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Research Market strategy
by Swissquote Analysts
Morning News

Fed Maintains Stimulus Commitment as Economic Outlook Dims

Topic of the day

The Federal Reserve said the U.S. economy faced major challenges from the coronavirus pandemic and reiterated its pledge to take aggressive action to support an eventual recovery. "The path of the economy will depend significantly on the course of the virus," officials said in a statement released after the conclusion of their policy meeting on Wednesday. "The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the statement said. The officials have been weighing how to provide more support to the economy after moving quickly this spring to cut interest rates to near zero, to ramp up purchases of government debt and to establish an array of emergency lending programs to stabilize funding and credit markets. The economic backdrop has changed notably since the Fed‘s rate-setting committee last met seven weeks ago -- mostly for the worse. After surprising rebounds in employment in May and June, many states have seen significant increases in virus infections, leading to renewed curbs on certain commercial activities and a dampening of consumer confidence. "We have seen some signs in recent weeks that the increase in virus cases and the measures taken to control it are starting to weigh on economic activity," said Fed Chairman Jerome Powell.


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Swiss stocks

The Swiss equity market hardly changed at all on Wednesday. The SMI lost four points to 10,273 points. The earning season influenced the prices. The focus was on AMS shares, which fell by 1.4%. AMS was only affected by the corona pandemic to a limited extent in the second quarter and is looking to the future with optimism. According to its own statements, AMS expects a very good third quarter with sales of USD 530 to 570 million and an adjusted operating margin of 21 to 24%. The driving force remains the strong demand for sensor solutions for smartphones. Richemont reported a plus of 0.3 percent. The negative news from the luxury goods sector did not persist as Kering's quarterly figures were positively received following the LVMH disappointment the day before. Nestle shares showed little change. The company will announce its results for the first half of the year today. CS Group (minus 0.9 percent) and Lafargeholcim (plus 0.2 percent) will also report.

International markets

Europe

European stocks are mixed as investors look ahead to the Federal Reserve's policy decision later today. The Stoxx Europe 600 and DAX both fall 0.1%, the FTSE 100 is flat and the CAC-40 gains 0.6%. Sopra Steria jumps 13% after the French IT company reported "resilient" 1H results. Orion Oyj slumps 12% after the Finnish pharmaceutical company's ALS drug failed to improve symptoms in a phase three trial. Several big banks reported results on Wednesday, with the economic fallout from the coronavirus forcing those institutions to book major charges. Shares of Barclays slid 6.1% after reporting said pretax profit more than halved in the first half of 2020 as the lender booked a GBP3.74 billion ($4.8 billion) credit impairment charge. Barclays also warned of a challenging second half. Shares of Banco Santander also fell 4.7% after the Spanish lender reported a surprise massive loss in the second quarter, weighed by a 12.6 billion euros ($14.76 billion) impairment stemming from the pandemic's economic hit. Shares of Deutsche Bank fell 2.5%. The German bank posted a second-quarter loss, but higher revenue on a strong performance by its investment bank unit, though bad-loan provisions reached the highest level in more than a decade.

United States

Stocks ended solidly higher Wednesday after the Federal Reserve left its benchmark interest rate unchanged near zero and Fed Chairman Jerome Powell pledged to provide support to the economy until it recovered. The S&P 500 rose 1.2% to finish near 3,258. The Dow Jones Industrial Average advanced 161 points, or 0.6%, to 26,540, based on preliminary numbers. The Nasdaq Composite gained 1.4% to 10,543. All three indexes flipped positive for the week. Investors also watched proceedings in Congress as top executives from the world's largest tech firms were grilled by lawmakers over their business practices. In earnings-related news, General Electric fell 4% after the industrial conglomerate said it burned through less cash in the June quarter than it had previously warned. L Brands jumped more than 30% after the embattled retail company said it plans to lay off about 850 corporate employees. Advanced Micro Devices rose 12% after the chip maker reported higher earnings and lifted its sales forecast for the year.

Asia

After the U.S. Federal Reserve's dovish appearance with its renewed commitment to be ready for aggressive measures to support an economic recovery in the corona crisis, the East Asian stock markets showed mostly positive signs on Thursday. Sydney and Hong Kong saw the strongest rises, up to a good 1.1 percent.

Bonds

Treasury bond yields continued their retreat toward record lows after Jerome Powell emphasized the central bank's commitment to aggressive economic stimulus. The yield on the benchmark 10-year Treasury note fell to 0.578% Wednesday, down from 0.581% on Tuesday and 0.682% at the start of July. The move put the 10-year yield at its third-lowest close of the year but still well above the 0.498% nadir hit in March when the pandemic began in the U.S.

Analysis

Dt. Bank raises Lonza target to 630 (420) CHF - Buy
IR raises ABB target to 24 (19,50) CHF - Hold
Citi raises Delivery Hero target to 113 (106) EUR - Buy
H&A raises Hella target to 45 (44) EUR - Buy


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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