Dow Surges, Claws Back Weekly Slump On Fed Taper Patience; Evergrande Debt In Focus

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The Thursday Market Minute

  • Wall Street opens firmer following weekly jobless claims data and ahead of after-the-bell earnings from Nike and Costco.
  • Global stocks gain following the Fed’s modestly dovish stance on rates and tapering, with further optimism linked to a brokered solution to China Evergrande’s debts.
  • The Wall Street Journal, however, reports that local authorities in China are being asked to prepare for an Evergrande default, and a $47.5 million dollar bond obligation due Thursday remains unpaid.
  • Fed Chair Powell says a solid September jobs report could get the ball rolling on tapering, which analysts believe could begin before the end of the year. 

U.S. stocks powered higher Thursday, with the Dow turning positive for the week, following a dovish statement on bond market tapering from the Federal Reserve and cautious optimism that a workable solution can be found for indebted property giant China Evergrande.

Markets are still focused on Evergrande, however, following a Wall Street Journal report that said local authorities in China were being asked to prepare for a default from the troubled property group.

Weekly jobless claims also moved higher, to 351,000, over the period ending on September 18, although the four-week average — which is measured a week in arrears — fell to 335,750.

Broader market sentiment looks more-closely aligned to Wednesday’s Fed policy meeting, which ended with no changes to its record low lending rate and a pledge continue buying $120 billion a month in government, corporate and agency bonds as part of a program it launched during the peak of last year’s pandemic.

Fed Chair Powell, however, said conditions were nearly there, in terms of inflation and job gains, to allow a tapering of those purchases later in the year — likely starting in November — that would ultimately lead to a rate hike in the fall of 2022.

“We continue to think the Fed will announce plans to taper in November with the actual reduction in bond purchases taking place in December,” said LPL Financial fixed income strategist Lawrence Gillum. “Of note though, through the Dot Plot, signaling on future path of short-term interest rates continues to show the wide divergence of opinions on the committee. As such, the future make-up of the committee and whether Powell is reappointed or not will likely have a notable impact on the future of monetary policy”.

Overnight in Asia, China Evergrande shares soared more than 30% in Hong Kong trading as investors got their first crack at the shares following the indebted property developer’s pledge to repay yuan-based creditors earlier this week, although there has been no work on a $47.5 million payment that is due to offshore investors today.

On Wall Street, the Dow Jones Industrial Average jumped 525 points in late-morning trading while the S&P 500 gained 55.6 points. The tech-focused Nasdaq Composite was marked a more modest 140 points higher as benchmark 10-year note yields edged tp 1.401%.

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Notable early movers Thursday include Boeing  (BA) – Get Boeing Company Report, which rose 0.65% after boosting its long-term forecast for China aircraft sales to around $1.5 trillion.

Darden Restaurants  (DRI) – Get Darden Restaurants, Inc. Report hit an all-time high after the Olive Garden owner beat Wall Street’s first-quarter earnings expectations, raised its quarterly dividend and unveiled a stock buyback.

Pfizer  (PFE) – Get Pfizer Inc. Report was also on the move, rising 1.08% after it received FDA approval for booster shots of its coronavirus vaccine in older and at-risk Americans

Salesforce .com  (CRM) – Get salesforce.com, inc. Report jumped the most since April, rising 6% to $274.70 each after the cloud and business software group boosted its 2022 revenue guidance ahead of its annual investor day conference.

In overseas markets, European stocks rallied for a third consecutive session, buoyed by optimism over a brokered solution for Evergrande and supported by a Bank of England policy decision that kept its key lending rate at 0.1% and made no changes to its $1.22 quantitative easing program.

Overnight in Asia, Hong Kong stocks resumed trading following its autumnal holiday, and booked a 1.2% gain that helped the region-wide MSCI ex-Japan index rise 0.9% heading into the final hour of trading.

Oil prices, however, failed to hold onto yesterday’s gains, which followed data from the Energy Department showing domestic crude stocks fell by 3.5 million barrels over the period ending September 17 to the lowest levels in nearly three years.

WTI crude futures for November delivery were marked 49 cents lower from last night’s close at $71.74 per barrel while Brent crude contracts for November, the global benchmark, fell 46 cents to trade at $75.73 per barrel.