The Market Today

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Monitoring the Virus Headlines: The recent trends of a slowing U.S. outbreak but faster spread across Europe continued Tuesday. However, most of the virus headlines were focused on developments related to more federal stimulus in the U.S. and a disappointing headline after markets closed about a disruption to AstraZeneca’s phase 3 vaccine trial. AstraZeneca confirmed a post-market close news report that it was pausing its late-stage trial due to an illness in one of the participants. A spokesperson from the company said, “This is a routine action which has to happen whenever there is a potentially unexplained illness in one of the trials, while it is investigated, ensuring we maintain the integrity of the trials.” AstraZeneca’s shares fell more than 8% in after-market trading before trimming those losses later Wednesday.

Monitoring the Stimulus Headlines: Senate Majority Leader Mitch McConnell and Senate Republicans released a “targeted proposal” for more aid. The bill – which would provide more money for unemployed Americans and schools and offer businesses liability protections, according to the WSJ’s report – is expected to provide somewhere between $500 and $700 billion in spending according to Bloomberg, less than the White House proposal for around $1 trillion and significantly below the $2.2 trillion that Democrats have said is needed. The total cost of the bill would be smaller than the total spending figure after unused funds from previous allotments to the Federal Reserve are reallocated. Addressing the Republican’s proposal, House Speaker Pelosi said, “This emaciated bill is only intended to help vulnerable Republican senators by giving them a ‘check the box’ vote to maintain the appearance that they’re not held hostage by their extreme right-wing that doesn’t want to spend a nickel to help people.”

TODAY’S CALENDAR

Mortgage Rates in Striking Distance of New Lows, New Applications Remain Strong: Mortgage applications for the week ending September 4 rose 2.9% on a 2.6% gain in purchase apps and a 3.0% increase in refis.  The average 30-year mortgage rate dropped 1 basis point to 3.07%, now just 1 basis point from its all-time low seen five weeks ago. As an indicator for future home sales, purchase apps have slowed their pace of gain over the past three weeks but continue to point to incremental improvement.

Job Openings and Layoffs Expected to Show Labor Market Continue to Recover: At 9:00 a.m. CT, the July Job Openings and Labor Turnover Report is expected to show job openings continue to claw back their losses.  Openings fell from 7.0 million in February to 5.0 million in April before rebounding to 5.90 million through June.  Economists expect openings to inch up to 6.00 million.  Even more encouragingly, job layoffs were only elevated in March and April and have returned to pre-virus levels in the last two reports.

YESTERDAY’S TRADING

Last Week’s U.S. Equity Sell-Off Rolled on Tuesday: U.S. stocks continued their tech-led slump from last week as Wall Street returned from the Labor Day holiday break. The Nasdaq sank more than 4% to lead declines among the major indices, a third day of selling that cumulatively dropped the index 10% from last Wednesday’s record close and into a correction. While tech led the selling, the weakness was widespread, leaving all 12 sectors within the S&P 500 lower on the day and the index down 2.8%. The Dow shed 2.3%. There was renewed talk about more federal stimulus but a “targeted proposal” released by Senate Republicans was immediately shot down by top Democrats, who described the bill as “emaciated.”

Treasury Yields Fell and Flattened as Investors Sought Safety Amid Equity Tumble: The losses for U.S. equities evolved after a similarly weak session across the Atlantic pushed the Stoxx Europe 600 down 1.2%. The cost of U.S. WTI crude sank more than 7.5% in the selling while gold failed to catch a bid as Dollar strength neutralized the upside effects from the search for safety. Treasury yields fell and flattened, a trend that had also played out across Europe. The 2-year yield slipped 0.2 bps to 0.14% while the 10-year yield fell 3.9 bps to 0.68%.

OVERNIGHT TRADING

Asian Stocks Stumble but Europe and the U.S. Stage Partial Recovery: Asian equity markets slumped Wednesday in response to Wall Street’s Tuesday tumble, but sentiment has stabilized since the open of the European trading session. Europe’s Stoxx 600 had recovered 0.7% around 7 a.m. CT after Asian equities declined 1.4%, and U.S. futures were pointing to a recovery for all three of the major equity indices. Futures for the Nasdaq were leading with a 1.6% gain, trailed by the S&P 500’s 0.9% improvement and the Dow’s 0.6% rise. Technology shares are attempting to bottom after a sharp sell-off pushed the index into correction in just three days, its worst performance since mid-March.

Treasury Yields Back Near Unchanged After Decline in Asian Trading: A quiet global economic calendar is likely to keep the focus on the wobbly tech sector and any developments related to the virus and U.S. stimulus discussions. The slight recovery for market sentiment since European trading began has largely ignored the Tuesday evening headline about AstraZeneca pausing its phase 3 trial. While there are other candidates in the race for a shot to stop the virus, the news weighed on hopes for a more full return to normalcy. Alongside the improvement in equities, U.S. WTI recovered 1.8% from a more-than-two-month low to $37.40 per barrel. Treasury yields initially fell as Asian markets weakened but had recovered back to little changed before the U.S. session began. The 2-year yield was flat at 0.14% at 7:30 a.m. CT while the 10-year yield had inched up 0.3 bps to 0.68% before a midday auction of $35b in 10-year notes.