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Stimulus Hopes, Jobless Claims and Bank Stocks - What's up in Markets on Thursday

·4-min read

By Geoffrey Smith -- Stocks rise on hopes of a new stimulus package; jobless claims and personal income statistics are out, while three more Fed speeches are also due. The Fed extends its cap on bank dividends and its ban on buybacks, and Eurozone manufacturing has its best month in two years. What you need to know in financial markets on Thursday, October 1st.

1. Stimulus package still possible

The dollar fell and risk assets rose on hopes that the U.S. will be able to cobble together a fresh stimulus package before the election after all.

Treasury Secretary Steven Mnuchin said he had held “productive” discussions with House Speaker Nancy Pelosi, amid reports that the two sides are now ‘only’ $600 billion apart in their view of the package’s sticker price. According to The Wall Street Journal, the two are agreed that the package should contain a new round of stimulus checks for households, which analysts see as key to sustaining consumer spending.

The pressure on the administration to get a deal done has increased after a spate of announcements of large-scale job cuts from the airline sector, Disney and, on Wednesday, insurer Allstate (NYSE:ALL). President Donald Trump’s failure to make inroads on Joe Biden’s lead in the polls at a fractious debate on Tuesday may also have contributed.

2 Jobless Claims, ISM due

It’s a data-heavy day, with weekly jobless claims at 8:30 AM ET (1230 GMT) topping the bill, with personal income and spending data for August also due at the same time. They’ll be followed by the ISM Manufacturing Survey at 10 AM.

Initial jobless claims have stayed steady at just over 850,000 a week for the last month, and they’re expected to come in at that level again this week. Continuing jobless claims, which are reported with a one-week lag, are expected to have fallen by another 350,000 to 12.25 million. The data come a day after a surprisingly strong ADP private payrolls report for the month through mid-September, which showed hiring proceeding at a brisk clip.

Elsewhere, there will be speeches from Philadelphia Fed President Patrick Harker at 9:30 AM ET, his New York counterpart John Williams at 9 AM, and Fed governor Michelle Bowman at 3 PM ET.

3. Stocks set to open higher; Pepsi's earnings beat

U.S. stocks are set to open the fourth quarter with solid gains, on revived hopes for a fiscal support package. Such hopes had faded in recent weeks as both parties in Congress refused to shift from their respective negotiating positions.

By 6:30 AM ET, Dow futures were up 218 points, or 0.8%, while S&P 500 Futures were up 0.9% and Nasdaq 100 futures were up 1.3%.

Stocks likely to be in focus later include Pepsico (NASDAQ:PEP), which reported earnings some 12% ahead of forecasts earlier, but which warned that currency headwinds would hit its full-year profit. Also in focus will be Palantir (NYSE:PLTR), which weakened into the close on Wednesday after it debuted through a direct listing.

4. Fed extends restrictions on bank dividends and buybacks

Banking stocks will also be in focus, after the Federal Reserve extended its cap on dividend payments and its ban on stock buybacks until the end of the year.

The Fed said it wanted banks to keep a high degree of capital resilience: that’s a sign that it fears that $40 billion in loan loss provisions posted in the banks’ second-quarter results are far from being the last word in the current credit cycle.

JPMorgan (NYSE:JPM), in particular, had raised investors’ hopes that it would be able to resume buybacks in the fourth quarter.

5 Eurozone PMI hits two-year high; Sterling slides on Brexit blow

The euro zone’s factories perked up in September, according to the IHS Markit monthly purchasing managers index.

The Eurozone manufacturing PMI rose to 53.7 from 51.7 in August, its highest in two years, while the drop in producer price inflation caused by the pandemic also eased more than expected.

The news wasn’t all good from Europe though: the pound skidded again, after the European Commission said it would start a legal action against the U.K. for breaking the terms of the Withdrawal Agreement governing the post-Brexit transition. Reports also suggested that EU leaders would refuse to agree to the U.K.’s current negotiating position on state aid when the transition period expires at the end of the year.

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