The Market Today

Agreement Coalescing Around $1T Bipartisan, Bicameral Stimulus Proposal


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Initial Jobless Claims Drop More than Expected: While there remains a lot of work to repair the labor market, this week’s jobless claims data show a positive trend. Initial jobless claims for the Thanksgiving week fell more than expected, down 75k to 712k.  The drop erased almost all of the increase in claims seen over the previous two weeks.  Initial PUA claims, those designed for workers who would not traditionally qualify for the state-level programs, fell 30k to 289k, its lowest level since the program began. Between both programs, total new jobless claims fell 105k to 1.00mm during the holiday week.

Continuing Claims Fall 569k, Only 60k Move into Extension Program (Different Reference Weeks): Continuing jobless claims also fell more than expected, down 569k for the week ending November 20 to 5.52mm, the lowest level since the beginning of the pandemic.  Continuing PUA claims for the week ending November 14 also declined, down 339k to  8.87mm.  However, one state accounted for the majority of the decline with California’s continuing PUA claims down 334k alone.  Also on a positive note, the number of persons moving into the PEUC extension program rose  at its slowest weekly rate since August, up just 60k to 4.57mm.

The ISM Services Index (9:00 a.m. CT) for the month of November is expected to drop from 56.6 to 55.8.  This expectations comes from sharper declines in service-sector reports globally and the expected effects of recent, virus-related shutdowns.  Just before the release, at 8:45 a.m., the Markit Services and Composite PMIs for November will be finalized.

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Monitoring the Stimulus Headlines: Wednesday’s focus remained on stimulus talks and signs of progress towards a compromise agreement to provide more aid for a slowing U.S. economy. A bipartisan group of lawmakers proposed a stimulus package worth $908 billion on Tuesday, a plan that received the backing from top Democratic leaders on Wednesday as a starting point for negotiations. Minority Leader Schumer and Speaker Pelosi issued a joint statement that read, “In the spirit of compromise we believe the bipartisan framework introduced by senators yesterday should be used as the basis for immediate bipartisan, bicameral negotiations.” A top Republican senator said Democrats were “moving in the right direction” and former Vice President Biden called the plan a “down payment” on what his administration would propose after inauguration day.

Monitoring the Virus Headlines: The FDA confirmed it will convene a panel to review Moderna’s vaccine on December 17. A separate report indicated Moderna would soon begin testing its vaccine on children. Final results from U.S. trials of the Oxford-AstraZeneca vaccine may not be available until late January. Although his country became the first to approve a vaccine earlier in the day, U.K. Prime Minister Johnson said there are “immense logistical challenges” in the distribution process. While vaccine developments bode well for the spring, the director of the CDC warned that the months from December to February could be some of the most difficult months for public health in history. On a more upbeat note, the CDC also shortened the quarantine period for those exposed to the virus to seven days with a negative test or 10 days with no symptoms. In other news, Germany extended its partial lockdown through January 10 which, among other restrictions, will keep restaurants and hotels closed. Spain will cap family holiday gatherings at 10 people.


YESTERDAY’S TRADING

Stocks Inched Up To Record as Stimulus Hopes Offset Sharper-than-Expected Slowdown in Private Hiring: U.S. equities managed marginal gains on Wednesday as additional indications of progress towards a possible stimulus agreement helped stocks erase an opening loss. The S&P 500 dropped at the open following a disappointing ADP report that showed the pace of job growth slowed more than expected in November. The index recovered into positive territory but began to fade around lunch before the latest stimulus headline hit the wires. Stocks jumped and made new highs and Treasury yields moved up on a report that Democratic House Speaker Pelosi and Minority Leader Schumer supported the $908 billion bipartisan plan announced Tuesday as a starting point for negotiations. The S&P 500 held near its highs for the rest of the afternoon, ending the day up 0.2% and at a new record. While the 10-year Treasury yield added 1.0 bp to 0.94%, the benchmark yield pulled back from its daily high of 0.96%, the second-highest level since March.


OVERNIGHT TRADING

Markets Pause After Solid Wednesday Trading on More Stimulus Headlines: Treasury yields drifted back lower Thursday, erasing a portion of yesterday’s increase that occurred after top Democrats signaled support for using this week’s bipartisan stimulus bill proposal as a basis for restarting negotiations. U.S. equity futures were also essentially flat around record levels in a relatively uneventful overnight session for global stocks. The latest round of foreign service PMIs showed mixed results, with an unexpected gain pushing China’s up to 57.8 in November, its highest mark since June, while European indices weakened amid the widespread lockdowns that were reinstated across the continent in late October. Reflecting the broad declines in the national indices, the Eurozone’s Services PMI fell from 46.9 to 41.7, the weakest reading since May but slightly better than initial estimates. Just before the weekly jobless claims data were released, futures contracts for the S&P 500 were flat and the 10-year Treasury yield was 0.5 bps lower at 0.93%. The better-than-expected jobless claims data had little impact on those levels.


NOTEWORTHY NEWS

As Expected, Fed’s Beige Book Points to Slowing Recovery and Risks from Virus Surge: The Fed’s latest Beige Book, which reported on information collected through November 20, said the recovery had eased since early October, indicated the pace of labor market gains had slowed, and detailed a slight decline in business optimism because of the latest virus surge and fiscal cliffs (i.e. unemployment benefits, foreclosure and eviction moratoriums) set to occur at the end of the year. The messaging was consistent with the themes in comments from Fed officials in recent weeks. There was discussion of continued disruptions from the virus to the labor force and supply chains that were impacting activity. Also mentioned in the report, business contacts at banks cited some “deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated.”

Powell Sees Brighter Days Ahead but Encouraged Congress to Build a Longer Bridge to the Other Side: It was more of the same from Fed Chair Powell on Wednesday in the  second day of testimony before a Congressional committee. The recent success in vaccine trials is an optimistic development for the medium-term outlook and provides a “light at the end of the tunnel,” likely around the middle of next year. However, the economic crisis hasn’t passed yet and the next several months could be a tough road for the economy because of the current virus surge. As a result, Fed policy will remain accommodative for the foreseeable future and Congress needs to consider additional stimulus. Powell encouraged lawmakers to lengthen the support bridge originally constructed by the CARES Act by considering extending unemployment benefits and providing more aid for small businesses.

Several Fed Officials Tell Same Story of Slowing Recovery: Several Fed officials spoke on Wednesday and the broader message was consistent across all comments. Philadelphia Fed President Harker said the outlook remains very uncertain and sustainable recovery depends on a vaccine. He noted that his current growth projections contemplate roughly $1 trillion in additional fiscal aid. Echoing the view his colleague from San Francisco offered on Tuesday, Dallas Fed President Kaplan said he isn’t convinced the Fed should alter the composition of its asset purchases at this time. He said that fiscal policy will be more effective at helping the economy through the current rough patch which he believes will last for three to six months. New York Fed President Williams said there are some signs that growth is slowing and the economy is currently in a period of “heightened uncertainty.”


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