The Market Today
Quiet Economic Calendar Leaves All Eyes on Elusive Stimulus Deal
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: Surging infections in Europe and the U.S. and progress towards more U.S. stimulus continued to battle for investors’ attention. Several U.S. states reported new records and a record 41k surge in new infections in France was among the more alarming headlines out of Europe as multiple countries across the continent set daily records and announced new restrictions. While a stimulus agreement remained elusive Thursday, Speaker Pelosi lifted the market’s spirit when she speculated that negotiators were “just about there” on a stimulus compromise. Several other officials, however, mainly from the Republican side of the table, cautioned that differences remained. On the medical front, Gilead’s remdesivir drug became the first antiviral treatment for the coronavirus to officially receive full approval from the FDA.
Markit PMIs Expected to Hold as Eurozone’s Drops: The Markit PMIs for October are expected to show a slight improvement in the manufacturing sector and unchanged, but positive, activity in the services sector. The Eurozone services PMI, released overnight, fell more than expected from 48.0 to 46.2 in October as the re-emergence of the virus appears to be weighing disproportionately on the sector. That result dragged the overall composite PMI back into sub-50 territory despite a firm reading on manufacturing. There are fewer significant companies reporting earnings today, but we will see results from American Express and Fannie Mae, among others.
Equities Rise on Stimulus Optimism: U.S. stocks were unexcited early Thursday following a mixed global session overnight as investors awaited any new developments on the stimulus front. After erasing an opening gain in a choppy start to trading, however, the major indices were jolted back into positive territory by a comment from Democratic Speaker Pelosi that negotiators were “just about there” on a stimulus deal. Despite White House Economic Adviser Kudlow later saying “significant policy differences” remain, stocks pushed gradually higher after lunch to close with modest gains. The Dow and S&P 500 both logged 0.5% gains while the Nasdaq trailed with a smaller 0.2% gain. Energy companies within the S&P 500 rallied sharply as crude prices inched higher with financials finishing in the second spot.
Treasury Yields Continue to Push Higher and Steeper: U.S. banks finally showed some benefit from the recent rise in yields that has pushed the long end of the curve to multi-month highs on an absolute basis and relative to shorter yields. The 2-year yield edged 0.6 bps higher to 0.15%, still locked in place by the Fed’s explicit pledge to keep short rates anchored near zero. The 10-year yield, however, jumped 3.4 bps to 0.86%, its third highest level since March. The 2s10s spread widened to just over 70 bps, the largest premium for longer yields since February 2018.
Stimulus Still the Focus as Investors Digest Final Presidential Debate: A light Friday calendar of economic data and corporate earnings should keep investors eyeing stimulus negotiations as they contemplate any impact on outcome odds of last night’s more substantive presidential debate. The global market tone has improved with equities posting synchronous gains for one of the first times this week. Leading the rise was Europe’s Stoxx 600 which was nearing a 1% gain around 7 a.m. CT. The healthier tone for equities has led to a modest risk-on reaction in the European sovereign debt market, with German and French yields inching higher while yields for Italy and Spain declined. The 1.0-bp increase in Germany’s 10-year yield to -0.56% was the fourth consecutive daily increase, a trend that has lifted the key European yield from its lowest level since March. That upward move mirrors a recent climb in Treasury yields, spurred mostly by stimulus progress, that has lifted the 10-year yield in seven consecutive sessions to its highest mark since early June. The benchmark U.S. yield, however, was little changed on Friday. At 7:30 a.m., the 10-year yield had added 0.4 bps to 0.86%, a high since June 8, as S&P 500 futures gained 0.3%.
Another Record Month for Home Sales Intensifies Supply Pressures, Pushes Prices to a New Record: Existing home sales saw no slowdown in September with the monthly gain of 9.4% nearly doubling the 5.0% increase expected. With mortgage rates making new record lows during the month, the pace of sales jumped to 6.54 million units, a 14-year high. The gains were widespread as all four regions saw activity rise by at least 7% from August. Housing’s stellar performance has pushed available supply lower which has kept upward pressure on prices. The trend continued last month as the median price of a sale ticked up from $310.4k to $311.8k as months supply of existing homes shrank from 3.0 to 2.7, both new records in data kept back to 1999.