The Market Today
All Eyes on Inflation and Congressional Negotiations
by Craig Dismuke, Dudley Carter
Encouraging Turn for Cases: COVID-19 cases fell 11.6% on a week-over-week basis (7-day averages) last week. While daily cases remain high, the improvement was broad-based including 31 states seeing new cases lower.
All Eyes on Inflation with Quiet Economic Calendar Today: The only report on today’s calendar is the Treasury’s Monthly Budget Statement, expected to show the monthly deficit down from $200b in July to $175b. The current trailing-12 budget deficit stands at $2.86 trillion, a pre-pandemic record but down from a pandemic record of $4.09 trillion (see Chart of the Day). With a quiet calendar today, focus remains on tomorrow’s CPI inflation report, particularly with commodity prices on the rise.
Democrats Continue to Debate $3.5 Trillion Package: Also on the radar today are continued negotiations in Washington on the White House’s $3.5 trillion economic package. Ove the weekend, West Virginia Senator Manchin said he could only support a $1.0 to $1.5 trillion package. Vermont Senator Sanders said such a small package was “absolutely” unacceptable. In discussions this morning is just how high the package should raise corporate tax rates and capital gains rates. Reports are that a new proposal will include a 26.5% top corporate rate.
ICYMI – September 3, 2021 Weekly Market Recap: Longer maturity Treasury yields grinded lower for most of the holiday-shortened week last week. The 10-year opened peaked on Tuesday at 1.383% before falling to 1.285% following Thursday’s strong 30-year Bond auction. Perhaps investors believed the rally was overdone as yields turned higher into Friday’s close, eventually ending the week at 1.339%. The machinations came amid a slow week of economic news, an encouraging week for new COVID-19 cases, and a new vaccination push from the White House. Job openings surprisingly jumped to 10.9 million in the July JOLTs report versus just 8.7 million unemployed persons during the month. The Fed’s Beige Book report showed growth moderating in most areas but also highlighted broad-based difficulty for companies trying to hire. Particularly concerning were accelerated retirements, labor shortages in healthcare, and continued difficulty finding workers in low-wage industries. The August producer price data showed core PPI up 6.7% YoY, the fastest rate of growth since the PPI data were reconfigured in 2010. Several Fed officials opined on their taper preferences with a slight bias to wait beyond the September FOMC meeting for more convincing evidence the labor recovery. The ECB announced a “moderate” reduction in monthly asset purchases but insisted it was not tapering. Daily COVID-19 cases remained high but slowed on a week-over-week basis. The S&P 500 index fell each day last week, down 1.7% in total, and is now sitting on a five-day losing streak for only the second time this year. Click here to view the full recap.