Market open: Better night on Wall St may spur local buying

Wall Street was buoyed by steps taken by the US Federal Reserve. Photo / 123RF

The local market may get a lift from improving data in the US and China and further steps from the Federal Reserve to keep credit flowing to US businesses.

Wall Street shrugged off earlier losses when the Fed said it is expanding the scope of its US$750 billion emergency corporate debt loan facility to include individual corporate bonds via its secondary market corporate facility. Up until now, the emergency lending programme has only purchased exchange-traded funds.

"In general, the availability of credit has contracted for corporations and other issuers of debt while, at the same time, the disruptions to economic activity have heightened the need for companies to obtain financing," it said.

The Dow Jones Industrial Average was up 0.5 per cent at 8am in Wellington. The Nasdaq had added 1.3 per cent and the S&P 500 was up 0.8 per cent.

Meanwhile, recent data out of China – while below some economists' expectations – was largely viewed as positive. Among other things, China's factories stepped up production for a second straight month in May and an official gauge of unemployment showed a slight fall to 5.9 per cent in May from 6 per cent in May.

"We had previously thought that China's economy wouldn't return to positive year-on-year growth until Q3," said Capital Economics. The recent data, however, "suggest that this milestone may be reached this quarter and we will be revisiting our GDP forecasts shortly," it said.

Louis Kuijs, a Hong Kong-based economist for Oxford Economics, revised his full-year forecast for China's gross domestic product to growth of 2 per cent to 2.5 per cent, from a previous prediction of 0.8 per cent growth.

"We expect the recovery to continue, aided by policy support," he was quoted as saying by the Wall Street Journal.

Data out of the US was also better-than-expected. The headline general business conditions index climbed 48 points to minus 0.2 in the US Empire State manufacturing index.

"Firms were notably more optimistic that conditions would be better in six months," it said. The index for future business conditions rose 27 points to 56.5, its highest level in more than a decade.

"The index is the first measure of industrial activity for this month and will help to underpin expectations of a relatively brisk recovery in manufacturing," ANZ Bank said.

Domestically, companies linked to the building sector may get a lift after news that 11 road, rail and housing projects named in short-term legislation to fast-track consenting processes are just the beginning with substantial additions expected during the next two years.

The New Zealand dollar has also caught the enthusiasm. After touching an overnight low of 63.70 US cents it was trading at 64.72 cents at 8am in Wellington.

"The overall liquidity environment remains supportive of risk currencies like the NZ dollar, and New Zealand's unique success in stamping out covid-19 puts it in good stead too," ANZ said.

Today, investors will be watching for Westpac's quarterly survey of consumer confidence as well as minutes from the Reserve Bank of Australia.

- BusinessDesk