The Market Today

On-Again Off-Again Stimulus Talks Continue, Keep Optimism Buoyed


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF) (Updated 9:30 a.m. CT)

Monitoring the Virus Headlines: The headlines remained primarily concentrated on the continued twists and turns of stimulus negotiations (more below). Away from the push for more U.S. stimulus, New Jersey saw a concerning increase in new cases that was primarily related to an outbreak in a single county. New York City announced that it was closing 61 more public schools, taking the total shut across several hotspots to 169. In Europe, daily case increases accelerated again; France reported more than 18,000 new cases for a second day while Germany’s case load increased by more than 4,000 again. Adding to the growing list of countries with new restrictions, the Czech government shut schools for two weeks and encouraged employees to work from home. Madrid’s local government said additional restrictions were on the way and advised citizens not to leave the city. The U.K. government is expected to announce a plan to support businesses by paying more than half of an employee’s wages if the business is affected by government-imposed virus restrictions, more of which are expected to be announced soon.


TODAY’S CALENDAR

Quiet Economic Calendar Leaves Focus on On-Again Stimulus Talks: The only reports on today’s economic calendar include the August Wholesales Inventories report (9:00 a.m. CT) and the October Bloomberg Survey of Economists (8:00 a.m.).  Speaking today is Richmond Fed Bank President Barkin (8:00 a.m.). Investors are likely to be more focused on stimulus negotiations given  that there still appears to be some life.


YESTERDAY’S TRADING

Slower Progress for Jobless Claims Highlighted Need for More Fiscal Stimulus: U.S. equities rose again Thursday as stimulus remained the focus with investors hoping negotiations for more aid were back on and progressing. The weekly update on jobless claims showed a larger-than-expected drop in continuing claims and the fewest combined initial claims, regular state programs and claims under emergency programs, since the start of the pandemic. However, the pace of decline for initial claims appears to have flattened out at a high level. A sharp drop in Treasury payments for unemployment benefits since the CARES Act bonus expired at the end of July is seen as a key risk to consumer spending in the months ahead, with more than 25 million Americans still filing for some form of unemployment insurance each week. That has led to many, including officials at the Federal Reserve, to call for more fiscal aid to individual Americans and to businesses.

Stocks Continued Higher in Hopes Stimulus Talks Were Back On: Talks seemed to fall apart Tuesday after President Trump tweeted that he was postponing further negotiations for more stimulus until after the election, abruptly ending a day of gains for risk markets. However, later Tuesday evening he signaled that he would support piecemeal aid proposals. Before markets opened Thursday, President Trump said in a TV interview that talks were back on and have been “very productive.” The opening gain for stocks was briefly interrupted after Speaker Pelosi said standalone aid for airlines was not an option, and must be part of a larger deal. Sentiment picked back up, however, on reports that she was still speaking with Treasury Secretary Mnuchin, and after a White House spokesperson said the president has “made very clear we want a skinny package” but is “open to something bigger.” The S&P 500 closed up 0.4% while the 10-year Treasury yield inched 0.2 bps lower to 0.79%, holding near its highest level since early June.


OVERNIGHT TRADING

Treasury Yields Tick Lower Even as Equity Futures Point to More Gains: Treasury yields are lower Friday even as U.S. equity futures tack more gains onto their weekly tally, with investors hopeful that more stimulus may still be on its way. After Tuesday’s scare that negotiations would cease until after the contentious presidential election, a renewed openness from the White House to push forward with those discussions now has helped risk markets recover higher. Futures tracking the major U.S. equity indices were stronger by around 0.4% at 7 a.m. CT and stocks in Europe were on pace for similarly-sized gains. Equities across Asia moved very little on balance, with China the exception. China’s CSI 300 gained more than 2% in its return from a lengthy holiday after a private survey of small- and medium-sized services companies recovered more than expected in September to 54.8, signaling activity expanded for a fifth month since April. Data in the U.K. pointed to a different trend, with monthly GDP figures missing expectations at their weakest rate of the recovery, a day after reports indicated the government was planning aid for businesses that could be impacted by upcoming targeted restrictions to address the second wave of infections. With the U.S. economic calendar essentially empty Friday, markets should be largely focused on any developments out of Washington on stimulus talks. At 7:30 a.m. CT, the 10-year Treasury yield was down 1.1 bps to 0.77% despite equity futures holding their 0.4% overnight gain.


NOTEWORTHY NEWS

ICYMI – September 2020 Monthly Review


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