It was a busy day on Wall Street. This morning, the European Central Bank took the unprecedented step of pushing interest rates into negative territory. Following the decision, both the Dow and S&P 500 closed at new record highs.
First, the scoreboard:
Dow: 16,833.40, 95.8, 0.6%
S&P 500: 1,939.77, 11.8, 0.6%
Nasdaq: 4,296.23, 44.6, 1%
The top stories of the day:
- At its June meeting, the ECB cut interest rates, taking its deposit facility into negative territory to -0.10%. The central bank also slashed its benchmark interest rate to 0.15% and its marginal lending facility down to 0.4%. The ECB also unveiled subsidized loans in targeted areas, called Long-Term Refinancing Operations, totaling €400 billion. Of the ECB’s decision to make interest rates negative, Claus Vistesen, Chief Eurozone Economist at Pantheon Macroeconomics, said, “…The negative deposit rate will generate difficulties for the money market industry, but the drag on the banking industry’s earnings should be minimal given the current relatively low usage of the central bank’s deposit facility.” Vistesen noted that the ECB signaled it does not plan to reduce interest rates further, but that they paved the way for the central bank to commence asset purchases similar to the Federal Reserve’s quantitative easing program later this year.
- In the U.S. initial weekly jobless claims rose to 312,000, just higher than the 310,000 that had been expected. Despite the increase in claims relative to the prior week, Pantheon Macroeconomics’ Ian Shepherdson noted that the four-week average of jobless claims is now at 310,250, the lowest level since June 2007. Shepherdson wrote that, “[a]t the turn of this year, the underlying trend (on jobless claims) was about 340K, so drop since then is consistent with monthly payroll growth accelerating by as much as 50K. That hasn’t happened yet, and we don’t expect a blockbuster number tomorrow, but the claims data suggest sustained better payrolls are in the pipeline.”
- The U.S. Department of Labour is scheduled to release its May jobs report tomorrow. Economists are expecting nonfarm payrolls to grow up 215,000, and the unemployment rate is expected to tick up to 6.4%. Chris Rupkey, Chief Financial Economist at Bank of Tokyo-Mitsubishi UFJ, said of the economy ahead of the report, “…Current conditions could not be any better. First-time jobless claims rose slightly by 8K to 312K in the May 31 week. These are levels we tend to see during robust economic expansions, where any job losses are modest frictional ones in a normal, growing $US17 trillion economy. Unemployment claims are better than they were in April… This is evidence, anecdotal to be sure, that we could get a big 200K plus payroll jobs tomorrow.”
- Hedge fund manager David Tepper told CNBC that his market concerns, which last month prompted him to say “[it was] nervous time,” have now been “alleviated.”
- Securities and Exchange Commission Chair Mary Jo White unveiled a new set of regulations targeting high-frequency traders and dark pool trading venues. Both high-frequency trading and dark pools were the subject of Michael Lewis’ most recent book, “Flash Boys.”
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