The Market Today
Yields Push Higher Following Last Week’s Election Results; VS 2021 Economic Outlook Webinar
by Craig Dismuke, Dudley Carter
2021 ECONOMIC OUTLOOK WEBINAR
Vining Sparks will host our 2021 Economic Outlook Webinar this morning at 10 a.m. CT. During the presentation, we will discuss the forecast tension between the continued headwinds of the virus and the upside risk from the growing pent-up consumer demand.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: The virus-related headlines were relatively quiet to start the week as more attention was focused on the continuation of last week’s yield jump and developments related to efforts in the House to impeach President Trump. Ireland’s outbreak has recently become one of the world’s worst but a top health adviser said there were early signs of the rapid increase in cases relenting. Poland extended its lockdown through the end of the month and Portugal said its president had tested positive for COVID-19. German Chancellor Merkel said unchecked growth of cases caused by the new variant could result in the current lockdown being extended by an additional ten weeks. The U.K.’s prime minister called the current situation a “perilous moment” and the country’s vaccination efforts a “race against time.” The WHO made a couple of headlines, announcing it was finally sending a team to China to begin researching the origins of the coronavirus but acknowledging that herd immunity won’t be accomplished in 2021. Related to vaccines, BioNTech’s CEO said he’s comfortable that mutations won’t affect the vaccine after the company said it was increasing its production projection for this year from 1.3 billion doses to 2 billion. In the U.S., daily vaccinations hit a record of 1.25 million.
Small Businesses Wary of Rise in COVID-19, Election Results, Potential for More Shutdowns: Small business confidence surprisingly fell 5.5 points in December to 95.9, bringing the index below its 47-year average level of 98. Nine of the ten underlying metrics declined with a 24-point drop in those expecting economic and business conditions to improve. That decline brought the net outlook for economic conditions from positive territory to -16, lower than during the initial wave of the pandemic and lower than any point since the Trump administration began. The number of persons expecting real final sales to improve fell 14 points bringing it into negative-net territory also. According to a statement from NFIB’s Chief Economist Bill Dunkelberg, “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”
JOLTs Report: The November Job Openings and Labor Turnover Report, scheduled for 9:00 a.m. CT, is expected to show a pullback in job openings in November.
Fedspeak: Fed Governor Brainard, often a bellwether of the consensus view of FOMC officials, is scheduled to speak at 8:35 a.m. CT. Also speaking today are Kansas City Bank President George (12:00 noon) and Boston Bank President Rosengren (1:00 p.m.).
Stocks Consolidated Strong Gains Ahead of Busy Week As Treasury Yields Extended Recent Rise: Treasury yields moved higher on Monday even as the major equity indices consolidated last week’s strong gains ahead of some important economic data and the start of corporate earnings season later in the week. Both stocks and risk-free yields jumped last week after Democrats took control of the Senate with run-off victories in Georgia, raising the odds of additional stimulus in the months ahead. The S&P 500 gained 1.8% to end Friday at a record level and the 10-year yield jumped more than 20 bps, leaving the Treasury curve with its steepest slope since July 2017. And while President-elect Biden is expected to detail his administration’s proposal for more aid on Thursday, which should include larger direct checks to individuals, investors took a breather Monday as they braced for jobless claims, retail sales, comments from top Fed officials, and the first set of U.S. bank earnings in the days ahead. Adding to the list of potential headlines that could break this week, House Democrats introduced a resolution to impeach President Trump for “incitement of insurrection,” with a vote planned for Wednesday if Vice President Pence does not invoke the 25th Amendment in the interim. Against the backdrop of those pending events, the S&P 500 dropped 0.7%, led lower by shares of Tesla and technology-related names. Energy companies and financials actually improved and other cyclical stocks were relatively stable. The Dow dipped 0.3% and the Nasdaq slumped 1.3%. Treasury yields, however, continued last week’s move higher, with the 10-year yield pushing up another 3.1 bps to 1.15%, the highest mark since March 19. The spread between the 2-year and 10-year notes widened 2.1 bps and for a sixth consecutive session, stretching to 99.7 bps, the most extra yield since May 2017.
Yield Rise Continues while Equities Stay on Break: Global equities remain mixed on Tuesday as investors keep one eye on the rising global infections and another on the prospects for more stimulus to help keep the recovery moving forward. Nothing in the news overnight altered the narrative away from markets gathering themselves after a strong start to 2021 ahead of a busy week of economic data, corporate earnings announcements, and potential political developments. Stocks closed mixed in Asia, were lower across Europe, and set to head higher in the U.S. based on futures trading. Contracts on the three major U.S. equity indices were up between 0.2% and 0.3% at 7 a.m. CT. Conversely, however, sovereign bond yields were rising in concert. European yields were leading U.S. Treasury yields, with Germany’s 10-year yield up 1.9 bps to -0.48% and Italy’s 10-year yield more than 8 bps higher at 0.65%. Analysts cited supply pressures related to daily auctions from several countries across Europe. Just before 7:30 a.m., the 10-year Treasury yield was 2.6 bps higher at 1.17%, unmoved by the sharp decline in small business confidence. The Treasury will auction $38 billion of 10-year notes today at 12 p.m.