The Market Today
Data to Highlight Economic Imbalances
by Craig Dismuke, Dudley Carter
The spread of the Delta variant and negative economic consequences remain in focus. The U.S. reported Tuesday that 75% of U.S. adults had received at least one vaccine dose. In the U.K., health officials announced that 80% of the population 16 years and over was fully vaccinated. While broader stimulus measures remain in Congressional limbo, the USDA announced it would use a portion of the funds it received through the American Rescue Plan to provide one-time $600 relief payments to workers at meat packaging plants and farms.
TODAY’S ECONOMIC DATA
Mortgage Applications Remain Soft Despite Continued Low Rates: Mortgage applications for the week ending September 3 fell 1.9% as refi apps dropped 2.8% and purchase apps ticked down 0.2%. The average 30-year mortgage rate held at 3.03%, its level for the past three weeks. Despite continued low rates, weekly mortgage applications have shown little evidence of a resumption of the housing boom. While refi apps remain above their historical norm, they are also 28% below their January average. Purchase apps, meanwhile, are mildly lower than their average over the past 30 years.
Job Openings and Fed Communications: At 9:00 a.m. CT, the July JOLTs report is expected to show job openings pull back from a record-high 10.07mm to 10.05mm. Most interesting will be if the data show further exacerbation of the labor market imbalance. The July Consumer Credit report is scheduled for release at 2:00 p.m. Also on the calendar today are the release of the Fed’s Beige Book report in anticipation of their September 22 Meeting and two Fed speakers. While the Beige Book may again detail the effects of the labor imbalance and the inflationary impact of the supply chain disruption, the economic conditions are likely to take a back seat to the growing uncertainty regarding the Delta wave when it comes to the Fed’s eventual policy decision. Speaking today are New York Bank President Williams (12:10 p.m.) and Dallas’s Kaplan (5:00 p.m.).
Bullard Brushes Aside August Payroll Miss, Restates Support for Tapering: St. Louis Fed President Bullard, potentially the most hawkish official with the greatest concern that strong inflation could persist longer than most expect, said last Friday’s surprisingly weak August payroll report hadn’t swayed his opinion about the need to taper asset purchases. Brushing aside the big miss for hiring, Bullard said, “There is plenty of demand for workers and there are more job openings than there are unemployed workers, …If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have a very strong labor market going into next year.” Potentially showing some flexibility, however, in his previous call for an immediate start of tapering and for the process to be completed by the end of next March, he added, “The big picture is that the taper will get going this year and will end sometime by the first half of next year.”
Equities Stalled Out Near Records as Treasury Yields Rise and Fall Amid Uncertainty: Equities lacked enthusiasm in their return from the Labor Day break as the bitter taste of last Friday’s disappointing jobs report for August lingered. Some positive momentum from Asian trading began to dissipate as European markets opened and never returned. The Nasdaq managed to eke out a 0.07% gain and another record high. However, the Dow pulled back 0.8% and the S&P 500 slipped 0.3%. Offsetting the strength in tech shares, industrials led declines across most sectors with bond-proxies such as utilities and real estate close behind, hurt by a daily jump in global sovereign yields. Global rates had moved up throughout European trading and Treasury yields held their gains for the duration of the U.S. session. The extra pre-auction yield helped a sale of $58 billion in 3-year notes, which stopped through on strong demand from non-primary dealers. Yields, however, largely ignored those results and closed near their daily peaks. The 2-year yield rose 1.4 bps to 0.22% while the 3-year yield ended up 1.6 bps at 0.42%. The 5-year yield added 3.9 bps to 0.82% and the 10-year yield gained 5.1 bps to finish at 1.37%, both closing at their highest levels since mid-July.
Treasury yields have given back some of yesterday’s jump early Wednesday as global equities remained stalled out near record territory. World equity boards were a sea of red overnight. The MSCI Asia Pacific index closed marginally lower, bringing an eight-day rally to an end. Europe’s Stoxx 600 dropped another 0.6% to a 13-session low, still holding within 1% of its mid-August record high. U.S. equity futures were essentially flat, having recovered from earlier declines at the start of European trading. With caution sticking around, Treasury yields were leading a partial global unwind of sizeable yield increases on Tuesday. At 7 a.m. CT, the 2-year yield had shaved off 0.6 bps to 0.21% while the 5-year yield dipped 1.8 bps to 0.81%. The 10-year yield was down 3.1 bps at a session low of 1.34%, roughly double the average decline seen for similar maturities in Europe.