The Market Today
FDA Gets Green Light from Panel on Vaccine
by Craig Dismuke, Dudley Carter
Producer Prices Consumer Confidence, Survey of Economists, Fedspeak: Producer prices rose 0.1% MoM in November at both the headline and core levels, slower than the expected 0.2% increase. Headline production prices rose from +0.5% YoY to +0.8% while core prices (excluding food, energy, and trade) rose from +0.8% YoY to +0.9%. There remains very little evidence of inflation pushing through the production pipeline. At 9:00 a.m. CT, the University of Michigan’s December report on consumer confidence will be finalized. In addition, Bloomberg will release its December Survey of Economists. Kansas City Fed Bank President George will speak at 10:10 a.m. and Fed Vice Chair Quarles at 11:40 a.m.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Vaccine Headlines: Prior to voting on the Pfizer-BioNTech vaccine for use in the U.S., the FDA requested that Pfizer review the allergic reactions that occurred on the initial day of rollout across the U.K. The big news came, however, around 4:30 p.m. CT after U.S. markets closed. By a vote of 17-4-1, the yea’s overwhelmed the nay’s and one abstention in response to the important question of whether the “benefits of the Pfizer-BioNTech COVID-19 Vaccine outweigh its risks for use in individuals 16 years of age and older.” The decision paves the way for the FDA’s likely issuance of emergency approval in short order. Separately, the European Medicines Agency (EMA) said it expects to make a decision on the Pfizer-BioNTech vaccine by December 29 and the Moderna shot by January 12.
Monitoring the Stimulus Headlines: U.S. lawmakers continued to debate the parameters of additional U.S. stimulus, with Treasury Secretary Mnuchin and Speaker Pelosi both striking an optimistic tone about progress being made. However, the second-ranked Republican in the Senate said, “My sense is that [the bipartisan group of lawmakers responsible for the recent $908b stimulus bill is] not going to get there on the liability language. They’re just not going to be able to thread the needle.” Later in the day, that group of officials said they had reached an agreement on allocating state and local aid using a needs-based formula but were still trying to decide how to address business liability protections. While U.S. lawmakers still struggled to find common ground for more aid, European countries announced they had stuck an historic agreement for jointly-funded debt to support a $2.2 trillion seven-year budget. The plan includes $909 billion in emergency pandemic aid to be spent in the near-term.
Monitoring the Virus Headlines: The U.K. government told parliament that London was on pace to be placed under the toughest restrictions as the outbreak continues to deteriorate. France’s prime minister said the desired target of having fewer than 5,000 cases each day by December 15 was out of reach, resulting in the implementation of an 8 p.m. curfew starting December 15 and the delay of reopening theaters, cinemas, and stadiums. In the U.S., Ohio’s governor announced that the state’s curfew will be pushed out until at least January 2 and Pennsylvania said it was halting indoor dining and public gyms until at least January 4. However, more focus was on events in Europe throughout the day.
Investors Faced Flood of Headlines with Heavy Focus on Europe: Thursday was full of headlines for markets to digest with the heaviest flow emanating out of Europe. After markets closed on Wednesday, top officials from the U.K. and EU indicated the sides remained far apart on a Brexit agreement and gave negotiators an ultimatum to reach a deal by Sunday. Just before the latest U.S. jobless claims sharply disappointed expectations with the most new claims since mid-September, the ECB announced it was extending and expanding its emergency asset purchase program and altering other instruments to provide accommodation for longer than previously planned. However, during her press conference ECB President Lagarde said the larger amount of allowable asset purchases “need not be used in full” if favorable financing conditions are sustained. U.K. yields and the pound had declined amid the Brexit concerns but European assets showed a relatively muted response to the essentially as-expected ECB decision.
Treasury Yields Declined Amid Uncertainty and After Strong Auction: U.S. assets were volatile around the open but little changed on net for most of the morning. However, after several morning headlines indicated lawmakers continued to progress on a stimulus deal but were yet to reach an agreement, a flurry of nearly-synchronized headlines hit around lunch that refocused investors’ attention. U.K. Prime Minister Johnson said preparations should be made on the presumption that no trade deal with the EU was more likely than reaching an agreement. The EU announced country leaders had finally agreed to an historic $2.2 trillion seven-year budget that includes $909 billion in pandemic relief and will be funded by jointly-issued debt. And an auction of 30-year U.S. Treasury bonds saw strong demand and stopped through by nearly 2 bps. After the strong auction, and despite an equity recovery and some progress on state and local aid within the bipartisan group responsible for the $908 billion stimulus plan, longer maturities led Treasury yields to new lows for the day. Having been down as much as 0.8%, the S&P 500 ended just 0.1% lower. The Dow fell 0.2% while the Nasdaq gained 0.5%. The 10-year yield closed 3.0 bps lower at 0.91%.
Risk Markets Stumble Friday as Week of Risks Weigh: Investors are anxiously waiting for the Senate to pass the House-approved stopgap spending bill that gives lawmakers an extra week to agree on an omnibus and strive for a stimulus compromise. Data this week has shown the U.S. virus statistics continue to worsen and the U.S. recovery, which faces risks from the scheduled expiration of certain emergency support programs at the end of 2020, has continued to slow. Nonetheless, efforts to find a compromise for more emergency aid have to date been fruitless. Despite the post-market vote yesterday by an FDA advisory panel to move the Pfizer-BioNTech vaccine forward in the emergency approval process, risk markets are generally weaker Friday after an exhausting day of headlines Thursday. In addition the U.S. stimulus concerns, Brexit negotiations appear to be on the brink of failure ahead of a Sunday deadline that could determine whether or not the U.K. and EU will have a trade agreement in place before the transition period expires at the end of the year. European equities were notably lower before U.S. trading, with the Stoxx Europe 600 down 1% following a mixed close for Asian stocks. U.S. futures were between 0.6% and 0.7% lower at 7:15 a.m. CT and Treasury yields had declined. The 10-year yield was 1.8 bps lower at 0.89%.
Household Net Worth Continues to Push Higher as Stocks Hit Records and Housing Remains Hot: Thanks to record high-stock prices and the continued resilience of the housing market, the recovery for household net worth persisted in the third quarter, albeit at a slower pace than the initial 2Q snapback after historic 1Q losses. Household assets appreciated by $4.1 trillion last quarter, thanks primarily to a $2.4 trillion gain for equity holdings and $430 billion increase in real estate assets. Liabilities rose by $262 billion, the largest increase since 2007, with majority of the increase driven by new mortgages, which increased $158 billion during the quarter. Combining the changes, household net worth rose by $3.8 trillion to $123 trillion, a new all-time high. While many American’s remain unemployed and the economy still faces risks from the virus and has a long way to go for a full recovery, the significant stimulus responses from the Fed and Congress have helped supercharge the stock market and fan a hot housing market.