The Market Today

Jobs Data Show Mixed Messages; President Trump Tests Positive for COVID-19


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

President Tests Positive for Covid: President Trump and his wife have reported positive COVID-19 tests this morning changing the dynamics of the next few weeks on the U.S. political front (more below).

Noisy Payroll Report Shows Further Recovery but  Slowing Progress: Nonfarm payrolls recovered another 661k in September at the headline level including a gain of 877k private sector jobs and a decline of 216k government payrolls.  Total payroll growth in August was revised up 118k from 1.371mm to 1.489mm which included the addition of 123k government sector jobs.  In the September data, the 216k decline in government payrolls came partly from a reversal in the hiring of census workers, down 34k for the month, but primarily from a 231k decline in education jobs at the local level. Given the volatility in the government sector, the private data is likely to provide a more clear picture of the health of the recovery. The private payroll recovery slowed from August, down from 1.022mm, but not as sharply as that volatile headline figure.  By sector, manufacturing added 66k jobs, retail added 142k, and the leisure sector recovered 318k.  While the pace of recovery continues to slow, total payrolls remain 10.7mm below their pre-virus level with private payrolls 9.8mm below.

Unemployment Rate Falls to 7.9% as People Leave Labor Force: In the household report, the unemployment rate dropped more than expected, down from 8.4% to 7.9% as 275k more people reported as employed and 879k more people reported as not in the labor force.  The labor force participation rate fell from 61.7% to 71.4%. Those reporting as temporarily unemployed fell 1.5mm to 4.64mm but only 345k more people reported as permanent job losers.  Additionally, there were 781k more people reporting as long-term unemployed.  It appears that some persons who were reporting as temporarily unemployed moved completely out of the labor market in September and some now view their status as more long-term.

Consumer Confidence, Factory Orders, Fedspeak: At 9:00 a.m. CT, the University of Michigan Consumer Confidence revision is expected to show fractionally improved confidence.  Also at 9:00 a.m., the August factory orders report is scheduled.  Speaking today are Philadelphia Fed Bank President Harker and Minneapolis Bank President Kashkari.

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF) (Updated 9:30 a.m. CT)

Monitoring the Virus Headlines: U.S. cases rose 0.6% Thursday, matching the trailing 7-day average, and New York reported its largest single day increase since May. The 1,382 new infections represented an above-average 0.3% daily increase and occurred on the same day that Moody’s cut the state’s credit rating by a notch. New York City’s rates was also lowered from Aa1 to Aa2. In Europe, France reported a spike of 13,970 and reports indicated that Paris may close bars and restaurants to try and bring infections and hospitalizations below what France’s Health Minister called the “maximum alert” level. Italy’s case increase was the largest since April, although testing also hit a record, and Spain’s national government announced restrictions for Madrid, a move likely to be rebuffed by the local government. On the medical front, Pfizer’s CEO said the politicization of the vaccine process was undercutting public confidence.


YESTERDAY’S TRADING

Stocks Notched Modest Gains: Stocks closed higher to start October, although the gains were hard fought as investors remained anxious to see if the White House and Democrats can reach a compromise deal for another round of stimulus. Despite recent signs of progress, there was still no breakthrough Thursday as the two sides tried to close the gap between the White House’s $1.5 trillion offer and Democrats’ plan totaling $2.2 trillion. While agreement has been reached on certain areas, many others remain unsettled and the approach to provide funds for state and local governments continues to be a point of division. The S&P 500 opened higher after European equities posted solid gains and following mixed U.S. economic data. Jobless claims were better than expected but personal income declined because of a sharp drop in unemployment benefits, highlighting the risk to the recovery from fading fiscal stimulus.

Treasury Yields Moved Very Little Amid Continued Stimulus Uncertainty: After climbing more than 1%, however, the S&P 500 fell back before fluctuating sideways to a final 0.5% gain. Sectors were split between gains and losses, with a more than 3% decline for energy companies standing out at the bottom of the index. Oil prices fell just under 4% amid the continued economic uncertainty and Exxon Mobil hinted that last quarter’s loss could be larger than expected. Treasury yields were little changed throughout the day and closed less than 1 bp from where they started. The 2-year yield ended the day flat at 0.13% while the 10-year yield slipped 0.7 bps to 0.68%


OVERNIGHT TRADING

Market Sentiment Sours After President Trump, First Lady Contract COVID-19: Global markets are in risk-off mode before this morning’s jobs report after President Trump announced on Twitter that he and the First Lady had tested positive for the coronavirus. U.S. equity futures tumbled sharply following the midnight announcement, sending the S&P 500 down as much as 2% overnight. The handful of Asian indices that weren’t closed for a holiday slid alongside U.S. futures. Europe’s Stoxx 600 gapped more than 1% lower at the open. Oil prices slid more than 3% to knock U.S. WTI down to a two-week low. Global sovereign yields made small moves lower, with the 10-year Treasury yield shedding as many as 2.6 bps to as low as 0.65%. The Dollar was little changed but the safe haven Japanese yen strengthened.

Treasury Yields Inch Lower before the Jobs Report: The president’s announcement came hours after Hope Hicks, a top adviser to the President who had traveled on Air Force One to the presidential debate, was confirmed to have contracted the virus. A headline this morning indicated that Vice President Pence tested negative for the virus. As investors attempt to discern what President Trump’s diagnosis could mean for the markets and the upcoming election, they also remain highly-focused on the pace of economic recovery. While the plan has virtually no chance of success in the Senate, the House passed the Democrats latest $2.2 trillion aid proposal. Just before the jobs report was released, S&P 500 futures remained 1.4% lower while the 10-year yield had inched up off its lows to trade down 2.0 bps to 0.66%. Those levels were holding around 7:45 a.m. CT.


NOTEWORTHY NEWS

ISM Falls Unexpectedly But Remains Solid: The ISM’s Manufacturing Index fell unexpectedly in September from 56.0 to 55.4, but remains at its second-highest level since January 2019. New orders and production both pulled back from notably strong levels but were still respectably solid above 60. The declines offset continued recovery in the inventories index and additional improvement for employment. The employment index rose 3.2 pts to 49.6, signaling continued contraction but the highest level since July 2019. The overall indications are that manufacturing activity continues to expand but at a less brisk pace in September after a strong August.

Construction Spending Rises as Housing Remains Hot, State and Local Recovers: Construction spending was stronger than expected in August, rising 1.4% compared with estimates for a 0.7% gains, and July’s 0.1% improvement was revised up to an 0.7% increase. However, residential investment remains an upside outlier as spending on single family homes and renovation projects drove most of the gain. Spending on private nonresidential structures, generally business buildings, fell for a second month in a row and for the sixth time in the last seven months. Spending at the state and local also recovered to make a positive contribution.


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