The Market Today
Vaccine and Debt Ceiling Optimism Push Yields Higher
by Craig Dismuke, Dudley Carter
Mortgage Applications Rise on Refi Bounce: Mortgage applications for the week ending December 3 rose 2.0% on a 9.0% increase in refi apps and a 5.0% decrease in purchase apps. The average 30-year mortgage rate inched down 1 bp to 3.30% but remained near its high (3.36%) for the year. Refi apps are now down 45% from January’s average. Purchase apps, which were down 27% through July, are now down just 13% from January.
October JOLTS Report: The October JOLTS Report is expected to show job openings increase from 10.44mm to 10.47mm at 9:00 a.m. CT. Also noteworthy will be the job quits rate which has soared this year to record-high levels.
Pfizer Says Two Doses May Prevent Severe Disease from Omicron, Three Doses Neutralized the Variant in a Lab: On Tuesday, a study from South Africa said Omicron’s ability to evade the Pfizer vaccine was “robust but not complete.” Shifting markets early Wednesday (more below), Pfizer said early lab results indeed show a 25-fold reduction in antibodies against the variant from an original vaccination, a level that may not prevent an Omicron infection. However, two doses may still prevent severe disease and a third booster dose “provides a similar level of neutralizing antibodies to Omicron as is observed after two doses against” the original virus and previous variants.
Omicron Fears Subside While Elevated Cases Lead to More Restrictions: The CDC reported a double-digit increase in cases and hospitalizations over the last seven days while the White House touted the largest single-day dispensing of vaccinations since May. A top White House health advisor said more thorough data on the interaction of Omicron and the vaccines could be available in a week’s time. Health officials from South Africa said hospitalizations still remain subdued. A U.S. judge temporarily blocked the White House’s vaccine mandate for federal contractors while Canada and Poland announced new vaccine requirements for workers in certain sectors. Scotland, Hong Kong, and Poland were among countries to seek some form of tighter restrictions because of virus spread that pre-existed Omicron.
OTHER ECONOMIC NEWS
Debt Ceiling Negotiations Progressing: The House passed a procedural measure that would allow the Senate to raise the debt ceiling by a simple majority vote. Also yesterday, Senators Schumer and McConnell indicated that they had agreed on terms to raise the debt ceiling.
Consumer Credit Growth Slowed in October: Consumer credit grew by $16.90 billion in October, less than the $25.00 billion increase economists expected, and September’s $29.91 billion increase was revised down to $27.82 billion. The 4.7% annualized growth was a step down from September’s 7.7% pace but modestly firmer than in July and August. On an annualized percentage basis, revolving credit, which largely tracks credit card spending, jumped 7.8% and through some ups and downs has trended higher this year. Nonrevolving borrowings, which captures borrowings for larger purchases such as autos, rose 3.7% which remains near the low end of the year-to-date range.
Risk Recovery Continued Tuesday As Equities, Oil, and Treasury Yields Added to Monday’s Jumps: U.S. stocks jumped sharply early and held those gains through Tuesday’s close as tech companies led a broad-based rally that pushed the Nasdaq up 3% on the day, it’s strongest performance since March. The S&P 500 followed with a 2.1% rally, also its best day since March, while the Dow trailed with a solid 1.4% gain. Markets have breathed a sigh of relief this week as more preliminary indications show the Omicron variant is potentially less severe than initially feared. Just behind the tech sector, the S&P 500’s consumer discretionary and energy sectors rose more than 2%. Crude prices jumped more than 3% and are up more than 8% this week. U.S. WTI closed near $72 per barrel, above last Wednesday’s $65.57 low but still depressed from pre-Omicron levels above $78 per barrel. Financials were also firmer as Treasury yields tacked onto Monday’s sharp increases. Flattening the curve, the 2-year yield rose 5.8 bps to a new cycle-high of 0.69% while the 10-year yield added 3.9 bps to 1.47%. The 5-year yield added 4.9 bps to 1.26%.
Pfizer Report on Booster Dose Adds to Optimism: Momentum behind this week’s sharp recovery for risk assets has moderated Wednesday. Following strong gains for Asian equities, Europe’s Stoxx 600 was flat after choppy trade. U.S. futures were close to unchanged prior to an update from Pfizer that showed a third dose of its vaccine neutralized the Omicron variant in a lab (more above). S&P 500 futures spiked from flat to up 0.6% as the press release hit the wires but had drifted back to a 0.2% gain by 7:30 a.m. CT. Treasury yields had edged lower overnight but jumped with equities on the Pfizer news. The 2-year yield flipped a 2.3-bp decline to a 1.6-bp gain. At 7:35 a.m. CT, the 2-year yield remained 1.8 bps higher at 0.71%, a new cycle-high. The 10-year yield had declined 4.8 bps before the report but quickly jumped back to even. At 7:35 a.m. CT, the benchmark note was 2.2 bps higher at 1.50%.