The Market Today
Another Positive Vaccine Development, but Cases Continue Higher Also
by Craig Dismuke, Dudley Carter
U.S and Eurozone PMIs to Diverge?: Today’s economic calendar kicks off a very busy week, with a focus on Wednesday’s data covering almost ever corner of the economy. This morning, the Markit Manufacturing, Services, and Composite PMIs for the month of November are scheduled, with expectations for slight pullbacks in all three. Manufacturing is expected to drop from 53.4 to 53.0 while the services index is expected to drop from 56.9 to 55.0. In the Markit reports covering the Eurozone, released overnight, the services index dropped from 46.9 to 41.3 and the composite index fell from 50.0 to 45.1, indicative of its first contraction since June and lowest level since May. However, many countries in the Eurozone have clamped down on mobility more so than have U.S. states in response to the virus.
Oxford and AstraZeneca’s Shot Effective, But Less So than Other Candidates: Make it three weeks in a row that global markets have been greeted on Monday by news of a trial vaccine showing effectiveness in a late stage trial. Oxford University and AstraZeneca announced earlier on Monday that one of the two regimens of their experimental vaccine was 90% effective in blocking the coronavirus. In the past two weeks, Pfizer and BioNTech as well as Moderna announced efficacy rates of around 95% for their respective vaccines. While the overall average efficacy of the Oxford and AstraZeneca vaccine trial was lower at 70%, certain characteristics of the shot, such as a higher required storage temperature, make it advantageous over the others. Stocks in Asia rose 0.8% while Europe inched up 0.2%, surrounding 0.6% average gains for U.S. futures. Treasurys yields were higher and leading a general drift upward for global sovereign yields.
Vaccine Hopes Keep Markets Afloat During Rising Infections and New Restrictions: The recent optimism about the rapid development of vaccines has helped keep markets buoyant despite a contentious U.S. election, a lack of new U.S. stimulus, and a surge of new infections globally that has led to the widespread rollout of economically damaging social restrictions. After successfully stemming the initial outbreak, South Korea announced new restrictions for its capital city on Monday. Indonesia, Malaysia, and Pakistan also put into place new restrictive measures. Data released overnight in the Eurozone showed the recovery-reversing effects such restrictions are likely to have on economies. Preliminary PMI data showed the Eurozone economy contracted more broadly than expected in early November as Germany and France joined most smaller European countries in implementing partial lockdowns. With U.S. PMI data on deck later this morning, S&P 500 futures contracts were 0.5% higher at 7:30 a.m. CT and the 10-year Treasury yield had risen 2.6 bps to 0.85%.
ICYMI – November 20, 2020 Weekly Market Recap: Treasury yields fell with stocks last week as a continued COVID-19 surge across the U.S. drew new restrictions from numerous states, disrupting another solid Monday for markets that followed more encouraging vaccine news. Just before the trading week kicked off in the U.S., Moderna announced that a preliminary analysis of phase three trial results indicated its vaccine was more than 94% effective and safe. However, the boost that gave to stocks and yields to start the week faded as the U.S. outbreak deteriorated further, forcing more states to announce a return of restrictions that are expected to weigh on a recovery which has already shown signs of slowing. While the housing data remained surprisingly strong with existing home sales rising unexpectedly in October to their highest level since 2005, other data showed a broader slowing of the economy. After several weeks of alternative data pointed to a less brisk pace for activity, retail sales disappointed, a couple of regional Fed surveys cooled, and initial jobless claims rose for the first time in five weeks. While Fed Chair Powell acknowledged the vaccine developments were clearly positive for the medium-term outlook, he cautioned that the current outbreak and new restrictions pose risks to a recovery that still has “a long way to go.” Against that backdrop, an announcement Thursday by the Treasury that it would allow the Fed’s five emergency liquidity facilities funded by the CARES Act to expire at the end of the year, and requested that the Fed return the unused funds, weighed on sentiment. For the week, the S&P 500 dipped 0.8% while the 10-year Treasury yield fell 7.2 bps to 0.82%. Click here to view the full recap.