The Market Today

Retail Sales Headlines Disappoint but Activity Remains High


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (Chartbooks: Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts)

New York state said health care workers must have their first vaccine dose by September 27. In New York City, vaccination will be required to enter museums and sports stadiums starting August 17 with proof of first shots necessary to attend concerts, theatres, and casinos. In corporate news, Verizon delayed its plans to bring employees back into its offices from September 1 to November 1 and Johnson & Johnson will require U.S.-based employees and contractors to be vaccinated. Related to vaccines, Pfizer and BioNTech submitted preliminary, early-stage data to the FDA showing a third booster shot appears to create “significantly higher” neutralizing antibodies against the original virus and the Delta variant. Reports Monday night indicated President Biden’s administration will soon recommend most Americans receive a third booster shot of a vaccine eight months following their second shot of initial immunization.


ECONOMIC NEWS

Retail Sales Headlines Disappoint but Activity Remains High, True Picture Likely Not as Weak: July’s retail sales data disappointed expectations at the headline level, down 1.1% MoM versus expectations for just a 0.3% decline. However, the supply chain disruptions in the auto sector accounted for the largest majority of the decline.  Motor vehicles and parts sales fell 3.9%, dragging the MoM tally down 0.81%.  Also weak, online sales fell 3.1% and dragged another 0.42% from the total.  Moreover, the MoM total is coming off a very strong July.  In fact, sales in March through July were all extremely strong thanks to the third wave of stimulus payments.  On a non-seasonally adjusted basis, sales rose 0.4% MoM.  Additionally, the retail sales data do not collect most services spending, something we expect to occur as the economy transitions.

Manufacturing Output, Homebuilder Confidence, and Fed Chair Powell on the Tape: The July Industrial Production and Capacity Utilizations data, scheduled for 8:15 a.m. CT, are expected to continue rebounding.  The manufacturing sector, particularly, is expected to show strong results although the auto challenges appear to remain.  Homebuilder confidence for the month of August is expected to remain strong (9:00 a.m.). Fed Chair Powell will speak in a town hall format with educators at 12:30 p.m. CT.  With the release of their July Meeting Minutes tomorrow, the markets will be paying close attention.  Also speaking today, Minneapolis Fed Bank President Kashkari.


TRADING ACTIVITY

Rising Health, Economic, and Geopolitical Uncertainties Keep Market Sentiment Under Pressure to Start the Week: U.S. equities struggled for direction Monday following a global decline in major stock indexes overnight amid rising geopolitical and economic uncertainties. The rise of the Delta variant over the last several weeks has led to growing worries another global wave of rising infections could hamper the economic recovery that picked up steam earlier this year. On Friday, the University of Michigan’s preliminary consumer sentiment report showed confidence plunged in August, led by a sharp decline in the South where the latest outbreaks have so far been most severe. Against that backdrop, chaos in Afghanistan over the weekend and a round of weaker-than-expected economic reports from China on Monday had pressured commodities and foreign markets lower ahead of U.S. trading. Despite the uncertainty, and notwithstanding a weaker-than-expected manufacturing update from the New York Fed, the S&P 500 managed a 0.3% gain and another record close after recovering from an earlier decline of as much as 0.7%. Treasury yields dipped but also finished up from their lows. The 2-year yield inched up 0.4 bps to 0.21% while the 10-year yield declined 1.2 bps to 1.26%, having fallen as low as 1.22% in early trading.

U.S. yields extended Monday’s drop in overnight trading amid the increased uncertainty and U.S. stock index futures tracked losses in international equities for a second session. Chinese markets led the widespread declines across Asia as focus on regulatory scrutiny of the private sector returned, this time targeting online retail competition. Europe’s Stoxx 600 had edged below the flatline and U.S. futures were in negative territory as investors await U.S. retail sales results for July. Corporate earnings in the pre-market offered mixed messaging about consumer spending trends. Home Depot reported a smaller-than-expected increase in same-store sales while Walmart’s comparable metric topped analysts’ estimates. Shares of both companies, however, were lower at 7 a.m. CT. The persistent caution continued to pressure Treasury yields lower, sending the 10-year yield down 4.0 bps compared with a 0.8-bp drop for the 2-year yield. Despite the miss on topline retail sales results, Treasury yields pushed up from their lows. The 10-year yield was 2.5 bps lower on the day at 7:38 a.m.


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