By Geoffrey Smith
Investing.com -- Federal Reserve Chairman Jerome Powell will update Congress on his expectations for the U.S. economy, just as the Fed's latest stimulus action keeps a flagging stock market rally going. U.S. retail sales and industrial production data for May are due, as is the NAHB's house price index. The Bank of Japan has also bolstered its direct lending to companies, and the International Energy Agency says oil demand will bounce back more sharply than it originally thought. Here's what you need to know in financial markets on Tuesday, June 16th.
1. Powell to testify before Congress
Federal Reserve Chairman Jerome Powell will testify before the Senate Banking Committee in his semi-annual report to Congress on the state of monetary policy, starting at 10 AM ET (1400 GMT).
Powell is set to unveil the Fed’s first new forecasts for the U.S. economy this year, having passed in March due to the uncertainty caused by the pandemic.
He’ll also likely talk up the effectiveness of the Fed’s stimulus, which will gain another leg from today in the shape of direct purchases of individual corporate bonds. The Fed will buy according to an internally-developed index made up of all the bonds in the $9.6 trillion corporate debt market from companies that qualify. The issuer must have had an investment-grade-rating as of March 22 and the securities must have a remaining maturity of less than five years.
The start of New York Fed’s announcement that such purchases will start this week had been enough to ensure that U.S. stocks closed in positive territory on Monday, even though they had clearly been prefigured in the Fed’s announcement of the program in March.
2. Retail sales, industrial production data due
Powell will be testifying against the backdrop of a fresh data dump from the U.S. economy in May. Retail sales, due at 8:30 AM, are expected to have rebounded by 8% in May after their record 16.4% drop in April, with core retail sales rising by a more modest 5.5%. Core sales have fallen for three months in a row – the first time they have done so in eight years.
The retail sales data will be followed by industrial production and manufacturing output figures at 9:15 AM. Industry has rebounded faster than consumption in China, where the virus hit first, but economists expect only a 2.9% increase in output in May.
The National Association of Home Builders will also release its housing market index for the month at 10 AM. That’s expected to rise to 45 from 37 last month.
3. Stocks set to open higher on central bank support
U.S. stock markets are set to open higher, still supported by the Fed’s promise of action to support the credit markets on Monday. There is also chatter of the Trump administration preparing an additional $1 trillion infrastructure spending bill, but given that such stories have popped up repeatedly since before Trump’s election, it’s not clear how much more real the plan is now.
By 6:30 AM ET, the Dow Jones 30 Futures Contract was up 509 points, or 2.0%, while the S&P 500 Futures contract and the Nasdaq 100 Futures contract were both up 1.4%.
Stocks to watch on Tuesday include Groupon (NASDAQ:GRPN), which reports quarterly earnings, and Tesla (NASDAQ:TSLA), which the Financial Times reported as having agreed a major supply deal for cobalt with mining giant Glencore (OTC:GLNCY).
.4. Bank of Japan ups stimulus ahead of other CB meetings
The Bank of Japan increased the size of its direct lending program for corporates to the equivalent of $1 trillion, from an originally announced $700 billion.
The news had little effect on the yen, with traders having priced in such action already. However, it supported risk appetite in overseas markets, bolstering hopes of further central bank action in the course of the week.
In addition to the Fed’s new bond-buying and the BoJ’s action, the Bank of England and the Swiss National Bank are both expected to announce fresh stimulus at their regular policy meetings on Thursday. Elsewhere, the European Central Bank's Fabio Panetta hinted that the ECB may follow the Fed in buying the debt of so-called 'Fallen Angels', having so far excluded junk-rated companies from its own corporate debt purchases.
5. IEA sees sharper rebound in oil demand
The International Energy Agency trimmed its forecasts for oil demand destruction this year in its latest monthly report on the global oil market.
The IEA revised up its forecast for average demand by 500,000 barrels a day. It now sees demand falling on average by 8.1 million b/d, rather than the 8.6 million b/d it forecast last month. That’s still the biggest-ever yearly drop since the IEA began compiling its data.
The IEA was also more optimistic about 2021, projecting a 5.7 million b/d increase in demand. That suggests the market will rebalance more quickly than many think, given that supply is likely to be constrained by financial distress in the U.S. shale industry.
U.S. crude futures were up 1.6% at 6:30 AM at $37.72 a barrel, while Brent futures were up 1.7% at $40.40 a barrel.