US Stocks opened slightly lower. The modest selling pressure that followed the somewhat downbeat economic commentary from Wednesday’s Federal Reserve (Fed) meeting minutes has carried over this morning. Futures pared losses overnight on reports that US and China trade officials have agreed to meet in the coming days, but an increase in jobless claims dampened sentiment ahead of the open. Asian markets were lower overnight with China, Hong Kong, and Japan markets down at least 1%. European equities are down more than 1% in midday trading.
Global leading indicators are on the rise. As countries re-opened, leading economic indexes (LEI) across the globe improved month-over-month in May, June, and July. The LEI for China is actually back to its pre- pandemic level, while the LEIs of many other countries have snapped back. This is encouraging, but with elevated cases in certain countries (United States, Brazil, and India), cases creeping higher in others (Europe, Australia), and widespread high unemployment, it’s reasonable to expect some choppiness to the global economic recovery until there is a vaccine.
Fed goes slow on new forward guidance. The minutes to the Fed’s July 28–29 policy meeting released Wednesday showed little sense of urgency to roll out a new policy on forward guidance. The patience indicates continued concerns about the path of the recovery and a bias toward remaining supportive for an extended period. The eventual policy will likely let inflation run a little above target before the Fed steps in and pumps the breaks, as structural changes in the economy lower concerns that the Fed’s response may come too late.
Mixed signals from jobless claims. Filings for initial jobless claims rose to 1.1 million for the week ending August 15, about 150,000 above the prior week, and disappointing expectations they would be below 1 million. However, continuing claims at 14.8 million delivered a positive surprise for the week ending August 8 (they are reported with a one-week lag), falling more than 600,000 week over week (source: US Bureau of Labor Statistics). Still, high claims, elevated unemployment, and fading stimulus set up a gradual recovery in the months ahead.
Technical update. News highs didn’t last long, as the S&P 500 Index pulled back Wednesday after reaching an all-time high 103 trading days after the March lows. Low put/call ratios, tepid breadth, and elevated sentiment may pose a near-term tactical risk to markets, but support at 3150–3200 remains the first level to watch for any consolidation. Gold was also hit yesterday as momentum in the precious metals space appears to be waning, though we’re monitoring support around 1750–1800.
COVID-19 news. New cases continued to trend lower Wednesday, falling nearly 20% week over week while the seven-day average dropped about 12% and hospitalizations fell about 10% compared with the prior week (source: The COVID Tracking Project). Flare-ups in Germany and South Korea are concerning, while Spain reported its highest number of cases yesterday since April. We have no word of any progress on a potential scaled-down stimulus package from Washington.
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