The Market Today
Markets Look Past Domestic Unrest, Focus on China and Virus Headlines
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE Vining Sparks Coronavirus Chartbook (PDF) (Link) (Updated by 9:00 a.m. CT)
Daily Case Count Continues to Rise Globally, Slow in U.S.: The number of virus cases continues to grow globally with the 7-day trailing average of new cases now up to 108,528, the highest level of the outbreak. However, the most rapid growth has shifted to Brazil, India, and Peru. In the U.S., the number of new cases each day continues to trend slightly lower. The rate of decline has slowed over the past two weeks, likely the result of some level of mobility returning.
Monitoring the Headlines – Optimism over Trials: There is optimism coming into the week as Moderna began its Phase 2 study of a potential COVID-19 vaccine and Eli Lilly began the world’s first human study of a potential COVID-19 antibody treatment.
ISM Manufacturing Index Expected to Show Activity Starting to Turn: A busy weekly calendar kicks off today with the May Markit manufacturing PMI (8:45 a.m. CT), the April construction spending data (9:00 a.m. CT), and the May ISM Manufacturing Index (9:00 a.m. CT). The ISM index is expected to begin to rebound, rising from 41.5 to a less-negative 43.8. The index currently sits at its lowest level since 2009.
China’s PMIs Perk Up: Global markets extended May’s positive momentum into June despite the focus on the rolling back of virus restrictions being diverted somewhat to other risk factors. Markets in China and Hong Kong rose around 3% Monday to lead widespread Asian gains following the U.S.’s initial response to China’s Hong Kong security bill. U.S. equities spiked higher late Friday after the measures were less severe than some had feared. However, China has reportedly told some state importers to freeze purchases of U.S. farm goods for now, keeping risks elevated. Adding to market support were separate surveys showing China’s economy continued to expand in May. A private survey of the manufacturing sector rose from 49.4 to 50.7 while the government’s services-sector index inched up more than expected to 53.6.
Europe Holds Positive Momentum: After an early stumble on the headlines of China’s agricultural purchase plans, markets in Europe that weren’t closed for a holiday rose to lift the Stoxx Europe 600 by 0.8%. Following mixed results for smaller Asian countries, manufacturing PMIs in Italy, Spain, and some smaller countries rose more than expected in May while holding in contraction. Treasury yields edged higher ahead of U.S. trading amid broader market strength. While the virus remains the major economic story, weekend headlines were almost exclusively focused on protests across the country, some of which became violent and led major metro areas to implement curfews. At 7:30 a.m., the 2-year yield was 0.6 bps higher at 0.17%, the 10-year yield had added 1.1 bps to 0.67%, and S&P 500 futures were essentially flat.
ICYMI – May 29, 2020 Weekly Market Recap: Yields were incredibly quiet last week even as stocks closed a second month of recovery with a solid 3.0% weekly gain. The story remained the same as investors’ hopes for successful economic re-opening against a backdrop of unprecedented monetary and fiscal stimulus continued to outweigh rising U.S.-China tensions. There were more signs of global activity re-starting and another human trial for a vaccine began. More appalling April economic data was mixed with additional signs of stability in May, including an eighth week of fewer new jobless claims and the first decline in continuing claims since February. Those developments prevented escalating U.S.-China tensions from derailing equities’ recovery. President Trump announced Friday afternoon a list of actions the U.S. would take or was considering against China for a list of offenses, including passing a bill Thursday to strengthen its hold on Hong Kong. The 2-year yield traded within a 3.3-bp range, its tightest since July 2017, while the 10-year yield moved about an 8.6-bp range, its least volatile week of the year. Click here to view the full recap.