The Market Today
COVID-19 Concerns, Geopolitical Risks, and Ida Makes Landfall
by Craig Dismuke, Dudley Carter
A busy week of data, culminating in the August jobs data on Friday, kicks off this morning with July’s Pending Home Sales report (9:00 a.m. CT) and August’s Dallas Fed Manufacturing Activity Index (9:30 a.m.). Also on the radar will be developments from the Gulf Coast where Hurricane Ida made landfall yesterday (more below).
Markets Relatively Quiet amid Afghanistan and Ida Developments: The situation in Afghanistan remained precarious over the weekend as the U.S. launched a couple of over-the-horizon drone attacks targeting two members of ISIS-K, one whom the intelligence community said was responsible for organizing Thursday’s terrorist attack near the Kabul airport that left many dead, including American soldiers, and another suspected of planning a second attack on Sunday. Shortly after the second U.S. airstrike, news coverage shifted to Hurricane Ida’s landfall in Louisiana as a severe category 4 storm, one which landed 16 years to the day after Katrina and knocked out power across all of New Orleans. Markets, however, have so far been largely unaffected by both sets of developments. Oil prices were little changed despite production in the gulf being shuttered in anticipation of Ida while gasoline prices rose as investors awaited a clearer picture of the storm’s impact on refineries. At 7:15 a.m. CT, U.S. equity futures had tilted slightly into positive territory following gains across Asia and Europe. Despite European yields ticking higher, Treasury yields were nearly flat after dropping Friday following Fed Chair Powell’s dovish taper confirmation. The 2-year yield held at 0.22%, the 5-year yield was 0.6 bps lower at 0.79%, and the 10-year yield was unchanged at 1.31%.
ICYMI – August 27, 2021 Weekly Market Recap: Housing showed some signs of life in July but survey data tracking the economy more broadly indicated some cooling in early August. While a measure of current business investment in equipment remained solid, orders slowed. Consumer incomes jumped, boosted largely by advance payments of a larger Child Tax Credit, but spending moderated from a strong June pace. However, vaccine and geopolitical developments occupied most of the headlines in the first four days of the week. The Pfizer-BioNTech vaccine became the first to receive full FDA approval. Moderna finalized its submission to the U.S. drug regulator seeking to become the second. The situation in Afghanistan, which had become increasingly treacherous since the Taliban overtook Kabul a couple of weeks ago, escalated sharply Thursday. A terrorist attack near one of the airport’s entry points led to significant casualties, including members of the U.S. military who were assisting with the ongoing evacuation. Friday’s economic news cycle, however, centered around Powell’s Jackson Hole speech. While he did confirm that tapering was likely to begin this year if the labor market’s recovery continued, he offered no new specifics on timing, composition, or pace. Importantly, he more deeply defended his position that strong inflation will prove transitory – data that morning showed core PCE inflation steady at 3.6% YoY, the fastest since 1991 – and stressed that, despite “clear progress,” the labor market had “much ground to cover to reach maximum employment.” The S&P 500 and Nasdaq ended at records and longer yields pared a weekly rise, pushing the 10-year yield back below its 200-day moving average. Click here to view the full recap.