The Market Today
Economic Data, Other Than Home Prices, Continue to Slow
by Craig Dismuke, Dudley Carter
EU Recommends Reintroducing Restriction on U.S. Travelers: The EU recommended European countries re-impose travel restrictions on U.S. visitors in response to the upswing in cases since early July caused by the Delta variant. The U.S. State Department later announced it was raising its travel advisory for Germany a notch to level 3. A CDC advisory panel voted to recommend Comirnaty, the Pfizer-BioNTech vaccine, following the shot’s recent FDA approval. The committee, known as ACIP, indicated it was planning a “mid-September” meeting to discuss the need for booster shots but said the focus now should remain on giving shots to the unvaccinated. A Belgian study comparing vaccine results showed that Moderna produced more than two-and-a-half times the antibodies of the Pfizer vaccine. Labor Day bookings at six of the top ten U.S. airlines were down 16% from 2019 according to data from Adobe, consistent with other signals that activity has lost some momentum amid the latest virus wave. However, that loss of momentum for air travel is also being affected by seasonality of travel (see Chart of the Day).
TODAY’S ECONOMIC DATA
Home Prices and Consumer Confidence: The FHFA and S&P CoreLogic home price reports are both expected to show continued monthly gains in home prices. Scheduled for 8:00 a.m. CT, the FHFA report on purchase prices is expected to gain another 1.9% MoM in June and the broader S&P report is expected to show a 1.8% gain. The S&P report is expected to show year-over-year price gains up 18.6%, the highest on record. Also today, the August Conference Board report on consumer confidence is expected to pull back from a strong level. Already the University of Michigan report has shown a drop-off in its latest consumer confidence report.
YESTERDAY’S ECONOMIC NEWS
Dallas Fed the Latest Regional Bank to Show Expansion Slowed in August amid Delta Wave: Consistent with many other survey measures of economic activity in August, the Dallas Fed’s Manufacturing Index pointed to a more notable slowdown from July’s pace than was expected as Delta pushed U.S. cases, hospitalizations, and deaths higher. The headline index slumped from 27.3 to 9, a seven-month low and a sizeable miss relative to the 23.0 expected. Current shipments, production, and new orders all slowed during the month. Employment metrics were marginally weaker while unfilled orders inched higher and remained abnormally elevated. Inflation indicators of prices paid and received were mixed but remained high, although below record levels from several months ago. Expectations for six months from now were also generally softer.
Pending Home Sales Pulled Back Unexpectedly in July: Following surprisingly upbeat reports last week on sales of new and existing homes in July, pending home sales fell unexpectedly last month and June’s 1.9% decline was revised down 0.1% to 2.0%. While sales recovered 1.9% in the West, declines in the other three geographic regions drove the overall pending sales index down 1.8% in July, disappointing expectations for a small 0.3% recovery following June’s weakness. The NAR’s chief economist said, “The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers. That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.” A separate dataset published weekly by the Mortgage Bankers Association has shown purchase applications dropped 2.6% in July and declined another 1.2% through the first three weeks of August.
Stocks Set New Records as Positive Post-Jackson Hole Momentum Persisted: While the Dow drifted 0.2% lower to start the week, the S&P 500 and Nasdaq notched new records for a second consecutive session since Fed Chair Powell confirmed tapering was likely to start this year, but rate hikes were expected to be a ways off. Tech shares were among the strongest performers Monday, sending the Nasdaq up by a day’s-best 0.9%. The S&P 500 posted a smaller 0.4% gain, helped out by tech’s strength, a boost from consumer discretionary shares, and strength in safer sectors such as utilities and consumer staples. The four sectors that declined were some of those most sensitive to the economic cycle. Industrials weakened, largely on a drag from airlines after the EU recommended European countries re-impose restrictions on U.S. travelers. Energy companies declined despite oil and gas rising slightly in Ida’s aftermath. Financials dropped 1.5%, Monday’s worst performance, as rates extended their post-Jackson Hole retreat before Friday’s critically important jobs report. The 2-year yield closed 1.4 bps lower at 0.20%, the 5-year yield declined 3.2 bps to 0.77%, and the 10-year yield settled down 2.9 bps at 1.28%.
Weak China Data and Hawkish ECB Official Drive Mixed Market Results Tuesday: U.S. equity futures were idling around their opening levels before 7 a.m. CT Tuesday on the final trading day of August. Earlier, stocks closed mostly higher across Asia while European equities pulled back after a positive open. Chinese equities were among Asia’s weakest performers after the latest PMI data pointed to further slowing for the recovery. China’s official Manufacturing PMI slipped from 50.4 to 50.1 in August while the Non-manufacturing PMI tumbled from 53.3 to 47.5, the first contractionary reading since 29.6 in February 2020. The Stoxx Europe 600 had dropped 0.3% to near-session lows, turning negative about the time European yields were jolted higher by hawkish commentary from an ECB official. The Governor of Austria’s central bank said, “We are now in a situation where we can think about how to reduce the pandemic special programs, … If enough people share my opinion, we will certainly advise the Executive Board [at next week’s meeting] to slow down [emergency] purchases in the fourth quarter and more so in the first.” Italy’s 10-year yield nearly doubled its daily gain and was roughly 7 bps higher at 0.68%. Germany’s 10-year yield also moved to new daily highs, up 4.1 bps to a six-week high of -0.40%. Earlier in the day, core inflation in the Eurozone rose more than expected to 1.6% in August, the fastest rate since July 2012. At 7:30 a.m., the 10-year Treasury yield was lagging those increases, adding just 1.2 bps to 1.29%.