The Market Today
Markets Optimistic As Re-Opening Continues, Experimental Vaccine Shows Promise
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT
Monitoring the Headlines – Moderna Shows Positive Results in Small, Early Trial: An early headline this morning regarding the experimental vaccine Moderna helped bolster market sentiment. The FDA recently approved the company’s vaccine trial to move into its second phase. The current study is focused on safety of the vaccines and showed no major concerns in the small testing sample. More optimistically, the reports indicated that the vaccine was successful in helping a person produce as many, or more, antibodies to fight the virus than found in patients who have already recovered from the virus. A vaccine is considered the clearest way to restore confidence and lift economic activity from its deep recession.
Homebuilder Confidence Expected to Rebound Slightly: The May report on homebuilder confidence is expected to show a small bounce after plunging from one of its highest levels on record in March to a fairly bleak level in April. Recent reports on mortgage applications indicate an uptick in purchase applications. Also today, Atlanta Fed Bank President Bostic is scheduled to speak.
Markets in a Risk-On Mood on Monday: Global equities have recovered sharply Monday as the gradual opening of world economies continues and Fed Chair Powell again pledged to do what is necessary to support the U.S. economy. A German official said he hopes a conversation between EU leaders today could start the process of establishing guidelines to allow for some summer travel within the bloc. In the U.S., several states’ stay-at-home orders expired over the weekend, including New York, allowing some regions to resume partial economic activity. While Fed Chair Powell indicated Sunday that a full recovery could “take a while” and be contingent on a vaccine, he also noted, “Assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year.” He again stated the Fed is “not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs.”
Yields Show Cautious Optimism on Drug Hopes: Stocks inched up across Asia while European indexes and U.S. futures have embarked on a more impressive rally that has lifted equities by more than 2.5% ahead of U.S. trading. The pre-existing push higher gained steam just after 6:30 a.m. CT on a Bloomberg headline that read “Moderna vaccine has promising results in early clinical trial.” The FDA recently approved the company’s vaccine trial to move into its second phase. The report also stirred Treasury yields from a sleepy overnight session, nudging the 2-year yield up 0.6 bps at 7:15 a.m. and the 10-year yield 1.5 bps higher. A vaccine is considered the clearest way to restore confidence and lift economic activity from its deep recession to a more normal pace. Data overnight confirmed Japan fell into a recession in the first quarter, although the 3.4% annualized QoQ contraction was less steep than feared.
ICYMI – May 15, 2020 Weekly Market Recap: Treasury yields fell with U.S. equities last week as trade tensions returned and historically bad economic data and comments from Fed officials strongly pushed against the idea of a quick and sharp economic recovery. A shaky start caused by a cluster of new cases in South Korea worsened Tuesday after a group of Republican Senators introduced legislation to sanction China for the COVID-19 pandemic. President Trump said he has no interest in speaking to President Xi and the Commerce Department took steps to further restrict access China’s Huawei from accessing U.S. technology. New jobless claims exceeded expectations in an odd report, retail sales shocked with an eye-popping record plunge, and manufacturing output plummeted by the most in records since 1919. Fed Chair Powell said the outlook faces “significant downside risks” and the “recovery may come more slowly than we would like,” requiring more fiscal stimulus to prevent “lasting damage” to the economy’s productive capacity. Fed President Kashkari said, “a V-shaped recovery is off the table.” The S&P 500 fell 2.3%, its worst week since the 15% plunge from March 20. The 2-year yield fell 1.2 bps to 0.15% while the 10-year yield slipped 4.0 bps to 0.64%. Click here to view the full recap.