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Promise of Stimulus Re-Up Gives Markets a Morning Boost

Looking to put a rough week in oil trading behind it, Wall Street opened to moderate gain Friday as another stimulus package awaits the president’s signature.

MANHATTAN (CN) — Markets built on gains from Thursday as they await news President Trump will sign another stimulus package.

At Friday’s morning bell, the Dow Jones Industrial Average increased about 200 points. The Dow is now at roughly the same place it was a week ago. The S&P 500 and Nasdaq both crept upward, gaining about half a percentage point at opening.

Despite a rough start to the week, when oil prices plummeted into negative territory for the first time, the markets latched onto the passage of legislation authorizing additional funding for small business loans. 

The Senate unanimously passed the bill earlier this week, including $310 billion for the Small Business Administration’s Paycheck Protection Program. On Thursday evening, representatives in the House, many of them wearing masks or bandanas, voted 388-5 in favor of the bill. Representative Justin Amash, a recently converted Independent, voted present.

President Trump is expected to sign the bill at noon.

The funding is a welcome spot of good news for investors and a lifeline for many small businesses, many of which have been shut out of the immensely popular lending program due to a run at the banks. 

Hoping to allay concerns that larger publicly traded companies and franchises may continue to tap into the program, the Treasury Department released guidance Thursday warning that applicant companies need to certify their PPP loans are necessary to maintain the company’s ongoing business.

“It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the guidance warns. 

Senator Marco Rubio, R-Fla., who has been one of the leading proponents of the PPP, said the Treasury guidance will help add to the $310 billion. 

“We already know of hundreds of millions of dollars potentially that are already being returned,” Rubio said in a video tweet. “Some of these big companies you read about that got PPP, that was never the intention, have begun to return the money. That money will be added onto whatever Congress appropriated.”

The Federal Reserve also announced on Thursday it would expand its liquidity facility to additional banks to help facilitate additional PPP loans. The Fed also will soon begin disclosing the names of participants and details of loans using its lending programs.

In a statement, National Federation of Independent Business President Brad Close praised the bill but called for more. “NFIB is fully expecting that this new round of small businesses who need it the most, not publicly traded companies and large businesses that have access to other credit options,” Close said.

He added the SBA should change some of the program’s requirements, such as the mandate that 75% of the PPP loans be used for payroll costs. That threshold is “far too high for very small businesses to meet,” he said.

Banking groups have worried the $310 billion will last only a few days, and Democrats are already working on legislation that will infuse the PPP with additional funds. 

In Europe, markets fell Friday after the European Council failed to come to a definitive agreement on further stimulus funding. The council already has called for a “Marshall-Plan type investment effort” in its Roadmap for Recovery, which would focus on central banks addressing liquidity and investing in clean and digital technologies.

But a much larger stimulus package for the continent is now essentially just a handshake agreement, with precious few details. 

At 9 a.m. EST, most markets on the continent had fallen slightly, with the pan-European Stoxx 600 down 0.25%. Earlier in the day Asian markets had fallen slightly, with the only Australian ASX 200 coming out ahead with a 0.5% increase for the day.

The European Council will meet early next month to try to hammer out details on further stimulus plans.

At a press conference during the council’s meeting, European Parliament President David Sassoli said the EU needs a plan to restore jobs.

“We need to come out of this with a stronger, more communitarian Europe, and at the same time a Europe that shares the efforts, particularly those countries that cannot afford to meet the burden of this reconstruction effort with further deficits,” Sassoli said. 

Earlier in the day, German Chancellor Angela Merkel warned member countries must be prepared for higher taxation. “One thing is already clear,” she said at the Bundestag, “we must be ready, in the spirit of solidarity, and for a limited time, to provide much higher contributions to the European budget.”

Worldwide more than 2.7 million people have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 191,000 have died. More than 869,000 people in the United States have contracted the virus, while 49,000 have died.

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