Morning Markets Brief 7-9-2020

Summary and Price Action Rundown

Global risk assets are fluctuating mildly this morning ahead of more US jobs data, though China’s ongoing equity rally supported risk appetite overnight. S&P 500 futures indicate a slightly lower open after the index gained 0.8% yesterday, retracing most of Tuesday’s loss and paring year-to-date downside to 1.9%, while the tech-heavy Nasdaq registered a new record high. Equities in the EU are moderately higher while Asian stocks outperformed overnight as mainland Chinese stocks extended their steep rally. The dollar is steady and longer-dated Treasury yields are edging back to recent lows, with the 10-year yield at 0.65%. Brent crude prices are fluctuating around $43 per barrel.

US Jobs Data in Focus Amid Fed Caution on Recovery

After an array of Federal Reserve officials have offered sobering views on the trajectory of the US economic rebound this week, analysts will parse this morning’s release of new and continuing jobless claims. The consensus estimate is for 1.375 million new jobless claims in the week ending July 4th, which would continue the trend of improvement, though the rate of decline has been leveling off. Analysts will be highly attuned to whether this data suggests a renewed wave of layoffs due to the rollback of reopening measures in various US Covid-19 hotspots, such as Texas, Florida, and California. In the prior reading, the number of Americans filling for unemployment benefits eased slightly to 1.427 million in the week ending June 27th, topping expectations of 1.355 million. For context, jobless claims have been steadily falling since hitting a record high of 6.86 million in the week ending March 28th but have been consistently coming in above consensus forecasts, while the monthly nonfarm payrolls suggest a somewhat rosier picture of the US labor market. Meanwhile, continuing jobless claims for the week ending June 27th are projected to decline to 18.750 million, down from 19.290 million the prior week. This comes after Fed speakers this week have emphasized the downside risks to the US recovery, citing some high frequency data showing a leveling or backsliding of activity in various segments of the economy. Atlanta Fed President Bostic reiterated the concerns he expressed earlier this week in further remarks yesterday, noting that the new data requires the Fed to “think about whether more [stimulus] is necessary.” Cleveland Fed President Mester noted that “troubling” coronavirus infection data is clouding the recovery outlook.

Chinese Equities Continue to Soar While Economic Data Remains Subdued

The Shanghai Composite extended its steep and abrupt uptrend overnight though China’s economic data continues to be less exciting. Amid signals that Beijing is intent on spurring a bull market in previously somnambulant mainland equities, the Shanghai Composite posted its eighth straight day of gains, rising 1.4% to put its upside over this span to 16.5%. Reports indicated that margin debt at speculative accounts is rising quickly. On the economic front, consumer prices unexpectedly dropped by 0.1% month-on-month (m/m) in June, after a 0.8% decline in May and compared with forecasts of a flat reading. Year-on-year (y/y), China’s inflation rate rose to 2.5% in June from a 14-month low of 2.4% in the prior month and in line with market expectations. China’s National Bureau of Statistics caused mild confusion when by appearing to release year-old inflation and producer price data for June, it had initially reported that consumer prices increased to 2.7%, before revising to 2.5%. Food inflation accelerated to 11.1% y/y from 10.6% in May as pork prices continued to rise (81.6% versus 81.7%). Also, non-food prices increased further (0.3% versus 0.4% in May). Overall, Chinese economic data has been slightly tilted toward upside surprises, but the pace of recovery has been rather muted.

Additional Themes

US Auto Sales Improve – Total Vehicle Sales in the US increased to 13.05 million in June from 12.21 million in May but this still represent double-digit annual declines across the industry. US vehicle sales in the second quarter for General Motors, Toyota Motor, and Fiat Chrysler plunged by more than 30%, in line with market expectations. Year-over-year, GM reported a 34% decline in sales in the second quarter, while Fiat Chrysler said vehicles sold fell 38.6%. Toyota said sales dropped 34.6% during the three months ended Tuesday compared with a year ago. On a positive note, US auto heavyweight Ford said Wednesday that its China vehicle sales rose 3% between April and June this year from a year earlier to 158k units. Even after the recent rebound, shares of Ford and GM remain 34.5% and 31.9% lower on the year, respectively, in sharp contrast to market-leading tech stocks, like Amazon and Netflix, which are sporting year-to-date gains of 66.7% and 55.4%.

Biden Economic Plan in Focus – Joe Biden will outline his economic platform and priorities in a speech today. Analysts suggest that his proposals, which steer clear of contentious reforms like Medicare-for-All and focus on revitalizing US manufacturing, are designed to attract centrist voters and compete directly with President Trump’s economic policies.