By Geoffrey Smith
Investing.com -- Senate Republicans propose a $1 trillion package of support measures that will cut the level of unemployment benefit support by two-thirds from October. It's raining earnings, with big updates due from the pharma and consumer sector, as well as from chipmaker Advanced Micro Devices (NASDAQ:AMD). There are U.S. data due on house prices and consumer sentiment. And the European Central Bank told eurozone banks not to pay dividends for the rest of the year, warning them that they need to strengthen their balance sheets against a looming wave of bankruptcies and non-performing loans. Here's what you need to know in financial markets on Tuesday, July 28th.
1. Republicans present stimulus plans
Senate Republicans unveiled a package of economic support bills worth an estimated $1 trillion that would cut the federal subsidy for unemployment benefits by two-thirds from the end of September. Thereafter, the payments would be combined with state benefits to replace 70% of lost wages.
The package reflects Republican concerns that the current weekly checks of $600 per week disincentivize Americans returning to work (and costs a lot of money too – an estimated $15 billion a week).
Democratic Party politicians, who control the House of Representatives, criticised the move as removing a vital support for over 16 million people currently claiming unemployment benefits.
The two parties have until the end of the week to thrash out a compromise. A bill passed in the House approved a much larger $3.5 trillion package of measures, including $900 billion of support for state and municipal governments that is lacking from the Republican package.
2. Fed meeting starts; consumer sentiment data due
The Federal Reserve’s two-day Federal Open Markets Committee meeting starts, but the results will not be known until Wednesday. Rhetoric ahead of the meeting has raised expectations that the Fed could offer clearer guidance of an intention to ease monetary policy further in the future, although no fresh actions are expected at this week’s meeting.
In the meantime, there are house price data from S&P/Case Shiller at 7 AM ET, the Conference Board’s consumer sentiment index at 8 AM and the Richmond Fed’s regional business survey also at 8 AM.
Data out of Europe earlier were marginally better than expected, with Spain’s jobless numbers rising less than feared and a sharper-than-expected rebound in the U.K.’s distributive trades survey.
The euro held on to most of its recent gains to trade at $1.1729.
3. Stocks set to open lower as earnings rain in
Don’t blink or you’ll miss them. It’s raining earnings Tuesday, with updates from (deep breath) Visa (NYSE:V), McDonald’s, Pfizer (NYSE:PFE), Amgen, Raytheon, Starbucks, Mondelez, Altria, (NYSE:MO), eBay (NASDAQ:EBAY) and Advanced Micro Devices - to name but a few.
Most of those are due after the closing bell but McDonald’s, 3M and Pfizer will be out early.
The updates will be hitting a stock market struggling for direction, with many CEOs having cast doubt on the sustainability of the recovery in their conference calls.
By 6:30 AM ET (1030 GMT), the Dow futures contract was down 87 points or 0.3%, while the S&P 500 futures contract and the Nasdaq 100 futures contract were both down in parallel.
4. Moderna 's and Pfizer's stage 3 drug trials start
Moderna Inc (NASDAQ:MRNA) announced the start of the third and final stage of trials for its experimental drug for treating the Covid-19 virus.
Pfizer and its German partner, Nasdaq-listed Biontech Se (NASDAQ:BNTX), also said they would start a hybrid stage 2/stage 3 trial for their candidate vaccine.
The rapid progress in vaccine development - albeit progress that has no guarantee of ultimate success – comes at a time when the number of new infections globally is running at a record high. The rate of new infections in the U.S. appears to have slowed somewhat in response to a tightening of regulations across the south and west of the country, the number of new cases dropping to 56,336 on Monday, after running well over 60,000 last week.
Germany’s top public health official also sounded the alarm over a rise in cases in Europe’s largest economy, which he linked to a loss of discipline in observing social distancing rules.
5. ECB warns banks against dividends
The European Central Bank told eurozone banks not to pay dividends for the rest of the year, but rather to hoard their cash to strengthen defenses against an expected wave of bankruptcies.
At the same time, the ECB cut the banks further slack on recognizing loan losses, saying it wouldn’t tighten supervisory standards on liquidity and capital until the end of 2022 at the earliest. The ECB is determined not to turn an expected economic crisis into a financial one so soon after the last wave of eurozone banking.problems
Eurozone bank stocks rose an average of 0.6%, with the biggest rises seen in Spain, whose banks may need capital relief more than most given the risk to its large tourist sector from the recent rise in Covid-19 cases.