The Market Today

Persistent Rise in Covid Cases Wreaking Havoc Again


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Monitoring the Virus Headlines: The virus situation in Europe continued to deteriorate as Italy, Greece, Bosnia, and Serbia all posted records for new infections. Medical officials warned that Hungary must tighten restrictions before it’s too late and the Dutch prime minister said all options remain on the table to fight the virus, including a full lockdown. After France reported an uptick in ICU utilization and the most deaths since April, reports indicated French President Macron would address his country Wednesday and discuss new measures. Later reports indicated he would announced a new lockdown, but that the restrictions would be less severe than the first set of measures. In the U.S., New York added California to its travel advisory list, Illinois suspended indoor dining in Chicago, and Wisconsin reported new records for hospitalizations and deaths. There was no movement on the stimulus front. The White House communications director said the administration is confident it can get a stimulus bill passed “in the coming weeks” but Press Secretary McEnany said chances for a pre-election agreement “are slim.” Speaker Pelosi said the Democrats are continuing to work on legislation.

 

TODAY’S CALENDAR

Mortgage Applications Inch Higher as Rates Back to Record-Low Level: Mortgage applications for the week ending October 23 rose 1.7% as mortgage rates dipped back to their record-low 3.00% and refi apps increased 2.5%.  On the purchase side, apps inched up 0.2%, ending a four-week run of declining activity.

Mixed Inventory Data Continues to Show Softer 3Q Rebound: Merchant wholesale inventories declined 0.1% in September, well below the 0.4% expected increase.  On a positive note, retail inventories did increase strongly, up 1.6% versus expectations for a 0.5% gain.  With manufacturing inventories still to be reported, the initial 3rd quarter data on inventories show a slower rebound than was expected.

Fedspeak and Corporate Earnings: At 5:00 p.m. CT, Dallas Fed Bank President Kaplan will speak. Corporate earnings reports today will include Ford, Boeing, Fiat Chrysler, Visa, and Mastercard, among others.


YESTERDAY’S TRADING

Stocks Added Modestly to Monday’s Losses: The S&P 500 closed down 0.3% and near its daily low as investors remained concerned about the rising wave of global infections, a resultant second wave of social restrictions, and dwindling probabilities of a U.S. stimulus agreement before next week’s presidential election. Following weak sessions in Asia and Europe, the index flipped between gains and losses several times before settling lower, with eight of its eleven sectors slipping into negative territory. Industrials, financials, and energy companies, which tend to perform better when economic optimism is rising, led all declines with losses of around 2%. Tech companies were among the only gainers ahead of earnings reports from Apple, Amazon, Alphabet, and Facebook later this week.

Treasury Yields Continued to Drift Lower After Last Week’s Rise: European countries continued to set records for infections and report worrisome updates related to hospitalizations and deaths. Reinforcing the market’s disappointment around the stalemate in stimulus negotiations, White House Press Secretary said chances for an agreement before the election are slim. Treasury yields drifted lower throughout the morning and continued to decline in the afternoon. After a record auction saw solid demand, the 2-year yield settled 0.4 bps lower at 0.15%. The 10-year yield fell further, dropping 3.3 bps to 0.77%. Those moves were slightly smaller than the larger declines seen across Europe as the Stoxx 600 fell to a low since May amid worries the virus reimposed restrictions will surely weigh on the recovery.


OVERNIGHT TRADING

European Equities Sink as Investors Brace for New Restrictions in the Continent’s Largest Economies: U.S. equity futures are notably weaker before Wednesday’s open after European equities declined sharply as the region’s largest economies prepare to tighten restrictions in response to exponential cases increases. Germany is preparing to close restaurants, bars, and leisure facilities such as gyms and theaters and recommend Germans tighten their personal contact circle and avoid non-essential travel. Although measures are expected to be less severe than before, France is preparing to announce another lockdown later today. With recent data showing Europe’s economic recovery already slowing, the spike in infections, growing number of hospitalizations, and new restrictions will surely weigh on the pace of activity.

Longer Treasury Yields Move Lower for Fourth Straight Day: Europe’s Stoxx 600 was down 2.3% Wednesday with French and German indices down more than 3%. Fears that the U.S. could face a similar slowdown have been growing as cases spiked to a record over the weekend and Washington officials indicated stimulus will likely have to wait until the next president is determined. The daily dynamics kept equity futures under pressure before the start of U.S. trading, with contracts tracking the S&P 500 down 1.5% just before 7:30 a.m. CT. Treasury yields were relatively resilient considering the degree of the declines for equities, although yields have already fallen in three consecutive sessions through Tuesday. The 2-year yield was unchanged at 0.15% while the 10-year yield slipped 1.2 bps to 0.76%, taking its four-day decline to 10 bps.


NOTEWORTHY NEWS

Consumer Confidence Slips Unexpectedly in October as Virus Picks Up Before the Election: Consumer confidence fell unexpectedly in early October according to the Conference Board’s latest report as concerns about the future weighed on an improved current assessment. The headline index was expected to rise from 101.3 to 102.0, but dipped instead to 100.9. The level was the second highest since March but remained well short of February’s 132.6. The current assessment index rose strongly from 98.9 to 104.6 as fewer consumers reported concerns about current business conditions and employment opportunities. The expectations index, however, slipped from 102.9 to 98.4 on a softening future indicators for the same.

Richmond Fed Manufacturing Index Surprises with a Rise to Record, But Shows Some Evidence of Cooling from Here: As was the case Monday with a report from the Dallas Fed, the Richmond Fed’s manufacturing index rose unexpectedly in October, reinforcing the continued strength of manufacturing activity despite the most recent rise in cases. Rising from 21 to 29, easily beating expectations for a decline to 18, the index settled at its highest level in records since 1993. While most current-condition indices improved, led by gains for shipments and new orders, expectations for the next six months showed the outlook cooling some.


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