Treasuries Get a Lift on Vaccine News

Vaccine Could Aid Economy

The FDA’s full approval of the Pfizer (PFE) BioNTech (BNTX) vaccine boosted US Treasury yields Tuesday, with the 10-year Treasury note and 30-year Treasury note each rising 2 basis points. Now that the FDA has given full clearance to the COVID-19 shot, expectations are running high that millions more Americans will get vaccinated, boosting the economic recovery.

With the Delta variant spreading rapidly throughout the country, signs have been emerging that consumers are reining in spending and becoming more cautious about venturing out, which is putting the strong economic recovery in the US at risk. With that said, vaccine approval may mean that more companies, schools, and institutions can mandate the shot.

Fed Meeting This Week

The timing of the FDA approval also comes as the Federal Reserve is gearing up for its annual Jackson Hole symposium which kicks off Thursday. This year’s summit, in which central bankers from across the globe meet to discuss monetary policy, is being held virtually. Whether or not the Fed will begin to taper back its bond-buying program will be a topic on the agenda.

On Friday Fed Chairman Jerome Powell will provide comments following the completion of the meeting. Investors will be looking for any signs the US will begin to rein in its massive bond-buying program. Next week the Fed is slated to spend $40 billion on 67-day notes and $60 billion on two-year notes.

New Home Sales Rebound

US Treasuries may have also been impacted by the July new home sales report which showed an uptick for the first time in four months. On an annualized basis, purchases of new single-family homes increased 1% to 708,000, partly thanks to additional inventory and robust demand.

Historically low mortgage rates, a demand for more space as a result of the pandemic, and lackluster inventory has led to a surge in purchases over the past year. Builders have struggled to keep up with demand as they contend with rising costs of materials and labor shortages. As a result, homes are getting more expensive, locking out many first-time buyers. The report also showed that the median sales price of a new home jumped to a record $390,500, which is 18.4% higher than this time last year.

In addition to rising Treasury rates and a somewhat normalizing real estate report, the US dollar held steady on Tuesday. The combination of economic movement and market reaction signaled that investors appear less concerned about the spread of the Delta variant this week. Wall Street is now patiently waiting for the Jackson Hole symposium and any comments that could impact portfolio positions heading into the end of a unique year.

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Retailers Revisit Work-at-Home Apparel as COVID-19 Cases Rise

Target and Macy’s Overhaul Their Styles

Target (TGT), Macy’s (M), and White House Black Market (CHS) are among the retailers that are restocking work-at-home attire to keep apparel sales growing as the number of COVID-19 cases rises. With the Delta variant beginning to chip away at consumer confidence and companies pushing back their return-to-the-office dates, major companies want to keep their choices compatible with the volatile environment. As a result, they are focusing on clothes that look good behind a screen and statement pieces when consumers do venture out.

Take Target for example. The retailer is shifting its apparel inventory to focus on hybrid work and school settings. Macy’s is also seeing demand from consumers for clothes that look good on virtual conference calls.

Pandemic Changes Dress Code

Despite people returning to offices, the pandemic has permanently changed the dress code for America’s office workers. A recent survey of US consumers found 35% now have a casual work dress code, which is up seven percentage points from prior to the pandemic. The retailers expect wardrobes to continue to evolve as hybrid work models become permanent.

Even children returning to school are adopting a more casual style that can easily work in-school or in virtual environments. That is driving sales of graphic t-shirts and comfy jeans. For the adults it's all about office-casual, including blouses and comfortable dress shoes that can be worn to work and to run errands.

Retailers Want to Keep Party Going

The retailers’ shift to embrace clothes that work in both settings comes as they seek to protect the gains made since the pandemic’s ebb a few months ago. Pent-up demand earlier this summer led to a surge in spending on everything from apparel to electronics. Even in light of the rising numbers of COVID-19 cases, the back-to-school selling period has been a strong one.

That said, there are signs emerging consumer confidence may be waning. Retail sales in July fell 1.1%, which was more than economists were expecting. While automobiles drove a lot of the decline, sales of clothing did fall 2.6% in July. With cases of COVID-19 rising, the nation’s retailers are making sure they are well suited to keep Americans in style whether they are behind a screen or in-person.

Walmart Readies Last-Mile Delivery Service

Online Shopping Demand Surges

Walmart (WMT) is preparing for the holiday season, launching a delivery service to make sure merchants get their products to customers on time. The retailer is trying to capitalize on the huge uptick in ecommerce driven by the pandemic. FedEx (FDX) and UPS (UPS) struggled last holiday season to meet the surging demand and that is expected to remain strong this year. UPS recently said during the peak of the 2021 holiday season there will be about five million more packages per day than delivery companies can handle.

Walmart has been testing its last-mile delivery service this year, using its own vans to deliver packages for merchants. It is something Amazon (AMZN) already offers to companies which sell on the platform.

Drones, Self-Driving Delivery Vehicles

Walmart’s new service, GoLocal, will send workers from its Spark delivery network to merchants to pick up products for delivery. Walmart currently has Spark delivery networks in over 500 cities across the country. The retailer has not disclosed how much it will charge for the service but said it will be competitively priced.

Walmart plans to begin service at the end of the year and will utilize advanced technologies including drones and self-driving vehicles to deliver parcels. Some of Walmart’s delivery partners include self-driving vehicle startups Cruise, Waymo, and Nuro, and also drone companies DroneUp, ZipLine, and FlyTrex. It is not clear if Walmart partner FedEx will be part of the local delivery service. Walmart is going up against Amazon’s Flex service which delivers packages for merchants via contracted vans.

Walmart Takes a Long-Term View

GoLocal is years in the making with Walmart pouring billions of dollars into its efforts to deliver goods to customers. It began with its purchase of Jet.com in the summer of 2016, followed by the launch of a grocery-delivery service in 2018, and Walmart Fulfillment Services last February. All are designed to control the online shopping experience and boost revenue for the retailer.

With demand for online shopping here to stay and with the main delivery companies already overwhelmed, Walmart sees a big opportunity. So does Amazon. It will be interesting to see how these two rivals duke it out over the last mile.