The Market Today
U.S. Case Growth Accelerates Raising Concerns
by Craig Dismuke, Dudley Carter
VS Coronavirus Chartbook (PDF) (Link)
Monitoring the Headlines: The major focus pertaining to the virus is now on daily virus updates from a couple of key U.S. states. The number of new cases (excluding New York and New Jersey) hit a new high yesterday (7-day average). Concerns continue to grow as states including Arizona, California, Florida, and Texas report new records for daily virus increases. Texas also broke Wednesday’s record for hospitalizations yesterday. California’s governor said masks will now be required in public and New York’s governor said he was considering required quarantine for travelers from Florida. Dr. Fauci, a top White House medical adviser, said that football seasons could be canceled this year in response to the pandemic. Delta disclosed that it expected third-quarter capacity to be down between 55% to 60% from normal levels and substantial recovery to take up to three years. Lawmakers in Congress announced proposals to provide $120 billion to restaurants and leftover PPP funds to other types of small businesses.
Quiet Day for Economic Data: Today’s economic calendar is quiet. Fed Chair Powell will join Cleveland Bank President Mester at a community event today at 12:00 noon CT. Fed Vice Chair Quarles will discuss stress testing at 11:00 a.m., and Boston Bank President Rosengren will speak at 9:15 a.m.
Equities Fluctuated on Virus Concerns: U.S. equities struggled for a second day amid continued concerns about the virus and following mixed economic data in the U.S. Before markets opened, the Philadelphia Fed’s Business Outlook index for June surged to its second highest level since May 2018. However, any optimism that report stirred up was more than neutralized by disappointing labor data showing smaller-than-expected declines in new and continuing jobless claims. Adding to the downward pressure on stocks and yields later during the session were more troublesome updates from several U.S. states about their outbreaks.
Treasury Yields Ticked Lower: With investors anxious about the impact of these developments on economic reopening and recovery, risk appetite remained tepid. The S&P 500 eked out a 0.06% gain while the Dow fell 0.2% and the Nasdaq rose 0.3%. Treasury yields ended lower but closed up from more depressed levels that held for most of the session. The 2-year yield ended essentially flat at 0.19% while the 10-year yield pulled back 3.0 bps to 0.71% after dropping as many as 4.8 bps earlier in the afternoon.
Uncertain Week Set for Positive Wrap: Global markets firmed up on Friday as investors continued to contemplate the risks faster virus spread in some places pose to signs of early recovery in some economic data. Treasury yields rose with U.S. futures after a 0.2% gain for MSCI’s Asia Pacific Index and with Europe’s Stoxx 600 trading approximately 1% higher around 7 a.m. CT. With the virus still ravaging Latin America and not yet under control in other countries, rising caseloads and hospitalizations in some U.S. states have disrupted a return to near-record levels for stocks in recent weeks. A resurgence of the virus may not elicit a second round of blanket lockdowns but could lead to more cautious consumption just as consumers began to spend again.
Stimulus Efforts Grow as Private Sector Heals: Following the surprisingly strong May recovery in the U.S. reported earlier this week, retail sales in Australia and the U.K. posted double-digit percentage gains in May after plummeting in April. Public officials hope a healing private sector will ultimately cap the already-historic stimulus efforts they’ve undertaken to stave off a depression. Top EU officials are meeting today to debate a 750 billion euro recovery package and the U.K.’s public debt outstanding surpassed total GDP for the first time since the early 1960s. At 7:40 a.m. CT, equity futures were up more than 1%, with the steepest climb occurring on headlines that China would hasten purchases of U.S. farm products as part of the phase one trade agreement. Tracking the move up in equities, the 10-year Treasury yield was up 3.0 bps to 0.74% and at its high of the session.
Thursday’s Fed Speak: Yesterday’s Fed remarks were relatively benign, echoing expectations for a long recovery that will require continued monetary support. In more specific comments, St. Louis Fed President Bullard said the economy is not out of the woods yet but he expects the recovery, which likely began in May, to be quicker than after the Great Financial Crisis. He added that if the situation deteriorates, a potential wave of business failures could raise the risk of a depression. Cleveland Fed President Mester said the pandemic and shifts in behavior pose risks for commercial real estate over the longer run.