The S&P 500 erased a 2.5% drop to close higher after the Federal Reserve said it would begin buying individual corporate bonds and that the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the U.S. economy back to life. The Fed said it would start purchasing corporate debt today as part of an already announced stimulus scheme and launched its Main Street Lending Program for businesses. Against a basket of currencies, the dollar was broadly steady about 1% below Monday’s high of 97.396 but slipped against most Asian currencies.
The U.K. and European Union seem to be on course to reach a pact over their future relationship, following weeks of lingering doubts on prospects for a deal. An hour-long video call yesterday between British Prime Minister Boris Johnson and the trading bloc’s leadership injected fresh momentum into the deadlocked negotiations. Boris Johnson and the EU’s top officials agreed to intensify talks on a trade deal and indicated they’re willing to soften their positions, improving prospects of an accord. UK shares jumped 1.8% at the open with life insurers among top advancers. Euro Stoxx 50 surged 2.7%, recovering from a slump in the past week that was fuelled by concerns of another wave of global coronavirus infections while the German DAX index was up 2.8%. Earlier in June, the European Central Bank surprised financial markets by increasing the size of its own emergency bond buying by 600 billion euros and saying the purchases would run six months longer than originally planned. The French benchmark index opened high but has been losing ground this morning and its Dutch counterpart is following suit.
The dollar slipped and riskier currencies rallied as the U.S. Federal Reserve prepared to start its corporate bond buying scheme, while a report flagging the possibility of more fiscal stimulus helped underpin investor sentiment. The move boosted confidence across asset classes and underpinned risk-sensitive currencies like the Australian and New Zealand dollars. The Australian dollar extended gains made late on Monday to hit $0.6923 while the New Zealand dollar briefly pushed above 65 cents. Elsewhere, the euro edged up to $1.1331 and sterling rose 0.6% to test its 200-day moving average. While the Japanese yen was a touch weaker on the day at 107.42 on Tuesday, it has again settled into ranges held since April, suggesting some investors remained cautious. The Bank of Japan kept monetary settings steady and stuck to its view that the economy will gradually recover from the coronavirus pandemic.
Switzerland’s economy will suffer its worst downturn in decades during 2020 as the coronavirus pandemic damages output and jobs, the government said, but the downturn will be less severe than initially feared. Swiss gross domestic product will fall 6.2% this year, the State Secretariat for Economic Affairs (SECO) said, the worst downturn since 1975, when the country was hit by the aftermath of the oil price shocks. Unemployment is forecast to rise to 3.8% this year, as foreign trade suffers, consumer spending shrinks and companies emerge slowly from shutdowns imposed to halt the spread of the COVID-19 virus. Still, the forecast was a slight improvement from the 6.7% downturn in GDP foreseen by the Swiss government’s economists in their April statement, and compares favourably with other European countries. The Swiss franc has lost some of the ground gained against the euro this morning.