The Market Today

EU Breaks New Ground in Virus Stimulus

by Craig Dismuke, Dudley Carter


VS Coronavirus Chartbook (PDF) (Link)

Monitoring the Virus Headlines: The virus headlines were comparatively positive Monday as cases slowed in Arizona, California, Florida, and Texas and there were positive data released from a couple of vaccine trials. In addition to cases slowing, California’s governor noted slowing hospitalizations and Houston reported a sharp decline in ICU patients. Receiving most attention, however, was an official report confirming rumors from last week that a joint vaccine effort involving Oxford University and AstraZeneca produced positive results in an early trial. Pfizer and BioNtech also provided more details on their positive early-trial results. President Trump is expected to lead a briefing related to vaccine progress later this evening. Hopes for a quicker-than-normal preventative vaccine has combined with hopes for more stimulus to keep markets optimistic.

E.U. Stimulus: E.U. Strikes a Deal to Jointly Raise, Spend E750B to Help Its Countries Recover from the Virus: It took twice as long as expected, but EU negotiators finally reached a deal to provide E750 billion of stimulus to help countries recover from the pandemic. Negotiations, which began last Friday and were expected to conclude on Saturday evening, reached a successful conclusion early Tuesday morning in Brussels. The agreement, which provides for E390 billion worth of grants and E360 billion worth of loans, will be jointly funded through the first ever European Commission common debt issuance, further solidifying the fiscal union.  The deal must still make its way through the EU parliament and be approved by individual countries, meaning the first round of disbursements is still months away.

U.S. Stimulus (Phase 4): Democratic Leaders to Meet with White House: Speaker Pelosi and Senator Schumer are expected to meet with the White House Chief of Staff Meadows and Treasury Secretary Mnuchin today to discuss plans for more stimulus. Secretary Mnuchin said the starting point for negotiations was roughly $1 trillion in additional funding.



Quiet Economic Calendar, More Earnings Reports: The only economic report on the calendar today is the Chicago Fed’s National Activity Index. The index combining 85 different economic variables, beat expectations by rising from 3.50 (revised up from 2.61) to 4.11 in June. The index remains a poor indicator for current economic trends given the recent levels of volatility.  Corporate earnings reports today will include Coca-Cola, Lockheed Martin, and United Airlines.


Amazon and Tech Companies Led Equities Higher Monday: Technology companies led U.S. stocks to solid gains to start the week as Treasury yields remained locked in tight ranges near record lows that have persisted for four months now. Tech’s outperformance follows several weeks of trading that saw the sector lag cyclical companies on growing hopes that the economy could be emerging from its virus-induced slump. Despite some upbeat reports in June, more timely jobless claims data signal improvement in the labor market could be leveling off in July as cases increase across the country. Those concerns have been somewhat offset by signs of progress in several vaccine trials and talks of another stimulus package from Congress as soon as this month.

Treasury Yields Stuck to Recent Trading Ranges: The Nasdaq rallied back 2.5% while the S&P 500 rose more than 0.8%. The Dow lagged behind and was essentially unchanged. In addition to the boost from tech shares, consumer discretionary stocks closed in front of all 10 S&P 500 sectors, thanks in large part to an index-leading 7.9% surge in shares of Amazon. The online retail behemoth saw its stock upgraded by analysts at Goldman ahead of its quarterly earnings release later this week. In the Treasury market, price action remained timid and yields continued to trade within their longer-running ranges. The 2-year yield inched up 0.2 bps on the day to 0.147% while the 10-year yield slipped 1.6 bps to 0.61%. Over the last 60 days, the 10-year yield has averaged a roughly 2.8-bp daily change, the least volatile 60-day run since March 2019.


Global Stocks Higher on Historic EU Agreement After Monday Boost from Vaccine Progress: Combined with yesterday’s positive news on a couple of vaccine trials, the EU agreement has lifted spirits and global stocks on Tuesday. After solid gains across Asia, European equities are solidly higher by at least 1% and yields for peripheral countries such as Italy and Spain, which have been hardest hit by the virus and expected to receive an outsized share of the grants, added to larger declines on Monday. Italy’s 10-year yield has fallen more than 16 bps over six consecutive daily declines in anticipation of the EU stimulus deal. The euro held its ground near its highest level since early in 2019. At 7:30 a.m. CT, U.S. equity futures were 0.8% stronger on average while Treasury yields across the curve had inched higher by less than 0.5 bps.

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