June 16, 2020 / 8:13 AM / 18 days ago

Daily Briefing: About-turn

Ka-boom! In a stroke, the U.S. Federal Reserve dispelled the gloom that was pervading markets yesterday, announcing it would start purchasing corporate bonds via its Secondary Market Corporate Credit Facility (SMCCF).

FILE PHOTO: The Fearless Girl statue is seen outside the New York Stock Exchange, June 11, 2020. REUTERS/Brendan McDermid

It also kicked off its Main Street Lending Program, a $600 billion facility for companies struggling to access finance.

But the Fed can't claim all the credit for the turnaround, which started after a report the United States may allow companies to work with China's Huawei on new 5G standards, potentially easing tensions with China. Finally, Bloomberg reported Washington is considering $1 trillion in new infrastructure spending.

So the S&P500 which traded in the red all day, closed 0.8% higher, the Nasdaq bounced 1.4% and Treasury yields rose.

Everything is following Wall Street's cue today, with a near 1% rebound on MSCI’s world index while S&P500 are tipped to open higher. A pan-European equity index is up while Japanese and Korean shares rallied more than 4%. The dollar index has retreated almost 1% from Monday's highs.

There's more stimulus elsewhere too. The Bank of Japan increased its lending package for companies by $300 billion. Germany's finance minister will ask parliament to increase new borrowing by another 62.5 billion euros ($70.5 billion) to a record 218.5 billion this year.

Developed economies may also be starting to heal. U.S. retail sales due later on Tuesday will reveal a record rise in May, even if the bounce retraces a fraction of the March-April collapse. Germany’s June ZEW survey may further boost the mood if it meets expectations of a significant improvement.

What of rising coronavirus infection rates? That's still with us -- worldwide more than 8 million people are infected and a Reuters tally showed several U.S. states had record numbers of new cases in recent days. China has re-introduced some restrictions after a new cluster of infections in Beijing.

Medical workers in protective suits help people lining up inside a sports centre for nucleic acid tests, following new cases of coronavirus disease infections in Beijing, China June 15, 2020

But coronavirus or not, activity is resuming globally -- British shops are reopening, tourists are arriving in Spain and four flights a week will resume between the United States and China. Even British baker Greggs – of vegan sausage roll fame – plans to reopen 800 shops, while theatre chain Cineworld will break out the popcorn from July.

But if travel and leisure shares have rebounded over 50% since mid-March, some turbulence remains-- Lufthansa is trying to agree swingeing job cuts with workers, while SAS said it needs $1.3 billion in new funding.

British Airways was labelled a "national disgrace" by a parliamentary committee which accused owner IAG of exploiting the crisis to cut jobs and downgrade the work terms of remaining employees.

In market action: Online fashion retailer Zalando shares are down 2% after a share sale by Sweden's Kinnevik. A boost for banknote printer De La Rue which said Britain's Serious Fraud Office closed an investigation into the company's South Sudan business.

In M&A, telecoms infrastructure company Sirti could make an offer for the turnaround of rival Italtel. Australian infrastructure fund Macquarie has reportedly made an offer to Italy’s Enel for its stake in broadband operator Open Fiber.

Emerging markets are the pandemic’s new hotspots, yet many investors are piling back into the sector. Tuesday’s winners are Korea and Hong Kong with gains of 5% and 3% respectively.

However, Brazil looks to be in trouble. Its real slumped 3% on Monday after the Treasury Secretary resigned, adding to the series of officials quitting President Jair Bolsonaro's cabinet.

— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —

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