Summary and Price Action Rundown
Global risk assets are mostly lower ahead of this morning’s key US labor market data, while investors monitor halting progress toward a US pandemic stimulus bill. S&P 500 futures indicate a 0.2% lower open after the index rose 0.6% yesterday to extend its year-to-date gain to 3.0%, registering a new high for the pandemic and coming within 2% of February’s all-time high. Equities in the EU and Asia were mixed overnight. The dollar is hovering near two-year lows while longer-dated Treasury yields are sliding back toward their lowest levels since early March, with the 10-year yield at 0.52%. Brent crude prices are holding above $45 per barrel.
Uncertainty Over US Labor Market Recovery
Following yesterday’s disappointing US jobs figures for July, analysts are awaiting this morning’s release of weekly unemployment claims data and looking ahead to tomorrow’s consequential nonfarm payroll figures. According to payroll provider ADP, private businesses in the US hired just 167,000 workers in July, far short of market expectations of a 1.5 million rise after a revised 4.3 million increase in June. The labor market continued to recover from April’s record slump in employment, but a resurgence in Covid-19 infections has forced several states to scale back or pause the reopening of their economies, sending some workers back to unemployment. Businesses with between 50 and 499 employees reported an outright decline of 25,000. Big business brought back 129,000 jobs while firms with fewer than 50 workers added just 63,000. All but 1,000 of the jobs came from the services sector, as professional and business services led with 58,000 while the battered hospitality sector saw an addition of 38,000. Analysts are now awaiting today’s weekly jobless claims data, with expectations for a relatively stable 1.40 million new filings for the week ending August 1st versus 1.43 million the prior week. This will set the stage for the Labor Department’s highly-anticipated July nonfarm payrolls figures, which will be released tomorrow morning. Consensus estimates are for 1.50 million new jobs after June’s record 4.80 million.
Bank of England Holds Policy Steady
The UK central bank deferred its decision on additional easing into the fall as it monitors the ongoing economic effects of the pandemic and eyes the risk of hard Brexit at year-end. The Bank of England (BoE) voted unanimously today to maintain the key bank rate at a record low of 0.1%, in line with analysts’ expectations as this summer meeting was generally seen as a placeholder ahead of the BoE’s likely more consequential decisions at either the September or November meetings. The Committee also voted unanimously for the BoE to continue with its existing programs of UK government bond and sterling non-financial investment-grade corporate bond purchases, maintaining the target for the total stock of these purchases at £745 billion. The Committee expressed the intention not to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably and Governor Bailey downplayed the prospect of negative interest rate policy (NIRP). Some analysts had expected the BoE to take a more proactive approach at this meeting, perhaps increasing the magnitude of asset purchases, with that option now being deferred to September or November, while futures markets are now reflecting diminished odds of NIRP. As market participants recalibrate to account for the slightly less dovish than anticipated BoE policy stance, the pound is getting a boost this morning, rising 0.5% versus the dollar to approach its 2020 high from January. Still, further easing is anticipated amid ongoing headwinds from the pandemic and the threat of a no-deal Brexit at year-end.
Additional Themes
Clock Ticks Down on US Stimulus – With tomorrow seen as an unofficial deadline for a deal before possible Congressional recess, mixed reports of progress towards a consensus continue. Speaker Pelosi, Senate Minority Leader Schumer, Treasury Secretary Mnuchin and WH Chief of Staff met again yesterday afternoon, with the Trump administration offering to extend federal unemployment insurance at $400 per week and the moratorium on evictions from federally backed housing into December, alongside $200 billion in aid for states and municipalities. Though progress was cited, no agreement was forthcoming.
Earnings Feature Pandemic Impact – As earnings season winds down this week, analysts are focused on some notable reports from companies impacted by the pandemic. Disney traded 8.9% higher yesterday after announcing a solid performance driven by impressive growth in its Disney+ streaming service that now totals 60.5 million subscribers. Meanwhile, analysts are bracing for ugly numbers from Uber after today’s closing bell. With 415 of S&P 500 companies having reported, 84.2% of results have featured a positive earnings-per-share (EPS) surprise and 64.2% have topped revenue estimates. However, growth of sales and earnings are down 11.5% and 10.3%, respectively, thus far year-on-year.