Morning Markets Brief 8-19-2020

Summary and Price Action Rundown

Global risk assets are mixed and muted this morning after the S&P 500 registered a new record high yesterday, as analysts await Fed meeting minutes, monitor results from US retail giants, and await the outcome of an OPEC meeting. S&P 500 futures point to a 0.1% higher open after the index edged above February’s all-time high yesterday and upped its year-to-date gain at 4.9%. Equities in the EU and Asia were directionless overnight. The dollar is hovering at more than two-year lows while longer-dated Treasury yields are retracing more of their recent upside ahead of today’s 20-year auction, with the 10-year yield at 0.65%. Brent crude is slipping back toward $45 per barrel as OPEC and its allies meet today to enforce supply discipline.

Federal Reserve Meeting Minutes in Focus

Although the July meeting produced no meaningful monetary maneuvers and few additional insights into the Fed’s coming policy shift, analysts will scour the minutes for further details. The main focus in the FOMC Minutes from their July 29th meeting will be on any hints over the expected pivot to “enhanced guidance,” which may be enacted as early as next month’s meeting and is expected to link  interest rate policy and asset purchase decisions more formally to the Fed’s 2% inflation target and full employment mandates. Chair Powell made vague references to this formulation in his accompanying press conference but declined to provide specifics, stating that the Fed was still in the process of evaluating its options. Overall, the July meeting was relatively uneventful and the Fed left the target range for its federal funds rate unchanged at 0-0.25% as unanimously expected. FOMC members reiterated their commitment to using their full range of tools to support the US economy and repeated that the pandemic poses considerable risks to the economic outlook over the medium term. Accordingly, the federal funds rate is expected to remain near zero until the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Policymakers also pledged to maintain the bond purchases and the array of lending and liquidity programs at least at the current pace. Meanwhile, the central bank announced the extension of its dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31st, 2021.

More Strong Earnings from US Retail Giants

Like Walmart and Home Depot yesterday, Target and Lowe’s issued impressive second quarter (Q2) figures this morning, though the US consumer outlook remains cloudy amid the lingering pandemic impact and stalled talks over additional federal government relief spending. Target posted the strongest growth in comparable sales ever at 24.3%, with a 195% increase in digital sales, easily beating earnings and revenue estimates for Q2 and sending its stock price up over 5% in pre-market trading. Lowe’s also handily topped comparable sales estimates at 35.1% versus a consensus forecast of 16.3%, lifting its shares over 2% higher in pre-market trading. Yesterday morning featured some similarly impressive results from Walmart and Home Depot. Walmart shares rose over 4% in pre-market trading after the company nearly doubled its online sales but closed 0.7% lower on the day as stalling stimulus negotiations and a reduction of unemployment paychecks overshadowed the Q2 recovery in consumer demand. Home Depot also saw pre-market gains fade, resulting in a 1.1% drop in the share price yesterday as investors seemingly extrapolated Walmart’s concerns with decreased fiscal stimulus to other retail outlets as well. Also yesterday, Kohl’s posted better-than-expected earnings but the embattled retailer’s shares plummeted 14.7% as it posted a net loss and a 23% contraction in revenue while continuing to lose market share.

Additional Themes

OPEC+ Meets Today – Crude oil prices are slipping this morning on estimates of elevated US gasoline inventories, with Brent crude sliding back toward $45 per barrel, as the cartel and its allies meet today with a focus on maintaining discipline in their gradual easing of coordinated supply cuts. At the prior meeting, Saudi and Russia united to extract compensatory cuts by laggard members like Nigeria to cushion the impact of the broader membership tapering their curbs. Meanwhile, wariness over the demand outlook has left oil prices trading in a narrow and nearly sideways range for the past two weeks.

Pandemic Relief Bill Negotiations Drag On – Republican aides have reported that Senate Republicans are soon to publish a stripped-down relief bill to ease the stalemate over stimulus. This skinny version would include the $300 in federal unemployment benefits until Dec. 27th, PPP funding, and $10 billion for the US Postal Service alongside longstanding Republican provisions for schools and liability protections, and is possibly to be attached to a continuing resolution to fund the government past the Sept. 30th deadline. Notably, stimulus checks appear to be absent from the new Republican package. Speaker Pelosi delivered mixed messages on the state of negotiations yesterday.