By Anna Isaac
U.S. stock futures rose on Monday, as investors weighed halting steps toward a new coronavirus relief package and the country registered its lowest number of new infections in weeks.
Futures tied to the S&P 500 ticked up 0.7%, suggesting the benchmark could rise after the opening bell. The index climbed 5.5% in July. Trading volumes are expected to slide in coming weeks with the onset of the summer vacation season, leading to an increase in volatility.
Investors were heartened by a smaller daily rise in U.S. Covid 19 cases, despite delays to a deal on further fiscal support for the American economy. The U.S. reported more than 47,000 new coronavirus cases, the smallest daily increase in almost four weeks, after posting a record number of new infections in the month of July.
"A couple of weeks ago, U.S. cases were rising by 40-50% on a weekly basis. They're now falling. Not as fast as they might appear, because testing has dropped, but they are still lower and so is the rate of hospitalization. Markets like that," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Overseas, the pan-continental Stoxx Europe 600 rose 1.7%, bolstered by survey data showing signs of recovery in euro area factories.
Democrats and Republicans remained at odds in weekend negotiations on a new economic relief package, including aid to replace the federal $600-a-week boost to unemployment benefits that expired Friday. The White House had hoped to pass a short-term extension of the federal unemployment insurance, but Democrats want to negotiate a comprehensive package of relief, including state and local aid.
"The slowness with which Washington is coming to an agreement on a fiscal policy shows some fatigue. A deal will likely come, but after some big fiscal cliffs have been passed," said Mr. McCormick.
Secretary of State Mike Pompeo's comments over the weekend that the White House may take action against Chinese software companies stoked concerns about deteriorating relations between the world's two largest economies. Heightened tensions between Beijing and Washington have weighed on investor confidence for weeks, with growing expectations that the U.S. government will take a harder line in relations with Beijing in the run up to November's presidential election.
"It seems the closer the election gets, the fiercer tensions are likely to be," said Oliver Jones, senior markets economist at Capital Economics. "The China hawks in Washington appear to have the upper hand."
The video-sharing app TikTok, owned by a Chinese company, has become one flashpoint after U.S. officials expressed concerns that TikTok could pass on the data it collects from Americans to China's authoritarian government. President Trump on Friday signaled that he was considering a ban of the popular app. Microsoft said Sunday that it will move forward with plans to buy its U.S. operations following a call between Microsoft CEO Satya Nadella and Mr. Trump.
Shares in Microsoft rose 3% ahead of the opening bell in New York.
Among European equities, HSBC Holdings slid 3.6% in London. The bank's second-quarter profit fell 96% as the disruption caused by the pandemic complicated its efforts to refocus on Asia while dealing with the rising U.S.-China political tensions. Siemens Healthineers fell 7.2% in Frankfurt after the medical technology company said it would acquire Varian Medical Systems for $16.4 billion, or roughly 25% above its current market value.
In the Asia-Pacific region, China's major equity benchmark, the Shanghai Composite Index, rose 1.8% by the close of trading after a private gauge of manufacturing activity on the mainland rose in July to its highest level in more than nine years, boosted by accelerated production and recovering demand.
Japan's Nikkei 225 led Asian equities' gains, climbing 2.2% to end the trading session in positive territory for the first time since July 21. Sentiment improved due to a weaker Japanese yen against the U.S. dollar's broad rebound, according to Chang Wei Liang, a macro strategist at DBS Bank. A weaker yen helps lift profitability of Japanese exporters, supporting stocks.
The ICE Dollar Index, which tracks the greenback against a basket of other major currencies, ticked up 0.5% while remaining near its lowest level in over two years. The dollar had made a sharp U-turn this summer following a long rally, and its slide added further support to the booming market rally, lifting U.S. stocks and commodities.
In bonds, the yield on the benchmark 10-year U.S. Treasury ticked up to 0.564%, from 0.536% Friday.
A closely watched metric of economic activity signaled that European factories are staging a recovery. Purchasing Managers Index data for manufacturing in the euro area broke through the key level indicating growth, a score of above 50, for the first time in a year and half, when the bloc's manufacturing sector entered recession. It had plummeted during the coronavirus pandemic.
However, economists cautioned that industrial production was still well below pre-pandemic levels at the end of the second quarter. The compiler of the survey, IHS Markit, also said "severe job-cutting" continued as firms were operating under capacity.
"We had a nervous week last week, but the market loves a good PMI survey. It's a rally on the back of the better than expected numbers," said Steen Jakobsen, chief investment officer and chief economist at Saxo Bank.
The Institute for Supply Management releases is due to release its U.S. manufacturing index for July at At 10 a.m. ET. Factory activity is expected to show an improvement for the third straight month as manufacturers rebound from shutdowns and supply-chain disruptions.
--Frances Yoon contributed to this article.
Write to Anna Isaac at email@example.com
Corrections & Amplifications
This was corrected at 10:46 a.m. ET because the original version misspelled the last name of Ian Shepherdson, chief economist at Pantheon Macroeconomics as Ian Sheperdson.