Prospects of another effective vaccine helped boost Wall Street to fresh highs on the Dow and S&P 500, while the NASDAQ lagged as stay-home shares were a drag. Gains were broadbased, but led by a hefty 6.5% jump in energy amid improving prospects that economies will be able to get back to normal sooner than expected. Treasuries were little changed.
Though yields were generally weaker on the day, losses were pared and the front end closed with modest gains. The 2-year was at 0.177%, and the 10-year finished at 0.906%, with the 30-year at 1.661%. While some profit taking could weigh on stocks, optimism on the recovery should continue to dominate and overshadow the bearish effects of record virus cases and renewed lockdowns.
The markets appear to be setting up for a bearish open which we think is because of the renewed lockdowns and correction from recent highs.
There is a lot on today’s calendar, with the October retail sales, report headlining. We’re forecasting a 0.7% increase after the prior 1.9% jump. Excluding autos, sales should be up 0.8% from 0.6% in September. October industrial production is forecast to have rebounded 1.7% from -0.6% previously, while capacity utilization should rise to 72.8% from 71.5%. October import and export prices are penciled in at 0.3%, after respective gains of 0.3% and 0.6% in September.
Stocks To Watch
The November NAHB housing market index is expected to dip to 84 from 85 in October. September business inventories are expected to rise 0.6% from the prior 0.3% increase. September Treasury TIC data are due, along with weekly chain store sales. There is Fedspeak from Chair Powell, Barkin, Bostic, Daly, Kashkari, and Rosengren. Today’s earnings calendar has reports from Walmart, Home Depot, Sea Limited, Warner Music Group, Autohome, Aramark, and Kohl’s.
US Retail Sales Preview
We expect October increases of 0.6% for headline retail sales and 0.7% for the ex-auto figure, following respective September gains of 1.9% and 1.5%. We saw a -0.5% drop for the CPI gasoline index, though rising sales volume should allow a flat figure for service station sales. Unit vehicle sales dipped to 16.2 mln last month from a 16.3 mln pace in September, which should be offset by a continued rebound for sales of clothing, furniture, electronics, and appliances. Amazon Prime Day was pushed back from July to October 13-14, and this should provide a significant boost for October sales too. Real consumer spending is expected to increase at a 9.0% rate in Q4 after a 40.7% surge in Q3.
US Business Inventories Preview
Business inventories are estimated rising 0.6% in September after a 0.3% August increase. Our forecast incorporates a flat figure for factory inventories, alongside gains of 1.6% for retailers and 0.4% for wholesalers. Sales should rise 0.8% in September, after a 0.6% gain in August. As-expected readings would result in the I/S ratio remaining at August’s 6-year low of 1.32, versus an all-time high of 1.67 in April and a 1.47 peak from the last recession in both March of 2009 and December of 2008. Inventories in the Q3 GDP report showed a -$1.0 bln liquidation rate after a record -$287.0 bln pace in Q2, leaving a fourth consecutive quarterly decline. We expect a $7 bln accumulation rate in Q4, though the rates for both Q3 and Q4 look poised for a $6 bln upward revision. Inventories were already unwinding pre-COVID-19 as earlier tariff front running reversed course before the big Q2 hit, leaving room for the start of a protracted inventory rebound in Q4 of 2020.