The Market Today

Conflicting Messages On U.S.-China Trade Deal; Virus Concerns Continue to Grow with Case Count


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

VS Coronavirus Chartbook (PDF) (Link)

Tracking Case Count: A special focus has been placed on state level statistics in the U.S., as several states with accelerating outbreaks have resulted in an uptick in total cases at the national level. Florida’s cumulative cases rose 3%, below the most recent seven-day average. California’s cases, however, were up 2.4%, above the most recent average trend rate, and Governor Newsom announced hospitalizations had climbed 16% in two weeks. He did note, however, that the state could “absorb an even greater increase.” Governor Abbott said the virus is spreading at “an unacceptable rate” across the state and hinted that measures to slow it could be taken in coming weeks if positivity rates and hospitalizations, which posted their largest increase in more than two weeks, continue to quicken. White House adviser Kudlow said of the national statistics that a second wave was unlikely, only sporadic hot spots in some areas.

Monitoring Headlines on Reopening: Several headlines showed that the country continues to reopen despite some concerns about a faster contagion. Illinois is posed to move to phase four on June 26. San Francisco announced that some restrictions which were scheduled to expire in mid-July will now be ended at the end of June. Chicago’s mayor said the city’s next phase of reopening would begin on June 26. On the other hand, Louisiana said it will extend its second phase by an extra 28 days. Nationally, the U.S. and Canada have reportedly agreed to keep cross-border travel restrictions in place for a longer period, until July 21.

 

TODAY’S CALENDAR

Markit PMIs Projected to Verify June Rebound: The Markit Manufacturing, Services, and Composite PMIs for the month of June are expected to show solid evidence of rebounding economic activity at 8:45 a.m. CT.  The manufacturing index is expected to increase from 39.8 to 50.0. The services index is expected to increase from 37.5 to 48.0.  If projections are accurate, the Markit data would join the regional Fed indices in signaling a bit stronger rebound in June. At 9:00 a.m., the Richmond Fed Manufacturing Index for the month of June is expected to rebound from -27 to -2.

May New Home Sales Expected to Tick Higher in Early Recovery:  At 9:00 a.m. CT, the May New Home Sales report is expected to show a 2.7% MoM increase in sales.  New home sales fell 7% in February and 14% in March before stabilizing in April, one of the earliest metrics to show stabilization.


YESTERDAY’S TRADING

Equities Gain Despite Some Virus Concerns: U.S. equities staged a sharp v-shaped rebound shortly after Monday’s open as investors continued to contemplate the shape of the economic recovery. Developments over the weekend showed a global outbreak that has yet to be controlled and several state outbreaks in the U.S. that continued to gain steam. However, the Dow and S&P 500 rose around 0.6% while the Nasdaq surged 1.1% to a new record high. Performances of the various sectors offered no clear consensus about the outlook, with a mix of gains and losses affecting both cyclicals and defensives.

Yields Rose Modestly as Caution Lingered: Financials were the biggest decliners on the S&P 500 despite the uptick in yields, while tech companies led the way higher. Apple shares gained more than 2.6% after announcing new operating systems for most of its products, more than erasing Friday’s decline on reports the company was closing stores in some locations due to accelerating outbreaks. As equities climbed, Treasury yields clawed back from overnight declines, leaving the 2-year yield 0.6 bps higher at 0.19% and the 10-year yield up 1.5 bps to 0.71%.


OVERNIGHT TRADING

PMIs Point to Continued Improvement in June: Global equities are solidly higher Tuesday as economic data released overnight showed continued recovery in June. However, the session hasn’t been void of volatility after worries about world trade led to steep declines at the open of Asian trading. Stocks rose 0.7% across Asia and were more than 1.5% higher in Europe at 7:15 a.m. CT. The latest round of purchasing managers’ indexes, or PMIs, showed the global recovery picking up as services sectors benefitted from the loosening of restrictions put in place to slow the virus. Australia’s services PMI nearly doubled, from 26.9 to 53.2, while Japan’s rose from 26.5 to 42.3. A reading of 50 separates expansion from contraction. France’s services PMI jumped from 31.1 to 50.3 and Germany’s climbed from 32.6 to 45.8, lifting the Eurozone-wide reading from 30.5 to 47.3. Combined with the manufacturing index improving from 39.4 to 46.9, the Eurozone composite index recovered from 31.9 to 47.5.

Trade Angst Aggravated Markets Early: Current market levels, however, don’t capture the complete story of Tuesday’s trading session so far. Equities initially tumbled early in Asia after White House trade adviser Navarro seemed to indicate the trade deal between the U.S. and China is “over.” The swift sell-off likely elicited his follow-up interview to clarify that his comments were “taken wildly out of context” and that the trade deal “continues in place.” President Trump also attempted to calm nerves with a tweet that the deal is “fully intact.” After falling more than 1.6% amid the trade angst, futures on the S&P had recovered and were up more than 1% and at their highs at 7:30 a.m. CT. Tracking a similar path, the 10-year Treasury yield was up 1.6 bps at 0.73% after earlier falling as low as 0.68%.


NOTEWORTHY NEWS

Existing Home Sales Remain Weak: Existing home sales fell for a third month in May, showing the impact that stay-at-home orders across the country had on contract signings (pending home sales) in March and April. Existing home sales, which are tallied when a previously-signed contract closes, declined a larger-than-expected 9.7% last month to an annualized pace of 3.91 million units. The monthly decline followed pullbacks of 8.5% and 17.8% in March and April and the overall pace of activity was the slowest since October 2010. Three of the four geographic regions posted another double-digit decline while sales in the South slumped by a smaller 8%. While troublesome for second quarter growth estimates, more recent and timely purchase applications data has surged since mid-April and builder confidence has perked up, providing hopes for housing improvement in future sales reports.


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