The Market Today
Presidential Debate Takes Stage; Economic Data Continue to Recover
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: The outbreak in Europe remains a bigger concern but cases in the U.S. have also begun to creep higher. A spokesperson for the U.K. government said infection rates are rising across every age group and stronger measures may need to be taken if local virus hotspots appear. The U.K. government announced last week new restrictions requiring bars to close earlier and facemasks to be worn in a wider range of venues. On Monday, the Dutch PM announced new measures to slow the country’s outbreak and Slovakia’s Premier said the country would ban large events and shut bars early after declaring a state of emergency. Italy and France both saw fewer new infections compared with Sunday. In Canada, Ontario’s premier said the province’s second wave had begun after reporting the largest daily increase of the pandemic and Quebec said bars and restaurants would close in several regions starting in October to fight its outbreak.
Busy Calendar Including Presidential Debate, Stimulus Watch, Fedspeak, Home Prices, and Confidence: The focus today will be tonight’s first presidential debate at 8:00 p.m. CT. Apart from the debate, the economic calendar is also busy. Investors are watching for any signs that the new $2.2 trillion stimulus package released last night can gain traction. Speaker Pelosi and Secretary Mnuchin are expected to speak via phone today but there is little evidence of further progress. Today also brings a heavy slate of Fed speakers, including Williams (New York), Harker (Philadelphia), Vice Chair Clarida, and Vice Chair Quarles. Last week’s predominant theme was the need for more fiscal stimulus. At 8:00 a.m., the July S&P CoreLogic report on home prices is expected to show year-over-year prices up from 3.5% to 3.6%. At 9:00 a.m., the Conference Board’s September report on consumer confidence is expected to show a small rebound after hitting the lowest level of the pandemic in August.
Goods Trade Deficit Increases but U.S. Consumer Imports Show Strength: This morning’s releases brought mixed news: a larger-than-expected August goods trade deficit, a much stronger-than-expected August wholesale inventories report, and a disappointing August retail inventories report. The preliminary look at the August goods trade deficit showed continued volatility with a $3.6 billion increase the deficit. While this will drag on the GDP tally, the underlying details reflected an encouraging U.S. consumer strength. Total imports rose $6.0 billion while exports rose $3.2 billion. As a reflection, in part, on U.S. demand, imports rose to $201 billion, the highest level since January. Driving the gains were broad-based gains including a $3.8 billion increase in the import of consumer goods to their largest monthly total on record.
U.S. Equities Swept Up in Global Updraft While Treasury Yields Continued to Tread Water: U.S. equities rose strongly Monday but Treasury yields maintained their sideways meandering ahead of the first presidential debate and a flood of economic data throughout the rest of the week. The S&P 500 rose 1.6% to split similarly solid gains for the Dow and Nasdaq, with all eleven of the index’s underlying sectors closing higher on the day. Mirroring the daily trend in foreign markets, banks were among the top performers to start the week. Shares of London-based HSBC had earlier posted their largest single-day gain in more than a decade after a Chinese insurance company announced it was raising its stake in the lender, leading Europe’s Stoxx 600 to its biggest one-day rally since June 16. Energy prices, however, closed atop the S&P 500, as crude prices rose to their highest level in more than a week. Nonetheless, not much happened in the Treasury market where most yields finished within 1 bp of Friday’s close. The 2-year yield inched 0.4 bps lower to 0.125% while the 10-year yield settled down 0.2 bps to 0.653%.
Equities Pull Back as Big Week of Events Begins in Earnest: Following big gains to start the week, equities in Asia finished flat on average while stocks in Europe and U.S. futures both pulled back ahead of U.S. trading. The Stoxx Europe 600 had declined 0.3% around 7 a.m. CT and S&P 500 futures slipped 0.2%. Oil prices unwound some of yesterday’s gains and gold added to a Monday recovery following a steep fall in the prior week. The cautious turn has nudged global sovereign yields lower, although Treasury yields lagged larger moves in Europe. The 10-year Treasury yield was down 0.5 bps to 0.65% while Germany’s 10-year yield had declined 1.6 bps to -0.54%, threatening its lowest level since early May. Data overnight showed a stronger-than-expected fifth month of recovery for Eurozone economic confidence, but a larger-than-expected drop for inflation in Germany. The -0.4% YoY CPI reading was the sharpest deflationary reading since January 2015. The influx of data from Europe overnight kicks off a busy week of key developments, including this morning’s U.S. consumer confidence report, a bevy of Fed officials scheduled to speak throughout the day, and this evening’s presidential debate.
Dallas Fed’s Manufacturing Index Picks Up More Than Expected: The Dallas Fed’s Manufacturing Index rose more than expected in September to its best level since November 2018. The headline index posted its fifth consecutive monthly gain, adding 5.6 points to 13.6, and has now risen 87.6 points from April’s record low of -74.0. Among the mixed details, indexes tracking current production, orders, and employment all rose while shipments slowed. Looking ahead six months, most of the key underlying indices pointed to further improvement as reflected by the general business outlook index rising to its firmest level since October 2018.