The Market Today

Eurozone PMIs Discouraging; Moderate Republicans Push Back on Large Stimulus Plan


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

January PMIs and Existing Home Sales: Today will bring the first looks at the service and manufacturing sector PMIs from Markit for 2021 (8:45 a.m. CT).  Both indices are expected to slip from moderate levels, but remain above the critical 50 threshold.  Also today, existing home sales (9:00 a.m. CT) for the month of December are expected to be down 1.9% MoM to a still-impressive 6.56 million unit (ann.) pace.

Monitoring the Virus Headlines (VS Coronavirus Chartbook – PDF):  Thursday’s focus was on the flurry of executive orders signed by President Biden related to his administration’s plan for fighting the U.S. COVID-19 pandemic. The president’s national strategy, explained in a 200-page document published to White House website, is built around, among other items, an equitable response, growing the number of groups approved to administer vaccinations, upping the production of PPE through use of the Defense Production Act, keeping workers safe, safely reopening schools, promoting safe travel, and setting up a testing board. The president again urged Americans to wear masks for at least the first 100 days of his term. Dr. Fauci, a familiar face and medical adviser to the President, said the U.S. remains in a serious situation with the virus, although there are some signs that cases could be slowing, and noted he continues to expect most people to be vaccinated by the middle of the year, despite some hiccups in the early days of the rollout. In Europe, countries continued to battle their local outbreaks. The Netherlands implemented a curfew from 9 p.m. to 4:30 a.m., Northern Ireland extended its lockdown through March 5, and top EU leaders said non-essential travel should be curbed and lockdown measures may need to be strengthened.


YESTERDAY’S TRADING

Tech Stocks’ Strength Continued with Indices Scaling New Records: The S&P 500 added just 0.03% Thursday, hardly a noticeable change but enough to land the index at a new record high. Another day of gains for tech-related names kept the index buoyant despite losses across most other sectors. While cyclical stocks suffered losses on the first full day of President Biden’s presidency, a development that shaved 0.04% off the Dow, tech’s strength lifted the Nasdaq 0.6% to its highest level ever. Despite the new administration’s push for another massive round of emergency economic aid, tech shares, which outperformed during the throes of the pandemic, have led this week’s record climb. Another moderate Senate Republican, Senator Susan Collins from Maine, pushed back on the size of the President’s aid proposal. The Senator said it is hard to see why the economy would currently need such a sizable amount of stimulus.

Treasury Yields Edged Down from Post-Data Highs: Despite some early improvement in the U.S. virus statistics on cases and hospitalizations, President Biden said that things are likely to get worse before they improve as he signed several virus-related executive orders. The orders were signed alongside the release of the president’s COVID-19 battle plan and were aimed at intensifying efforts to fight the virus with more equipment, more testing, and more vaccinations. As non-tech equities struggled for direction, Treasury yields edged back from early-morning highs. The yield curve peaked shortly after data showed jobless claims were less bad than feared, manufacturing in the Philadelphia Fed District was surprisingly strong, and housing starts and permits re-accelerated to their fastest paces since the housing crisis. After adding as many as 4.1 bps to reach as high as 1.121%, the 10-year Treasury yield ended up 2.6 bps at 1.106%.


OVERNIGHT TRADING

Equities Slip from Records and Treasury Yields Decline: The weekly wind came out of sails of global equities on Friday and Treasury yields dipped ahead of U.S. trading. Stocks have scaled new record highs in 2021 on expectations for the Biden administration and Democratic Congress to apply pressure on Republicans to agree to more aid. Several moderate Republicans have pushed back this week on President Biden’s request for $1.9 trillion of new spending, which comes on the heels of a $900 billion bill that cleared Congress just weeks ago, highlighting the difficulties a slim Senate majority poses to Democrats’ legislative agenda. Those Republicans have indicated they prefer to monitor the situation before making any decision, to determine if the virus trends and wave of new restriction impact the recovery to a degree that warrants more support.

European Data Shows Economic Toll of Latest Wave of Virus and Restrictions: Data overnight from Europe, where governments have taken more drastic measures on limiting mobility as they fight more infectious virus strains, showed the steep economic costs of the lose-lose virus situation. The European Composite PMI dropped 3.3 points to 47.5, a third monthly contraction, while the U.K. PMI tumbled from 50.4 to 40.6, its largest decline since April and weakest level since May. While manufacturing weakened early in the month, the larger drag came from a sharp contraction of the services sector. Services businesses have suffered greater consequences during this recession due to the voluntary and involuntary decisions to social distance to avoid illness. Markit will release preliminary January PMI results for the U.S. this morning which could elicit a market reaction around 8:45 a.m. CT. Prior to that data, the 10-year yield had declined 2.2 bps to at 7:30 a.m. U.S. equity futures were roughly 0.7% weaker amid the daily decline in global shares.


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