The Market Today
Debt Ceiling Deal in the Works; Jobless Claims Improve
by Craig Dismuke, Dudley Carter
4Q ECONOMIC OUTLOOK WEBINAR – Thursday October 7, 2021 at 10:00 a.m. CT (Register Here)
Vining Sparks will host our 4Q Economic Outlook Webinar this morning. The Delta wave has had a muted impact on economic activity relative to the first two waves. However, imbalances have formed across multiple aspects of the U.S. economy. One outworking of these imbalances has been the sharp, and surprising, rise in inflation. We will dig into the details of these issues during our presentation, along with how we expect these issues to affect future interest rates.
Debt Ceiling Deal in the Works: There is optimism this morning, as discussed below, that Republicans and Democrats may have found a solution to kick the debt ceiling issue down into December. Majority Leader Schumer indicated that a deal will be resolved by this morning. This will still leave the debt ceiling (Treasury default) and government funding (government shutdown) as landmines for December.
Jobless Claims Continue to Shown Signs of Progress: Initial jobless claims for the week ending October 2 declined 38k to 326k, the first weekly decline in four weeks. On a non-seasonally adjusted basis, 38 states reported declines. Continuing jobless claims for the week ending September 25 fell 97k to 2.71mm, the lowest level for insured unemployment since March 2020 when it was 1.77mm. For the week ending September 18, there were 42 states still reporting continuing PUA claims of 648k (-412k) and 45 states reporting continuing PEUC claims of 631k (-361k). Total continuing claims for that September 18 reference week fell 855k to 4.17mm.
Fedspeak and Consumer Credit: Cleveland Fed Bank President Mester will speak on inflation dynamics at 10:45 a.m. CT. The August Consumer Credit report is expected to show an uptick in credit from $17.0 to $17.5 billion.
TODAY’S ECONOMIC DATA
Stocks Turned Higher on Possible Debt Ceiling Compromise, While Treasury Yields Steadied: Stocks tanked at the open of U.S. trading on Wednesday following weakness across most of Asia and a nearly 2% decline for Europe’s Stoxx 600. Yields on U.S. Treasurys and other sovereign debt had climbed back to the top-end of recent ranges as relentless increases in energy prices compounded worries about faster inflation. The 10-year Treasury yield rose as high as 1.57% ahead of U.S. trading, its highest level since mid-June. Despite a better-than-expected ADP report on private payrolls in September, the major equity indices floundered throughout the morning session and Treasury yields turned back from their highest levels. At its low point, the S&P 500 fell as much as 1.3%. Around lunch, however, stocks climbed back into positive territory on reports of possible progress on the debt ceiling impasse. Senate Minority Leader McConnell said he would offer Democrats a deal for “an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December.” Senate Republicans have blocked a couple of efforts by Democrats to vote on an open-ended suspension of the debt ceiling until December 2022. Although nothing was settled by the market close, the S&P 500 finished up 0.4% and at session highs. Yields on Treasury bills set to mature shortly after mid-October fell from comparatively high levels, a sign of relief that the U.S. may avoid a default. Treasury yields further out, however, ended the day mixed. The 2-year and 5-year yields rose roughly 1 bp while the 10-year yield edged 0.5 bp lower and the 30-year yield dipped 1.6 bps.
The rebound for risk sentiment in the second half of U.S. trading on Wednesday translated into solid gains around the rest of the world overnight. Stocks rose more than 1% in both Asia and Europe and U.S. futures were pointing to additional gains when the opening bell rings on Wall Street. Nasdaq futures were 1.2% higher before 7 a.m. CT, leading solid gains of just under 1% for the S&P 500 and the Dow. While momentum turned yesterday on Senator McConnell’s debt ceiling offer, oil prices and other energy commodities edged lower Thursday, providing brief relief from a torrid rally that stoked inflation fears. European yields ticked lower and Treasury yields unwound an earlier rise from the Asian trading. Before the jobless claims update, however, the curve had moved back up and was roughly 1 bp above Wednesday’s close. Those levels held up after the solid labor data.
Pfizer tweeted early Thursday that the company and its partner BioNTech had “officially submitted our request to @US_FDA for Emergency Use Authorization (EUA) of our COVID19 vaccine in children 5 to <12.” On Wednesday, a White House health official said the FDA was studying mixing boosters for other age groups. Canada announced it would require vaccines for air and rail travelers beginning on October 30.