The Market Today
FDA Report Says Vaccine Appears Safe; Stimulus Talks Continue
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: U.S. cases continued to rise at a rapid rate, crossing the 15 million mark midday Tuesday, and hospitalizations and deaths continued to trend higher. Switzerland, Sweden, and the Netherlands all announced new or extended restrictions and New York City said restaurants may soon be shut down. However, the major focus remained on vaccines and stimulus discussions.
Monitoring the Vaccine Headlines: An FDA staff report said the Pfizer-BioNTech vaccine was safe and highly effective with a public panel set to discuss the shot on Thursday, a final step before emergency approval can be granted. The COO of Operation Warp Speed said the vaccinations could be begin within 96 hours of that approval. The U.K. began vaccinations with the shot earlier in the day, the first country to do so. A peer review of the Oxford-Astra vaccine said the shot was effective but said questions remain about how it works in older recipients.
Monitoring the Stimulus Headlines: Democratic Speaker Pelosi said she was still hopeful that negotiators could reach an agreement for stimulus. Senator Schumer, top Democrat in the Senate, however, said Senate Majority Leader McConnell had so far failed to support the bipartisan talks, talks which Schumer said were the best hope for an agreement. McConnell later said that both sides understand the need for more aid, but lawmakers should pass a bill quickly that includes the items on which they agree. He said business liability protections and money for state governments, two obstacles for current discussions, should be saved for a later date, especially since the new administration is expected to seek even greater stimulus spending once they assume power. After markets closed, Treasury Secretary Mnuchin said he has presented Speaker Pelosi with a $916 billion proposal, a plan he said he had discussed with President Trump and Republicans in Congress. Democratic leadership quickly chided the proposal for its lack of unemployment supplement, although the bill would provide direct payments of $600 to Americans.
Mortgage Rates Hit New Lows but Applications Mixed: Mortgage applications for the week ending December 4 fell another 1.2% after declining 0.6% in the previous week. This week, purchase applications fell 5.0% while refis picked back up 1.8%. Refinancings made up a total of 72% of all applications. The average 30-year mortgage rate inched down to a new record-low level, down 2 bps to 2.90%.
Job Openings and Wholesale Inventories: The October Job Openings and Labor Turnover report, scheduled for 9:00 a.m. CT, is expected to show job openings pulled back from 6.44mm to 6.30mm. Also at 9:00 a.m., the October Wholesale Inventories report will be finalized.
Investors Continued to Face Uncertainties on Multiple Fronts: U.S. equity indices erased an opening drop and rode a recovery in cyclical stocks to modest gains as market fluctuations near record levels continued amid multifaceted uncertainties. The U.S. outbreak continued to worsen, data showed small business confidence declined more than expected, Republicans and Democrats failed to settle disagreements on liability protections for businesses and aid for state and local governments, and Brexit talks remained at an impasse. On the upside, lawmakers from both sides said there was agreement that more aid was needed and a staff report from the FDA said the Pfizer-BioNTech vaccine, a shot that began to be rolled out across the U.K. on Tuesday, was safe and 95% effective at blocking symptomatic COVID-19 cases, paving the way for approval after a public panel convenes to discuss the vaccine on Thursday.
Yields Remained Subdued Even As Equities Erased Opening Decline to Close at Records: Foreign equities and U.S. futures had declined overnight ahead of U.S. trading as investors continued to monitor those issues. While none of those matters were settled Tuesday, equities turned higher mid-morning and the S&P 500 sustained a 0.3% gain through to the close, setting another new all-time high. The Nasdaq also set a new record and the Dow gained but fell short of its previous peak. Energy companies were top performers within the S&P 500 after sustaining sizeable declines to start the week, with financials industrials, and materials also registering a daily recovery. While stocks rose, Treasury yields were less enthusiastic. The 2-year yield added 1.0 bp to 0.15% while the 10-year yield dropped 0.5 bps to 0.92%.
Global Stocks Follow U.S. Equities Higher as Markets Hope for a Stimulus Breakthrough: A lack of new developments overnight lifted global shares after the major Wall Street indices closed at all-time highs on Tuesday. An index tracking equities across Asia rose 0.8% Tuesday and Europe’s Stoxx 600 was up 0.6%. Chinese stocks were downside outliers as the major indices dropped more than 1%. A drop in food prices led to an unexpected decline in consumer prices in November, with the 0.5% decrease in headline prices marking the first deflationary reading since 2009. Analysts, however, said the downshift, because it resulted from volatility in food prices, should be transient. China also pushed its way into the vaccine headlines after its state-funded shot was reported to be 86% effective in a trial in the U.A.E. Brexit is also likely to be back in the headlines during U.S. trading as U.K. PM Johnson is set to meet with the president of the European Commission to discuss major sticking points that have frozen negotiations with the year-end deadline quickly approaching. With a nearly empty U.S. economic calendar, investors should be mainly focused on headlines out of Washington on stimulus talks. At 7:40 a.m., S&P 500 futures were up 0.2% and the 10-year yield had moved up 2.5 bps to 0.94%.