The Market Today
Business Investment Shows Signs of Accelerating into 2Q
by Craig Dismuke, Dudley Carter
Jobless Claims Jump from 50-Year Low During Holiday Week: Initial jobless claims for the week ending April 20 jumped 37k to 230k. Following five weeks of declining claims and two weeks of the lowest claims since 1969, the jump is a bit discouraging. However, the report covered the Easter holiday week which may account for some volatility. Additionally, the less volatile 4-week moving average only increased from 202k to 206k, remaining very positive.
March Durable Goods Orders Report Points to Acceleration in Business Investment: In the preliminary March report on durables goods orders, business investment appears to have accelerated heading into 2Q after a modest 1Q. In the broadest reading, orders for durable goods rose a stellar 2.7%, partly buoyed by a 31.2% increase in nondefense aircraft and 17.7% jump in defense aircraft orders. However, the strength wasn’t just in the volatile aircraft categories; there was also strength in several other categories including orders for computer and electronic products, up 2.2% for the month, and motor vehicle parts and supplies, up 2.1%. Excluding defense and aircraft items, core durable goods orders rose a solid 0.4%. As for business investment in equipment, core capital goods orders (excluding defense and aircraft) jumped 1.3% MoM, the strongest month since last July and well above the 0.2% monthly average over the past 12 months. This points to a strong start to 2Q for business investment. Shipments of those same core capital goods fell 0.2% in March but the decline came from a higher February tally. February’s shipments were revised up from -0.1% to +0.2%. Altogether, the shipments data point to a modest 1Q for business investment in equipment, but the more forward-looking orders data point to acceleration.
Yesterday – Treasury Yields Slipped as Stocks Stalled and Global Data Elicited Caution: Treasury yields fell Wednesday amid a global downshift after German economic data disappointed, crude prices came off of six-month highs, the Bank of Canada removed a reference to future rate increases from its policy statement, and U.S. equities edged down from record highs. Yields were already lower ahead of U.S. trading after weaker-than-expected business confidence in Germany sparked a price rally in core sovereign bonds. A sluggish German economy has been a major component of broader weakness across the Eurozone. Germany’s 10-year yield dropped 5.3 bps and closed back in negative territory for the first time in two weeks. Shortly after the U.S. session opened, the Bank of Canada stripped a reference for future rate increases from its policy statement as the Canadian economy has slowed more than expected amid the slowdown in global growth. Canada’s 10-year yield fell 7.4 bps Wednesday, its biggest one-day drop since January 3. Also adding to the downward pressure on yields, crude prices fell from six-month highs in response to a larger-than-expected 5.5MM-barrel increase in U.S. inventories. Energy companies within the S&P 500 sold off 1.6% and led widespread losses across most sectors. All three major equity indices fell 0.2% for the day. By the time trading ending, the confluence of factors had pulled the 2-year Treasury yield down 3.2 bps to 2.32% and the 5- and 10-year yields down 4.7 bps to 2.31% and 2.51%, respectively.
Overnight – Yields Stabilize as Earnings Send Index Futures in Different Directions: Global bond yields have stabilized overnight after two days of declines, leaving Treasury yields little changed ahead of an update on initial jobless claims and U.S. business spending. Global equities have been mixed so far Thursday as a busy week for corporate earnings continued. China’s CSI slumped 2.2% to take its weekly decline to 4.5% and is on pace for its worst week so far in 2019. Comments from some of China’s top policy advisers have created concerns that recent better-than-expected data could reduce the urgency for significant stimulus. Despite this week’s decline, the index remains up 31% in 2019. In Japan, the Nikkei jumped 0.5% even as the BoJ tweaked its forward guidance. In March, the central bank said it expects to keep rates unchanged for “an extended period of time.” The April statement included an added phrase “at least through around spring 2020.” While potentially viewed as more hawkish, updated forecasts showed policymakers don’t expect inflation to move above 1.6% through March 2022. European stocks were slightly weaker by 0.2% and U.S. futures were mixed in response to divergent corporate earnings. A downbeat earnings report from 3M (-8.5%) is weighing on Dow futures (-0.3%) while solid results from Facebook (+9.2%) after yesterday’s market close has lifted Nasdaq contracts (0.3%). The S&P 500 was holding around unchanged. Despite the tick higher in jobless claims, yields jumped on the stronger than expected business orders. The 2-year yield rose 1.0 bps to 2.33% while the 10-year yield added 1.8 bps to 2.54%.
Bank of America Credit Card Data Reveal Notable Insights: The economists at Bank of America track consumer spending habits through their Bank of America credit card data, often providing prescient insights into consumer trends. This week’s summary was notably insightful. According to the report, “Consumer behavior is adjusting rapidly amid new technologies which have changed how we shop. … It is a dot com world: It isn’t a fair fight between e-commerce and brick and mortar: online spending has the edge. The BAC card data shows the dramatic shift in spending to online. Back in 2011, online shopping made up just 16% of core sales (retail sales ex auto, building materials and gas); it now makes up 23%. While categories like electronics and department stores have seen the most extreme shift, there are no saviors as even supermarkets are adapting to online competition. The ease of online shopping has reduced the barriers of entry for new companies, thereby reducing pricing power of retailers and increasing price discovery for consumers. … Sharing is caring: … Indeed, we now share our homes, our cars and our ideas. The ride-sharing services fundamentally changed the taxi industry, making the old model quickly obsolete. BAC internal card data shows that 87% of dollars spent on car services goes to ride-sharing companies vs. virtually none just 10 years ago. Similarly, the companies which allow for people to rent their homes now make up 13% of total dollars spent on lodging vs. none a decade ago.”