US stocks jump, Treasury yield curve steepens on incremental stimulus proposals

US stocks rebounded to close sharply higher on Wednesday after incremental stimulus proposals helped investors recover from the shock of US President Donald Trump's announcement on Tuesday that he would halt stimulus talks until after the November 3 election.

Increased risk appetite also resulted in weaker Treasury prices and a steepening yield curve as markets were heartened that at least some fiscal aid measures to help an economy battered by the coronavirus pandemic were still on the table.

While White House Chief of Staff Mark Meadows said he was ”not optimistic for a comprehensive deal,” Trump appeared to relent somewhat, urging Congress to pass a $25-billion airline bailout, a move also supported by US House of Representatives Speaker Nancy Pelosi.

In separate Twitter posts, Trump also expressed willingness to approve sending stand-alone $1,200 relief cheques to Americans and urged Congress to approve the $135-billion payroll protection programme for small businesses.

“Investors grow optimistic when there is any type of stimulus, whether it's a large package or more discrete,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “There's interest on both sides in having some kind of stimulus as the election approaches.”

“The most important issue for them is who gets to take credit for it,” Sroka added.

The US Federal Reserve released the minutes from its latest monetary policy meeting, which revealed many members of the Federal Open Market Committee said their economic outlook assumed additional fiscal support, and if a stimulus package from Congress was too small or came later than expected, the economic recovery could be slower than anticipated.

This echoed Fed Chair Jerome Powell's warning on Tuesday that the economic recovery would slip into a downward spiral if Congress fails to provide additional fiscal aid.

“The Fed only has so many tools they're allowed to apply to spark an economic recovery,” Sroka said. “They're very vocal about urging the other part of the government to play its role for the economic recovery to be successful.”

The Dow Jones Industrial Average rose 530.7 points, or 1.91 per cent, to 28,303.46, the S&P 500 gained 58.5 points, or 1.74 per cent, to 3,419.45 and the Nasdaq Composite added 210.00 points, or 1.88 per cent, to 11,364.60.

European shares failed to join the rally in global equities, weighed down by healthcare and blue-chip stocks.

The pan-European STOXX 600 index lost 0.12 per cent and MSCI's gauge of stocks across the globe gained 1.06 per cent.

US Treasury prices fell and the yield curve steepened after Trump urged Congress to pass the airline bailout measure and small business aid.

Benchmark 10-year notes last fell 14/32 in price to yield 0.7868 per cent, from 0.74 per cent late on Tuesday.

The 30-year bond last fell 42/32 in price to yield 1.5927 per cent, from 1.537 per cent late on Tuesday.

Pandemic aid uncertainties, along with a bigger-than-expected rise in US inventories, sent crude prices lower.

US crude futures settled at $39.95 per barrel, down 1.77 per cent. Brent fell 1.55 per cent to settle at $41.99 per barrel on the day.

The dollar barely moved after the Fed released its minutes, remaining slightly down against a basket of world currencies.

The dollar index fell 0.05 per cent, with the euro up 0.24 per cent to $1.1762.

The Japanese yen weakened 0.35 per cent versus the greenback at 106.02 per dollar, while sterling was last trading at $1.2911, up 0.26 per cent on the day.

Gold prices gained on easing fiscal aid uncertainties.

Spot gold added 0.5 per cent to $1,886.90 an ounce.

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