The Market Today
Trade Deal Remains on Track According to USTR
by Craig Dismuke, Dudley Carter
VS Coronavirus Chartbook (PDF) (Link)
Monitoring the Virus Headlines: The virus headlines were few and far between Monday as investors remained focus on the FDA’s weekend decision to approve a plasma treatment and a report about fast-tracking AstraZeneca’s vaccine in the U.S. Among the quiet flow of news, the theme from the last couple of weeks of an improving U.S. outbreak remains intact. Florida reported its smallest case increase since mid-June, California announced hospitalizations had declined 20% over the last two weeks, and U.S. cases as a whole rose 0.6%, that was below the past week’s average of 0.8%.
Housing-Heavy Day to Show Prices, Pace of New Sales: Today brings two home price reports, the FHFA price index and the S&P CoreLogic set of indices. Both are expected to show signs of rebounding after softer reports in April and May. While some of the pricing fluctuations were likely the result of a change in the mix of homes being sold (e.g. the average price of existing homes sold sank in May but have since recovered, the FHFA and S&P CoreLogic data attempt to control for these month-over-month changes in sales mix. Following the home price reports, at 9:00 a.m. CT, July’s new home sales data are expected to increase another 1.8% after a 13.8% jump in June. New sales are already back above their pre-virus level.
Consumer Confidence: Also at 9:00 a.m. CT, the August report on consumer confidence from Conference Board is expected to show confidence inch higher after a disappointing decline in July. Confidence remains at historically modest levels and much weaker than pre-virus.
Fed News: The Richmond Fed Manufacturing Activity Index is expected to remain positive at 9:00 a.m. CT. San Francisco Fed Bank President Daly is scheduled to speak on Inequity and COVID-19 at 2:25 p.m.
Hurricane Watch: According to meteorologists, Tropical Storm Laura may intensify to a hurricane with an estimated landfall near Texas or Louisiana on Thursday. Tropical Storm Marco has lost power. According to Bloomberg, 82% of oil and 57% of natural gas production in the gulf has been shuttered. Despite that, the pandemic-associated travel challenges continue to drive oil prices more so than the disturbances in the Gulf. However, gasoline prices have ticked higher on supply concerns, but not enough to affect projections for the consumer.
U.S. Equities Extended Record Run on Hopes of a Medical Breakthrough: The strong overnight tone for U.S. futures persisted throughout U.S. trading on Monday, lifting the S&P 500 and Nasdaq to another all-time high by the close. Global equities rallied to start the week after the FDA announced it had granted emergency use authorization for convalescent plasma treatment for critically-ill COVID-19 patients and on a report the White House was considering fast-tracking AstraZeneca’s vaccine candidate. Stocks rose 0.8% across Asia and Europe’s Stoxx 600 finished 1.6% higher a couple of hours into the U.S. session. When the closing bell sounded the S&P 500 had added 1.0% and the Nasdaq gained 0.6%, both ending at new all-time highs. The Dow outpaced both with a 1.4% gain, but remains down just over 4% from its all-time high close from February. As stocks strengthened, an early-morning bid for Treasurys faded, sending the yield curve steepening into the afternoon with yields closing near the highs of the day. The 2-year yield rose 0.8 bp to 0.15% as the 5-year yield added 1.8 bps to 0.28% and the 10-year yield gained 2.6 bps to 0.65%.
Trade Deal is Still on Track According to the USTR: European sovereigns are leading a rise in global yields Tuesday as equities take another leg higher and the U.S. and China confirm officials held a call Monday evening to discuss the phase one trade deal. According to the press release from the U.S. Trade Representative, “both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.” Concerns about the durability of the agreement have risen in recent weeks as non-trade tensions between the two countries intensified in response to U.S. frustrations over the virus, bilateral sanctions related to Chinese legislation for Hong Kong, and the U.S. targeting top Chinese tech companies with restrictions.
Global Stocks Keep Climbing, Applying More Upward Pressure on Sovereign Yields: While Chinese stocks closed mixed, equities around the rest of the world have strengthened. Combined with yesterday’s strong gains, fueled by optimism about treatments for the virus, Tuesday’s 0.6% improvement has pushed the Stoxx Europe 600 back up within a few points of its highest level of the post-pandemic recovery. U.S. stock futures were mixed at 7:20 a.m. CT with the Dow up 0.7% and the S&P 500 0.4% higher. The Nasdaq lagged, slipping 0.1% as the recent ascent for tech stocks took a breather. The sovereign debt market was the story, however, as European yields have climbed steadily and notably higher since the open. With equities turning optimistic to start the week and several auctions scheduled in both the U.S. and Europe, Italy’s 10-year yield rose 8.2 bps to 1.02%, Germany’s 10-year yield added 5.4 bps to -0.44%, and the U.S. 10-year yield moved up 4.2 bps to 0.70%.