The Market Today
Housing’s Still Hot; Investors Continue to Weigh Virus and Restrictions with Vaccine News
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines from the U.S.: Following a disappointing retail sales report, Ohio and Illinois became the latest U.S. states to announce restrictions that are expected to weigh on the pace of economic recovery. In response to the latest spike in cases, Illinois’ governor urged residents to stay at home whenever possible in an attempt to avoid another mandatory stay-at-home order. Additionally, indoor dining will be closed statewide and retail establishments will be limited to 25% capacity. Ohio’s governor announced a daily curfew between 10 p.m. and 5 a.m. that will run for 21 days. In Pennsylvania, arrivals from out of state must be tested within 72 hours of their scheduled arrival and residents must wear masks indoors when they are with other households, even if they’re in their own home.
Monitoring the Virus Headlines from Europe: In Europe, which was faced with its latest wave a few weeks earlier than in the U.S., there were early signs that the stringent measures announced weeks ago are having positive effects. The Dutch PM said cases are still too high but declining as he removed some of the extra restrictions that were recently announced. However, the economic effects of the European lockdowns was also clear. France’s finance minister said the government was lowering its 2021 GDP projections from +8% to +6% and doesn’t expect a full recovery until the end of 2022.
Monitoring the Virus Headlines on Vaccines: On the health front, Health and Human Services Secretary Azar said he expects both Pfizer and Moderna to submit their requests for emergency approval “any day now.” Pfizer’s CEO said it had accumulated the safety data required to move forward with the FDA’s emergency approval process.
Mortgage Apps Drop on Slower Pace of Refis, Rates Remain Low: Mortgage applications for the week ending November 13 inched down 0.3% on a 1.8% drop in refi apps. Purchase apps actually rose an encouraging 3.5%. The average 30-year mortgage rate held below 3.00% but ticked up 1 bp to 2.99%.
Housing Starts Continue to Grow but Permits Slowing: Never a sector to disappoint during the COVID-19 pandemic, housing starts rose more than expected in October while September’s figures were revised even higher. New starts in September were revised up from +1.9% to +6.3%. Versus expectations for a 3.2% gain in October, starts climbed another 4.9% to an annualized pace of 1.53 million units. The broader trends held steady in October’s data: single family activity drove the improvement while multi-family activity was soft. Single family starts rose another 6.4% bringing their year-over-year gain to +31.5%. Multi-family starts were unchanged in October and down 18.2% on a year-over-year basis. Building permits, the precursor to actual starts, were unchanged in October, disappointing expectations for a small gain. Single family permits rose just 0.6% while multi-family permits dropped 1.6%. Mortgage rates have dropped 97 bps over the past 12 months helping the sector fuel the economic recovery.
Fedspeak Including Williams: Once again, there are several Fedspeakers on the calendar today. New York Bank President Williams will speak at 11:15 a.m. CT, although the nature of the conference might not lend to many headlines on monetary policy thoughts. St. Louis Bank President Bullard speaks at 12:20 p.m. CT. Dallas Bank President Kaplan speaks at 5:00 p.m. Atlanta Bank President Bostic is slated to speak at 6:00 p.m.
Stocks Slipped from Records as Retail Sales Confirm Slowing Activity Trend: Stocks recoiled Tuesday from record levels as the positive effect of vaccine news on investor psyche wore off amid worries about the third virus wave driving more states to announce a return of restrictions. After setting new all-time highs on Monday following an encouraging report from Moderna that its vaccine was highly effective, the Dow dipped 0.6% and the S&P 500 slipped 0.5%. The Nasdaq posted a smaller loss of 0.2%. While an upbeat earnings report from Walmart reflected the sharp rebound in the third quarter, a more timely update on retail sales for October reflected a slowing trend. Faster alternative data metrics turned lower as the most recent outbreak turned higher, signaling that an earlier recovery is losing steam heading into prime holiday shopping season. Treasury yields were already lower overnight but fell further after the retail sales disappointment. Failing to recover throughout U.S. trading, the 10-year yield ended the day down 4.9 bps to 0.86%.
