The Market Today

Markets Continue Adjusting to Fed Outlook

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Monitoring the Virus Headlines: The updates on the virus were mixed Thursday. U.S. cases continued to grow at a stable 0.6% rate, while Arizona saw its largest jump in cases since August 1. Tracking two of the hot spots in Europe, cases in Spain fell day-over-day but France saw a 10,593 surge, marking its largest single day tally of the post-lockdown period. New York City delayed the start of in-person instruction for middle and high schools until October 1 while Texas announced that some restrictions would be loosened. The allowable capacity for restaurants, retail, offices, factories, gyms, and museums across most of the state will be raised from 50% to 75% starting September 21. Ontario tightened restrictions on some regions due to concerning virus trends and Austria took new steps because growth in the virus has “turned exponential.”

Quiet Day for Economic News – Consumer Confidence and Fedspeak: The headline economic report today will be the 9:00 a.m. CT release of consumer confidence from the University of Michigan. After failing to rebound in the wake of an escalating pandemic, the September report is expected to show slight improvement as the virus numbers have improved. The August Leading index, also released at 9:00 a.m., is expected to be up 1.3%. The post-FOMC flurry of Fed clarifications begins today with public comments from St. Louis Bank President Bullard (9:00 a.m.), Atlanta President Bostic (11:00 a.m.), and Minneapolis President Kashkari (2:00 p.m.).

Equity Slump Continued: U.S. equities extended Wednesday’s post-Fed drop Thursday with eight of the S&P 500’s eleven sectors ending lower on the day. Wall Street opened into a weak global session that had seen Asian stocks decline 0.8% and Europe’s Stoxx 600 drop 0.5%. Within the 24 hours leading up to Thursday’s U.S. session, the Fed overhauled its statement to show it will keep rates low for years amid tremendous economic uncertainty and central banks in Japan and England stressed a highly uncertain outlook despite some recent improvement in economic data. Despite jobless claims edging down to their lowest level since the start of the pandemic, the 860k new filings remains well above pre-virus trendline just above 200k. With the Fed having exhausted most of its traditional tools and Congress unable to reach an agreement on more aid, the fact that 29.8 million Americans were still receiving some form of unemployment insurance at the end of August continued to serve as a concerning indicator for the pace of economic recovery.

Treasury Yields Unwound Wednesday’s Steepening Rise: The Nasdaq led declines with a 1.3% drop while the S&P 500 slipped 1.0% and the Dow pulled back 0.5%. Materials, industrials, and energy were the only sectors to post positive daily results. Tech remained a notable weak spot and financials continued to flounder in response to the economic uncertainty and steadfastness of officials to keep rates low in the future. Treasury yields unwound most of Wednesday’s post-Fed rise that had led the curve to steepen as inflation trending above 2% became a prerequisite for Fed rate hikes. The 2-year yield ended the day 0.2 bps lower at 0.14% while the 10-year yield edged back 0.8 bps to 0.69%. The benchmark yield had risen 1.8 bps on Wednesday.

Uneven Close to Big Week of Headlines: A headline-heavy week looks set for a mixed close Friday as equity indices across Asia and Europe move in different directions amid a void of any major news. China’s CSI 300 rose more than 2% to lead a generally upbeat day across Asia while shares in Europe have posted more uneven results. While Germany’s DAX gained +0.2%, stocks in Spain fell 1.5% and France’s CAC 40 dipped 0.3%. The latter saw its largest daily increase in cases yesterday since its lockdown ended in May. The second wave of infections across Europe has become a concern and could weigh on the pace of economic recovery. Germany, Spain, Portugal, Austria, and the U.K. are among the countries that have also seen the virus accelerate. Adding to the weekly list of central bank developments, an official from the ECB said you can’t rule out the possibility that more stimulus will be required.

Treasury Yields Fully Unwind Post-Fed Steepening: U.S. equity futures were mixed shortly after 7 a.m. CT as the Nasdaq look set to rebound, the S&P 500 was essentially flat, and the Dow remained weak, down 0.2% ahead of U.S. trading. Friday’s session will see multiple types of options and futures expire, an event known as quadruple witching, which could create some intraday volatility. Treasury yields have drifted down for a second day, with the 2-year yield 0.6 bps lower to 0.129%, one of its lowest levels since early August, while the 10-year yield pulled back 2.1 bps to 0.67%.

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