The Market Today
Biden Addresses Omicron, No New Restrictions and Differentiates on Severity
by Craig Dismuke, Dudley Carter
Economy Expanded 2.3% in 3Q, Migration to Services Spending Revised Higher: The final revision to 3Q GDP’s tally showed the economy grew 2.3%, up from the previous revision’s 2.1% estimate. Given the lagging nature of this data, the final revision to GDP rarely results in a noticeable impact on the markets. Nonetheless, the details show personal consumption was revised up from +1.7% to +2.0% on a substantially larger shift into services activity. Inventories were revised higher, but still have a lot of room to boost GDP tallies in 2022. External trade was an even larger drag in 3Q as exports were revised down a larger amount than were imports. Likewise, trade has substantial room to boost GDP in future quarters. The price deflator was revised up from +5.9% to +6.0% while the core price deflator was notched up from 4.5% to 4.6%.
Mortgage Applications Dip: Mortgage applications for the week ending December 17 fell 0.6%. The average 30-year mortgage rate dipped from 3.30% to 3.27%. Refinance applications rose 2.2% but purchase apps fell 3.3%. Despite the disappointing weekly result, the 4-week average for purchase apps is now up 18% since mid-August.
Consumer Confidence and Existing Home Sales: At 9:00 a.m. CT, the December Conference Board report on consumer confidence is expected to show a slight improvement. After peaking in June, confidence has been damaged by inflation and COVID-19 uncertainty ever since. Also at 9:00 a.m., November’s existing home sales data are expected to show a 3.0% MoM increase which would add to the run of reports showing housing ending 2021 on a strong note.
Biden Addresses Omicron, No New Restrictions and Differentiates on Severity: President Biden said Tuesday, “We should all be concerned about Omicron — but not panicked. If you’re fully vaccinated, and especially if you got your booster shot, you are highly protected. And if you’re unvaccinated, you’re at a higher risk of getting severely ill of COVID-19, getting hospitalized, and even die. So the best thing to do is to get fully vaccinated and get your booster shot.” He even cited President Trump’s recent acknowledgment that he had received a booster shot, saying it’s “maybe one of the few things he and I agree on.” He discussed plans to procure 500 million at-home tests and mail them to U.S. households and said “test-to-stay” procedures should be used to keep schools open. As predicted by earlier reports, he attempted to shift the focus away from cases towards severe illness. “There’ll be positive cases in every office, even here in the White House among the vaccinated, from Omicron,” the President said, adding, “But these cases are highly unlikely to lead to serious illness.”
Virus Developments: Germany announced Tuesday that it would close clubs to slow the virus spread and Chancellor Scholz said citizens should prepare for a “massive” increase in infections in coming weeks. Scotland, Sweden, Austria, and Portugal all announced new measures. U.K. Prime Minister Johnson said the virus situation remains “difficult” but said there would be no new restrictions added before Christmas, noting there wasn’t enough evidence to tighten restrictions further. In the U.S., Chicago will require proof of vaccination to eat a restaurant and New York City will offer a $100 incentive to get a booster shot. Reports indicated the FDA will approve pills created by Pfizer and Merck, marking the first at-home treatment for COVID-19.
Market’s Tone Brightened Tuesday: In a complete reversal of Monday’s malaise, Tuesday’s market screens were merry and bright. Stocks rose sharply as energy led a broad reversal and recovery across most sectors that boosted the S&P 500 by 1.8%. Oil prices jumped by around 4% as risk appetite returned, with investors continuing to contemplate Omicron’s economic impact. Tech shares were the second best performers within the S&P following better-than-expected financial results from Micron Technology, a top U.S. semiconductor producer. The consumer discretionary sector closed out the top three spots, helped by sizeable gains for consumer services companies, travel stocks, and Nike. The apparel conglomerate reported stronger-than-expected financial results after Monday’s market close. As equities gained, longer Treasury yields added to Monday’s climb and shorter yields unwound small declines in the prior session. The 2-year yield rose 3.5 bps to 0.67% and the 5-year yield jumped 4.9 bps to 1.22%. The 10-year yield added 3.9 bps to 1.46%, pulling back from session highs after an auction of 20-year bonds saw strong demand. The bid-to-cover ratio rose from 2.34 in the last auction to 2.59 while dealers took down 14.3% of the auctioned amount, a notable drop from the previous 20.4% award.
U.S. markets are little changed ahead of Wednesday’s domestic trading session following a relatively silent night across most foreign markets. Stocks inched up in both Asia and Europe and sovereign yields were generally higher. Prior to the final estimate of third quarter GDP, index futures were mixed but close to flat on the day and the Treasury curve was mixed but little changed after paring an overnight rise. The 2-year yield was 0.2 bps lower while the 10-year yield was 0.7 bps higher at 1.47%. Markets remained little changed after the positive GDP revision.