The Market Today

CORONAVIRUS UPDATE (Chartbooks: Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts)

Daily Vaccinations Hit 1,000,000 for the First Time Since Early July: As the Delta variant has pushed cases sharply higher in the U.S., hospitalizations have followed suit and fatalities have begun to rise. Another outworking of the growing health concerns, however, has been that vaccinations have also regained some momentum. U.S. health officials reported more than one million vaccine doses were administered on Thursday, the first seven-figure daily tally since early July. New Jersey joined Oregon and Washington as the most recent states to require teachers be vaccinated. Rice University shifted classes online for two weeks due to rising cases. The accounting firm PWC announced it won’t reopen its U.S. offices until November and IBM said it was temporarily closing offices in New York City.

White House Stops Short of Recommending Lengthening Unemployment Programs: There has been increased focus on the full expiration of federal unemployment benefit programs on September 6, with some expecting the programs lapsing will loosen up labor supply strains. Treasury Secretary Yellen wrote to leaders of Congressional finance committees on Thursday that “in states where a more gradual wind down of income support for unemployed workers makes sense based on local economic conditions, American Rescue Plan funds can be activated to cover the cost of providing assistance to unemployed workers beyond September 6^th.”

Delta Impacting Economic Outlook: Goldman cut its 3Q GDP growth forecast from 9.0% to 5.5% while Bank of America has cuts its forecast from 7.0% to 4.5% and Wells Fargo from 8.8% to 6.8%.  In our August projections, we revised our projections down from 7.0% to 5.6%.  The economic downgrades come as the Delta variant has proven have a larger impact on economic activity than initially expected.  However, the general consensus remains that the expansion will continue, albeit at a reduced rate.  Longer term, the continued disruption to the supply chain is increasing risks to economic stability.

ECONOMIC NEWS

Quiet Calendar, Dallas’s Kaplan: Today’s calendar is quiet, bringing only one speech from Dallas Fed Bank President Kaplan.  Kaplan is not a voter this year but has been one of the more hawkish Fed officials.

TRADING ACTIVITY

Dispirited Global Trading Continues Friday with Major World Equity Indexes on Pace for Worst Week in Months: U.S. stocks ended mixed and little changed Thursday, a comparatively impressive performance considering declines of more than 1.5% that dented major indexes across Asia and Europe. Tech stocks weighed in China as regulatory scrutiny remained a concern while auto stocks dragged Japan’s Nikkei lower on production cuts at Toyota blamed on virus lockdowns and parts shortages. These same sectors played a role in pushing stocks down across Europe. Commodities, however, were broadly weaker amid growing concerns about the potential for the Delta variant to disrupt the U.S. and global recoveries, sending energy companies to the bottom of most major global equity indexes. The Fed’s July Minutes from Wednesday, an easy target for blame, were also mentioned by some as a driver of Thursday’s negativity, although confirmation that tapering could start this year was no real surprise. While the dreary sentiment knocked the S&P 500 down 0.7% at the opening bell, the index ultimately ended up 0.1% after a rocky session. The Dow dipped 0.2% while the Nasdaq matched the S&P 500’s 0.1% gain. Longer yields declined as equities fluctuated while shorter yields inched higher. The 10-year yield slipped 1.5 bps to 1.24%, a ten-day low, while the 2-year yield added 0.4 bps to 0.22%. The moves flattened the spread between the two securities 1.9 bps to 102.2 bps, a low since August 4.

Dispirited global trading persisted on Friday with additional losses piling up for equities across Asia and Europe and U.S. futures lower heading into U.S. trading. Losses of around 1% were not uncommon across Asia on Friday. Autos remained a drag in Japan as the Nikkei closed out a 3.5% weekly decline, its worst performance since mid-May. The Hong Kong Hang Seng’s 1.8% drop was among the largest daily declines and pushed the index into a bear market. The index fell 5.8% this week in total, its largest weekly loss since March 2020. Europe’s Stoxx 600 was only 0.2% lower at 7 a.m. CT but still on pace for its sharpest weekly loss since February. While the U.S. economic calendar is empty today, data from across the Atlantic showed stronger-than-expected producer price inflation in Germany and an unexpected and sharp decline for retail sales in the U.K. The continued caution pulled oil prices down further and provided additional support for the Dollar. U.S. WTI was below $63 a barrel at a three-month low while the greenback extended its weekly gain to 1.3% and was trading at its strongest level since November 2020. Futures on the Dow and S&P 500 were earlier down 0.4% amid the softer global tone which helped keep downward pressure on Treasury yields. At 7:30 a.m., the 2-year yield was 0.8 bps lower at 0.21% and the 10-year yield had drifted down 1.7 bps to 1.23%.