The Market Today

CORONAVIRUS UPDATE

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Monitoring the Headlines: The U.S. reported 70,702 new cases yesterday, the fourth-highest daily total. In percentage terms, cases rose 1.9%, in line with the recent average. California reported a record 12,807 cases to surpass New York as the state with most confirmed infections. The bigger focus, however, remained on vaccine news and stimulus negotiations in Washington. Pfizer and BioNTech signed a $1.95 billion agreement with the U.S. government for 100 million doses of their experimental vaccine. U.S. lawmakers continued to work on the next stimulus bill, although reports indicated the divide between various groups could push a full agreement into August. Democrats are keen on a larger deal that keeps the current level of unemployment benefits, Republicans want a more targeted deal that incentivizes worker to return to their jobs, and the White House has continued to lobby for a payroll tax cut. In order to prevent expanded unemployment benefits from expiring on July 31 as agreed to in the CARES Act, multiple lawmakers admitted an interim extension might be required until a final deal can be hammered out.

 

TODAY’S CALENDAR

Initial Jobless Claims Increase as Recovery Falters: The faster-moving data, including this morning’s claims report, show that the recovery is beginning to falter. Initial jobless claims for the week ending July 18 surprisingly increased from 1.307 to 1.416 million.  In addition to the new filings for the traditional state-level programs, 975k additional claims were filed as part of the Pandemic Unemployment Assistance program, up from 955k in the previous week, bringing total new claims for the week to 2.9 million.

State Level Reporting Continues to Confound Continuing Claims: Headline continuing jobless claims were positive, but are reported with a one-week lag.  Continuing claims for the week ending July 11 dropped from 17.3 to 16.2 million, much better than was expected. Continuing PUA claims, even one week further delayed, show unreliable results.  PUA claims for the week ending July 3 dropped from 14.3 to 13.2 million, in large part because Arizona did not report.  The state reported 2.27 million continuing PUA claims in the previous week.  Excluding the Arizona-specific data from both weeks’ reports, continuing PUA claims actually rose.  All told, the claims data show 30.5 million continuing unemployment claims excluding Arizona.

Leading Index and Kansas City Fed Index: At 9:00 a.m. CT, the Leading Index for the month of June is expected to remain elevated but drop from 2.8% to 2.1%.  At 10:00 a.m., the Kansas City Fed Manufacturing Index is expected to improve further.

YESTERDAY’S TRADING

Stocks Shook Off Early Scare on Escalating U.S.-China Tensions: U.S. equities quickly recovered from an opening drop and climbed steadily into the close after briefly turning negative early in the afternoon. The opening sell-off was stirred by tensions between the U.S. and China heating up overnight following news that the U.S. had demanded China close its consulate in Houston. China pledged retaliation if the U.S. didn’t reverse its decision, which the State Department confirmed was made to protect American interests. The contentious turn in the already-tenuous relationship sent stock futures lower before the U.S. session and knocked medium-maturity Treasurys back to record-low levels. However, markets recovered during U.S. trading as focus shifted back to medical developments and ongoing stimulus discussion. Safer sectors led the S&P 500 to a 0.6% daily gain, while health care companies also closed near the front. Treasury yields tepid streak continued, as the 2-year yield inched up 0.8 bps while the 10-year yield edged 0.3 bps lower.

OVERNIGHT TRADING

Global Equities Make Modest Gains Despite Growing List of Items for Investors to Watch: Global equities have generally improved Thursday before the latest U.S. jobless claims data as investors continue to monitor a lengthy list of weekly developments. Amid a heavy slate of global corporate earnings, there have been positive reports on the vaccine front and the EU passed a historic stimulus package. Additionally, Congress is negotiating on more aid for the U.S. economy with Senate Republicans’ counter to the House Democrats $3.5 trillion plan set to be unveiled potentially as soon as today. Keeping the optimism in check, however, has been the sharp escalation of tensions between the U.S. and China. The flurry of headlines has more than filled the void left by a quiet economic calendar.

Treasury Yields Keep Inching Lower: Before the U.S. data were released, first estimates reflected a 3.3% contraction of South Korea’s economy in the second quarter, a more severe decline than the 2.4% contraction economists were expecting. The quarterly contraction followed a smaller 1.3% decline in the first quarter and matched the country’s weakest three-month period since 1998. In Europe, German consumer confidence recovered more acutely in August than was expected while a couple of July reports from France (business confidence) and the U.K. (manufacturing orders) improved, but by less than expected. Just ahead of the jobless claims data, S&P 500 futures were 0.3% stronger, just back from a 0.4% gain for the Stoxx Europe 600. Treasury yields continued to inch lower with the 5-year yield down 1.3 bps to a new record low of 0.26% and the 10-year yield 1.5 bps lower to 0.58%, a three-month low. Those levels held immediately after the mixed jobless claims activity was announced.

NOTEWORTHY NEWS

Existing Home Sales Post Strong, As-Predicted Recovery in June: Nearly matching economists’ expectations and predicted by pending home sales and mortgage applications data, existing home sales recovered sharply in June. After dropping more than 32% in the three months since February, existing sales jumped 20.7% to 4.75 million annualized units in June on solid recoveries in all four regions. The West led the way with a 32% jump, followed by a 26% recovery in the South and smaller gains of 11.1% and 4.3% in the Midwest and Northeast. Portending the improvement, pending home sales recovered notably in May and mortgage purchase applications have risen rapidly from their April nadir as mortgage rates tracked Treasury yields to record-low levels. While sales remain 18.0% below February’s cycle-high pace, the NAR’s chief economist said, “The housing market is hot. Red hot.”