The Market Today
Delta Variant Overshadowed by Strong Data and Earnings
by Craig Dismuke, Dudley Carter
The only reports on today’s economic calendar are the preliminary July Markit manufacturing and services PMIs. Overnight, the Eurozone reports were better than expected, showing a pullback in the manufacturing index (down from a sky-high 63.4 to 62.6) and a further increase in the services PMI (up from 58.3 to 60.4, a new record-high). Results in the U.K. appear to be weighed down for a second month in a row by the recent spike in COVID-19 cases. The manufacturing PMI dropped from 63.9 to 60.4 while the services index fell from 62.4 to 57.8.
Overnight Trading – Record-High EU Services PMI and Strong Earnings Lift Sentiment: Twitter and Snap both reported blowout earnings for 2Q on booming spending in digital advertising, setting the tone for pre-market optimism. S&P futures are up a positive 0.3% but Nasdaq futures are on a tear, up 2.0% in pre-market activity. Helping boost the mood, the better-than-expected Eurozone PMIs are helping push Euro stocks up 1.0%. Sovereign yields (10-year) are up 1 to 3 bps across the EU. The 10-year Treasury yield is up 4.8 bps to 1.301%.
Yesterday’s Trading – Treasury Bid Remains Firm, Nasdaq Sets New Record High: Boosted by the ECB’s tweak to its forward guidance and a disappointing jobless claims report, Treasury prices continued to hold firm yesterday. The 10-year Treasury yield closed down 3.5 bps at 1.253% and there was ample demand for Treasury’s $16b TIPS auction which saw a record-low -1.016% yield. Stocks continued their rebound from Monday’s losses with the Dow up 25 points and the S&P up 8.8. The S&P was down 2.2% at one point on Monday but is now up 0.9% for the week. However, yesterday’s results remained uneven; airlines and hotels were among the worst performers but restaurants showed the best results of the day. The Nasdaq closed at a new all-time high.
Existing Home Sales Recover in June, But Signs of Supply Pressures Remain: Existing home sales rose 1.4% in June to 5.86 million annualized units on rebounds in three of four geographic regions. The results came in slightly below expectations for a 1.7% gain to 5.90 million units. Despite weakness in purchase applications data in May, pending home sales had jumped solidly, portending the June gain for existing sales. On a non-seasonally adjusted basis, sales in June were up 16.3%, better than the average 8% gain for the month from 2004 to 2019. While momentum has slowed from its very strong pace late in 2020, the level of sales remains solid and above its pre-pandemic trend. The path ahead remains uncertain, however, as signs of supply-related headwinds persisted in June. While months of supply inched higher, homes sat on the market for just 17 days for a second month and the median price of $363.3k marked a new all-time high, representing a near-record 23.4% YoY increase.
CDC Director: “The delta variant is more aggressive and much more transmissible than previously circulating strains. … It is one of the most infectious respiratory viruses we know of, and that I have seen in my 20-year career.” U.S. COVID-19 cases are now up over 50% week-over-week to 37k per day (7-day average).
Pfizer Reduces Severity of COVID-19 According to Data: Israel, with a largely vaccinated population, was one of the first countries to deal with the Delta variant. In data from cases between June 20 and July 17, Israeli health officials say the vaccine provided 88% protection against hospitalization and 91% against severe illness. However, the same data say Pfizer’s vaccine is only 39% effective in protecting someone from infection.
Additional Assistance for Mortgagors Affected by Pandemic: The White House announced plans this morning to extend additional aid to homeowners with mortgages back by HUD, USDA, and the VA. The aid will reportedly seek to cut monthly payments by as much as 25% for those who have been negatively affected by the pandemic.