The Market Today

Markets Remain Buoyed by Turning Economic Data, Strong May Jobs Report


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

Vining Sparks Coronavirus Chartbook (PDF) (Link)

 

TODAY’S CALENDAR

There are no economic reports on the calendar today.

FOMC Decision Wednesday: The most substantive economic event of the week will be the FOMC’s policy decision on Wednesday.  While a change in policy is unlikely, this decision will bring the first Summary of Economic Projections since December.  Several Fed officials have discussed multiple forecast scenarios recently leading to speculation that they may publish baseline projections along with downside-risk projections.  Doing so could add a powerful new communication tool.  Additionally, the projections should go through 2022 and officials are likely to show a median forecast which includes no rate hikes over that horizon.


OVERNIGHT TRADING

Investors Remain Focused on the Future: Markets have moved unevenly overnight as an upbeat open in Asia faded to mixed results in Europe. There were multiple reminders of historic economic destruction, including confirmation of recession in Japan (even before the pandemic) and a report showing a larger-than-expected, record decline in German industrial production in April. However, the pre-May woes are well known and investors remain focused on the future. While Chinese exports and imports declined in May, the more potent data point supporting the story of recovery amid economic reopening was last Friday’s staggering snapback in U.S. payrolls (more below).

Friday’s Jobs Report Drives Economic Optimism: With the surprise drop in unemployment still fresh, futures for the S&P 500 and Dow were up by at least 0.5% around 7 a.m. CT, although the Nasdaq lagged behind around unchanged. The tech-heavy index briefly touched a new all-time high on Friday before edging back to close just shy of a record to cap a solid week for equities. The continued economic optimism was evident in improvement in global airline stocks overnight, with Delta, United, and American all up more than 7% in pre-market trading. While European yields were generally lower amid a more cautious market tone, Treasury yields had inched higher following big jumps last week that challenged recent technical trading ranges. At 7:20, the 2-year yield was up 1.2 bps to 0.22% as the 10-year yield added 1.8 bps to 0.91%.


NOTEWORTHY NEWS

ICYMI – June 5, 2020 Weekly Market Recap: A long-running rally for global equities and weekly move up in yields found another gear Friday after the BLS reported a surprise rebound in payrolls in May and unexpected drop in unemployment. Optimism has been building in recent weeks as countries around the world and many states across the U.S. gradually reopen their economies. While the virus-related restrictions crushed business activity in April, there have begun to be signs of green shoots in May’s data. Last week, manufacturing and services PMIs were generally better than expected across the world’s major economies. However, the big news came Friday after the BLS reported a shocking 2.5 million jobs came back last month and unemployment actually declined. The 10-year yield rose more than 24 bps to 0.90% and its spread to the 2-year note rose to more than 68 bps, both highs since March 19. The S&P 500 rallied for a third week, up 4.9% in its best performance since April 10, and the Nasdaq notched a new all-time high on an intraday basis on Friday. Click here to view the full recap.


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