The Market Today

Republican Leaders Release New Stimulus Plan in Advance of Cliff


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

VS Coronavirus Chartbook (PDF) (Link)

Monitoring the Stimulus Headlines: Shortly after markets closed, Republicans in the Senate released details of a $1 trillion counter to a much-larger $3.5 trillion package previously passed by House Democrats. Key details showed a reduced unemployment benefit of $200 per week through September, allowing states time to calculate and cap payments at 70% of a worker’s pay from then. Additionally, the plan replicated direct emergency payments from the CARES Act of $1,200 per individual and $500 for each dependent, phased out for higher-income Americans. The bill also seeks to limit liability of businesses, health care facilities, and others from damages in potential lawsuits related to the virus. Also on the business front, $100 billion would be targeted towards supporting certain business types, including those in low-income areas, and new PPP money would be made available with an effort to reach more borrower types and offer an easier path to forgiveness. Other provisions were included to provide funding for schools and increased testing.

Monitoring the Headlines on Vaccines: Positive developments on the vaccine front were mixed with concerning developments of rising cases in countries around the globe. Moderna and the National Institutes of Health began the phase 3 clinical trial of the company’s vaccine. Dr. Fauci said signs of possible success from the trial could arrive in November and the company said it plans to produce 500 million doses of the shot next year. Separately, Johnson & Johnson began a U.S.-based human trial of its experimental vaccine and Pfizer and BioNTech announced they were moving one of their vaccine candidates to a phase 2/3 trial.

Monitoring the Virus Headlines: Hopes for a medical breakthrough have helped keep market sentiment stable in the face of rising cases as countries attempt to reopen. Several U.S. hotspots reported improved statistics on Monday, but a couple of Monday night baseball games were postponed due to team outbreaks, disrupting the early innings of the league’s altered season schedule. While a second wave in the U.S. has been a concern for several weeks, other countries that appeared to have their outbreaks under control showed some concerns around an uptick in infections. Officials from China, Hong Kong, Germany, and Spain were among a group that said they were watching outbreaks in certain local areas. The EU said it was considering whether it should tighten entry requirements for visitors from certain countries.


TODAY’S CALENDAR

FOMC Meeting Begins; Home Prices and Consumer Confidence: The May home price report from S&P CoreLogic (8:00 a.m. CT) is expected to show a 0.3% MoM gain in the main 20-city index, keeping the year-over-year rate of growth close to 4.00%.  At 9:00 a.m. CT, the Conference Board will release its July report on consumer confidence which is expected to dip after the recent spike in virus cases.  Also at 9:00 a.m., the Richmond Fed will release it July manufacturing index. Most importantly, the Fed begins its two-day policy meeting today with a decision scheduled for tomorrow afternoon.


YESTERDAY’S TRADING

U.S. Stocks Rose to Start a Week Full of Key Events: Technology stocks again led the major equity averages higher Monday as key names from the group prepare to announce their quarterly earnings results later this week. As a result of the sector’s outperformance, the Nasdaq led the way with a 1.7% rally, more than double the S&P 500’s solid 0.7% gain which edged out a comparatively-modest 0.4% gain for the Dow. Nine of 11 sectors within the S&P 500 finished higher on the day as investors readied for a rip-roaring week of corporate earnings, key economic reports, and critical stimulus negotiations in Washington.

Treasury Yields Bounced Higher After Flirting with All-Time Lows: Investors expect the Fed will reinforce its do-what-it-takes mantra at Wednesday’s meeting and hope Congress can close a wide divide in the size and structure of the fourth round of stimulus. The unfathomable virus disruptions have wreaked havoc on the world economy, a fact that will be reflected in the first estimate of 2Q GDP on Thursday. Previously-passed stimulus has successfully bridged economic activity but fears are that a second wave could exhaust those efforts. The concerns have helped boost gold to a record and keep Treasury yields locked in tight ranges near record lows. After sliding overnight to test those lows, however, Treasury yields climbed steadily throughout U.S. trading. The 2-year yield rose 0.4 bps to 0.15% as the 10-year yield added 2.6 bps to 0.62%.


OVERNIGHT TRADING

Undecided Markets Keep Uneven Start Going on Tuesday: Uneven global trading carried over into Tuesday’s session with U.S. equity futures and European indexes erasing early gains following a mixed day for Asian exchanges. Treasury yields initially added to yesterday’s rise during the Asian session but reversed lower as equity momentum faded. Gold’s stratospheric climb, which has become quite the spectacle in recent weeks, finally paused after the commodity initially pushed towards $2,000 per ounce early in the session. The precious metal was lower for just the second time in 12 sessions, a stretch in which it has added more than 7%. Gold is up 21% since April 1.

Earnings Activity Picks Up: At 7:20 a.m. CT, Dow futures were 0.5% lower amid the global uncertainty and after a couple of major components reported earnings. Shares of 3M were lower in pre-market trading despite the company noting that sales had improved in July, as reported revenue and earnings for the second quarter missed estimates because of virus disruptions to multiple business lines. McDonald’s reported that global sales collapsed a worse-than-expected 23.9% last quarter as lockdowns rippled around the world, leading to earnings that missed estimates. McDonald’s shares were more than 2% lower. Pfizer, however, beat revenue and earnings expectations and inched its guidance for 2020 higher. Its shares were up more than 3% before the open. At 7:36 a.m., the 10-year Treasury yield was down 1.5 bps at 0.60%, near its low of the day.


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