WSJ: Markets in a Minute

Commentary, News
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  MARKETS

Hello. I’m James Willhite, with Wednesday’s update as stocks look to extend their climb.

Futures are up, after a relatively quiet night amid the social unrest roiling the U.S. We’ll get a private measure of U.S. payrolls this morning, as well as data on services activity and factory orders. Campbell Soup and Canada Goose will give earnings updates.

Meanwhile, our Matt Wirz explains why companies are afraid of the stigma of borrowing from a Federal Reserve backstop program.

Markets in a Minute

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Overnight Developments

  • Global stocks rose on optimism that economic activity will improve as countries emerge from lockdowns and that additional government spending will shore up recoveries.
     
  • Read our full market wrap here

Fed Promised to Buy Bonds but Finds Few Takers

By Matt Wirz, markets reporter

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The Federal Reserve thawed credit markets in March by promising a whatever-it-takes program to buy corporate bonds. Ten weeks later, the Fed has yet to buy a single bond.

Just the announcement of the backstop ended panic selling, boosted prices and fueled a record surge of new corporate-bond sales.

Companies are now reluctant to sign up for Fed purchases because such a move could be seen as a sign of weakness during a market rebound, some bond fund managers and bank executives said.

“I really don’t think the market needs it anymore,” said Columbia Threadneedle Investments portfolio manager Thomas Murphy. “They are the victim of their own success.”

The Fed has yet to officially launch the initiative, which enables it to buy limited amounts of new and pre-existing bonds of companies, in part because it is hashing out the technical details. Only companies that certify they are U.S.-based and haven’t received other aid under the Cares Act—a $2 trillion financial-relief package that includes loans and grants to businesses—can participate in the program, which would disclose their names, the amount of their bonds that the Fed would purchase and the prices paid.

Those terms “could give bond issuers pause, especially those that already have access to the markets,” said Arvind Narayanan, co-head of investment-grade credit at Vanguard Group, which manages $1.8 trillion of fixed-income assets.

The Fed indirectly bolstered corporate-bond prices in May by purchasing $3 billion in shares of exchange-traded bond funds. But that is a fraction of the up to $750 billion earmarked for corporate debt purchases.

The program should be “ready to go by the end of this month,” Fed Chairman Jerome Powell said in Senate testimony in May. “I don’t say that it won’t be a day or two into June, but that’s our expectation.” A spokeswoman for the Federal Reserve Bank of New York declined to comment beyond Mr. Powell’s statement.

Fear of stigma isn’t the only thing deterring participation. Some companies don’t want the Fed buying their bonds now because that would limit how much the central bank could purchase if another wave of coronavirus roils markets, said one investment banker who covers large U.S. corporations. The Fed can’t use more than 1.5% of its backstop funds to lend directly to any single company, according to disclosures by the New York Fed.

Still, the Fed needs to launch the program soon so that it can start making purchases quickly if markets seize up again, Mr. Narayanan said.

Some investors who bought investment-grade bonds in March and April with plans to sell them eventually to the Fed are growing weary of waiting, said Hans Mikkelsen, a bond strategist at Bank of America.

“There is a lot of uncertainty about what the Fed is going to do in the near term,” he said.

For a longer version of this article online, follow this link.

Market Facts

  • Beijing has approved China Pacific Insurance’s plans to sell securities in London, signaling that a tie-up between the U.K. and Shanghai stock markets is no longer on hold. The Shanghai-London Connect program, years in the making, so far has produced only one listing. That came last June, when China’s Huatai Securities raised more than $1.5 billion by selling global depositary receipts in London.
     
  • The British pound rose to its highest level against the U.S. dollar in a month as investors grew more optimistic about trade negotiations between the U.K. and the European Union. On Wednesday morning it was up another 0.3% at $1.2583.
     
  • On this day in 1880, wireless telecommunication began when Alexander Graham Bell transmitted the first message on his new “photophone,” which bounced sound off a mirror and used a beam of sunlight to project the mirror’s vibrations onto a photosensitive receiver. Although Bell was never able to commercialize his photophone, modern fiber optics, which support things like high-speed trading and Netflix, work on the same basic principle.

 

Key Events

The ADP employment report for May, due at 8:15 a.m. ET, is expected to show a loss of 8.75 million jobs from a month earlier.

IHS Markit’s U.S. services index for May, due at 9:45 a.m., is expected to rise to 37.5 from a preliminary reading of 36.9.

The Institute for Supply Management nonmanufacturing index for May, due at 10 a.m., is expected to rise to 44.0 from 41.8 a month earlier.

U.S. factory orders for April, due at 10 a.m., are expected to fall 12.5% from a month earlier.

The Bank of Canada releases a policy statement at 10 a.m.

Stocks to Watch

Zoom Video Communications: The company’s sales more than doubled in the first-quarter, as a surge in users working remotely during the coronavirus pandemic turned the video-chat app into one of the go-to tools for people quarantined at home.

Lyft: The company said demand for rides climbed in recent weeks as people began venturing out following Covid-19 lockdowns but remains well below levels seen a year earlier.

HealthEquity: The provider of health financial services said its first-quarter profit fell, weighed by higher costs and expenses, while sales more than doubled as it saw a rise in new health-savings accounts.

Campbell SoupCloudera and Canada Goose are among the companies reporting earnings Wednesday.

About Us

We want to be the first place you go to get ready for the opening bell every day. This newsletter is written and edited by James Willhite (@jimwillhite; james.willhite@wsj.com) in London.

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