The Market Today

Russia Registers Coronavirus Vaccine, Yields Rise


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

VS Coronavirus Chartbook (PDF) (Link)

Monitoring the Virus Headlines: The virus headlines were light on Monday, with much of the focus on the weekend developments related to President Trump’s executive actions for more aid. Governor Cuomo said he would not pay the benefits prescribed by the president’s orders. Governors from Kentucky and Ohio were among the governors that spoke out with some concerns and hesitancy about being able to fulfill the state’s 25% portion. In the sports world, the debate around whether to postpone or cancel the college football season continued and Germany extended its plans for no fans at its soccer matches. For the most part, the state virus updates were generally positive and U.S. cases rose 0.9% vs a 7-day average of 1.1%.


TODAY’S CALENDAR

Small Business Confidence Disappoints on Weaker Economic Outlook: Small business confidence disappointed expectations and showed further evidence of a slowing pace of recovery.  The index dropped from 100.6 to 98.8 on a 14-point decline in expectations for a better economy.  According to NFIB Chief Economist Bill Dunkelberg, “This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business.” The number of respondents reporting having job openings fell 2 points and those saying now is a good time to expand declined.  On a positive note, those planning to increase employment rose 2 points and those expecting better sales increased 8 points.

Producer Prices Remain Modest: Producer prices rose 0.6% MoM in July, a slightly firmer reading than expected, as production prices rebounded from weaker results earlier in the pandemic.  Food prices were unchanged for the month and energy prices slipped 13.5%.  Excluding those two categories, prices rose 0.5%. Also excluding trade, core prices rose a solid 0.3% MoM.  Notable outliers, the cost of arranging cruises and tours fell another 61% while the arrangement of flights fell another 10.4%.  Overall, core producer prices are now up 0.1% YoY and show little evidence of excessive inflation pressure.

Fedspeak: Richmond Fed Bank President Barkin and San Francisco President Daly, both non-noting members this year, are scheduled to speak today.


YESTERDAY’S TRADING

Stock Indexes Shrugged Off Tech Weakness and Treasury Yields Ticked Higher as Investors Watch for Additional Fiscal Stimulus Developments: After climbing to a new record high last week, the Nasdaq finished 0.4% lower on Monday as tech stocks took a breather and investors moved into other sectors. Energy companies led the S&P 500 to a modest 0.3% gain, its seventh consecutive positive close, while healthy gains for Boeing and Caterpillar helped the Dow rise by 1.3%. The mixed start for stocks unfolded as President Trump picked up his executive pen on Saturday to write four directives for various types of economic aid for Americans. The White House and Democrats had failed to break a gridlock over separate stimulus bills by last Friday, with enhanced unemployment benefits and eviction moratoriums having expired at the end of July. Top negotiators from both sides signaled over the weekend and again on Monday that a deal is still within reach if the other party is willing to compromise, although there appeared to be no additional talks currently scheduled. As stocks edged higher, Treasury yields inched up with the 5-year yield adding 0.5 bps to 0.24% while the 10-year yield added 1.1 bps to 0.58%.


OVERNIGHT TRADING

Equities Keep Climbing: The generally upbeat results for equities on Monday seem to have reenergized the bulls as global equities have risen sharply so far Tuesday, pressuring sovereign yields higher and knocking gold down further from last Thursday’s record-high close. Chinese equities slid during a mixed session in Asia despite a report showing a pick-up in auto sales in July. The news did help indexes across Europe as auto stocks rose more than 4% and led widespread gains across all sectors that lifted the Stoxx Europe 600 by 1.9% at 7:15 a.m. CT. The gains for stocks have kept sovereign yields around the globe under pressure. The sharpest move higher for Treasury yields began after Russian President Putin announced his country had created the first effective vaccine for the coronavirus. While expected to be viewed suspiciously, the report added to hopes that a more vetted vaccine from a more trusted source could be within reach.

Treasury Yields Move Up with the Long End At Mid-July Levels: Treasury yields were already facing a weekly bias higher with Treasury set to begin auctions of a record amount of longer borrowings to help fund stimulus spending. Hopes for more aid from the federal government remained a focus after President Trump’s weekend executive actions in response to stalled talks between the White House and Democrats. On Monday, President Trump said he was considering lowering capital gains tax bills and seeking a middle-class tax cut. At 7:30 a.m. CT, S&P 500 futures were up 0.5%, a move that would put the index within striking distance of its record at the open. The long end was leading the Treasury curve higher, with the 10-year yield up 4.4 bps to 0.62%, its highest of the day and highest since July 17.


NOTEWORTHY NEWS

JOLTS Data Show Continued Healing of Labor Market in June: The BLS’s JOLTS reported showed a larger-than-expected number of openings in June as hires slowed, layoffs inched down, and quits continued to normalize higher. Total openings rose for a second month to 5.99 million, still well shy of levels north of 7 million that persisted for most of 2019. Hires of 6.7 million marked a slowdown from May’s 7.2 million jump but still held above the pre-pandemic trend as employees went back to work as the economy reopened. Quits continued to normalize, rising more than 500 thousand to 2.6 million, but remained well below the pre-virus trend. Considering non-seasonally-adjusted initial jobless claims totaled more than 5.9 million for June, the leveling off of monthly layoffs at 1.9 million seemed low. The data is consistent with other signs that the labor market continued to recover in June while also reflecting clear damage from the pandemic.


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