E-mini S&P 500 Futures (December): Settled at 3367.75, up 15.75
E-mini Nasdaq-100 Futures (December): Settled at 11,574.75, up 167.50
U.S. benchmarks were sharply lower after an eventful evening and ahead of Nonfarm Payrolls data.
House Democrats marginally passed a $2.2 trillion Covid-19 aid bill last night; the problem being, it does nothing to get a deal done. The White House and Republicans raised their plan to $1.6 trillion but said they will not look at anything with a “2” handle. Risk-assets moved lower as it exemplified the great divide in Washington. House Speaker Pelosi said she is still willing to negotiate as the clock ticks down, but the next hurdle arose shortly thereafter. President Trump announced he and the first lady each tested positive for Covid-19; the S&P 500 index dropped from 3360 to a low of 3300 upon the news and has ping-ponged around since. Although the President’s age and health may make him vulnerable to greater health risks, it is unclear if he has any symptoms. Regardless, as we always say, markets hate uncertainty and are now acting accordingly to added uncertainty just one month before the election.
Nonfarm Payrolls are focus this morning. Job creation was weaker than anticipated with expected job gains of 850,000 in September, coming in at 661,000 August. Drilling down, manufacturing jobs, a lagging sector doubled its expected increase at 66,000 versus 35,000. The unemployment rate did better than expected, dropping to 7.9%, due to a downward tick in participation. Average hourly earnings were also light. Looking ahead, the airlines are planning for at least 32,000 job cuts if no aid is received. Disney, Goldman Sachs, and Shell are among others announcing planned layoffs.
Yesterday, the Fed’s preferred inflation indicator (Core PCE Index) ticked up 1.6%. Inflation is slowly lurking, although we aren’t worried it will disrupt a market rally, traders must keep a pulse on these reads in the coming months; if it persists, it could bring a reckoning in the first quarter. In the meantime, we find weakness a buying opportunity and welcome lower price action to levels of strong technical support. We expect fiscal measures to get passed, if not ahead of the election, then after.
Elsewhere on the economic calendar, Eurozone CPI confirmed another month of inflation contracting. CPI YoY came in below expectations at -0.3% versus -0.2%. Traders must keep a pulse on the Euro as a strengthening U.S. dollar is the only intermediate-term headwind we see for a buying opportunity in equity markets from lower levels. Domestically, we look to Philadelphia Fed President Patrick Harker at 8:00 a.m. CT. ISM NY Business Conditions is at 8:45 a.m. CT, and Factory Orders at 9:00 a.m. CT along with final September Michigan Consumer data.