The Market Today
Markets Convulse Over Renewed Uncertainty
by Craig Dismuke, Dudley Carter
Vining Sparks Coronavirus Chartbook (PDF) (Link): The number of new cases in the U.S. has now crossed 2 million. However, the daily growth rate remains in-line with the trend over the past two weeks, approximately between 20k and 23k new cases each day. Of concern now, the new cases are coming from different states than the original outbreak. Some of the fastest growing outbreaks (comparing 7-day growth versus 14-day growth) are now found in California, Texas, Florida, Nevada, Oregon, North Carolina, and Arizona.
Monitoring Headlines – Spike in Cases Creating Regional Problems: While most were rightfully focused on the stock market’s plunge, there were several headlines covering the gamut of aspects related to the virus. Related to reopenings, New Jersey’s governor announced the state would move to the second of four phases on June 15 and New York’s said five regions would enter the third of four phases on Friday. On the other end of the spectrum, government officials in Houston, Texas said they may be “getting close” to re-imposing a stay-at-home order and reopening a stadium virus hospital as cases spike. Treasury Secretary Mnuchin said, “We can’t shut down the economy again,” and reminded that, “Over the next month you’ll see another $1 trillion go into the economy” from previously-passed legislation. Earlier in the day, the White House and Republicans had reportedly chosen to delay talks of any further stimulus until late July. Secretary Mnuchin also said that next round of stimulus should be focused on the hardest-hit industries. On the medical front, Regeneron announced it was starting human trials of an antibody treatment for the virus.
Consumer Confidence Expected to Improve Fractionally: The University of Michigan’s first report on consumer confidence for the month of June is expected to show another small improvement. The headline index fell from 101.4 in March to 71.8 in April before inching up to 72.3 last month. Economists now expect the index to improve to 75.0, which would remain well below March’s level.
Fed Outlook Foils Hopeful Economic Rally: U.S. equities plummeted Thursday as global stocks spiraled following the Fed’s projection of a discouragingly-slow and shallow recovery. That dire outlook was amplified by rising cases in some major U.S. states stoked worries about a second wave that could derail an early recovery. The Fed said Wednesday it expects unemployment to decline only slowly over the next couple of years to 5.5% at the end of 2022. Compared with the full-employment estimate of 4.1%, the excess slack should keep inflation pressures below target and interest rates at the lower bound through at least 2022. The dreary reality implied in those projections ended a weekslong equity rally built on hopes that a swift reopening of the economy would hasten economic recovery.
Worst Sell-Off Since March: Making matters worse, some large U.S. states – including California, Florida, and Texas – have seen the virus reaccelerate as business restrictions are pared back. The renewed worries around prospects for a sustainable recovery walloped equities, handing the big three indexes their sharpest daily declines since March 16, a day after the Western World began to lockdown and the Fed decided to cut rates to near zero in an emergency decision. The Dow plunged 6.9%, the S&P 500 slumped 5.9%, and the Nasdaq sank 5.3%. While every sector fell sharply, energy companies led losses as crude crumbled more than 8% in its risk-off response. Longer Treasury yields also declined, although the drop was less severe than what could have transpired, with the 10-year yield down 5.7 bps to 0.67%. The 2-year yield inched higher, adding 3.0 bps to 0.20%.
A Partial Unwind Nudges Global Equities Higher: U.S. equity futures and stocks in Europe are attempting to rebound into the weekend following a sell-off in Asia in response to yesterday’s sharp move lower on Wall Street. The Fed’s projection of a slow and shallow recovery and the resurgence of the virus in some states spoiled hopes for an uninterrupted economic recovery and brought to a swift halt a previously unshakeable rally in equites from the late-March lows. Asian markets tumbled 1.2% in the immediate aftermath of the major U.S. indexes posting their biggest single-day losses in nearly three months. More recently, however, Europe’s Stoxx 600 had moved up around 0.8% at 7:20 a.m. CT and U.S. futures had jumped by around 1.5%.
Longer Treasury Yields Recover Small Measure of Yesterday’s Plunge: The partial unwind of Thursday’s severe risk-off shift was also reflected in a slight reversal of the Treasury curve’s move flatter. The 2-year yield was 1.0 bps lower at 7:30 a.m. after yesterday’s contrarian increase while the 10-year yield had added 2.3 bps to 0.69%. Oil prices extended a plunge even into European trading but have since recovered to a marginal gain. However, U.S. WTI is on pace to end a six-week win streak with its worst weekly performance since April 24, when history recorded the first-ever negative print on a crude futures contract.