Morning Markets Brief 9-16-2020

Summary and Price Action Rundown

Global risk assets are mostly higher this morning ahead of a pivotal Federal Reserve decision and key US economic data. S&P 500 futures indicate a 0.6% higher open after the index gained 0.5% yesterday as it continues to retrace last week’s downside, upping its year-to-date gain to 5.3%, which is around 5% below early September’s record high. The tech-heavy Nasdaq jumped 1.2% yesterday, taking its robust year-to-date gains to 24.7%, and is pointing higher this morning as well. Equities in the EU are flat while Asian stocks were mixed overnight. Ahead of the Fed, a broad dollar index is revisiting its recent 28-month low, while longer-dated Treasury yields are edging lower, with the 10-year yield at 0.67%. Brent crude prices are back above $41 per barrel as US oil inventories are expected to show a sharp draw this week.

Federal Reserve Guidance in the Spotlight

Uncertainty lingers over the prospects for the Fed to unveil enhanced guidance today in support of its recently reformulated employment and inflation mandates. Since Fed Chair Powell announced the Fed’s new framework for average inflation targeting and emphasis on full employment, specifically among lower income workers, at the virtual Jackson Hole conference last month, analysts have been pondering whether enhanced guidance will be rolled out at this month’s FOMC meeting in an effort to better achieve those goals. Messaging from Fed officials over enhanced guidance has been mixed in recent weeks, with some FOMC members suggesting that current guidance is sufficiently credible, being anchored in the increasingly dovish “dot plot,” strong statements from Chair Powell characterizing rate hikes as a distant prospect, and almost no apparent dissent within the ranks of the board. Futures markets imply no expectation of rate hikes until 2023 and a recent CNBC investor survey reflected expectations that the policy rate would stay at the zero lower bound until February 2023. The prospect of an incrementally dovish Fed tends to feed upside in tech stocks, which have been rebounding smartly this week after a rare bout of underperformance in early September. Meanwhile, the dollar and longer-dated Treasury yields have remained indecisive in recent weeks, as uncertainty over the overall economic picture as well as the Fed’s degree of commitment to rekindling inflation have impeded clear directionality.


US Retail Sales Expected to Slow

Recent US economic data has been noisy and uneven, and investors are looking to August retail figures to gauge the impact of expiring enhanced jobless benefits on consumers. On a month-on-month (m/m) basis, August retail sales are expected to decelerate to 1.0% from 1.2% in June. Analysts cite competing dynamics of back-to-school demand and the sunset of enhanced $600 per week unemployment benefits from the CARES Act as factors that could swing the number to the upside or downside of estimates. This follows a set of muddled US industrial production and manufacturing data series, as well as recent labor market data that has hinted at a degree of backsliding. Economists and Fed officials have been broadly encouraged by the recovery so far but have cited an apparent loss of momentum in recent weeks, with the prospect of no further fiscal support heightening the downside risks. Flickers of hope on the US fiscal front brightened yesterday following of weeks of stalemated negotiations as Speaker Pelosi issued a statement on CNBC vowing that the House will not go into recess for the November election until an additional round of stimulus is passed. Her comments were followed shortly afterward by the released details of a new bipartisan proposal from about 50 Representatives dubbed the “Problem Solvers Caucus” that would offer roughly $1.5 trillion in stimulus before the upcoming election. The plan would include $120 billion for unemployment assistance at $450/week in mid-October and then $600/week from December through January 2021, a second round of stimulus checks, about $500 billion in state aid, and liability protections for employers. On Monday, Treasury Secretary Mnuchin urged action on economic stimulus during his appearance on CNBC.

Additional Themes

Facebook Faces Antitrust Action – Reports indicated that the Federal Trade Commission may bring an antitrust case against social media giant by year-end, alongside indications that Google may be the subject of similar litigation. Facebook shares are down 1.9% in pre-market trading, with some downside also being ascribed to a temporary celebrity boycott of the platform, along with Instagram, in opposition to hate speech and misinformation disseminated thereon.

House Report Faults Boeing – Shares of the aerospace giant are 1.5% lower in pre-market trading after publication of a report by the House of Representatives’ Transportation and Infrastructure Committee excoriating the company for failures and deception resulting in the 737 Max debacle. House Democrats are preparing legislation to overhaul FAA oversight.