The Market Today
Mixed Data Heading into Jackson Hole Symposium
by Craig Dismuke, Dudley Carter
Vaccines: Pfizer and BioNTech, who received full approval of their two-shot primary vaccine earlier this week, announced they had begun rolling submission of the required regulatory documents for a third booster shot to the FDA and hoped to complete the submission for full approval by the end of the week. The company indicated data showed robust increases in virus-fighting antibodies. Moderna said earlier in the day that it had completed submission of its request for full approval from the FDA for its initial vaccine. In the afternoon, media reports cited sources close to the White House who said U.S. health regulators were considering recommending boosters six months after initial vaccination, a shorter lag than the eight-month window that was initially being considered.
More News on Mandates: In the latest corporate news related to vaccines, Delta Airlines announced it will charge unvaccinated employees that participate in the company’s health plan a $200 monthly fee beginning November 1. All unvaccinated employees will be subjected to weekly testing. Deutsche Bank announced that all staff on U.S. trading floors must be vaccinated. Air Canada said all employees must receive a vaccination as a condition of their continued employment. Ford was reportedly considering a vaccine mandate for its employees and also announced it was delaying its return-to-office plans until next year. In the public sector, Chicago’s Mayor said all city employees must be vaccinated.
TODAY’S ECONOMIC CALENDAR
Jobless Claims Loss Momentum as States Not Hardest Hit by Delta Report Increases: This morning’s jobless claims data were disappointing but the results do not appear to be a reflection of the recent jump in COVID-19 cases. Initial jobless claims for the week ending August 21 disappointed expectations, rising from 457k to 471k on increases in both the traditional and PUA programs. Traditional state-level claims rose 4k to 353k while initial PUA claims rose 10k to 118k. Reporting the largest increases in initial claims were Illinois and Maryland. The continuing jobless claims data showed similar results. The traditional state-level programs for the week ending August 14 fell just 3k to 2.862mm. While there were only twelve states reporting increases, California’s 96k increase offset the improvement from other states. The pandemic programs also reported disappointing results for the week ending August 7, rising 53k in total. New Jersey and California reported significantly higher pandemic-program totals. The southeastern states hit hardest by the Delta variant (MO, OK, AR, TX, MS, AL, TN, SC, GA, and FL) collectively reported declines of 8k initial claims and 91k continuing claims.
2Q GDP Revised to +6.6%: The first revision to 2Q’s GDP tally showed a fractional increase from +6.5% to +6.6% QoQ, SAAR as consumers consumed more goods and the U.S. imported fewer products than initially estimated. Personal consumption was revised up from +11.8% to +11.9% as goods consumption was revised up. Business investment excluding inventories was also revised higher while residential investment was revised even lower, from -9.8% to -11.5% for the quarter. Also boosting the tally, imports were revised down from +7.8% to +6.7%. On the negative side, government spending was revised to be an even larger drag on softer state and local spending while inventories were revised to be even lower.
Fevered Expectations for Jackson Hole Speech Cool as COVID-19 Cases Boost Uncertainty: The Fed’s Jackson Hole Symposium begins today with all eyes on Fed Chair Powell’s speech tomorrow morning at 9:00 a.m. CT. Former Fed Chair Bernanke used his 2010 and 2011 speeches from Jackson Hole to signal imminent changes in monetary policy. There was growing speculation as recently as a week ago that the Fed may be leaning toward tapering asset purchases as early as their September 22 meeting. If so, this year’s speech from Chair Powell would presumably be focused on the justification for the slowing of purchases. However, the recent rise in COVID-19 cases and the slowing of some high-frequency economic data have lowered expectations for a September taper, and for a market-moving speech from Chair Powell.
Stocks Inched Up to Another Record Wednesday as Longer Treasury Yields Rose on Technicals: The S&P 500 and Nasdaq posted another pair of records Wednesday as U.S. stocks added modestly to their weekly gains. The more interesting action, however, occurred across the back half of the Treasury curve as longer yields rose, seemingly supported by technical factors. Rounded, the S&P 500 and Nasdaq both rose 0.2%, enough to reset the record books for a second session. The Dow’s 0.1% gain left the blue-chip index roughly 0.6% below its last record close on August 16. Within the S&P 500, cyclical sectors such materials, industrials, and energy all rose again, offsetting losses in safer real estate and consumer staples companies. Financials, however, were Wednesday’s outperformer, supported by higher longer yields and a steeper Treasury curve. With no clear fundamental catalyst, the 10-year yield’s 4.5-bp jump to 1.34%, a high since August 12, was credited more to technical forces. The 10-year yield had traded below its 200-day moving average for nearly two weeks, bringing the 50-day moving average ever closer to the longer-term line in the charts. Wednesday’s jump, however, pushed the 10-year yield back above both moving averages, postponing for now a technically important death cross. An uneventful auction of 5-year notes appeared to have little impact. The 2-year yield ended 0.2 bps lower at 0.24%, resulting in spread widening of 2.9 bps relative to the 10-year note to 109.8 bps, the steepest curve in almost two weeks.
Global sovereign yields had continued to push higher earlier Thursday morning, although the pace of increase had moderated, even as global equities slipped lower. MSCI’s Asia Pacific Index fell 0.4% and Europe’s Stoxx 600 was down 0.3% at Thursday’s midway point. Shares in Hong Kong and China were clear underperformers Thursday, both falling between 1% and 2%, and tech was back at the bottom of those indices. The tech sector was a primary driver of big declines for foreign equities last week. Australia’s ASX 200 weakened by 0.5% as daily infections in New South Wales hit a record, despite a more-than two-month lockdown in Sydney. U.S. futures were mixed but little changed before 7 a.m. CT, with the Dow edging into positive territory. Following the sharp sell-off on Wednesday, yields in Europe continued to push higher, leading a global rise. Shorter maturities in South Korea were among just a handful of lower-yielding securities, despite the country’s central bank hiking rates on Thursday. Bank of Korea’s Governor said, “We’ve decided to put the focus on reducing financial imbalances,” as economic activity has remained resilient amid rising cases, inflation pressures have strengthened, and household debt has continued to rise. Before updates on U.S. jobless claims and last quarter’s GDP tally, the 10-year Treasury yield had added 1.7 bps to 1.36%.