The Market Today
More Positive Vaccine Results, Stimulus Discussions Continue
by Craig Dismuke, Dudley Carter
NOVEMBER ECONOMIC FORECAST REVISIONS
A Multitude of Developments Shape a Still-Uncertain Economic Outlook: Our November economic projections reflect a number of economic developments including a sharper rebound than expected in 3Q economic activity, the implications of the 2020 election results (as they currently stand), the re-acceleration of the COVID-19 pandemic, and the announcement of preliminarily successful vaccine trials (Link to November Revisions). In the revision, we discuss how the known election results will likely lead to a moderated stimulus package and policy gridlock over the subsequent two years.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines – Wave of Vaccines: Before U.S. trading began Wednesday, Pfizer said the final analysis of phase three trial results of its joint vaccine with BioNTech showed the shot to be 95% effective, better than then initial estimate of “greater than 90%” from last week and closer in line with Moderna’s 94.5% efficacy result announced on Monday. Pfizer’s CEO said the company would file for emergency-use authorization (EUA) within the coming days and former FDA chief Gottlieb called the efforts from both Moderna and Pfizer “stunning.” An official with the Warp Speed project said distribution of the vaccine will begin 24 hours after the FDA provides emergency approval. In addition to those results, the University of Oxford announced that their trial, along with AstraZeneca, has produced a strong immune response in older adults.
Monitoring the Virus Headlines – Stimulus: Still, there remain near-term concerns about the current surge and new restrictions that are being put in place across the country. Minnesota was reportedly expected to close gyms and indoor dining and New York City announced it would shut down schools starting today after the positive test rate crossed above the 3% trigger. U.S. deaths crossed over 250,000. Senate Majority Leader McConnell cautioned that the country isn’t out of the woods yet with the virus, but said Democrats aid plan never stood a chance at becoming law. Republican Senator Graham said “meaningful” stimulus will be needed, however, and believes the amount will be larger than the $500 billion previously proposed by senate Republicans. An aide for House Speaker Pelosi said the speaker has not heard back from Mnuchin about a possible stimulus deal.
Initial Jobless Claims Inch Higher as Pandemic Slows Recovery: Initial jobless claims for the week of November 14 rose 31k to 742k, the first weekly increase in six weeks. Initial PUA claims also rose, up 24k to 320k. Initial claims in Louisiana were particularly concerning, rising 30k in that state alone. Overall, new claims for UI rose 55k to 1.06 million, an increase which coincides with a sharp uptick in confirmed virus cases. We remain concerned about the pace of recovery over the next several months in light of the spreading pandemic, as discussed in more detail in our November Economic Forecast Revisions.
Continuing Claims Show Continued Progress and Lingering Challenges: Continuing jobless claims for the week ending November 7 fell 429k to 6.37 million, another solid improvement in the tally of continuing unemployment. However, a larger and larger percentage of people dropping off the traditional state programs appear to be moving into the continuing PEUC claims program. For the week ending October 30, PEUC claims rose 233k, more than half of the 421k decline in traditional continuing claims during the same week. Another big swing in California helped drive down continuing PUA claims for the week of October 30. Overall PUA claims dropped 751k to 8.68 million while PUA claims in California fell 503k. For the week ending October 30, 20.3 million people continued to file for unemployment assistance of some kind, down 370k from the previous week.
Remaining Calendar – Existing Home Sales, Regional Fed Indices, and Leading Index: The Philadelphia Fed’s regional report on manufacturing activity fell from 32.3 to 26.3, beating expectations for a larger decline. The Kansas City Fed will report on manufacturing activity in its region at 10:00 a.m. CT. The October Leading Index (9:00 a.m.) is expected to gain 0.7% again. Also released at 9:00 a.m., existing home sales are expected to pull back 1.1% in the October report.
Stocks Slipped in the Afternoon and Closed Near the Lows As Coronavirus Concerns Overtook Pfizer Optimism: Stocks opened higher Wednesday after Pfizer said final analysis of its phase three trial showed its vaccine was 95% effective, better than the 90% initially estimated last week, and following a solid quarterly earnings report from Target. However, the positive momentum ebbed in the afternoon and the major equity indices faded to close at their lows of the day. The Dow and S&P 500 both fell 1.2% while the Nasdaq declined 0.8%. Treasury yields drifted higher with equities in the morning but didn’t retreat with them in the afternoon. Yields added to their upward move after an auction of 20-year Treasury notes tailed and primary dealers were forced to take a larger allotment of the issue than in the prior auction. For the day, the 2-year yield rose 0.4 bps to 0.17% and the 10-year yield added 1.3 bps to 0.87%.
Stocks Remain Weak as Caution Remains High: Global equities are generally weaker on Thursday after Wall Street declined in the prior session and U.S. futures pointed to continued caution at the open as investors keep an eye on virus developments. Stocks were mixed across Asia but Japan’s Nikkei slipped for a second session after virus cases hit a record. While the country is still in a much better place than most others when considering the per capita caseload, the signs of rising infections could be early indications of possible regional restrictions in the future. Tokyo raised its virus alert level on Thursday to 4, the strongest warning under its protocol system and an early sign that restrictive steps may be taken if the trend doesn’t reverse. In Europe, the Stoxx 600 was down 0.6% at 7 a.m. CT but well off the session lows. Oxford and AstraZeneca announced on Thursday that the vaccine they are developing appeared to produce a positive immune response in elderly participants. The trial is several weeks behind Pfizer’s and Moderna’s and late-stage trial results are still pending. Just before the weekly jobless claims update, equity index futures were down by less than 0.2% while Treasury yields had drifted lower, pulling the 10-year yield down 1.5 bps to 0.86%.
Daily Fedspeak: Richmond Fed President Barkin said the spending has recovered faster than the labor market, evidence of the uneven nature of the disruption, but that the resurgence of the virus means the recovery has “a ways to go.” Those still out of work amid the uneven recovery of jobs may fall on hard times absent another round of fiscal aid. St. Louis Fed President Bullard noted that “The economy as a whole has adapted very well,” and that any additional fiscal stimulus should be targeted at those areas that are still seeing the largest negative impacts. New York Fed President Williams noted the sharp initial rebound of activity but cautioned that the snapback has been uneven and the economy remains in a deep recession. The latest outbreak and expired fiscal stimulus will weigh on the economy in the near term, but Williams said he is “somewhat optimistic around the news around vaccines.” He said the Fed’s main goal is “keeping financial conditions as supportive of a strong economic recovery as possible. …We have the ability…to make sure interest rates are low and understood to continue to be low throughout the recovery.”