The Market Today
Brexit and Stimulus Talks Continue; Moderna Vaccine Approved by FDA
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Stimulus Headlines: Further evidence in the latest jobless claims data that the recovery has continued to slow was countered by the continued optimism about a stimulus deal. President Trump said that the outlook for an agreement was very good and Senator Schumer said, “None of the remaining hurdles cannot be overcome. Everyone is committed to achieving a result, and we will not leave until we get the job done.” Senator McConnell echoed that sentiment, noting, “I continue to appreciate our productive discussions, …We’re going to stay right here until we’re finished, even if that means working through the weekend, which is highly likely.” There appeared to be a consensus view that another short stopgap funding bill was needed, although there was some side discussion that a short government shutdown wasn’t out of the cards.
Monitoring the Virus Headlines: Starting with some encouraging news, the FDA’s advisory panel said the benefits of Moderna’s vaccine outweigh the risks, opening the door for the FDA to issue emergency use authorization for a second vaccine. And while that bodes well for the medium-term outlook, there remain concerns about the current surge of cases around the globe that has led to governments announcing new restrictions. The U.S. outbreak continues to produce troublesome statistics on new cases, hospitalizations, and deaths. In Europe, the U.K. stopped short of locking down England for Christmas but officials warned citizens to think twice before mingling. The U.K. government also announced it was extending its support of furloughed workers through April. Poland will impose a nationwide quarantine from December 28 to January 17 that will close many popular business types and Portugal will limit mobility after the end of the year. Ireland’s prime minister said more restrictions are likely needed in the days ahead with a final decision expected next Tuesday. Northern Ireland said it will enact a six-week lockdown starting on Boxing Day.
Quiet Calendar, Except for Fiscal Negotiators: Today is the last trading Friday of 2020. The only economic report on the calendar today is the November Leading Index, expected to rise 0.5% but slow from a growth rate of 0.7% in October. Fed Governor Brainard is speaking on climate change and financial regulations at 10:10 a.m. CT. Most importantly, Brexit (discussed below) and U.S. stimulus (discussed above) negotiations continue with investors watching closely.
Negotiators Close In on $900b in Stimulus as Jobless Claims Jump to 14-Week High: Concerns about the near-term economic outlook and continual optimism about a stimulus compromise remained the major driving forces of U.S. markets on Thursday. A day after the Fed opted for more explicit forward guidance on asset purchase as opposed to actual changes to their size or duration, the Department of Labor reported that initial jobless claims rose for a second week to a 14-week high and showed a drop in continuing claims to a new pandemic low was largely a shift into emergency extension programs as more state benefits expired. Equity futures dipped modestly on the report but Treasury yields dropped several basis points to new session lows, moves that were likely blunted somewhat by growing expectations that more fiscal relief could soon be on its way. Yields subsequently recovered their earlier declines mid-morning after Senate Majority Leader McConnell reinforced those expectations, saying the “bipartisan, bicameral agreement appears to be close at hand,” although it is “highly likely” it will take through the weekend to finalize all of the details. That sparked some conversation about the likelihood of another short-term stopgap spending bill or the possibility of a short shutdown, but the markets appeared to ignore the topic. The three major equity indices all gained at least 0.5% and finished at record levels and the 10-year Treasury yield settled up 1.7 bps to 0.93%.
Bank of Japan to Review Policy to Find More Ways to Ease: There was limited positive follow through in global risk markets overnight from Wall Street’s record-setting Thursday. Asian markets declined around 0.6% on Friday and European stocks lacked a consensus direction, keeping the Stoxx Europe 600 little changed on the day. A couple of days after the Fed’s last 2020 decision, the Bank of Japan kept its key policy measures unchanged but extended its emergency business support lending program by six months through September 2021. More of a surprise, the central bank announced that, “Given that economic activity and prices are projected to remain under downward pressure for a prolonged period due to the impact of COVID-19, the Bank will conduct an assessment for further effective and sustainable monetary easing,” with results expected in March. Data released several hours ahead of the decision showed core inflation fell 0.9% YoY in November, the steepest decline since September 2010.
Brexit Talks Hit a Snag Over Fisheries: In Europe, yields were relatively quiet and holding above Thursday’s level following an unexpected rise in German business confidence in December and smaller-than-expected declines in retail sales and business orders in the U.K. Nonetheless, U.K. yields were notably lower as Brexit fears returned following a couple of days that showed some glimmers of optimism. Talks appeared to break down again as sides failed to reconcile differences related to rules and regulations related to fisheries. U.K. PM Johnson said, “Things are looking difficult,” and the EU’s top negotiator said, “We’re at the moment of truth. …We have very few hours left if we want an agreement.” While most yields in Europe were mixed and less than 1 bp changed, the U.K.’s 10-year yield had declined 4.8 bps. With a quiet U.S. economic calendar and focus still on spending and stimulus negotiations in Washington, U.S. stock futures were essentially flat at 7:30 a.m. CT and Treasury yields were lower by less than 1 bp.