The Market Today
Central Bankers Speak; Healthcare Bill Priced
by Craig Dismuke, Dudley Carter
Today’s Calendar – Home Prices, Consumer Confidence, and Fedspeak: Today’s economic calendar will bring three reports: S&P CoreLogic home prices are expected to show prices up 5.90% YoY, the Conference Board’s Consumer Confidence report is expected to show confidence pulled back in June from 117.9 to 116.0, and the Richmond Fed Manufacturing Index is expected to increase from +1 to +5. While the consumer confidence report could elicit a market response, the more likely driver of market activity today will be a 12:00 noon CT speech from Janet Yellen along with ECB President Draghi’s comments earlier this morning (more below). Also speaking today are Harker (10:00 a.m.) and Kashkari (4:30 p.m.).
Senate Healthcare Bill Projects $321 B in Savings, 22 Million Fewer Insured: The Senate version of the healthcare bill, the Better Care Reconciliation Act, was scored by CBO yesterday and projected to save $321 billion over the next ten years, $200 billion more than the House’s plan would save. The downside was that it also projected a decline of 22 million covered persons. The bill was expected to show a smaller decline in insured persons given a continuous coverage penalty that would incentivize people to retain their coverage. The provision would keep people from being insured for six months if they had a lapse in coverage lasting more than 62 days over the preceding 12 months (a similar waiting period required by almost 75% of employers according to analysis from The Kaiser Family Foundation). As of now, Republican leadership does not think they have the votes in the Senate and need to persuade two fiscal conservatives to get to 50 votes (reports cite Rand Paul (KY) and Dean Heller (NV) as keys to getting to 50 votes).
Overnight Activity – Battle of the Bankers May Be Tuesday’s Story: Tuesday’s market activity could ultimately be driven by the net effect of a slew of public comments from world central bankers. Already we’ve heard from ECB President Draghi and already we’ve seen his comments break the recent market monotony. While Draghi has been consistent recently in characterizing Euro-area growth as firm and broadening, it was his commentary on inflation that grabbed analysts’ attention. Draghi said in an overnight speech that “The threat of deflation is gone and reflationary forces are at play.” He added, “While there are still factors that are weighing on the path of inflation, at present they are mainly temporary factors that typically the central bank can look through.” He still believes stimulus is necessary to cement an upward path for inflation that is “durable and self-sustaining” but the tone was strikingly different than his dovish take following the policy meeting earlier this month. The Euro rallied on his remarks, touching a two-week high against the Dollar. Euro stocks sank as Eurozone yields ran higher; the German 2-year yield rose 4 bps (-0.60%) and the 10-year was 6.4 bps higher (0.31%). In addition to Draghi, Governor Carney from the Bank of England is set to speak this morning ahead of the heavy slate of U.S. Fedspeak. Treasury yields are tracking Euro yields higher with the 2-year yield up 2.4 bps and the 10-year note up 3.7 bps. U.S. equity futures are weaker and the Dollar dropped on Euro strength.
Yesterday’s Trading Activity – Treasury Yields Drop on Disappointing Data: The major U.S. equity indices diverged Monday as Treasury yields inched lower and the Dollar closed with marginal gains after intraday swings in and out of positive territory. Losses in tech shares dragged the Nasdaq down 0.3% to end a three-day win streak for the index. Losses in tech also weighed on the Dow and S&P but gains in other sectors kept those two indices positive for the day. Financials were the top performer within the Dow while utilities finished in first within the S&P. The Treasury curve finished lower (2s -0.8 bps to 1.33%, 10s -0.7 bps to 2.14%) after a an early-morning drop following a disappointing durable goods orders report (more below) was reaffirmed by solid demand at the monthly 2-year note auction. The bid-to-cover ratio was 3.03, the strongest since November 2015. The 30-year bond closed at 2.698%, a new 2017 low.