The Market Today
Virus Cases Continue Higher; Fed Officials Offer Mixed Assessments
by Craig Dismuke, Dudley Carter
Monitoring the Virus Headlines: Newly reported cases hit a new high yesterday globally and in the U.S. Globally, 207k new cases were reported. With 58k new cases in the U.S., a record level for any country, total confirmed cases crossed the 3 million mark Wednesday. Arizona’s case increase of 3.3% was below average but the 4.7% jump in Texas exceeded its most recent trend, as the Lonestar state posted a second consecutive record for deaths from the virus (98). A record jump in cases in California was caveated as including backlogged data from LA, while positivity rose and the list of counties being monitored by the governor’s office continued to grow.
Monitoring the Other Headlines: With August quickly approaching, reopening schools has become a popular topic of debate. President Trump criticized the CDC’s new guidance related to opening schools and the White House later said it would release guidance of its own. Much of the White House’s press briefing was spent on the topic, with Vice President Pence saying “it’s time” for kids to go back to school. Globally, the U.K. announced new fiscal stimulus measures and Canada said its debt-to-GDP ratio could jump from 31.1% to 49.1%. However, Prime Minister Trudeau said this is no time for austerity with the carrying costs made “manageable” by the low-rate environment.
Initial and Continuing Jobless Claims Remain Elevated but Inch Lower: Initial jobless claims for the week ending July 4 declined more than expected, down 100k to 1.31 million during a holiday-effected week. Since March 20, there have now been 50.0 million people file for unemployment insurance in the U.S. The level of new applications each week continues to decline, but remains very high from an historical perspective. Those continuing to file for unemployment insurance for the week of June 27 also remained extremely high at 18.06 million. The level was, however, down more than expected from the previous week’s 18.76 million. On a state-by-state basis, 22 states reported an increase in new claims while just 11 states reported higher continuing claims. Oregon was once again an outlier with a weekly increase of 131k (61%) people continuing to file for unemployment.
Wholesale Data and Fedspeak: At 9:00 a.m. CT, the May wholesale inventories and trade sales data will be finalized. Atlanta Fed Bank President Bostic will speak again today on a webinar discussing fiscal policy.
Equities Returned to Their Winning Ways: U.S. equities regained their footing late Wednesday following a stumble in the previous session, with the major indexes gaining for a sixth time in the last seven sessions. The Dow and S&P 500 rose 0.7% and 0.8%, respectively, but were outpaced by a 1.4% rally for the Nasdaq which secured its fourth all-time high close in the last five trading days. Investors have stoically faced down an acceleration of U.S. cases in recent weeks in hopes the economy can manage new outbreaks and avoid the type of broad-brushed lockdowns that led to the deepest recession since the Great Depression.
Treasury Yields Ticked Higher: As part of a benign day for global economic reports, U.S. mortgage applications improved after a couple of weekly declines while data from the Federal Reserve showed consumers continued cautious use of their credit cards in May, although the monthly balance decline was much smaller than April’s collapse. Treasurys were kept under pressure for all of Wednesday’s trading, rising back from a midday retreat to close alongside equities near the highs of the day. The 2-year yield remained stuck at 0.16% while the 10-year yield added 2.5 bps to 0.66%.
Chinese Equity Surge Continues: In the absence of major development to break the gridlock between uncertainty and optimism, U.S. equity futures loitered around Wednesday’s closing levels ahead of the jobless claims data and Treasury yields gave back a portion of yesterday’s rise. The unabating ascent of equities in China remained in focus as the CSI 300 rose for an eighth day, marking its longest stretch of gains since January 2018. The 1.4% improvement swelled the gains accumulated during the current run to nearly 18%, the strongest comparable performance since December 2014. The strength, seemingly tied to economic recovery hopes and Monday’s government nudge in a state-run paper for investors to buy stocks, supported a positive day across the rest of Asia.
Treasury Yields Edge Lower Before Latest Claims Data: Europe’s Stoxx 600 was 0.3% higher at 7 a.m. CT against a backdrop of mixed performances across the various countries. Germany’s DAX was 1.5% higher and leading despite trade data reflecting a weaker-than-expected recovery in May. Exports rose 9.0% (expected +14.0%) after slumping 24.0% while imports improved 3.5% (+12.4%) after sliding 16.6%. Before the latest update on the U.S. labor market, tech was leading a mixed performance for U.S. equity futures that kept the S&P 500 locked around even. The 2-year Treasury yield had inched back 0.4 bps and the 10-year yield had edged 1.6 bps lower. Markets were little changed shortly after the better-than-expected jobless figures were announced.
Mixed Takes from Fed Officials: Fed President Bostic from Atlanta spoke again on Wednesday, reiterating his view that the recovery was starting to show signs of flattening out which could spur the Fed to discuss the need to do more. President Rosengren from Boston also seconded Bostic’s sentiment, saying he’s now expecting the economy’s recovery will be weaker than he had previously hoped. St. Louis Fed President Bullard struck a more cheerful noted, saying, “I’m still pretty optimistic in my base case about the recovery.” “I think masks will become ubiquitous throughout the economy and… fatalities will go way down,” Bullard went on, adding “seems to me like by the end of the year you can get [unemployment] down certainly to single digits, probably even below 8%.”