The Market Today
U.S. and Global Data Continue to Show Improvement
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: The virus headlines started slowly and updates from both the U.S. and Europe showed day-over-day improvement. U.S. cases rose 0.5%, in line with last week’s average pace. The 1,736 new cases found in Florida was the smallest daily figure since June 11 and California’s 2,855 daily tally was below the 14-day average. Hospitalizations in California fell to the lowest level since April. The bigger news was the positive developments on the vaccine front from AstraZeneca (more below).
Recovery Appears to Gain Steam in Early Look at September Data: As one of the most leading indicators in a sector that is generally an early barometer of U.S. economic health, the September report on regional manufacturing activity from the New York Fed gives reason for optimism. The index jumped from +3.7 to +17.0, the second-best report since 2018, surpassed by July’s +17.2. The underlying details were all positive. The critical new orders index rose from -1.7 (contractionary) to +7.1. The average employee workweek appears markedly improved although the outlook for employment showed the least improvement in the data and remains barely positive.
Industrial Production, Capacity Utilization, and Manufacturing Output: The August Industrial Production report, including the ever-important read on manufacturing output, is scheduled for 8:15 a.m. CT. As of July, manufacturing output remains 8% below its pre-virus level. We expect that activity to continue to be recovered, albeit at a slowing pace, as mobility continues to improve.
20-Year Treasury Auction and Apple Product Launch: Treasury is slated to sell $22 billion of its new 20-year bonds today at 12:00 p.m. CT. Apple’s first major product launch of 2020 is scheduled for today and is expected to include a new watch and an update to the iPad. Today’s event will not include a new iPhone release which is, instead, scheduled for later in the year.
Equities Cut into Last Week’s Decline on Vaccine Developments and Corporate Deals: U.S. equity indices rose more than 1% Monday, led higher by tech shares and a 1.9% gain for the Nasdaq as stocks recovered from a second weekly drop. There were no economic reports released yesterday, although the rest of the week will bring several key economic developments, including the Fed’s latest decision and projections on Wednesday. However, there was positive news on the vaccine front and analysts pointed to news related to certain mergers and acquisitions as a specific driving force. Related to vaccines, AstraZeneca restarted phase 3 trials in the U.K. and Japan following a pause of testing after a U.K. patient became ill. The company’s testing in the U.S. remains on hold. Additionally, markets reacted to comments from Pfizer’s CEO from over the weekend that he believes a vaccine this year is likely. The S&P 500 rose 1.3% as all sectors improved while the Dow gained 1.2%.
Treasury Yields Remained Quiet in Tight Multi-Month Ranges: Treasury yields were relatively quiet, closing less than 1 bp changed across most of the curve and sticking within their recent tight ranges. The 2-year yield added 1.0 bps to 0.14% and has traded within an average daily range of 1.7 bps over the last 90 days, the tightest 90-day average since July 2013. The 10-year yield added 0.7 bps on the day to 0.67% and its 5.1-bps average daily range over the last 90 days marks the least volatile period since July 2019.
Global Stocks Add to Weekly Rise on Better Economic Data: U.S. stocks will add to Monday’s gains when markets open based on continued strength in futures trading in a solid global session overnight. While stocks in Japan edged lower, Chinese equities led most of Asia higher and Europe’s Stoxx 600 was up 0.8% shortly after 7 a.m. CT, marking its high for the day. Reports covering industrial production, retail sales, and fixed investment in China all topped expectations in August. While year-to-date retail sales remain 8.6% lower than in the first eight months of 2019, August activity was 0.5% higher than a year ago, marking the first positive report of 2020. China’s currency strengthened against the Dollar to its highest level since May 2019.
Treasury Yields Inch Higher as Risk Assets Rise: In addition to the positive data out of China, a top survey of financial experts in Germany posted a surprise and strong monthly gain in September to its highest level in more than 20 years. Germany’s DAX, however, lagged larger equity gains in the region and bund yields barely budged. Yields in the U.K. were leading a small increase in global yields overnight despite PM Johnson’s bill to alter the Brexit Withdrawal agreement passing an initial vote. The bill will be placed to a second vote today, where it may receive more pushback. The pound also gained, but trailed a larger rise in the Australian Dollar which benefitted from the better China data and cautious optimism in the latest minutes from the Reserve Bank of Australia that the recovery remains under way. Against the backdrop of better global data, and after the stronger-than-expected Empire Manufacturing Index, Treasury yields remained slightly higher for the day. While the 2-year yield was flat at 7:40 a.m. CT, the 10-year yield had added 0.7 bps to 0.68%. Nasdaq futures were up 1.2% while contracts tracking the S&P 500 had gained 0.8%.
JPMorgan Bringing Workers Back Due to Decline in Productivity: A week after JPMorgan made headlines by telling trading employees to return to the offices by September 21, an explanation has emerged. According to a Bloomberg News article, “A troubling pattern emerged as most of JPMorgan Chase & Co.’s employees worked from home…. : productivity slipped. Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts. That, along with worries that remote work is no substitute for organic interaction, is part of why the biggest U.S. bank is urging more workers to return to offices over the coming weeks.” The report goes on to add that productivity of younger employees may have been hit hardest because of lost learning opportunities.