The Market Today
Busy Week of Data Including August Jobs Report, Fed Communications
by Craig Dismuke, Dudley Carter
VS Coronavirus Chartbook (PDF) (Link) (Updated by 9:00 a.m. CT)
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Fedspeak and Dallas Fed Index: Today’s economic calendar brings a quiet start to a busy week. The only scheduled report is the Dallas Fed Manufacturing Activity index at 9:30 a.m. CT. Fed Vice Chair Clarida will speak on the new monetary policy framework released last week by the Fed. There is a growing number of Fed officials who have expressed a preference to wait for providing more forward guidance or additional easing. Clarida’s comments, and Governor Brainard’s tomorrow, will be important temperature check. Also speaking today is Atlanta Bank President Bostic. Later in the week, the August jobs data are expected to show further improvement but much work to do going forward.
Stocks Continue to Inch Higher as Another Monthly Gain Comes to a Close: Global market sentiment remains modestly tilted in favor of risk assets on Monday as a new week gets underway and a strong August rally looks to end on a high note. Stocks closed mostly lower in Asia despite another round of expansionary PMIs from China, but gained across almost all of Europe and U.S. futures were higher by around 0.2% on average at 7:15 a.m. CT. The small gain implied for the MSCI All-World Equity Index would nudge the August gain further past 6% and cement the index’s fifth consecutive monthly gain since the March plunge. A small gain for the S&P 500 today would mark the index’s strongest August performance since 1984.
Treasury Yields Remained Biased Higher: While stocks have skyrocketed from the pandemic lows in March, sovereign yields have been more subdued, held down by massive stimulus efforts from global central banks. Last week’s decision by the Fed to formalize into its framework the current plan to keep rates low until above-target inflation appears for a period also remains in the headlines. The rise in yields that ensued after the Thursday announcement also persisted into the new week. The 2-year yield was 0.4 bps higher at 0.131%, the 5-year yield had added 0.9 bps to 0.278%, and the 10-year yield rose 1.5 bps to 0.736%. The new Fed policy could create more volatility this week as investors look to speeches from a couple of key Fed governors for more details on how the Fed will actually change policy implementation to achieve these new goals.
ICYMI – August 28, 2020 Weekly Market Recap: Yields moved up last week as early upward momentum intensified Thursday after the Fed announced a major shift in its policy framework. Before the week had started, the FDA announced emergency use authorization for convalescent plasma treatment and a report indicated the White House was considering fast-tracking AstraZeneca’s vaccine candidate. Those developments lifted stocks and Treasury yields before Fed Chair Powell’s Thursday speech. While the speech was expected to be the key development, a surprise press release at the same time made quick headlines. The Fed announced it was updating its policy framework to shift to average inflation targeting, an approach that seeks moderate overshoots of the 2% inflation target after periods of persistent low-side misses to average 2% “over time.” Combined with a pledge to actively use its tools to address shortfalls from full employment, another notable change, the announcement, which most anticipated but expected at the September meeting, solidified market expectations for rates to remain at the effective lower bound for years. By Friday, the S&P 500 had gained 3.3% for the week, notching a record each day, while the 10-year yield had added nearly 10 bps to 0.72%, down slightly from Thursday’s post-Fed 0.753%, the highest since mid-June. Click here to view the full recap.