The Market Today
Record Number of Cases; Housing Data Continues to Rebound
by Craig Dismuke, Dudley Carter
Monitoring the Headlines: Thursday’s virus headlines covered multiple aspects of the outbreak and response. Most alarmingly, the number of new cases in the U.S. hit a new record high of over 78k. Case growth slowed in Arizona but picked up in Florida and the Sunshine State reported a record number of deaths. Texas also set a record for deaths and recorded its third day of more than 10,000 new cases. Target (August 1) and Publix (July 21) joined the growing list of large U.S. retailers that will require customers to wear masks inside stores. Arkansas and Colorado became the latest states to announce statewide mask mandates while the Governor of Georgia sued the city of Atlanta for passing a local mask requirement. Senate Minority Leader Schumer is expect to propose a new stimulus plan that will include immediate assistance for state and local governments. In the EU, an unnamed official said there are still “important differences” around details for a joint stimulus package that will make ongoing negotiations difficult. Delta said it would still be overstaffed after voluntary separations occur a day after American Airlines warned that up to 25,000 workers could be furloughed when restrictions tied to the federal aid it received expire.
Volatile Housing Starts and Permits Data Show Improvement, Long Way to Recover: Housing starts rose 17.3% in June after May’s tepid 4.3% gain was revised up to 8.2%. Looking at the breakdown of the data, both single family and multi-family starts were up over 17%. On a regional basis, the data has been very noisy lately and that continued in the June report. Starts in the West fell 7.5%, in the South up 20.2%, the Midwest up 29.3%, and the Northeast rose 114.3%. Building permits, which already jumped 14.1% in May, rose another 2.1% in June. The weakness was centered in multi-family permits which fell 13.4%. Single family permits rose 11.8%. Again, the data by region were quite volatile with permits in the South and West falling, but rising in the Midwest and Northeast. Overall, housing starts remain 27% below their pre-virus peak and new permits remain down 19%.
Consumer Confidence, Yellen, and Bernanke: At 9:00 a.m. CT, the University of Michigan’s Consumer Confidence index is expected to show a slight improvement in early-July but remain well below pre-virus levels. Also today, expect headlines from the testimony of former Fed Chairs Yellen and Bernanke before the House Select Subcommittee on the Coronavirus Crisis.
Stocks Struggled on Mixed Economic Data: Despite another solid month for retail spending, U.S. equities unwound some of their prior day’s gains as initial jobless claims continued to point to some cooling in the labor market’s improvement. Stocks opened lower amid a weaker global backdrop as China’s economy returned to growth in the second quarter but retail sales fell unexpectedly in June. Conversely, U.S. consumers spent more in June than was expected as economic activity picked up for a second month after a historic contraction. New weekly jobless claims fell less than expected, however, and have exceeded 1.3 million for 17 weeks in a row, reflecting the hard work yet to do for a more complete and sustainable recovery.
Treasury Yields Inched Lower Amid Uncertainty: The S&P 500 spent the entire day floundering in negative territory before recovering a bit to close down 0.3% and near its high for the day. Wednesday’s best-performing sectors were Thursday’s largest decliners. The defensive utilities sector rose 1.1% while tech, energy, and financials were among the worst performers of the nine sectors that declined. Treasury yields inched lower with stocks with the 10-year yield closing down 1.3 bps at 0.62%. European yields also declined after EU officials indicated that negotiations in search of a plan for joint stimulus will be tough.
Global Equities Hold Weekly Gain but Momentum Slows: A less-positive week for global markets is on track for a fitting mixed finish Friday after weekly developments and data sent mixed signals about the global economic outlook. Equities closed mostly higher in Asia while the major European indexes moved in different directions and U.S. futures pushed back into positive territory following yesterday’s declines. Oil prices extended their choppy trading with a small loss while gold recovered back close to its highest level in nearly a decade. Treasury yields continue to test the low-end of their pandemic trading ranges, with the 5-year yield actually touching a new all-time low on Friday at 0.264%.
Treasury Yields Threaten All-Time Lows Again: Data this week from around the world, including the beginning of the corporate earnings season, has confirmed the historic depths of the current recession and showed the clear signs of some recovery in June may be slowing as the virus accelerates in the U.S. and in other places around the world. However, positive progress on the vaccine front and additional talk of more stimulus in the U.S. and Europe has kept a sense of optimism amid the caution and helped support risk market pricing. Leaders from the EU are gathering in Brussels today for a two-day meeting to discuss the proposal for a joint recovery package totaling roughly 750 billion euros. Leaders have been hesitant to predict imminent success because, as Germany’s Merkel said just before the meeting began, “the differences remain very, very great.” At 7:30 a.m. CT, S&P 500 futures were up 0.7% while the 10-year yield had drifted 1.6 bps lower to 0.60%, a low back to late April.
Home Builder Confidence Extends Rapid Recovery: Home builder confidence extended its recovery for a third month in July as current and future sales expectations and potential buyer foot traffic picked up again. The headline index jumped 14 points to 72, continuing a robust recovery from April’s low of 30 that has pushed the index back to up March’s level. Indices tracking present sales and expectations for sales six months from now rose from 63 to 79 and 68 to 75, respectively. The foot traffic index rose from 43 to 58. The NAHB’s chief economist said, “New home demand is improving in lower density markets…as people seek out larger homes and anticipate more flexibility for telework in the years ahead. …Flight to the suburbs is real.” Record-low mortgage rates have also helped support activity. Earlier in the day, Freddie Mac’s weekly mortgage market survey reported a 0.05% decline in the 30-year mortgage rate to 2.98%, which joined the MBA’s weekly estimate at a record low.
Fedspeak Shows Officials Still Focused on Supporting the Economy: New York Fed President Williams said the U.S. is at a critical point as cases climb across the country and create a wide band of uncertainty around his continued expectations for growth to return in the second half of the year. He said that fiscal aid has been “critically important” in driving the early signs of economic recovery and noted the Fed’s actions have been effective. Forward guidance will be central to the Fed’s policy stance moving forward while describing yield curve targeting a possible tool for the future. President Evans from Chicago agreed with that overall assessment, adding that actual inflation above the Fed’s 2% target may actually be the appropriate outcome for a period of time. Evans said he sees no reason to move away from policy accommodation considering his projection for output to remain below its previous peak until at least the middle of 2022. Referencing the morning’s jobless claims data, Atlanta Fed President Bostic said requests for unemployment insurance are leveling off at an uncomfortably elevated level.