The Market Today
by Craig Dismuke, Dudley Carter
PATRIOT DAY, 2020
Consumer Prices Continue to Recover: Consumer prices rose more than expected in August with both headline and core prices up 0.4% MoM. Energy prices rose 1.0% MoM but continue to drag almost 0.8% from the year-over-year calculation. At the core level, it was not housing and medical care which drove prices higher. Owners equivalent rent prices were soft versus their trend rate but that was offset by still-recovering prices of lodging away from home, up another 1.0% but still down 11.4% YoY. Apparel prices rose 0.6%, used car prices jumped 5.4%, and recreation prices rebounded 0.7%. Medical care prices were soft, up less than 0.1% MoM, as commodity prices and professional services inched lower. Overall, consumer inflation continues to show signs of rebounding from the pandemic weakness, but the broader supply/demand dynamics over the medium term are likely to keep inflation in-check.
Bloomberg Survey and Monthly Budget Statement: Also released today will be the September Bloomberg Survey of Economists (7:45 a.m. CT) and the August Monthly Budget Statement from Treasury (1:00 p.m.). The budget statement is expected to show a new record for the trailing-12-month deficit.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: U.S. cases rose 0.7% on Thursday, faster than the prior day, and matching the past week’s average. However, Europe overtook the U.S.’s daily case count after several weeks of rising infections in the region. The concerning trend in France continued, with the 9,843 new infections marking the largest daily increase since the initial lockdown. The bigger news, though, related to the prospects for more federal stimulus in the U.S. As expected, the “skinny” bill proposed by Senate Republicans was blocked from being put to a vote, putting at risk the odds of another bill being agreed to before the presidential election.
Equities Retreated as Optimism Proved Brief: The return of optimism to the U.S. equity was short-lived as the major indices erased an opening jump and gradually gave back most of Wednesday’s rise. Tech stocks led the reversal with the Nasdaq dropping 2.0% and the sector near the bottom of the S&P 500. Energy companies, however, closed in last place as crude prices fell more than 2.5%. All 12 sectors closed down on the day and dragged the broader index 1.8% lower by the close. While the result was largely expected, Democrats in the Senate voted down a motion to vote on the Republican aid bill, a plan they had previously referred to as emaciated. Several top senators signaled that the vote likely meant no additional stimulus would be passed prior to the election, while top officials from both sides said they hoped the others would come to their senses and back to the negotiating table. Data earlier Thursday showed jobless claims leveling off at a high level.
Treasury Yields Declined As Equities Declined and on Solid Demand at the 30-Year Auction: As equities declined, Treasury yields gradually erased an overnight rise, making new lows after an auction of 30-year bonds saw strong demand. In an inverse outcome relative to Wednesday’s auction of 10-year notes, the Long Bond auction stopped through and primary dealers took a below-average share of the award. The 2-year yield slipped 0.8 bps to 0.14%, the 5-year yield fell 1.4 bps to 0.27%, and the 10-year yield fell 2.3 bps to 0.68%.
Volatile Week on Pace for Uneven Finish: Global markets are on pace for an uneven finish to a rocky week as equity indices around the world move in different directions and sovereign yields diverge. The tech sell-off that began last week has led to volatile daily trading which has been exacerbated by developments around global stimulus efforts and concerns related to the final few steps of the Brexit negotiations. Equities across the Asian Pacific closed mostly higher after a mixed session. Europe’s major bourses were mixed but little changed, leaving the broader Stoxx 600 up a modest 0.1%. The U.K.’s FTSE 100 was outperforming other regional indices as the pound remained volatile and weakened against the euro. Worries around Brexit have ramped up this week as both sides signaled a stalemate on key issues and the EU warned the U.K. it could take legal action if the U.K. votes in favor of changes to the withdrawal agreement.
Sovereign Yields Diverge amid Mixed Market Sentiment: Treasury yields had moved higher ahead of the open of U.S. trading as U.S. equity futures recovered, diverging with the move down in yields across Europe. A day after the ECB disappointed expectations for targeted comments to talk down the euro’s strength, officials from the central bank were out in force on Friday and struck a notably dovish tone on the outlook. However, while 10-year yields in Germany and France were just shy of 3 bps lower on the day, the 10-year U.S. Treasury yield had risen 1.5 bps to 0.69%. U.S. equity futures were on the mend ahead of the opening bell with tech leading the rebound. The Nasdaq and S&P 500 were both up around 0.7% at 7:30 a.m. CT.