The Market Today

Virus Concerns Grows, Jobless Claims Disappoint, Goods Trade Deficit Increases, Business Investment Beats Expectations


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

VS Coronavirus Chartbook (PDF) (Link)

Tracking Case Count: Anxiety about an accelerating U.S. outbreak deepened Wednesday as discouraging updates from hot-spot states continued to roll in. U.S. cases posted their second largest increase of the pandemic. California (7,149), Florida (5,508), Texas (5,551), and Oklahoma (482) all reported new record daily case increases. The 5.3% daily increase in Florida dwarfed the seven-day average of 3.7% and was paired with an increase in the positivity rate and the largest jump in hospitalizations in a month. Miami’s Mayor called the local virus statistics “alarming.” Texas’s governor said a massive outbreak was sweeping across his state. Houston officials indicated ICU capacity could be reached today, nine days earlier than estimated on Tuesday. Apple said it was closing seven more stores in Houston due to the severity of the outbreak. Concerns about local outbreaks across U.S. states led Governor Cuomo of New York to announce that the Tri-State region (NY, NJ, CT) would impose a mandatory 14-day quarantine for visitors from states with significant outbreaks.

Per Capita: The past seven days have shown an average of 37.8 new cases per day in Arizona per every 100,000 residents, significantly worse than the national average and almost double the rate of growth versus the second-worst statewide situation, South Carolina (20.4 per day).  Measuring new cases per capita provides insight into the breadth of the outbreak within a state and the potential implications for health care delivery.  Also much higher than the national average are Arkansas (17.8), Florida (17.5), Utah (15.3), Texas (15.0), Alabama (13.8), Mississippi (13.4), and North Carolina (13.1).


TODAY’S CALENDAR

Discouraging Morning of Data for 2Q GDP Trackers – Trade Declines, Deficit Increase, Inventories Plunge: The May advanced reading on the goods trade balance showed an unexpected $3.6 billion jump in the monthly goods-only deficit.  Perhaps most concerning, but not entirely unexpected, the overall volume of trade continued to decline.  The import of goods fell another 1.9% MoM, exports fell 5.8%, and overall trade volume of goods fell 2.9%. The import of autos and the export of industrial supplies were particularly hard-hit in May. The increased trade deficit will weigh further on 2Q GDP.  Making matters worse for 2Q GDP trackers, wholesale and retail inventories both fell more than expected in May, down 1.2% and 6.1%, respectively.

1Q GDP Final Revision -5.0%: The final revision to the 1Q GDP report was unchanged to show the economy contracted 5.0%.  Wholesale and retail inventories both fell more than expected in May, down 1.2% and 6.1%, respectively.

Initial Jobless Claims Remain High but Continuing Claims Show Small Improvement: Initial jobless claims for the week ending June 20 inched down from 1.54 million to 1.48 million, disappointing expectations for a decline to 1.32 million.  New filings for unemployment benefits dropped for a 12th consecutive week, but the pace of decline has slowed more than expected.  Through fourteen weeks, the virus and associated responses have now yielded 47.3 million Americans filing for unemployment benefits. Thirty-four states reported fewer new claims during the reference week.  Continuing claims for unemployment benefits, encouragingly, did pull back 767k for the week ending June 13.  Only twelve states reported more continuing claims during the week, including another outsized revision (-169k) and new tally (+133k) from Oregon.  While it is positive that continuing claims are broadly moving lower, the number of repeat filers remains at 19.5 million and indicative of an unemployment rate near 10%.

Capital Goods Orders Show Business Investment Remains More Stable: The preliminary report on durable goods orders for the month of May showed a stronger-than-expected rebound.  After declining 18.1% in April, orders rebounded 15.8% in May.  When excluding transportation items, orders fell 8.2% in April but rebounded 4.0% in May.  Core capital  goods orders excluding defense and aircraft, a proxy for future business investment in equipment, increased a more-than-expected 2.3% after declining 6.5% in April.  The shipments of those same items, an indicator of current business investment in equipment, gained 1.8% after declining 6.2% in April.  Shipments were expected to decline 1.0%.  Business investment remained more stable than other segments of the economy in March and April and continues to do so in the May data.


YESTERDAY’S TRADING

Market Worries Worsened During U.S. Trading: Market sentiment deteriorated steadily from Wednesday’s open as worries about the pace of new infections in the U.S. mounted. The global backdrop for equities was already weaker in response to the U.S. outbreak and pockets of infections popping up in other regions, from Australia to Tokyo to Germany. However, the negative momentum intensified quickly throughout the sequence of sobering headlines from some U.S. states discussed above.

Stocks Slumped as Cases Spiked: To date, the new infections have led only to more cautious talk from state leaders and delay of some state progressing to the next phase of reopening. The most severe actions taken by several states seems to be the requirement that masks be worn in public. However, worries are rising a reignited pandemic could disrupt the recovery evident in recent economic data, either through reimplemented lockdowns or simply through altered individual consumer behavior. The S&P 500 tumbled 2.6%, its second sharpest decline since May 1. Closing near the lows of the day, the 10-year Treasury yield shed 3.3 bps to 0.68%. In other markets, the economic angst added to record inventories of U.S. crude to send WTI down nearly 6%. Gold prices fell despite the risk-off tone as the U.S. Dollar rallied 0.6%.


OVERNIGHT TRADING

Global Equities Soften as Virus Worries Stir Economic Concern: Global markets have moved in different directions Thursday as investors keep an eye on virus developments and await the latest U.S. jobless claims data. Markets in Asia closed mostly lower overnight following losses in Europe and the U.S. on Wednesday which were prompted by a surge in virus cases in some U.S. states. Stocks in Europe initially sold off but were back near unchanged. In addition to the virus itself, the latest outlook from the IMF estimating its economic effects made headlines. The group forecasted an even deeper global recession in 2020 to be followed by a slower recovery than previously estimated in April.

U.S. Futures Point to More Equity Weakness as Treasury Yields Leak Lower: Oil prices drifted to an eight-day low and U.S. equity futures were down more than 0.7% ahead of an incredibly busy morning for U.S. economic data. Treasury yields continued to inch lower alongside similar moves across Europe. At 7:25 a.m. CT, the 2-year yield had dropped 0.6 bps to 0.18% compared with a 1.5 bp decline for the 10-year yield to 0.66%. After the mixed bag of economic data, the 10-year yield fell to -2.0 bps on the day and losses in stock futures grew to around 1% at 7:40 a.m. CT.


NOTEWORTHY NEWS

Fed Officials Hope for Growth Recovery, But See the Path Plagued with Risks: While he expects economic activity will pick up in the second half of the year, Chicago Fed President Evans believes there could be long-term damage caused by the pandemic and expects interest rates will be low “for a long time.” He stated apropos of the uptick in infections that “too hasty a comeback could…end up forestalling a more complete recovery” if it results in shutdowns or cautious consumption. St. Louis Fed President Bullard also expects activity to rebound to close 2020. However, both officials acknowledged the uncertainties attending the outlook are “enormous” and see the risks leaning to the downside.


INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120