The Market Today
Yields Rise with Equities as Optimism Outweighs Rising Virus Cases
by Craig Dismuke, Dudley Carter
VS Coronavirus Chartbook (PDF) (Link)
THIS WEEK’S CALENDAR
Virus Updates Could Dominate the Headlines with a Quiet Economic Calendar: The headlines this week are likely to be heavily focused on the status of the virus and the positive market momentum that boosted equities and yields last week (more below). Only two economic reports this week carry enough weight to impact market sentiment. Later this morning, the ISM will release its Non-manufacturing Index for June at 9 a.m. CT. The headline index is expected to recover 4.8 points to 50.2, the first expansionary reading since March. Before markets open on Thursday, the Department of Labor will announced the latest figures for jobless claims activity. Initial claims are expected to have declined from 1.43MM to 1.38MM last week and continuing claims are expected to have improved from 19.30MM to 18.80MM two weeks ago.
China Leads a Strong Global Rally to Start the Week: A global equity rally is underway Monday after a long weekend break in the U.S. as economic optimism overwhelmed concerns created by the pace and level of new infections in the U.S. The overnight gains leveraged positive momentum from last week as economic updates showed the global economy continued to recover in June (more below). An unusually large gain for Chinese share values has led the move upward which has lifted Europe’s Stoxx 600 by 1.4%. China’s CSI 300 surged 5.7% to start the week, its largest daily rally since February 2019 to its highest level since June 2015. The index has soared 13.6% over the last five days, its sharpest such rally since 2014.
U.S. Futures and Yields Rise as Risk-On Tone Grows: European equities were undisturbed by a mixed day of data and U.S. futures are up more than 1%. A solid 10.4% jump in German factory orders for May was smaller than expected, industrial output slumped more than expected in Spain, and Eurozone economic confidence improved by less than expected in July. However, retail sales for the Eurozone rebounded by a better-than-expected 17.8% in May. At 7:40 a.m. CT, U.S. equity futures were stronger and the Treasury curve was steeper. Contracts on the S&P 500 gained 1.3% while the 2-year yield added 0.6 bps to 0.16% and the 10-year yield rose 2.5 bps to 0.69%.
ICYMI – July 3, 2020 Weekly Market Recap: Stocks and yields both rose last week before closing for the Independence Day holiday as investors grappled with an acceleration of the virus in the U.S. amid additional signs of economic recovery. A couple of economic reports, including the timely jobless claims data, came up short last week. The majority, however, topped expectations, capped by the solid June jobs report. The tone of most global reports, primarily PMIs for June, was equally as hopeful. The net improvement, as well as positive reports on early trials for another vaccine, helped offset concerns created by an acceleration of the virus in the U.S. A couple of states rolled back parts of their reopenings as local cases spiked, leading the U.S. to a new record for daily infections. The unknown path of the virus cast a shadow of considerable risk over the Fed’s outlook as laid out in the June Minutes, in which officials signaled that policy will remain accommodative for years. That sentiment is consistent with the recent lack of volatility in Treasury yields. For the week, the 2-year yield fell 1.4 bps to 0.15% while the 10-year yield added 2.8 bps to 0.67%. The 5-year yield touched an all-time record low on Tuesday. Despite the uncertainty, stocks posted solid gains and the Nasdaq notched a new record. Click here to view the full recap.