The Market Today
Markets Disappointed in J&J Vaccine Disruption
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Johnson & Johnson Clot Concerns Impact Global Vaccine Rollouts: The pre-market announcement from the FDA that it was recommending pausing use of Johnson & Johnson’s vaccine because of rare but severe cases of blood clotting dominated the virus headlines Tuesday. Several states and various health providers of the shots announced they would halt use of the vaccine until health regulators finish their review of the six known cases of blood clotting concerns. The FDA later said a further decision should be made within a “matter of days.” Several other countries said they were monitoring the situation, with some saying they would stop using the vaccine until the U.S. regulators announce a decision. The company, which began delivering doses to Europe this week, said it would delay further rollout, striking another blow to Europe’s vaccination efforts. The White House said it still expects supplies of the Pfizer and Moderna vaccines to be sufficient to meet U.S. demand by next month.
Moderna Update Shows Strong Efficacy Six Months After Second Shot: Moderna provided an update of an ongoing study of its COVID-19 vaccine on Tuesday. The Company said its shot remained 90% effective six months after the second dose and 95% effective at preventing severe disease.
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Tech Stocks Lifted the S&P 500 to a New Record Tuesday While a Decline in Shares of Johnson & Johnson Weighed on the Dow
Tech’s outperformance lifted the Nasdaq by more than 1% and nearer to its previous record high from mid-February. The Dow, which saw a mix of gains and losses and was weighed on by weakness in Johnson & Johnson’s stock, dropped 0.2%. The broader S&P 500 leveraged the tech sector’s strength to close up 0.3%, helped out also by a sizeable decline in Treasury yields. The 10-year Treasury yield fell 5.1 bps on the day to 1.62%, leading the flattening trade lower. The downward move, which began after news of the FDA’s recommendation on the Johnson & Johnson vaccine, accelerated after an auction of 30-year Treasury bonds saw strong demand. The auction results were contextually more solid considering the firmness in topline CPI inflation earlier in the day; to be sure, details of CPI reports were mixed and not indicative of a worrisome pick-up for price increases. The drop in yields weighed on financial stocks but drove utilities and real estate towards the front of the pack.
Filling the void between yesterday’s CPI report and tomorrow’s data on jobless claims and retail sales, several major U.S. banks released quarterly earnings reports on Wednesday. Goldman Sachs and JPMorgan Chase both handily beat revenue and earnings expectations on strong results from their trading desks and investment banking divisions. The latter also released a large amount of credit reserves but cautioned that loan demand “remained challenged.” Nonetheless, JPMorgan’s CEO said “the economy has the potential to have extremely robust, multi-year growth,” largely because of recent and proposed fiscal measures. U.S. equity futures were up between 0.1% (Dow) and 0.3% (Nasdaq) at 7 a.m. CT following a mostly positive global session. Treasury yields were higher at 7:35 a.m. CT, nudging the 10-year yield up 1.6 bps to 1.63%.
Harker Expects Firmer Inflation Will Moderate: After a mixed inflation report produced firmer-than-expected topline readings, Philadelphia Fed President Harker said he expects inflation to move up further this year. Inflation will cross above 2% but he doesn’t believe it will run too hot. He supports keeping policy accommodative and rates low. Addressing the news on the Johnson & Johnson vaccine pause, Harker said his concern is that such developments could cause some to become hesitant about receiving a shot. The Fed significantly upgraded its outlook for the recovery in March, in large part because of how successful early vaccination efforts had been.
Richmond Fed President Barkin is forecasting “really strong” U.S. growth over the coming months and said real-time data indicate the economy is “in the midst of a boom.” However, while he too expects “consumer-price pressure this year,” he also believes that strong disinflationary forces that pre-existed the pandemic will keep inflation from becoming a concern.
Fed Purchase Allocations to Be Consistent Through Mid-May: A recent speech from an executive at the New York Fed indicated the central bank’s trading desk could tweak its purchases to ensure proportionate allocations across the curve after the Treasury restarted issuance of 20-year debt. However, any adjustments may be tabled for at least another month. The New York Fed Bank announced purchase plans from today through May 13, keeping allocations of its roughly $80 billion in monthly Treasury purchases across the curve essentially the same as last month.
Mortgage Rates Dip but Applications Continue Trend Lower: Mortgage applications for the week ending April 9 fell another 3.7% despite the average 30-year mortgage rate dropping 9 bps to 3.27%. New purchase applications fell 1.4% and are now down 18.4% from January’s peak. Refi apps fell 5.0% for the week and are now down 38.5% from January’s peak.
Fed Communications: There are a handful of Fed officials speaking today as well as the release of its Beige Book report at 1:00 p.m. CT. Speaking are Dallas’s Kaplan (8:15 a.m.), Chairman Powell (11:00 a.m.), New York’s Williams (1:30 p.m.), Vice Chair Clarida (2:45 p.m.), and Atlanta’s Bostic (3:00 p.m.).