The Market Today
COVID Outbreak Continues to Accelerate Globally and Across U.S.
by Craig Dismuke, Dudley Carter
Tracking the Case Count: The number of new cases each day continues to increase globally while the number of cases in the U.S. has turned higher also. Brazil posted the largest daily increase in cases for any country, up over 50k this morning. In the U.S., there are a number of states dealing with larger and larger outbreaks and reported limitations on health care facilities. From an economic perspective, the focus remains on the potential economic damage from an accelerating outbreak. Increasingly, there is evidence that the virus isn’t going away with warmer weather, raising the concerns about a second wave in the fall/winter.
Chicago Fed Index Unlikely to Provide Meaningful Insight During Unusual Times: The Chicago Fed’s National Activity Index beat expectations by rising from -17.89 to +2.61. The CFNAI is an aggregation of 85 different economic indicators including reports on 1) production and income, 2) the labor market, 3) personal consumption and housing, and 4) sales and inventories. These five areas have historically been good indicators, collectively, of either a slowing or an over-heating economy. Unfortunately, the index loses predictive capability when a new catalyst is introduced.
Existing Home Sales: At 9:00 a.m. CT, the May existing home sales data are expected to show another 7.6% decline after dropping 17.8% in April. On a positive note, the leading indicators for housing point to a strong rebound once the sales process is able to fully resume.
Foreign Markets Remain Cautious on Virus Concerns: Equities and yields both rose last week in response to discussions of possible stimulus aimed at improving U.S. infrastructure and the Fed kicking off purchases of individual corporate bonds. However, the optimism was kept in check by concerns about the path of the virus (more below). That caution has continued to apply downward pressure to foreign equities and sovereign yields on Monday. Stocks mostly fell across Asia and were exclusively lower in Europe at 7 a.m. CT. U.S. futures, however, were stronger and Treasury yields were holding in little changed.
No Change in the Market Paradigm – Resurgent Virus Versus Recovery: The market divergence between the U.S. and other regions can be partly explained as a catch-up response due to timing. News on Friday that Apple was shutting down some stores in some U.S. states with rising infections, announced after European and Asian markets closed for the weekend, spooked investors and cemented a down day on Wall Street. In the absence of any interesting economic news to start the week, investors continued to grapple with the same antagonist of a stubbornly infectious disease that has yet to be quelled and could threaten economic recovery. At 7:30 a.m. CT, equity futures were up more than 0.7% while Europe’s Stoxx 600 slipped 0.2%. The 2-year Treasury yield rose 0.2 bps to 0.19% while the 10-year yield dipped 0.8 bps to 0.69%.
ICYMI – June 19, 2020 Weekly Market Recap: Equities and yields were both propelled higher early in the week by the Fed’s plan to buy individual corporate bonds, reports that the White House was considering a $1-trillion-infrastructure-spending package, and a surprisingly strong recovery for U.S. retail sales in May. However, risk appetite faded in the second half of the week as a cluster of infections popped up in Beijing, several major U.S. states saw new daily cases accelerate to record levels, and jobless claims data disappointed. The outbreak in Beijing led to “war-time” containment measures, according to a local official, shuttering schools and some flights and limiting citizens’ ability to leave the city. Arizona, California, Florida, and Texas were among states seeing their outbreaks accelerate as activity reopens, with each state breaking consecutive records for daily infections. Texas also saw a new record for hospitalizations. The angst was amplified on Friday after Apple announced it was temporarily closing some stores across several of these states out of an abundance of caution. For the week, the S&P 500 clung to a 1.9% gain while the Treasury curve inched roughly 1 bp lower. Click here to view the full recap.