Dow Futures Slip Lower, Capping Strongest Quarter Since 2009; Powell/Mnuchin Testimony In Focus

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Wall Street is set to book its strongest quarterly gains since the global financial crisis Tuesday, with tech stocks driving the Nasdaq to a near 30% gain and Fed and Congressional stimulus lifting both the Dow and the S&P to double-digit percentage gains.

The Tuesday Market Minute

  • Global stocks mixed on the final trading day of the second quarter, with solid PMI data from China boosting Asia markets and rising coronavirus infections holding down gains in Europe.
  • China’s services and manufacturing sectors extended their recovery in June, according to official data, helping lift copper prices and broader risk markets in the region.
  • Oil prices slip lower amid modest gains for the U.S. dollar and signs that Libya may be making progress on returning its crude to market.
  • Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin set to testify before U.S. lawmakers on coronavirus stimulus spending later today. 
  • U.S. equity futures suggest a modestly weaker open on Wall Street, capping one of the strongest quarterly gains since the global financial crisis.

U.S. equity futures slipped lower Tuesday, following on from a mixed session for global stocks on the final trading day of the second quarter, with markets still concerned that a near-term recovery could be put at risk by the recent surge in coronavirus infections around the world. 

Federal Reserve Chairman Jerome Powell is likely to focus on both of those issues during testimony later today to the House Financial Services Committee, during which he and Treasury Secretary Steven Mnuchin will take questions on the efficacy of spending and rescue plans that have seen more than $3 trillion pumped into the world’s biggest economy.

Reasonably solid results have followed the spending spree, with better-than-expected job gains in May, improving weekly unemployment applications, rebounds in the housing sector and steady gains in manufacturing output as pockets of activity have opened up around the country.

“We have entered an important new phase and have done so sooner than expected,” Powell said in prepared testimony. “While this bounceback in economic activity is welcome, it also presents new challenges —notably, the need to keep the virus in check.” 

That may prove more difficult than getting agreement from Congressional lawmakers to commit more cash to the recovery, given that we’re seeing states around the national pause — and in some cases reverse — their re-opening plans amid a spike in new infections and a worrying upward trend in hospitalizations in the Southern U.S.

What remains to be seen in the second half of the year, then, is whether the economy can sustain its recent moment — and whether financial markets can extend their quarterly gains — absent further action from the Fed and deeper spending from Congress. 

Wall Street futures suggest those questions won’t be answered today, and with investors sitting on some of the healthiest quarter-to-date gains in years, markets are likely to remain tepid heading into the Powell/Mnuchin testimony at 12:30 pm Eastern time.

Contracts tied to the Dow Jones Industrial Average, which is sitting on a quarter-to-date gain of 16.8%, are priced for a 122 point opening bell decline while those linked to the S&P 500, which has gained more than 18% over the April to June period, are pricing in a 7.5 point pullback.

The Nasdaq Composite, a standout second quarter performer with a gain of 28.2%, is set to gain 15 points at the start of trading. 

Outside of the U.S. markets, stocks are facing a similar inflection point, with underlying data in Europe and Asia pointing to a steady, if not solid, second half recovery while rising infection rates have the World Health Organization warning that ‘the worst is yet to come’ with respect to the global pandemic, which has claimed more than 500,000 lives and infected more than 10.3 million people.

European stocks drifted lower, with the Stoxx 600 falling 0.23% in Frankfurt and Britain’s FTSE 100 slumping 0.84% heading into the end of the quarter, while markets in Asia posted solid gains on the back of stronger-than-expected PMI data from China, which showed by the services and the manufacturing sector activity gauges rise above the 50 mark that separates growth from contraction.

The region-wide MSCI ex-Japan benchmark was last seen 0.8% higher heading into the final hours of trading, a move that would cap its strongest quarterly gain since 2009, while the Nikkei 225 in Tokyo rose 1.3% to close at 22,288.14 points and peg its second quarter gain at 5.4%.

Away from equities, oil prices slipped lower as the dollar booked modest gains against a basket of its global peers, while investors priced-in potential for fresh supply from the re-start of production in civil-war-torn Libya 

WTI contracts for August delivery, the U.S. benchmark, traded 20 cents lower from their Monday close in New York and changing hands at $39.48 per barrel in early European dealing while Brent contracts for August, the global benchmark, were seen 21 cents lower at $41.50 per barrel.