The Market Today

Record Global Infections and Fading Hopes for Pre-Election Stimulus Weigh on Markets Monday

by Craig Dismuke, Dudley Carter

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Stimulus Watch: While the likelihood of a stimulus deal appears to be fading, markets are watching for any developments early this week. It was reported over the weekend that Secretary Mnuchin would deliver a new proposal to Speaker Pelosi today. The Senate is scheduled to return home after the vote on Supreme Court nominee Amy Coney Barrett and the House has already returned home. Both Chambers could be recalled within 24 hours. The odds of a deal likely will be determined by the direction that the polls break this week.

Chicago Fed National Activity Index Shows Slowing Pace of Improvement: The Chicago Fed’s National Activity Index fell from +1.11 in August to +0.27 in September, disappointing but still in positive territory. The index, made of up 85 different economic indicators designed to provide a broad assessment of how strong activity is, shows the same pattern seen in other data of a slowing pace of improvement.

New Home Sales and Dallas Fed Index: September’s New Home Sales report is expected to show sales jump another 1.4% in the September report at 9:00 a.m. CT. That would bring the annualized pace of sales to +43% versus its February level. The Dallas Fed Manufacturing Activity Index for October is expected to remain largely unchanged (9:30 a.m.).

Markets Struggle Monday on Rising Infections and Receding Chances for Pre-Election Stimulus: Markets are in a somber mood Monday as recent updates have continued to show the virus surging in the U.S. and across Europe. Worries that the reinvigorated virus will weigh on the pace of economic recovery have been exacerbated by the roll-out of new restrictions in Europe and stalled negotiations for more stimulus in the U.S. ahead of next week’s presidential election. France, Italy, and Spain were among the European countries to report record daily infections over the weekend. Italy announced it was shutting down certain venues such as theaters and gyms and forcing restaurants and bars to close at 6 p.m. Spain announced a curfew from 11 p.m. to 6 a.m. for most of the country. The Eurozone’s services PMI slumping last week to 46.2, the lowest since May, showed the recovery is already being impacted by the virus and new government measures even before those new restrictions.

Treasury Yields Dip after String of Increases: European equities were down nearly 1% at 7 a.m. CT following a mixed hand-off from Asia. U.S. futures were similarly weak, with contracts on the S&P 500 and Dow both down around 1%. A record for U.S. infections on Friday brightened the spotlight on Washington’s inability to settle differences that have kept another round of stimulus locked in a stalemate for months. Those talks stalled last Friday after some positive progress was made (more below) and remained in limbo over the weekend. Congressional committees were charged with trying to reconcile differences as they wrote up an agreement over the weekend but reports indicated little progress was made. Speaker Pelosi said she had sent a “list of concerns” to Treasury Secretary Mnuchin and expected a counteroffer today. White House Chief of Staff Meadows said Democrats kept “moving the goalposts.” In addition to denting equity prices, the caution lifted the Dollar and pushed oil prices lower with Treasury yields. Just before 7:30 a.m. CT, the 2-year yield was 0.8 bps lower at 0.15% and the 10-year yield had declined 3.7 bps to 0.81%.

ICYMI – October 23, 2020 Weekly Market Recap: A Tuesday deadline set by Speaker Pelosi to reach a stimulus agreement came and went without a compromise deal, and yet Treasury yields continued to push higher as both sides said enough progress had been made to keep negotiations going. The optimistic updates from both Democrats and the White House continued through Thursday, with Speaker Pelosi saying officials were “just about there” on striking an accord. The 10-year Treasury yield responded by rising in six consecutive sessions through Thursday to 0.86%, a high since June 8. Talks seemed to stall, however, on Friday as Pelosi said it was up to President Trump to convince Republicans to support a larger deal while Treasury Secretary Mnuchin said the Speaker had “dug in.” The White House’s press secretary said Democrats wouldn’t budge “one inch.” At the same time investors were watching the stimulus negotiations, they were also receiving concerning updates about Europe’s exponential outbreak that led to more restrictive measures across the continent. Additionally, a rise of infections in the U.S. pushed daily cases back up to record levels. A sparsely populated economic calendar included a couple of new records for the housing sector, a surprisingly positive jobless claims report, and resilient services PMI for October. For the week, the 10-year yield rose nearly 10 bps to 0.84% and the S&P 500 dipped 0.5%. Click here to view the full recap.

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