Stocks Move Higher After Final Analysis Shows Pfizer’s Vaccine 95% Effective: Stocks flipped back to gains Wednesday as the tussle between virus concerns and vaccine optimism carried on. Pfizer reported just a couple of hours ago that the final analysis of results from a phase three trial involving more than 44,000 participants indicated its vaccine to be 95% effective and showed no safety concerns to date. The preliminary report last Monday indicated the shot was more than 90% effective. The company said it plans to file for emergency-use authorization from the FDA within days. European equities, which had already recovered from an opening dip, made new highs on the headline and were trading up 0.5%. U.S equity futures also added to gains after the announcement with futures on the S&P 500 up 0.3% around 7 a.m. CT. Treasury yields initially moved higher but quickly fell back and were lower on the day. The 10-year yield was down 0.5 bps to 0.85%.
Home Builder Confidence Rose Unexpectedly in November to New Record: Home builder confidence continued to defy more cautious expectations in November despite fast economic indicators showing most other sectors of the economy slowing amid the sharpest case surge of the pandemic to date. The NAHB’s headline index was expected to remain unchanged in November at a series high of 85, but added 5 points instead to a new all-time record, a positive indicator for housing starts and new home sales in the months ahead. The current sales indicator rose 6 points and was responsible for most of the headline’s gain, with smaller 1-point and 3-point respective improvements for future sales and foot traffic making smaller contributions. The NAHB’s chairman continued to credit “historically low mortgage rates, favorable demographics and an ongoing suburban shift” for the unshakeable confidence, although he also noted that “lot and material availability is holding back some building activity.”
Manufacturing’s Partial Recovery Persists into October: Industrial production rose 1.1% in October with the manufacturing component climbing 1.0%, essentially in line with economists’ expectations. The latest data shows the persistent but partial recovery for the industrial continued into the first month of the fourth quarter. For context, the manufacturing production index has recovered 19.1% from April’s low but remains 4.8% below February’s level. Overall industrial production, which also includes utilities and mining output along with manufacturing, is up 13.1% from April’s low but still down 5.6% from February’s pace. Separately, the business inventories data was 0.1% better than expected for September.
Powell Encouraged by Vaccine Progress but Stressed Its Ineffectiveness at Curing Near-Term Economic Ailments: Similar to the message from his next in command on Tuesday, Fed Chair Powell said Wednesday the vaccine news is encouraging for the medium-term outlook but does little to address concerns about the impact the current surge of infections will have on the economy in the immediate-term. Powell again said the recovery has been uneven and acknowledged activity appeared to be slowing, a take consistent with a turn lower in most alternative data metrics in recent weeks, adding that downside risks to the near-term outlook remain significant. “We have a long way to go,” Powell said as he speculated the economy will look different on the other side of the pandemic than it did before. As far as the official response, he said more will be needed from both the Fed and fiscal lawmakers in Congress, reiterating that more fiscal stimulus will be important to sustain the recovery and that now is not the time to fret about fiscal sustainability.
Barkin Believes Divided Congress Will Limit Further Fiscal Stimulus: Providing a succinct summary of the near-term economic outlook, Richmond Fed President Barkin said Tuesday that the recovery faces heightened risks from the virus over the next couple of months before the vaccines become widely available. He said the elevated savings rate “provides a helpful backstop” for the consumer and economy at large but the projected outcome for a divided Congress means the lion’s share of government spending during the pandemic has already occurred.
Fed Governor Nominee Shelton Voted Down as COVID-19 Exposure Puts Two GOP Senators in Quarantine: The coronavirus tallied an unexpected casualty on Tuesday, as short-handed Senate Republicans failed to confirm Judy Shelton to the Federal Reserve’s Board of Governors. Two Republican Senators unexpectedly entered quarantine after being exposed to the virus, and were therefore unable to participate in the confirmation vote. Those missing yeas were enough to sink Shelton’s nomination as two additional Republicans sided with all Democrats in voting against one of two of President Trump’s pending nominees. Shelton was considered a controversial pick based on views she strongly supported in the past, including favoring a return to the gold standard.