By Geoffrey Smith
Investing.com -- Fed chairman Jerome Powell and Treasury Secretary Steven Mnuchin speak via teleconference to the Senate; the euro strengthened and bond spreads narrowed as markets hailed a big step towards common borrowing by the EU, but the economic data there remains grim. Stocks are set to open lower on profit-taking, and Walmart (NYSE:WMT) and Home Depot (NYSE:HD) put out quarterly results. Here's what you need to know in financial markets on Tuesday, May 19th.
1. Powell, Mnuchin to testify before Senate
Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will testify (remotely) before the Senate Banking Committee on their handling of some $500 billion of emergency lending programs.
The two are likely to face questions on whether, how, and under what circumstances existing programs could be expanded if necessary to provide further support to the economy.
The two men’s appearance comes less than a week after Powell suggested that the Federal Government may need to provide further fiscal stimulus. The administration and the GOP-controlled Senate have indicated they don’t think more stimulus is needed immediately, and have so far ignored the new $3 trillion package of measures passed by the Democrat-controlled House of Representatives last week.
2. Euro rises, spreads tighten on Franco-German borrowing plan
The euro strengthened and eurozone sovereign bond yield spreads tightened further after France and Germany took a big step towards expanding joint borrowing to fund the region’s coronavirus response.
Paris and Berlin had signaled for the first time on Monday they were prepared to allow a proposed 500 billion-euro ($546 billion) European Recovery Fund distribute grants, rather than loans, to the bloc’s weaker members. Under their plan, the funds would be raised through the EU’s budget, spreading the debt load across the region.
The proposals are tied to broader negotiations on a complex multi-year budget package, which will inevitably complicate the plan becoming reality. The Stoxx 600 succumbed to profit-taking, falling 0.9%.
Even so, the yield spread between Italian and German 10-year debt – a rough proxy for eurozone breakup risk – narrowed to its lowest in over a month, along with spreads of other countries from the eurozone’s southern periphery.
3. Stocks set to open lower
U.S. stock markets are also set to open a lower on profit-taking. That follows an exuberant reaction to what are still only preliminary test results for a possible vaccine, being developed by Moderna (NASDAQ:MRNA) Inc., to treat the Covid-19 virus.
By 6:30 AM ET (1030 GMT), the Dow Jones 30 futures contract was down 120 points, or 0.5%, while the S&P 500 futures contract was down 0.4% and the Nasdaq 100 futures contract was down 0.2%.
The market didn’t seem unduly upset by comments from U.S. President Donald Trump that he was taking hydroxychloroquine, an anti-malaria drug whose benefits he has repeatedly touted, as a preventive measure against Covid-19. There is no peer-reviewed medical evidence to suggest the drug is effective in preventing the vaccine, while the FDA has warned that it may increase the risk of death through heart disease.
4. Car sales collapse, joblessness soars in Europe
The challenge faced by the world’s auto industry was underlined starkly as European car sales fell 76% from a year earlier in April.
“With most showrooms across the EU closed for the entire month, the number of new cars sold fell from 1,143,046 units in April 2019 to 270,682 units last month,” industry body ACEA said. In Spain and Italy, the EU countries worst hit by the pandemic, sales fell by over 97%.
The U.K., which has registered more deaths from the pandemic than anywhere except the U.S., posted a similar decline. The U.K. also saw ongoing jobless claims jump by 70% in April to over 2 million.
Elsewhere, the German ZEW economic sentiment indicator improved sharply to 51 from 32 in May, although the sub-index for current conditions failed to improve as expected, falling to -93.5 from -91.5 in April.
5. Walmart, Home Depot's earnings due, along with housing market data
Walmart is set to report its quarterly earnings for three months through April, a period that will give a more complete reflection of the impact of lockdowns than the reports that only covered the first quarter of the calendar year.
Analysts expect revenue to have risen to $130.9 billion from $123.9 billion, thanks to stockpiling of essentials by consumers. Earnings per share are seen up less than 1% at $1.14.
Home Depot earlier reported its earnings for the quarter, missing expectations for earnings per share by nearly 10%.
National data on the housing market are due at 10 AM ET (1400 GMT), with both housing starts and building permits.