The Market Today
Bumpy Week Ahead for Markets: 2020 Election, FOMC Decision, October Jobs Report
by Craig Dismuke, Dudley Carter
Potential for Volatile Week Given Range of Events: A very busy and potentially bumpy week kicks off this morning with the ISM (9:00 a.m. CT) and Markit (8:45 a.m.) Manufacturing Indices for October. Manufacturing has remained quite strong while the service sector has been hit hard by the renewed COVID-19 outbreak and associated lockdowns. Also at 9:00 a.m., the September construction spending data is expected to show another strong result.
2020 Elections – Potential Uncertainty When Certainty Would Be Particularly Useful: With one day remaining until the 2020 elections, the polling data and betting markets continue to show similar trends: Democrats retaining control of the House and winning the White House, and a tight race for the Senate. Adding to this year’s uncertainty, it is possible that the results remain unclear for days or weeks following election day. Ironically, given the differing stimulus plans hanging in the balance, this year’s results are likely to have an unusually large impact on short-term trends for the economy and markets – certainly a year in which a quick answer would be preferable from an investor perspective.
October Jobs Reports and FOMC Policy Decision: Also this week, the October labor data is expected is to nonfarm payrolls rise 635k and the unemployment rate tick down 2/10ths to 7.7%. The Fed is also scheduled to conclude its November policy meeting on Thursday, although expectations are for a fairly quiet result with an eye on future meetings.
Global Stocks Rebound as U.K. Lockdown and Strong PMIs Kick-off Week of Key Events for Global Economy: Investors are rather cheerful Monday considering the U.K. announcing a partial lockdown and the numerous risks that markets face this week. U.K. Prime Minister Johnson announced Saturday that bars, restaurants, and non-essential retail and leisure venues in England must close for roughly a month. With few exceptions, citizens will be asked to stay at home and avoid mixing with others. To help absorb the economic hardship this will create for many, the government also extended a program to pay affected workers up to 80% of their regular pay. The decision is the latest in a string of actions across Europe in recent days (more below) to address surging infections and fears of overrun hospitals. Nonetheless, global equities were notably firmer Monday with stocks across Asia closing 0.9% and European indices and U.S. futures up more than 1% at 7 a.m. CT.
Yields Move Lower Following Peculiar Rise Last Week as Investors Brace for Week of Headlines: While investors fear the pandemic’s resurgence and new restrictions will cut off the recovery, data overnight showed economic momentum for manufacturing was better than expected heading into the slowdown. Two separate PMI surveys confirmed China’s manufacturing sector expanded for a sixth month in October, with the private survey of smaller-and-medium sized businesses hitting its highest level since January 2011. In Europe, most preliminary manufacturing PMI estimates for October were revised up, lifting the Eurozone’s index from 54.4 to 54.8, its strongest level since July 2018. Monday’s partial recovery follows one of the worst weeks of the pandemic for global equities and is impressive considering it comes on the eve of the U.S. presidential election. The nationwide vote kicks off and headlines an incredibly busy week of economic events, including a Fed meeting and October’s payroll report. The saturated calendar has pulled Treasury yields lower overnight following an unusual rise last week in the face of the equity turmoil. At 7:30 a.m. CT, the 2-year yield was unchanged while the 10-year yield had declined 2.7 bps to 0.85%.
ICYMI – October 30, 2020 Weekly Market Recap: The U.S. economy grew at an annualized 33.1% rate in 3Q after contracting 31.4% in 2Q. The Eurozone economy grew by an unannualized 12.7% rate after shrinking 11.8% in 2Q. The major U.S. equity indices, however, posted their worst weekly declines since March as the pandemic in Europe and the U.S. gained steam. Most European countries saw record case increases during the week as an exponential outbreak persisted across the continent, leading to the announcement of new restrictions for several economies, including the two largest in France and Germany. Both announced partial lockdowns that will last roughly a month and detailed plans to provide fiscal support to those businesses that are negatively affected. The ECB kept policy unchanged but signaled it will also provide more stimulus at the December meeting. In the U.S. cases hit a record on Friday but the recent and rapid increase in infections has yet to derail the labor market recovery based on the better-than-expected weekly update on jobless claims. Worries that the reinstated restrictions in Europe and worsening conditions in the U.S. will weigh on the recovery dragged the S&P 500 down 5.6% last week, the worst performance since March 20. Nonetheless, longer Treasury yields rose with analysts pointing to a shift to cash before a week full of headline risks and potential concession for expectations of increased stimulus and supply. The 10-year yield added 3.1 bps to end the week at 0.87%, its third-highest level since March. Click here to view the full recap.