Vaccine News Has Stocks Challenging All-Time Highs

Nov 09, 2020
Pfizer Lab Worker

Election Aftermath

Positive news from Pfizer on a vaccine that could treat 90% of virus cases has global stocks rallying and bonds on the back foot. A piece too on 60 Minutes about the government’s military-led effort to manage distribution has also helped the risk-on mood this morning. The 10-year Treasury has backed up to 0.92%, off 29/32nds and getting closer to the psychologically important 1.00% level. Getting past that, however, will be a challenge and moving through 1.00% to say 1.25% will have to rely on other factors then just a vaccine. One of those will be  the aftermath of the election. The market had been trading late last week on the expectation of a Biden win and a Republican Senate and that gridlock scenario accounted for the bulk of the bullish action in both stocks and bonds. The stock rally stemmed from Biden not having the Senate votes to pass any tax hikes. Meanwhile, bonds rallied on the thought that a huge stimulus and resulting bond issuance will not be forthcoming. The one fly in the ointment for that scenario (actually two flies) are the twin Senate run-off races in Georgia. A flip of both Republican seats would put the Senate in Dem hands at 50-50 and Vice President-elect Harris holding the tiebreaking vote. From a report perspective, the expectation across the board is for little change from the prior month. CPI, Univ. of Michigan Sentiment, NFIB Small Business Optimism will look a lot like the prior month.


Treasuries
Treasury Curve Today Week Change
3 Month 0.08% Unch
6 Month 0.10% Unch
1 Year 0.12% Unch
2 Year 0.17% +0.02%
3 Year 0.23% +0.04%
5 Year 0.42% +0.05%
10 Year 0.92% +0.06%
30 Year 1.71% +0.07%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.21%
6 Mo LIBOR 0.24%
12 Mo LIBOR 0.33%
Swap Rates
3 Year 0.302%
5 Year 0.480%
10 Year 0.934%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Nov 9 NFIB Small Business Optimism Oct 104.4 104.4 104.0
Nov 10 JOLTS Job Openings Sep 6.500mm 6.500mm 6.493mm
Nov 12 CPI MoM Oct 0.2% 0.2% 0.2%
Nov 12 CPI Ex-Food & Energy MoM Oct 0.2% 0.2% 0.2%
Nov 12 CPI Ex-Food & Energy YoY Oct 1.7% 1.7% 1.7%
Nov 12 Initial Jobless Claims Nov 7 730k 730k 751k
Nov 13 PPI Final Demand YoY Oct 0.4% 0.4% 0.4%
Nov 13 PPI Ex-Food & Energy YoY Oct 1.2% 1.2% 1.2%
Nov 13 U. of Michigan Consumer Sentiment Nov P 81.8 82.0 81.8

calendar icon Top 5 Events for the Week

Nov. 9 — 13, 2020

1. Aftermath of Election — All Week
2. October CPI Report — Thursday
3. Preliminary U. of Mich. Sentiment — Friday    
4. October NFIB Small Business Optimism — Tuesday
5. Initial Jobless Claims — Thursday

 

1.  Aftermath of Presidential Election — All Week

With the counting still continuing in a couple states, but with Biden already over the necessary 270 electoral votes,  the aftermath of the election results will continue to be felt in the market this week. The market had been trading late last week on a Biden win and a Republican Senate and that gridlock scenario accounted for the bulk of the bullish action in both stocks and bonds. The stock rally stemmed from a Biden administration not having the votes in the Senate to pass any tax hikes. Meanwhile, bonds rallied on the thought that a huge stimulus and resulting bond issuance will not be forthcoming as well. The one fly in the ointment for that scenario (actually two flies) are the twin Senate run-off races in Georgia. A flip of both Republican seats would put the Senate in Dem hands at 50-50 and Vice President-elect Harris holding the tiebreaking vote. While taking two seats from Republicans in Georgia would have seemed a stretch prior to the presidential election, with Georgia narrowly voting for Biden it’s not as farfetched anymore. The runoff will be held on January 5 so this will keep some uncertainty going for another two months.

 

2.  October CPI Report — Thursday

Inflation has been mentioned as a latent threat given all the stimulus initially provided to the economy and monetary accommodation provided by the Fed, but with the fate of a second stimulus package still uncertain that influence should start to dissipate. For October, overall CPI is expected to increase  0.2% matching the gain in September. The core rate (ex-food and energy) is also expected to increase 0.2% matching its gain in September.  YoY CPI is expected to be 1.3% after last month’s 1.4% result. Core CPI YoY is expected to remain at 1.7% for a third straight month. With docile YoY numbers, inflation may be something to expect at some point but that’s a  2021 story. And with the Fed’s New Monetary Policy Framework, if core CPI does climb over 2% the Fed is likely to let it be for some time.

 

3.  Preliminary Univ. of Michigan November Sentiment Report — Friday

With the consumer playing such a pivotal part in the economy, gauging their sentiment is crucial to determining how likely they are to continue shopping as virus cases continue to spike. For November, the Bloomberg consensus is for sentiment to be 82.0 up from October’s 81.8 reading while consumer expectations edge lower to 78.2 versus 79.2 in October. The sentiment index peaked at 101 back in February and bottomed at 68.0 in April. So while there has been some improvement off the lows, sentiment appears to be stalling around the low 80 area which is well off the pre-pandemic levels, and that is a fairly logical read on the situation.

 

Univ of Michigan Consumer Sentiment

 

4.  October NFIB Small Business Optimism — Tuesday

In the field of confidence readings the Conference Board’s Consumer Confidence Report and the University of Michigan Consumer Sentiment Survey are the two biggies, but in the field of small business confidence the NFIB report carries the day. The report is expected to post a 104.2 reading for October, slightly besting the 104.0 reading in September. It got as high as 108.8 back in August 2018 and dipped to 90.9 in April. The average over the past two years is 101.7 so sentiment has moved above that two-year average mark. It’ll be interesting to note any changes in the optimism in future reports as this typically Republican-leaning group reacts to the election results.

 

5.  Initial Jobless Claims — Thursday

The weekly change in initial jobless claims continues to be the best real-time indicator of how the economy is recovering and the expectation is that while the recovery is continuing the drop in weekly claims is getting shallower.  The Bloomberg consensus expects jobless claims for the week ended November 7 to be 731 thousand, down from 751 thousand the previous week.  Continuing claims are expected to be 6.83 million versus 7.29 million the prior week. The trend is headed in the right direction but the slope is shallow and that speaks to the Fed’s concerns that this will be a long and grinding recovery that spans years, not months.

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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