of which was recorded in the month of May — has lead global stock markets to a puzzling rally built largely on hopes of a near-term recovery from the coronavirus pandemic and the trillions spent and pledged by governments and central banks around the world.

Recovery hopes continue to drive at least a portion of equity market sentiment, with manufacturing activity readings in Asia and Europe showing steady improvements over the month of June, while central bank support remains firmly in place, with the People’s Bank of China even adding to the global liquidity binge with a 25 basis point cut to two rates aimed at smaller and rural firms in the world’s second largest economy.

The larger question heading into the third quarter, then, remains the pace and depth of the latest surge in coronavirus infections, which has triggered fresh lockdowns in Australia, prodded Europe to add the U.S. to its ‘unsafe’ list in terms of travel restrictions, and resulted in a record number of single-days cases yesterday in the United States.

“Clearly we are not in total control right now,” Dr. Anthony Fauci, who heads President Donald Trump’s coronavirus effort, told Senate lawmakers Tuesday. “We’re having around 40,000 cases per day, and I would not be surprised if this number rose to 100,000 per day. And so I am very concerned because it could get very bad.”

With ISM manufacturing sector activity data due later this morning — and a crucial June jobs reported set for the end of a holiday-shortened week tomorrow — investors have been reluctant to test risk markets in early trading for the past few sessions, and Wednesday’s futures movements suggest more of the same today.

Contracts tied to the Dow Jones Industrial Average, which gained 17.77% over the three months ending in June, are priced to kick-off the third quarter with a 50 point pullback, while those linked to the S&P 500 suggest a 4.5 point dip for the broader benchmark. 

Global oil markets, fresh off their best quarter in at least three decades, added to gains in early Wednesday trading after data from the American Petroleum Institute showed a surprise 8.2 million decline in domestic crude stocks which, along with improving manufacturing activity data, suggests a solid return of near-term demand.

WTI contracts for August delivery, the U.S. benchmark, traded $1.14 higher from their Tuesday close in New York and were changing hands at $40.41 per barrel in early European dealing while Brent contracts for August, the global benchmark, were seen $1.16 higher at $42.43 per barrel.

European stocks were also off to a bright start Wednesday, with the Stoxx 600 benchmark adding to the 13% gains it booked for the second quarter and rising 0.34% in early Frankfurt trading, lead to the upside by a 0.66% gain for Germany’s DAX performance index.

Asia stocks, too, were firmly in the green, thanks in part to a strong rally in China following the PBOC’s re-discounting and re-lending rate cuts, which helped the region-wide MSCI ex-Japan index jump 0.81% heading into the close of trading.

Japan’s Nikkei 225, however, bucked the global trend to close 0.75% lower at 22,127.73 points after a disappointing read of June factory activity, which fell to a 14 month low, and the weakest survey of business confidence in at least 11 years.

Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.05% lower at 97.32, while benchmark 10-year Treasury note yields eased to 0.684%.