The Market Today
COVID-19 Cases Rise but U.K. Data Show Reason for Optimism
by Craig Dismuke, Dudley Carter
Cases Rising in All 50 States but U.K. Trend Appears to Have Turned: Daily COVID-19 cases are up 61.6% in the U.S. over the past seven days, including increases in all 50 states. On a positive note as it relates to determining the potential economic impact of this wave, fatalities in the U.K. have remained decoupled from the recent growth in cases. This is generally being attributed to the impact of vaccines on the severity of cases. Moreover, cases in the U.K. have turned lower over the past week, now down 15%. (Chartbooks: Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts)
New Home Sales and Regional Fed Report Kick Off FOMC Week: Today’s calendar is relatively quiet with the June New Home Sales report expected to show a 3.7% MoM increase (9:00 a.m. CT), and the July Dallas Fed Manufacturing index expected to inch even higher. New home sales have shown some disappointing month-over-month numbers this year as the pace of activity has not kept up with torrid pace in the second half of 2020. Despite the monthly numbers, the overall level of sales, non-seasonally adjusted, has remained very strong. Investors are likely to be more focused on the two-day Fed meeting beginning tomorrow.
Infrastructure Spending Talks with Debt Ceiling Looming: Also on the calendar this week will be negotiations on a $579 billion infrastructure package. The package is expected to have bipartisan support although there is not yet an agreement on how to fund the spending. Adding to the complexity, House Speaker Pelosi indicated over the weekend that the House will not take up the bill unless the Senate also passes a $3.5 trillion “social spending” package. Senate Leader Schumer is attempting to pass the infrastructure package quickly so work can begin on raising or suspending the debt ceiling once again. Secretary Yellen warned that Treasury would be forced to take extraordinary measures by August 2 if the ceiling has not been lifted. Speculation is that extraordinary measures could prevent a government shutdown through early October.
ICYMI – July 23 Weekly Market Recap – Mixed Data and Volatile Markets: Last week brought mixed signals in the economic data, rising COVID-19 cases, and intraweek market volatility that finally acquiesced to the trend. There were a handful of housing reports that continued to paint a cloudy picture of housing activity. The jobless claims data showed a surprising increase in new claims but a strong weekly result in continuing claims due largely to states discontinuing the pandemic programs. The July Markit PMIs showed the rise in COVID-19 cases weighing on activity in the U.K., the reopening of the E.U. driving activity strongly higher, and the labor shortage and supply chain issues dragging on the U.S. outlook. COVID-19 cases continued to rise in the U.S., particularly in states with low rates of vaccination. However, the hospitalization and fatality rates pointed to a less severe health situation, thus far. The 10-year Treasury yield fell, somewhat inexplicably, to 1.126% by Tuesday morning after the S&P plunged 2.2% intraday Monday. By the end of the week, the 10-year yield was back up to 1.28% and all three main U.S. equity indices closed the week at record-high levels.