The Market Today
American Jobs Plan Details Released; Jobless Claims Unexpectedly Rise
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
American Jobs Plan: President Biden unveiled the first half of his Build Back Better budget proposals, the American Jobs Plan, yesterday calling for $2 trillion of investment in infrastructure over eight years. The plan is funded by an increase in the corporate tax rate from 21% to 28% and higher taxes on foreign earnings. According to the WSJ, the “proposal includes $621 billion to modernize transportation infrastructure, $400 billion to help care for the aging and those with disabilities, $300 billion to boost the manufacturing industry, $213 billion on retrofitting and building affordable housing and $100 billion to expand broadband access, among other investments.” The scope of the plan broadens the definition of infrastructure as noted by WaPo, “About half of Biden’s plan goes toward traditional infrastructure. … The other half of the bill makes investments to reduce climate change and modernize schools, manufacturing hubs and eldercare facilities.”
Foreign Countries Continue to Fare Worse than U.S. with Larger Virus Waves: Brazil, which has continued to be decimated by the virus, said 18 of its 27 states have ICU occupancy rates above 90%. In Europe, Ukraine closed schools and public transport in its capital city from April 5 to April 11. Sweden extended restrictions on restaurants and other businesses from April 11 to May 3. Italy plans to extend its current restrictions through April 30 while French President Macron announced a four-week nationwide lockdown starting Saturday. France’s Finance Ministry said the measures will likely close 150k businesses and cost around 11b euro.
Pfizer Sees 100% Effectiveness for 12- to 15-Year Olds; Astra Remains on Trial in EU: Dr. Fauci said Wednesday that current data show vaccines likely provide protection against virus variants. Earlier, Pfizer said its vaccine was 100% effective in blocking COVID-19 in children ages 12 to 15 and that it would seek to amend its FDA EUA to cover the lower age group. The European Medicines Agency repeated that it believes the benefits of the AstraZeneca vaccine outweigh the risks. While the group expects a final decision next week, officials said there is no evidence of a connection between the shot and blood clotting cases and, therefore, there is no reason to restrict the jab to certain demographic groups.
WTO Expects Goods Trade to Pick Up: The WTO said its analysis showed a 5.3% drop in global goods trade last year as a result of the pandemic, better than the 9.2% decline that it had initially expected. The group also said it expects goods trade to recover 8% this year, up from a previous projection of 7.2%, before slowing to 4% in 2022.
24 HOURS OF MARKET ACTIVITY
Markets Upbeat Amid U.S. Stimulus Proposal and Some Solid Global Data: The S&P 500 ended just below last week’s record close after fading an intraday move to a new all-time high. After rising nearly 1% around lunch, the index ended the day in a downtrend and up just 0.4% from Tuesday’s close. Tech companies lurched forward while more economically sensitive sectors lagged behind, despite media reports providing more details of the White House’s plan to spend around $2.25 trillion to boost jobs by improving the country’s infrastructure. Earlier in the day, ADP projected a solid 517k gain for private payrolls in March which came in slightly lower than expected. Treasury yields ended higher, with the 5-year yield up 5.2 bps to 1.42% while the 10-year yield added 3.8 bps to 1.74%. For the quarter, the S&P 500 gained 5.7% while the Nasdaq rose 2.8%, held back by a swift move up in interest rates. The 5-year yield added 58 bps while the 10-year yield rose 82 bps.
Global equity markets have kicked off the second quarter with positive momentum while sovereign yields have started with a synchronized decline. Stocks in Asia rose more than 1% following the release of some better-than-expected economic data in the region. Europe’s Stoxx 600 improved 0.5% after the Eurozone’s Manufacturing PMI for March was notched up from 62.4 to 62.5, still the highest level on records, on the back of broadly stronger-than-estimated national results. A continuation of the positive trend is unlikely considering much of the region has more recently returned to some form of a lockdown to battle a surge of infections. Before the jobless claims data were released, S&P 500 futures were up 0.4% while Nasdaq contracts had rallied more than 1%. The 10-year Treasury yield was 3.9 bps lower at 1.70%, the largest decline among the major global sovereigns. After claims disappointed, the 10-year yield fell to down 4.4 bps on the day.
Pending Home Sales Drop Sharply in February: Pending home sales, tallied when contracts on existing homes are signed, dropped 10.6% in February, much worse than the 3% decline economists expected and the sharpest contraction since last April. Brutal winter storms across much of the country have impacted several datasets in February and appeared to also have an impact on pending home sales. Sales in the South and Midwest, which bore the brunt of the storms, fell 13% and 9.5%, respectively. However, activity also declined 9.2% in the Northeast and 7.4% in the West, indicating other factors were also at play. The National Association of Realtors said, “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory.”
Initial Jobless Claims Unexpectedly Rise: Initial jobless claims for the week ending March 27 unexpectedly rose from 658k (revised down from 684k) to 719k as 33 states reported increases. Removing some of the week-over-week noise, the 4-week average of new claims dropped to 719k, the lowest level since March 2020. Initial PUA claims only declined 4k to 237k but held the gains from the past three weeks which have seen new PUA claims cut approximately in half.
Continuing Claims Remain Noisy, but Show Slow Improvement: Continuing jobless claims fell 46k to 3.79mm, a smaller decline than expected. Continuing PEUC claims fell 705k to 5.52mm but were once again distorted by large swings in certain states including California which reported a decline of 514k alone. Continuing PUA claims fell 495k to 7.35mm, but were also distorted by large swings in some states. California reported a decline of 670k and Puerto Rico reported an unusually large increase of 268k. Removing the state level noise, the overall trend appears to remain positive, albeit at a slow rate of improvement. Total persons filing for some form of unemployment assistance declined 1.5mm to 18.2mm.
Manufacturing PMIs, Construction Spending, Auto Sales: At 8:45 a.m. CT, the final March Markit manufacturing PMI will be released followed by the ISM manufacturing index at 9:00 a.m. The ISM index is expected to rise from 60.8 to 61.5. Also on the calendar today are February’s construction spending data (9:00 a.m.) and March’s auto sales. Construction spending is expected to be another report negatively affected by the February weather while auto sales are expected to rebound. Finally, Philadelphia Fed Bank President Harker speaks at 12:00 noon.