US equities rose Monday with S&P500 rebounding convincingly, closing 0.8% higher after losses through Europe and Asia.
The US Federal Reserve helped redirected attention from second-wave infection concerns by opening its previously announced main street lending program (the Secondary Market Corporate Credit Facility) to buy secondary US corporates’ debt. US 10Y bond yields rose 2bps to 0.72%. Oil rose 2.4%.
Indeed, it is beyond epic that the Fed continues to monetise infinite amounts of corporate debt.
The NY Fed Empire State survey for June was far better than expected, rising to -0.2. Within the details, new orders rose 42 points to zero, i.e., unchanged from last month.
And China’s retail trade and industrial production were modestly weaker than expectations in May. However, both are still improving and consistent with the view that China’s growth is recovering.
Even before the Fed announcement, despite a few wobbles in the last couple of sessions, equities are proving to be very resilient as the market continued to shrug off virus concerns, and I am pointing to the reason below.
The accelerating spread of the coronavirus in large US states like Texas and California poses a dilemma for policy-makers: shut down again and suppress the virus, or keep the economy open and tolerate rising virus fatalities.
But is this a false dilemma? Medical voices have been suggesting the growing cases are due to idiosyncratic factors such as hot spots in prisons or increased testing, rather than to a lack of social distancing.
If so, slowing down or even reversing re-openings would be of little help in suppressing the virus anyway.
And since we could be dealing with questionable interpretations of the data, the focus should have been on New York, where the virus has seemingly been contained and that should be the critical benchmark.
Besides, there is evidence of robust empirical mobility data in NYC similar to other large metropolitan areas around the world that have contained the virus, suggesting that global economies are rebounding well once they have seen the virus pass.
In general, statewide economies continue to recover from their lockdown-induced slumps, which should continue to resonate with investors despite some distinctive factors that might trigger an unusual uptick in the Covid-19 data curve over the short term.
Of course, if the outbreak fails to remain localised, it will be time to hit the alarm bell. And until then it is business as usual, so it seems in no small measure to the Federal Reserve Board that continues to cover the Main street’s back.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp