The Market Today

Purchase Applications End Hot Streak as Market Refocus on Virus Path


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

VS Coronavirus Chartbook (PDF) (Link)

Tracking Case Count: U.S. infections continued to accelerate on Tuesday, as California (5,019), Texas (>5,000), and Arizona (3,591) all reported a record for new daily infections. Florida’s governor noted an “escalation” in virus transmissions over the last week and a city official from Houston estimated ICU beds available for COVID patients could reach max capacity in 11 days. Reports have indicated Texas Children’s Hospital has started accepting adult patients to alleviate pressure on Houston’s hospital capacity. Even New Jersey, which had noted significant improvement after suffering one of the worst U.S. outbreaks, said the transmission rate was “beginning to creep up” again. Dr. Fauci described the next two weeks as “critical” in thwarting spikes across states.

Monitoring the Virus Headlines: While the bar has been raised for reimplementing lockdowns, disruptions to economic activity from new outbreaks will likely refocus markets on stimulus measures. White House Adviser Kudlow said additional stimulus checks and tax rebates were both on the table for inclusion in the next bill. Treasury Secretary Mnuchin also noted that stimulus checks were among the topics discussed at a lunch of Republican senators. The U.S. virus situation also drew the attention of leaders from the EU, who indicated the bloc could continue to prevent travel from the U.S. as it contemplates loosening border restrictions from other countries. Elsewhere, the U.K.’s top medical adviser said citizens need to prepare to live with the virus for at least the next year, just as Prime Minister Johnson announced a significant loosening of restrictions for England from July 4.


ECONOMIC CALENDAR

Home Purchase Applications Remain Strong, but End Nine-Week Run of Gains: Mortgage applications for the week ending June 19 took a breather, pulling back 6.2% on a 3.0% drop in purchase apps and an 11.7% decline in refi apps.  Mortgage rates held at record-low levels set the previous week.  The 30-year mortgage rate was 3.30% during the week according to the MBA data.  The decline in purchase apps ends a nine-week run of gains that saw applications rise 77%.

Home Prices: The April report on home prices from FHFA is expected to show a 0.3% MoM increase at 8:00 a.m. CT.

Fedspeak: Chicago Bank President Evans (11:45 a.m. CT) and St. Louis Bank President Bullard (2:00 p.m.) are both scheduled to make comments today.


YESTERDAY’S TRADING

Tuesday Was a Broken Record: U.S. equities rose for a second day as tension between economic improvement and an acceleration of the virus continued to drive investor sentiment. Overnight concerns about the U.S.-China trade deal, sparked by confusing comments trade adviser Navarro, had all but disappeared ahead of U.S. trading after President Trump’s calming tweet that the deal is “fully intact.” Early in the session, new home sales topped expectations and PMI data showed economic recovery continues in June as virus restrictions are eased across the country (more below). The same data series had earlier shown a similar resurgence of economic activity this month across both Asia and Europe.

Markets Stayed Cautious as Cases Continue to Climb: However, the virus statistics continued to deteriorate in some states, calling into question the sustainability of economic reopenings which have heavily contributed to the recent run-up in equity markets. The cautious reminders kept a lid on the S&P 500, which finished up 0.4% and near its low for the day after rising as much as 1.2% shortly after lunch. Treasury yields also reflected investors’ heedful mindset, ending the day little changed. The 2-year yield fell 0.6 bps to 0.19% while the 10-year yield added 0.3 bps to 0.71%.


OVERNIGHT TRADING

Investors Refocus on Virus Path: A break in the weekly flow of improving global economic data left investors squarely focused on the rising infection level in the U.S. and in other regions around the globe. Several economic surveys in Europe did improve further in June, but the weight of worries about the virus has dragged most global equities lower. On the heels of new records for daily infections in several U.S. states on Tuesday, the virus continues to ravage Latin America and officials from Tokyo, Australia, Israel, and Germany also acknowledged concerns about pockets of new domestic infections.

Global Stocks Decline: Germany’s DAX was 1.7% lower at 7:15 a.m. CT, leading widespread losses across Europe which collectively dragged the Stoxx Europe 600 down 1.5%. European sovereign yields, however, rose as analysts pointed to duration supply from Germany and Austria. With the U.S. economic calendar nearly empty, the focus is likely to remain on daily state updates about the status of the virus. The 10-year Treasury yield was 1.3 bps higher at 7:35 a.m. despite equity futures trading near their lows. In addition to the virus concerns, reports that the U.S. was considering tariffs on $3.1 billion in goods shipped in from the U.K. and EU weighed. Contracts on the S&P 500 were 0.7% lower.


NOTEWORTHY NEWS

New Home Sales Jumped in May as Economy Reopened: New home sales surged 16.6% in May, handily beating expectations for a modest 2.7% recovery. And while the rate of change somewhat overstated the trajectory of the trendline because of a worse-than-expected April – the initial 0.6% gain was revised lower to a 5.2% decline – May’s annualized 676k-unit pace easily cleared forecasts for 640k units to be sold. Three of the four geographic regions saw double-digit recoveries while sales slipped 6.4% in the Midwest. Breaking down total sales by the various project stages, rising sales of homes not started and those still under construction bode well for construction activity in the near-term.

Activity Surveys Show Continued Recovery in June: The U.S. economic recovery continued in June according to Markit PMI data, although the degree of improvement was slightly less than expected. Preliminary estimates showed the manufacturing index pushed 9.8 points higher, from 39.8 to 49.6, and the services index added 9.2 points, from 37.5 to 46.7. The changes combined to lift the composite index from 37.0 to 46.8, reflecting a 19.8-point two-month improvement from April’s record low of 27.0. Separately, the Richmond Fed’s current manufacturing index recovered from -27 in May to 0 in June, slightly better than the -2 economists expected, with sizeable gains in future expectations.


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