The Market Today

ECONOMIC DATA

Employment Income Continues to Gain While Transfer Payments Normalize, Spending Beats Expectations: Personal income beat expectations, rising 0.1% MoM in June as employment income rose fractionally more than government transfer payments declined.  Employment income gained $86b (annualized rate) while transfers fell $84b. Government transfers via unemployment insurance fell $54b while other government transfers (where stimulus payments are accounted for) pulled back $67b as these programs continued to normalize.  Employment income is now 4.0% above its pre-pandemic level despite 6.8 million payrolls remaining lost. Meanwhile, personal spending also beat expectations, rising 1.0% MoM at the headline level and 0.5% on an inflation-adjusted basis. With spending outpacing income, the savings rate fell from 10.3% to a still-high 9.4%.  Consumers continue to sit on pent up savings which are expected to be a tailwind to consumption as activity continues to reopen.

Core PCE Inflation Lower Than Expected but Rises to 3.5% YoY: The Fed’s preferred measure of inflation, PCE, was up less than expected in June.  Headline PCE rose 0.5% MoM while core rose 0.4%.  This kept the headline YoY rate at 4.0% and brought core up from 3.4% to 3.5%.  Core PCE was expected to show a 3.7% YoY increase.

Consumer Confidence: The July final read on consumer confidence from the University of Michigan is scheduled for release at 9:00 a.m. CT.

Let the Fedspeak Begin: St. Louis Fed Bank President Bullard and Fed Governor Brainard are both scheduled to make public comments today. Bullard, perhaps representing the hawkish camp, put the taper topic squarely on the table after the June meeting.

Pending Home Sales Slide in June: Released yesterday, pending home sales fell 1.9% in June on declines in the West (-3.8%) and the South (-3.0%).  Sales in the Midwest (+0.6%) and the Northeast (+0.5%) were up.  However, on a non-seasonally adjusted basis, sales were up 4.1% at the national level.  This is notable because the pending sales index has historically declined in June.  Overall, the pace of home sales does appear to be slowing, but the figures remain skewed by recovery’s divergence from the typical seasonal patterns. 

 

TRADING ACTIVITY

Yields Rise after Disappointing GDP Figure, Stocks Inch Higher… Until Amazon: Longer yields moved slightly higher yesterday with the 10-year yield up 3.5 bps to 1.268%.  The 2-year inched up fractionally but remains at 0.20%.  The DJIA rose 153 pts (0.4%) closing back in on its record-high set on Monday.  The S&P also rose 0.4%, and is now less than 0.1% from its Monday-high. The Nasdaq gained just 0.1%. The Dollar slipped another 0.4% bringing its decline for the week to just over 1.0%. The tone turned dour shortly after the close and remained overnight after Amazon’s disappointing future outlook. The 10-year yield is trading at 1.237% coming into this morning with equity futures down 0.6%.    

NOTEWORTHY NEWS

Amazon’s Guidance Disappoints: Amazon’s forward guidance disappointed expectations after the close yesterday. The second-largest private employer in the U.S. noted the reopening of the economy and slowing growth in their core, online business would make it increasingly difficult to compete with year-ago results from the peak of the pandemic.  They also estimated costs related to the COVID-19 pandemic, social distancing and lost productivity costs specifically, were expected to drop from $1.5 billion in 2Q to $1 billion 3Q. 

Democrats Pushing White House to Extend Federal Eviction Ban: From Politico: “The White House is facing increasing pressure from Democrats in Congress to extend the federal eviction ban before it expires this weekend amid persistent bottlenecks in the distribution of rental aid … despite concerns that an extension would rest on shaky legal footing. A majority of Supreme Court justices signaled late last month that they believed the Centers for Disease Control and Prevention exceeded its authority when it imposed the ban.”

CORONAVIRUS UPDATE (Chartbooks: Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts)