The Market Today
COVID-19 Cases, Hospitalizations, Fatalities, and Closures
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: While there appear to be early signs of the outbreak ebbing in Europe as a whole, several countries continue to struggle with slowing the pace of new infections. Austria, Greece, and the U.K. all reported new records for daily infections. France reported a new record for hospitalizations and government officials said the current lockdown will last for at least two more weeks. However, French government officials also said the second wave of the country’s outbreak may peak early next week. In the U.S., Chicago made headlines with an advisory for citizens to stay at home for 30 days starting November 16, except for essential outings, which include work and school. Officials also recommended against having Thanksgiving gatherings. The steps followed new restrictions in New York announced on Wednesday that will affect operating times for gyms, bars, and restaurants and limit public gathering sizes to 10 people. U.S. cases climbed to a record this week and increased hospitalizations are becoming more widespread. Cases in New York have jumped over the last two days and Illinois’s hospitalizations hit a record.
Monitoring the Stimulus Headlines: Dr. Fauci said Thursday that vaccines in the months ahead should mean the outbreak won’t be a “pandemic a lot longer.” However, he said the 2019 coronavirus could persist as an endemic for a long time and leaders from multiple countries warned against becoming so focused on a vaccine that they fail to take simple steps to help address the current surge of infections around the globe. Senate Majority Leader McConnell lauded the rapid pace at which the vaccine process has unfolded, but said it was urgent that Americans continue to wear masks and physically distance themselves when they go out. That paradigm helps partly explain why McConnell continued to support another stimulus package, but only in an amount that is highly targeted at the areas facing acute problems. On the other side of the aisle, former Vice President Biden spoke with Democratic leader in the House and Senate about the need for more aid. Senate Minority Leader Schumer said more relief is quickly needed considering the virus surge across the country.
Production Pipeline Shows Higher Prices for Foods, but Little Evidence of Imminent Inflation Pressure: Producer prices rose 0.3% MoM in October at the headline level, slightly faster than expected due to an sharp increase in food prices. Headline PPI rose from 0.4% to 0.5% on a year-over-year basis while core PPI fell from 1.2% to 1.1%. The firmer headline inflation pressure came on the goods side, particularly from another firm month for food prices. Producer prices for goods rose 0.5% MoM while services rose just 0.2%. Finished consumer foods and foods for export drove goods prices higher, rising 8.5% and 6.4%, respectively. Apart from the increase in food prices, core goods PPI was flat month-over-month. There remain no early signs of brewing inflation pressure from the production pipeline.
Consumer Confidence: At 9:00 a.m. CT, the University of Michigan will released its first look at consumer confidence for the month of November. It is expected to inch higher. Confidence, according to the U.M. report, remains at its highest level of the pandemic but well below levels seen from 2015 through 2019.
Fedspeak: There are two Fed officials on the tape today, New York Bank President Williams (6:00 a.m. CT) and St. Louis Bank president Bullard (7:30 a.m.).
Virus Concerns Return After Early-Week Excitement Over Vaccine Progress: Treasurys rallied sharply Thursday, sending yields sliding as stocks stumbled and further trimmed their net gain since Pfizer announced Monday its joint vaccine with BioNTech appeared safe and effective. While a vaccine could bring the pandemic to an end sometime in 2021, as stated by Dr. Fauci in a morning interview, investors still face the repercussions of the ongoing surge that has pushed U.S. cases to a new record this week and led to a concerning rise in hospitalizations.
Treasurys Retreated Sharply as Stocks Fell: The concern is that a deteriorating virus situation could disrupt the economic recovery at a time with Congress has failed to agree on more stimulus. Following new restrictions on bars, restaurants, and gathering sizes announced Wednesday, Chicago issued an advisory asking its citizens to stay at home for the next 30 days unless travel is essential, including trips to work and school. Nonetheless, data Thursday morning showed jobless claims have continued to decline in the face of a widening outbreak, albeit as a slower pace than in weeks prior. The S&P 500 slumped 1% as all 11 sectors slipped from Wednesday’s closing levels, led by the more cyclical sectors such as energy and materials. The more notable moves, however, were saved for the Treasury market, where the 10-year yield tumbled 9.4 bps to 0.88% after jumping nearly 16 bps over the last three sessions. Most of the move occurred Monday after Pfizer’s vaccine announcement.
Eventful Week for Markets Set for a Mixed Finish: An eventful week for global markets appears set for a mixed finish as major global equity indices diverge and sovereign yields continue to reflect a bias for caution. National stock indices were mixed across both Asia and Europe while U.S. futures have improved. World equities and yields shot higher Monday after Pfizer’s announcement that an initial analysis of phase 3 trial data shows its joint vaccine candidate appears safe and highly effective, an obviously optimistic development for the medium term outlook. However, Treasury yields have unwound most of their increase and the S&P 500 fell back after briefly breaking through its previous record high as troublesome trends for cases and hospitalizations refocused investors on the near-term risks the virus poses.
Yields Stick Well Below Weekly Highs as Stock Futures Attempt to Salvage Weekly Gain: In remarks early this morning, New York Fed President John Williams highlighted those dynamics, saying that while the vaccine news is a “positive sign” for the economy for “next year,” the ongoing surge of cases in the U.S. “clearly puts a question mark on the ability of the economy to weather this period.” Activity had bounced back sharply around the world before the latest wave of infections led to new lockdowns and restrictions, further evidenced earlier this morning by a record 3Q recovery in Eurozone GDP of 12.6% after declines of 3.7% and 11.8% in 1Q and 2Q, respectively. At 7:30 a.m. CT, Treasury yields were mixed but hardly changed. The 10-year yield was holding 0.88%, 10 bps below the weekly peak on Tuesday but 5 bps above last Friday’s close. U.S. stock index futures were up 0.7%, receiving a boost from positive earnings reports from Disney and Cisco and helping to preserve a weekly gain for the S&P 500.
Powell Gives Vaccine News a Nod but Stresses Economy Still Faces Notable Risks from the Virus: As part of a panel discussion alongside central bank heads from Europe and the U.K., U.S. Federal Reserve Chair Powell continued to sound cautious about the potential longer-term effects of the virus on the economy. He said the recovery occurred faster than expected but been uneven and incomplete and faces continued risks from the virus. Powell said a “substantial” number of workers will need support even after the pandemic eases, particularly those workers in the lower wage brackets, in part because of belief that the virus has expedited some pre-virus shifts to a more technologically advanced economy. As a result, he continued to speculate that the Fed will have to do more and additional assistance from Congress is also likely to be needed. A full recovery for the economy will require consumer and business confidence to stage a full comeback, Powell said, before calling the recent vaccine developments welcome news for the outlook.