The Market Today

Stimulus Watch Ahead of Senate Recess


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

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TODAY’S CALENDAR

Manufacturing, Construction, Auto Sales: Today’s economic data will highlight the disparate rates of recovery in different sectors of the economy.  At 8:45 a.m. CT, Markit will finalize their July manufacturing PMI followed shortly by the ISM Manufacturing index.  The ISM index is expected to inch up from 52.6 to 53.6 which would be the highest level since March 2019.  Also at 9:00 a.m., the June construction spending report is expected to show a 1.0% gain after declining for three consecutive months.  Activity has turned down in both private residential and non-residential activity.  However, residential investment is expected to recover quickly. Finally, the July auto sales data are scheduled for release throughout the day. After two months of recovery, auto sales have recovered just over half of their 50% decline.

Fedspeak: There are several Fed officials on the tape today.  St. Louis Bank President Bullard speaks at 11:30 a.m. CT.  Richmond Bank President Barkin speaks at 12:00 noon.  Chicago Bank President Evans is scheduled for a media roundtable at 1:00 p.m.  They are likely to advocate for assistance from fiscal policymakers while investors will be more focused on any monetary policy posturing.


OVERNIGHT TRADING

No Weekend Breakthroughs in Washington: Lawmakers in Congress failed to break a stimulus stalemate over the weekend, but global stocks are mostly higher following better-than-expected manufacturing data from China and Europe. With the enhanced unemployment bonus having expired on Friday, already-anxious investors remain keenly focused on the negotiations for another round of aid to extend the fiscal bridge for an economy still reeling from the coronavirus disruptions. Disagreement about the level of enhanced unemployment benefits appeared to be among the most public holdups, leading White House Chief of Staff Meadows to say Sunday, “I’m not optimistic that there will be a solution in the very near term.” With the Senate’s August recess set to begin Friday, developments around progress, or the lack thereof, will be a major focus for markets this week.

Foreign Manufacturing Continued to Pick-Up in July: For now, however, global stocks are generally stronger on Monday as manufacturing PMIs from China and Europe showed activity picked up in July. Caixin’s China PMI, a survey of small and medium-sized manufacturing businesses, rose from 51.2 to 52.8, while smaller Asian countries saw mixed results. Alongside positive revisions to initial estimates for France and Germany, improvement for smaller European countries led to the Eurozone’s manufacturing PMI being revised up from 51.1 to 51.8. The Stoxx Europe 600 was 1.6% higher at 7:20 a.m. CT, giving a boost to U.S. futures after a weaker start in Asian trading. Contracts on the Dow and S&P 500 were up around 0.6%. After finishing Friday at record low levels (more below), Treasury yields edged higher before U.S. trading with the 5-year yield earlier up 1.1 bps to 0.22% and the 10-year yield 2.6 bps higher at 0.55%.


NOTEWORTHY NEWS

ICYMI – July 31, 2020 Weekly Market Recap: Equities stumbled and Treasury yields fell to record lows after government agencies officially confirmed for the first time the historic size of second quarter contractions, the Fed reiterated its pledge for continued accommodation and said the recovery appears to be slowing, and Congress failed on a quick compromise for the next round of stimulus. The U.S. economy shrank by a record 32.9% last quarter while Europe contracted by a historic 12.1%, or at an annualized 40% rate. While the figures were shocking, they were not a surprise. More important and concerning were signs of some softening in consumer confidence and the latest jobless claims results. Evidence of the recovery slowing from its faster earlier pace was a focus in Fed Chair Powell’s dovish press conference following the Committee’s decision to keep policy unchanged. Despite his beseeching fiscal policymakers for additional stimulus, Congress showed no signs of reaching a compromise after Republicans proposed a stimulus plan that varied wildly from a bill passed by Democrats in the House. Ultimately, the S&P 500 nursed a 1.7% weekly gain, largely on the back of strong tech earnings. The 2-year Treasury yield fell 4.2 bps to 0.11%, the 5-year yield fell 7.1 bps to 0.20%, and the 10-year yield slipped 6.1 bps to 0.53%, all closing at all-time lows. Click here to view the full recap.


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