The Market Today

TODAY’S CALENDAR

Existing Home Sales Expected to Remain in the Modest Range: The June Existing Home Sales report is scheduled for 9:00 a.m. CT, and is expected to show sales fell 0.4% MoM. Sales remain 5.1% (May) below their 2017 peak but have rebounded +8.3% from the low point seen in January.  Prior to the release, the FHFA Home Price Index is scheduled for 8:00 a.m. and is expected to show prices continuing to gain at a tempered rate.  The Richmond Fed’s Manufacturing Index is scheduled for 9:00 a.m.  Both the New York and Philadelphia Fed’s regional activity indices improved in last week’s data.

 

Trump, Pelosi, and Mnuchin Reach Tentative Budget Agreement Eliminating 2020 Fiscal Cliff: President Trump, Speaker Pelosi, and Treasury Secretary Mnuchin reportedly reached an agreement yesterday to lift the debt ceiling through July 2021 and raise federal spending limits for the next two years.  The agreement removes the risk  of a fiscal showdown this fall, raises defense spending $22 billion to $738 billion in FY20, raises nondefense spending $27 billion to $632 billion in FY20, and puts in place some negotiating limits on future budget discussions. The talks included Leaders Schumer, McConnell, and McCarthy yesterday.  There is reportedly bipartisan support for the small budget agreement and the House could vote on the measure as early as this week, followed later by the Senate.  This deal would eliminate the impact of a 2020 fiscal cliff in which spending is set to drop back to the 2011 Budget Control Act caps, dragging on GDP growth.

 

TRADING ACTIVITY

Yesterday – Tech Led Stocks Higher, Treasury Yields Ticked Down: Overnight trends persisted throughout the U.S. session as tech led U.S. equities higher while the Treasury curve fluctuated to end Monday marginally lower. The Nasdaq rose 0.7% and tech companies finished atop the S&P 500, although the broader index registered a more modest 0.3% gain. The Dow closed up just fractionally, adding 0.07% as shares of Boeing knocked the index for 27 points. Energy companies were the second-best performers within the S&P 500 with crude prices closing up for a second day since Iran seized a British-flagged oil tanker last Friday. Although Monday’s corporate earnings calendar was quiet, activity will pick up over the next several days. Roughly 30% of companies in the S&P 500 index will report earnings results this week, according to Reuters, including big tech names such as Facebook, Amazon, Alphabet (Google), and Twitter. The Treasury curve dipped flatter after cacophonous Fed comments last week left the markets almost certain of a 25-bps cut next week, with the 2-year yield 0.6 bps lower and the 10-year yield down 0.9 bps. While the Fed is now in its silent period ahead of the July meeting, the head of the BoJ said at an appearance in Washington that “The Bank needs to pay close attention to the effects” of uncertainties on Japan’s economy.

 

Overnight – Brexiteer Boris Johnson Takes Reins: The biggest news overnight was Boris Johnson’s victory in the election to decide who would replace Theresa May as leader of the Conservatives and U.K. prime minister. Johnson, a long-time proponent of the U.K.’s departure of the EU and the odds-on favorite to fill the position, last fueled fears of a no-deal Brexit when he said his country must break-up with the EU by the October 31 deadline “do or die, come what may.”  After his victory, Johnson proclaimed, “we are going to energize the country, we are going to get Brexit done on Oct. 31, …Like some slumbering giant we are going to rise and ping off the guy ropes of self-doubt and negativity.” The British pound was marginally weaker but well off its intraday lows, and U.K. yields were little changed. The country’s FTSE 100 was 0.6% stronger, although the strength was likely tied more to solid gains around the globe on Tuesday. Stocks rose across Asia while European indices and U.S. futures were both firmer and near the highs of the day on upbeat earnings. At 7:30 a.m. CT, equity index futures were up around 0.4% and the Treasury curve was modestly flatter, with the 2-year yield 1.3 bps higher to 1.83% while the 10-year yield slipped 0.4 bps to 2.04%.