The Market Today
European COVID-19 Situation in Focus; President Biden’s Fed Chair Pick Looms
by Craig Dismuke, Dudley Carter
Chicago Fed’s Activity Index Recovers in October: The Chicago Fed’s National Activity Index recovered more strongly than expected in October after slipping in September for the first time since April. The index aggregates more than 80 economic indicators in an effort to monitor for turns in the economic cycle and inflation. Sixty-one of the 85 indicators were positive contributors in the October report. The biggest improvement was registered by the production and income indicators while the labor market components also increased. Metrics that follow consumer spending, housing, business sales and orders, and inventories notched marginal improvements.
Later Today: The National Association of Realtors will release October’s existing home sales report at 9 a.m. CT. Sales are expected to dip 1.4% to 6.2 million annualized units after jumping 7.0% in September.
Watch Out for Wednesday: Markit will release its preliminary PMI results for November on Tuesday at the same time the Richmond Fed updates its manufacturing index for November. However, Wednesday’s schedule provides a feast of data, including jobless claims, goods trade balance, inventories, first revisions to 3Q21 GDP, durable goods orders, personal income and spending, PCE inflation, consumer confidence revisions, new home sales, and November’s Fed Minutes. At least Thursday and Friday are quiet?
Fed Chair Nominee: The White House has said President Biden will announce his nominee for Fed Chair by Thanksgiving. Current Chair Jerome Powell and current Fed Governor Lael Brainard are considered to be the two finalists. The announcement could lead to some market volatility, as many see Brainard as more dovish on monetary policy. President Biden is speaking on the economy from the White House Tuesday, which may provide an opportunity for the announcement. Some headlines early this morning, however, indicate the announcement could come as early as today.
OTHER ECONOMIC NEWS
ICYMI – November 19, 2021 Weekly Market Recap: Treasury yields extended the prior week’s post-CPI rise on Monday following a stronger-than-expected regional manufacturing report, comments from former Fed officials that current policy may need to become aggressive in chasing inflation, and the signing of the bipartisan infrastructure bill into law. Yields fluctuated at those higher levels through early Friday as more solid economic data poured in, quarterly earnings reports from U.S. retailers reflected strong consumer spending, and inflation concerns lingered. Notably, retail sales in the U.S. in October were much stronger than expected, solid manufacturing activity was reinforced by official national data and another regional Fed report, and jobless claims improved to new pandemic lows. Additionally, inflation in Canada and the U.K. quickened to 18-year and 10-year highs, respectively. Amid the stronger data and solid quarterly corporate results, the S&P 500 and Nasdaq closed Thursday at new record highs. The mood soured severely on Friday, however, after Austria announced a new nationwide lockdown and Germany described a dire situation that would likely warrant tighter restrictions. The virus has erupted across Europe in recent weeks with daily infections hitting new highs for the pandemic. Following a steep retreat on Friday, the 10-year yield ended the week 2.2 bps lower at 1.54%. The 2-year and 5-year yields fell less than 1 bp to 0.51% and 1.21%, respectively, kept buoyant by current Fed officials’ hawkish comments. Click here to view the full recap.
Updated Economic Forecast: Vining Sparks published the November economic and interest rate projections late Friday which includes results from the latest Bloomberg Survey of Economists. Click here to view the latest forecast.
Markets Stabilize but Remain Cautious as Europe’s COVID-19 Situation Remains the Focus: Markets have stabilized but remain cautious on Monday after new restrictions in Austria and Germany last Friday in response to surging virus infections spooked investors and sparked a flight to quality around the world (more above). Equities were mixed across Asia and Europe’s Stoxx 600 unwound early gains to trade around the flatline. Hotels, restaurants, other consumer services, and airlines were among the sectors under water again Monday. Austria’s nationwide lockdown, announced last Friday, began on Monday. As concerns grow the measures could be the first sign of additional restrictions in other European countries amid the rapid rise of new infections, the Euro dipped to a new low against the Dollar since last July. Nevertheless, yields on European sovereigns and U.S. Treasuries had moved higher. At 7:20 a.m. CT, the entire Treasury curve was up between 2.0 and 2.5 bps. U.S. equity index futures were stronger, with the S&P 500 and Nasdaq set to open in record territory.