The Market Today
Concerns Over COVID-19 Variants Grow
by Craig Dismuke, Dudley Carter
Inventories and Economic Forecasts: The May Wholesale Inventory report is expected to show a 1.1% monthly increase in inventories in its final revision (9:00 a.m. CT). As the global supply chain is restored, inventories are expected to be replenished adding a strong tailwind to growth for several quarters. Also this morning, Bloomberg will release its updated Survey of Economists, conducted over the past week as Treasury yields moved convincingly lower.
Concerns Over COVID-19 Variants Spreads: On the pandemic front, there are growing concerns about the virus variants and spikes in cases in some countries. While daily cases have accelerated in Spain, the U.K., the Netherlands, and other countries; the acceleration has been minimal in the U.S. There are, however, 35 states reporting higher 7-day average cases than 14-day averages (see Chart of the Day).
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Treasury Yields Recoil Friday after Plumbing Multi-Month Lows; Equity Futures Partially Recover and Remain Near Record Levels: U.S. equities fell Thursday but ended the day well off intraday lows and still in close proximity to record territory. Stocks had declined more than 1% across Asia and Europe’s Stoxx 600 ended the day 1.7% lower. Following record closes Wednesday after the Fed released Minutes from their June meeting, the S&P 500 dropped 0.9%, weighed down by losses in all 11 sectors, while the Nasdaq ended down 0.7%, both having recovered from larger declines of 1.6% and 2.0% early in the session. The global weakness started early during Asian trading and was attributed to several factors, including concerns about the recovery, which could keep inflation in check and central bankers at bay; angst around rising virus cases in some countries; and technical momentum. Momentum was also cited as a reason for the latest decline in Treasury yields. The 2-year yield fell 2.0 bps to 0.19%, its lowest close since the day before the Fed surprised markets (June 16) with projections pulling two rate hikes into 2023. The 5-year yield led all declines, down 3.7 bps to 0.74%, its lowest close since June 11. Falling for an eighth session, the 10-year yield shed 2.3 bps to 1.29%, above its daily low of 1.248% but still the lowest close since February 17.
Treasury yields, however, broke out of their two-week downtrend overnight to push the curve higher and steeper. At 7 a.m. CT, the 2-year yield had added back 1.2 bps to 0.21% as the 10-year yield recovered 4.3 bps to 1.34%. Yields had also risen in the U.K. and Germany but were trailing the move in Treasurys. The mood reversal was playing out in equity markets as well with European stocks up around 1% and S&P 500 futures 0.5% higher. The Nasdaq was lagging with a 0.1% gain, likely capped by the higher yields. Prior to sentiment improving in European trading, stock indices closed mostly lower across Asia. The continent has seen virus concerns resurface in recent weeks as spread of the Delta variant has led to new social restrictions in some countries. Thailand (nationally) and South Korea (in Seoul) introduced tighter measures to curb spread of the virus. Pfizer said late Thursday that early results from a study show a third booster of its vaccine raises protection levels broadly and appears effective against the Delta variant, although U.S. health officials said subsequently that boosters aren’t yet necessary.
Non-Real Estate Consumer Credit Expanded Rapidly in May: Consumer credit expanded by a record $35.3 billion in May to $4.28 trillion on large increases in both revolving and nonrevolving credit types. The $9.5 billion increase in revolving credit, which primarily reflects increases in credit card balances, was the largest monthly increase since December 2019. Notably, however, the total outstanding balance of $975 billion for revolving credit remains more than 11% below its pre-pandemic peak near $1.1 trillion, reflecting big declines early in the pandemic and only a few months of modest increases since. Nonrevolving credit, on the other hand, hardly skipped a beat throughout the pandemic. The $26.1 billion monthly increase in nonrevolving loans, used for things such as auto purchases and student loans, and the outstanding balance of $3.3 trillion both represented records. Total outstanding nonrevolving debt has risen nearly 6% since February 2020.
CORONAVIRUS UPDATE Vining Sparks Coronavirus Chartbook