The Market Today

Biden Says No Lockdowns Needed; Powell Highlights Increased Uncertainty


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE  Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts

Variant Uncertainty Remains High with Data Still A Couple of Weeks Away:This variant is a cause for concern, not a cause for panic,” President Biden said Monday in brief remarks from the White House, adding that while it will take a couple of weeks for data to prove them correct, his medical advisers expect “the vaccines will continue to provide a degree of protection against severe disease.” Notably, he said lockdowns won’t be needed in the U.S. this winter, largely because of vaccine uptake. Pfizer’s CEO also said he is “comfortable the playbook will work” against Omicron. However, market sentiment has soured again Tuesday following comments from Moderna’s CEO late Monday evening. “There is no world, I think, where [vaccine efficacy] is the same level… we had with Delta,” he surmised. It will take a couple of weeks for data to show exactly how effective current vaccines are and several months to produce a Omicron-specific shot if needed, he added. While not drastically different than the consensus opinion on the timeline, the market’s response to the Moderna Chief’s remarks (more below) show the increased uncertainty related to the variant.


TODAY’S CALENDAR

Powell’s Prepared Remarks Reference Omicron Uncertainty: Fed Chair Powell and Treasury Secretary Yellen are scheduled to testify before a Senate panel this morning at 9:00 a.m. CT.  Powell’s prepared remarks were released late Monday afternoon. The overarching tone of his testimony was, as expected, closely aligned with his press conference following the Fed’s meeting on November 3. The Fed expects inflation will eventually moderate, sees supply bottlenecks lingering “well into next year,” believes there is more ground to cover for the labor market, and will not hesitate to act if data indicate stronger inflation is becoming entrenched in longer-term expectations. Notably, Powell addressed the new COVID-19 variant, saying the Omicron strain creates “downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.” Also speaking today are New York Bank President Williams (9:30 a.m.) and outgoing Fed Vice Chair Clarida (12:00 p.m.)

Home Price Indices and Consumer Confidence: The FHFA and S&P CoreLogic home price indices are scheduled for release at 8:00 a.m. CT.  Both are expected to show an uptick in monthly home price gains but continued moderation in their annual rates of growth.  Both indices currently show home prices up near 20% YoY.  At 9:00 a.m., the Conference Board’s November report on consumer confidence is expected to show another decline after bouncing a few points in October.


OTHER ECONOMIC NEWS

Pending Home Sales Recovered Notably More than Expected in October: Pending home sales jumped 7.5% last month following a 2.4% decline in September, extending a volatile uptrend for activity since an early year slowdown and settling the index at its strongest level since December. The recovery was widespread across the country and a partial response to rising rental costs and front-running of a potential move higher in mortgage rates, according to the National Association of Realtors. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low,” the group’s chief economist noted. The data indicate that existing home sales, which rose unexpectedly in October based on data released last week, should remain firm in the months ahead.

Dallas Fed’s Manufacturing Index Falls Despite Better Details: The Dallas Fed’s Manufacturing activity index weakened unexpectedly in November despite firmer readings on activity and employment. Notwithstanding production, new orders, shipments, and employment all improving, the headline index slipped from 14.6 to 11.8, disappointing expectations for an improvement to 15.0. November’s level was stronger than levels in August and September amid a Delta-related slowdown but much lower than the 29.5 average reading from February through July. While current delivery times eased, prices paid jumped to a new all-time high and prices received edged lower to the second strongest reading on record. Looking ahead, expectations were for activity and inflation to both pick up in the six months ahead.


TRADING ACTVITY

Market Sentiment Partially Recovered Monday as Nerves Calmed and Investors Await More Definitive Data on Omicron: U.S. markets reversed a portion of Friday’s massive moves on Monday as investors continued to contemplate the potential impact of the latest COVID-19 variant. After slumping 2.3% on Friday in the initial shock of the identification of omicron, the S&P 500 rose 1.3% and closed just down from session highs. In addition to a reflexive bounce following such a sharp sell-off, some attributed more steady sentiment to President Biden’s efforts to ease variant-related fears (more above). U.S. WTI rose 2.6%, a modest rebound from Friday’s 13% plunge, and remained below $70 per barrel. The Treasury curve steepened but yields ended mixed and near session lows reached after the Fed released Chair Powell’s prepared remarks ahead of today’s testimony (more above). The 2-year yield fell 1.4 bps to 0.48% after retreating from a session high of 0.56%. The 2-year yield closed last Wednesday at 0.64% before the news of omicron broke. The 5-year yield slipped 1.0 bp to 1.15% compared with a session peak of 1.24% and a close last Wednesday above 1.34%. The 10-year yield added 2.6 bps to 1.50%, off session highs of 1.56% and well below pre-omicron levels around 1.65%.

Markets Infected by Worry Again on Tuesday: Monday’s market reprieve was short-lived as global equities and oil prices sold-off anew and Treasury yields retreated below last Friday’s lowest points in the initial Omicron response. The catalyst for the latest concern, based on the timing of sharp reversals on multiple intraday charts, appeared to be comments from Moderna’s CEO about vaccines being less effective against the new variant (more above). Asian stocks reversed into negative territory and U.S. equity futures tumbled into negative territory as his comments hit the wires. Europe’s Stoxx 600 and Dow futures were down 1.0% before 7 a.m. CT. The S&P 500 slipped 0.9% and U.S. WTI crude fell 2.8% to $68 a barrel, matching last Friday’s low level. Treasury yields dropped and the curve flattened. The 2-year yield was 2.4 bps lower at 0.46%, the 5-year yield fell 6.1 bps to 1.09%, and the 10-year yield dropped 7.1 bps to 1.43%, all setting new lows since November 9 (the day before October’s hot CPI report). The new virus concerns have shifted the market’s focus, at least temporarily, away from current economic trends. China’s November PMI data, released overnight, were stronger than expected and Europe’s annual core CPI rate accelerated from 2.0% to 2.6%, hotter than the 2.3% expected and the fastest on record.


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