The Market Today

Disappointing Stall in Business Equipment Orders


by Craig Dismuke, Dudley Carter

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

Full Approval of Other Vaccines May Come “Relatively Soon”: After Pfizer’s shot became the first vaccine to receive full approval from the FDA on Monday, a top health official with the White House speculated Tuesday that a similar announcement could be made for the Moderna and Johnson & Johnson jabs “relatively soon.” Johnson & Johnson released a statement early Wednesday morning saying interim results from early trials show “a booster dose of the Johnson & Johnson COVID-19 vaccine generated a rapid and robust increase in spike-binding antibodies, nine-fold higher than 28 days after the primary single-dose vaccination.” The Company said it plans to discuss with “public health officials a potential strategy for our Johnson & Johnson COVID-19 vaccine, boosting eight months or longer after the primary single-dose vaccination.” The White House held a call with CEOs of U.S. pharmaceutical companies to plan for booster shots of Pfizer and Moderna vaccines, the rollout of which is expected to begin in earnest on September 20. Goldman Sachs and Deloitte became the latest names on a growing list of major companies that will require U.S. employees to be vaccinated. A White House health official said they expect to see more such announcements after the FDA’s full approval of the Pfizer shot.


TODAY’S ECONOMIC CALENDAR

Mortgage Applications Gain: Mortgage applications for the week ending August 20 rose 1.6%.  The average 30-year mortgage rate dropped 3 bps to 3.03%.  Refi apps rose 0.9% WoW while purchaser apps increased 3.0%.

Initial July Durable Goods Report Shows Mixed Results, Disappointing Stall in Business Equipment Orders: Durable goods orders were weaker than expected in July, falling 0.1% MoM at the headline level, as the volatile non-defense aircraft orders category fell 49%.  Excluding transportation items, orders for goods designed to last more than three years rose 0.7% (exp. +0.5%) reflecting continued strength in demand from U.S. consumers.  Business investment in equipment has been a significant engine of growth during the pandemic but cooled in the initial July report.  Orders for core capital goods items, which have declined just once in the past once in the past fifteen months, rose just 0.05% MoM.  Shipments of those same items rose a better-than-expected 1.0%.

Fed Communications: San Francisco Bank President Daly will speak at 12:00 noon CT today.  However, the focus for economists will remain the looming Jackson Hole meeting, scheduled to begin tomorrow with a much-anticipated speech from Chair Powell on Friday morning.


YESTERDAY’S ECONOMIC NEWS

Richmond Fed Index the Latest Regional Survey to Drop More than Expected in August: Consistent with results from other regional Fed surveys released over the last week or two, the Richmond Fed’s Manufacturing Index pulled back more sharply than anticipated in August. The headline index fell for the first time since January, from 27, the strongest level since 2004, to 9, a fourteen-month low and well below the 24 level economists expected. Indices tracking new orders and shipments posted notable declines and employment indicators showed difficulties finding workers continued to weigh on hiring. Indicators of prices paid for inputs and received for finished products both remained elevated at historically high levels. The report is the latest piece of evidence to signal that U.S. economic activity appears to have lost some momentum over the last several weeks since July.

New Home Sales Cut into Prior Declines: New home sales were stronger than expected in July and June’s decline was not as severe as previously estimated. In addition, mixed revisions to activity in April and May were a net positive for the overall trend. Cumulatively, the four-month average sales pace of 731k was better than the 721k expected pace. Regionally, activity picked up in the West and South while transactions in the Northeast and Midwest ebbed. Despite the net improvement in the underlying trend, July’s 1.0% gain to 708k seasonally adjusted annualized units left monthly transactions more than 28% below January’s 993k-unit pace, the strongest in the nearly 15 years since December 2006. Low inventories and rising prices have been blamed for the moderation of activity in 2021. Notwithstanding another increase to 367k new homes that are currently listed for sale, the most since 2008, the median price jumped to another all-time high of $390.5k.


TRADING ACTIVITY

Stocks Hit a Record and Longer Treasury Yields Climbed as Market Sentiment Recovers from Prior-Week Slump: U.S. equity indices notched another day of gains Tuesday with the S&P 500 and Nasdaq both achieving new record highs. The Nasdaq’s 0.5% led the way as the S&P 500 rose 0.2%, ending near the lows after pulling back from session highs late in the session, and the Dow inched up 0.1%. Energy companies were top performers within the S&P 500 as crude oil prices followed Monday’s 5% surge with a 3% jump. U.S. WTI closed at $67.50 a barrel, nearly a full recovery from last week’s sharp decline. A firmer tone for riskier sectors lifted consumer discretionary stocks to a second place finish, led by strength in hotels, restaurants, and other leisure names. Best Buy was also a positive contributor after a strong earnings report and home builders provided additional support following the recovery for new home sales. Financials, materials, and industrial companies also saw their shares rise. Longer Treasury yields climbed throughout U.S. trading, only briefly interrupted by a strong 2-year note auction. The sale of $60 billion of near-term Treasury debt received the strongest interest from indirect bidders since 2009 and stopped through by around 1 bp on above-average bidding interest. While the 2-year yield closed down 0.2 bps on the day at 0.22%, the 10-year yield added to pre-auction gains to end 4.2 bps higher at 1.29%, near its daily peak.

Global equities are mixed Wednesday after a couple of days of synchronous gains while longer sovereign yields have moved convincingly higher without an obvious catalyst. The Asia-Pacific index inched 0.2% higher after recovering 3.5% over the previous two days; the index fell nearly 4.5% last week. Europe’s Stoxx 600 was essentially flat halfway through local trading and U.S. futures were mixed around even before 7 a.m. CT. German businesses had a more upbeat assessment of current conditions in August but were less optimistic than expected about the future. Nonetheless, Germany’s 10-year yield rose more than 3 bps to -0.45%, roughly matching 10-year yield increases in the U.K. and France. Prior to this morning’s preliminary look at business equipment investment for July, the 10-year Treasury yield was 1.2 bps higher at 1.30% as the rest of the curve moved less than 1 bp higher.


NOTEWORTHY NEWS

House Democrats Pass Senate’s $3.5 Trillion Budget Framework, Set a Date for Infrastructure Vote: Moderate and progressive Democrats in the House agreed Tuesday to pass the Senate’s $3.5 trillion budget framework targeting President Biden’s social agenda and set a date for a vote on the bipartisan infrastructure bill that recently cleared the Senate with broad support from both parties. Speaker Pelosi had previously said she would not consider the $1 trillion infrastructure bill, which includes $550 billion above current baseline levels, unless it was voted on alongside a larger $3.5 trillion social spending package. After negotiations with a group of moderate Democrats in the House, however, the Speaker said, “I am committing to pass the bipartisan infrastructure bill by September 27.” The group of moderate Democrats had been pushing for an immediate vote on the infrastructure bill. Considering the tensions surrounding the broader package and the work yet to be done to get it drafted through committees, a vote on the larger $3.5 trillion package may not be possible at the time.


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