The Market Today

Chinese PMIs Soar One Month Later

by Craig Dismuke, Dudley Carter


Vining Sparks Economic Outlook: Vining Sparks will be hosting our 2nd Quarter Economic Outlook Webinar next Tuesday, April 7.  During this webinar, we will discuss the impact this Black Swan event is having on the economy and how it is shaping our expectations for growth and rates in the future.  Attendees can earn up to 1 hour of CPE. To register for the webinar, please click here.

Italy Gives More Reason for Optimism: Italy delivered very encouraging news yesterday when they reported just 4,050 newly-confirmed cases.  This is the second consecutive daily decline and, more importantly, the lowest number of newly-confirmed cases in 14 days.  Italy’s case growth does appear to be following a similar path (albeit slightly higher) to Hubei, China Ex. Hubei, and South Korea. See Chart of the Day.

Global and U.S. Growth: Globally, there are now 800,049 confirmed cases and 38,714 confirmed deaths.  The number of cases increased 8.8% over the past 24 hours, down from a 7-day average growth rate of 10.7%.  The overall fatality rate per confirmed cases has now risen to 4.84%. In the U.S., the number of new cases increased 21,555 to 164,610, a daily growth rate of 15.1%.  The number of deaths associated with the virus is now 3,170.

Goldman Revises Forecast Even Lower: Goldman Sachs revised their growth forecasts once again yesterday, now calling for the economy to contract 9% in 1Q and 34% in 2Q.  Their new forecast calls for a moderately strong bounce-back in the second half of the year, but the overall economy contracting 6.2% for the full year.  They also revised their unemployment rate forecast up from 9% to 15% by mid-year.

Coronavirus Chartbooks

PowerPoint: Coronavirus Chartbook (PWPT)  

PDF/Mobile: Coronavirus Chartbook (PDF/Mobile)


Home Prices Were Rebounding Prior to Coronavirus: January’s S&P CoreLogic Home Price Index showed slightly weaker price gains than expected, up 0.30% MoM.  This brought the year-over-year rate of gain for the 20-city index up from 2.84% to 3.08%.  Home prices were growing at over a 6% YoY rate back in late-2018 and early-2018.  Price gains slowed as mortgage rates rose, eventually slowing to 2.0% YoY last fall before turning higher on lower mortgage rates.

Consumer Confidence Expected to Plunge: At 9:00 a.m. CT, the Conference Board’s March report on consumer confidence is expected to show the largest monthly decline since 1990.


Health Care Led Broad Stock Recovery: Despite a longer U.S. lockdown and continued spread of the virus domestically and around the world, equities rallied Monday and longer Treasury yields pushed higher. Almost fully rebounding from Friday’s slump, the S&P 500 rose more than 3.3% with all eleven sectors closing in the black. Health care led all gains while technology companies finished close behind. Among the health care gains, Abbot Laboratories rose more than 6% after the company announced over the weekend that it had received emergency approval from the FDA for a test which can provide a positive COVID infection diagnosis in just five minutes. Johnson & Johnson surged 8% after disclosing a deal with the U.S. government to fund a vaccine it has been advancing since January. Microsoft rallied 7% after reporting a surge in demand for its cloud-related services driven by increased work-from-home arrangements. Energy companies gained but lagged other sectors as oil prices plumbed levels not seen since 2002. U.S. WTI slumped more than 6% to close just above $20 per barrel after falling as low as $19.27 overnight.

U.S. Locked Down for Longer: Positive health developments helped offset President Trump’s Sunday announcement that CDC guidelines stressing social distancing will be extended beyond this week through April 30. Additionally, several new states joined a lengthy list of those with formal stay-at-home orders. Those measures, while clearly detrimental to the near-term economic outlook, reduce the risk of an early re-opening which could unleash a second wave of infections across the country that might further overwhelm certain regional health care systems. Wider and longer lockdowns could also combine with expanded testing to allow for a more targeted re-opening of the economy later in the Spring. In the daily press briefing, President Trump said domestic cases are unlikely to peak for at least two weeks. However, he said continuous progress on the virus-response infrastructure means we are “certainly prepared” if the virus returns in the Fall. Dr. Fauci, one of the President’s top health advisers, said that a return of the virus next season will result in a different situation considering the increased capabilities and the knowledge gained.

Longer Treasury Yields Rebounded with Stronger Equities: In another wide-ranging performance, longer Treasury yields climbed steadily from mid-morning to end near their highs of the day. After falling nearly 7 bps to as low as 0.60% by 10 a.m. CT, the 10-year yield ended the day 5.2 bps higher at 0.73%. The 2-year yield drifted 1.4 bps lower to 0.23%. By the end of Monday’s trading 3-, 6-, and 12-month T-bills all faded an overnight price rally that had driven yields briefly into negative territory. The Treasury bill set to mature next March closed yielding 0.12%.


Comparatively Quiet Overnight Session: Tuesday’s global trading session has been comparatively uneventful considering the violent swings across asset classes in recent weeks. Except for a sharp recovery in crude prices, moves in other markets have been relatively modest. After plunging to 18-year lows on Monday, U.S. WTI jumped 7.4% to $21.50 per barrel and Brent rose 3.8% to $23.60. Around 7:30 a.m. CT, the 2-year Treasury yields was essentially unchanged at 0.23% while the 10-year yield had dipped 3.3 bps to 0.69%. Europe’s Stoxx 600 had given up a 1% gain to trade 0.2% lower and U.S. futures had pulled back to new lows for the day, leaving contracts on the S&P 500 down roughly 1%. Earlier in the day, stocks around Asia moved in different directions to leave the MSCI’s Asia Pacific Index little changed. While China’s CSI 300 inched up 0.3% to little fanfare, an update on economic activity in March stirred up more headlines. The official PMIs tracked and reported by a Chinese government agency rebounded more strongly than expected from record lows and surprised by landing at levels above 50, signaling expansion.

China’s PMIs Point to Rebound from Record-Low Bar: The manufacturing index jumped from 35.7 to 52.0, exceeding the median estimate of 44.8. The services index soared from 29.6 to 52.3, easily clearing the median forecast for 42.0. The surprisingly strong results were viewed cautiously by most and skeptically by some. The diffusion index intends to track performance relative to the prior month which was the worst on record, a low bar to improve from with even the slightest improvement in the operating environment. A statement from China released with the survey results noted, “While manufacturing PMI rebounded rapidly in March, the survey showed companies still face relatively big operational pressures.” Considering that most of the rest of the world remains locked down to stem the spread of the virus, a sustained rebound seems unlikely amid shuttered global demand. In addition to a contractionary export orders index, the statement also noted, “The global virus spread will hit the world economy and trade seriously and bring new, severe challenges to the Chinese economy.” Privately-produced PMIs will be released later this week and are expected to report more modest improvements and continued contraction.


A Reminder of A Solid Yesterday, Uncertain Tomorrow: A couple of economic reports released after markets opened Monday were consistent with the idea that the economy was solid to start the year, but has been significantly disrupted by COVID-19’s global spread. Pending home sales’ stronger-than-expected 11.5% jump was built on strength in all four regions, but is essentially irrelevant for discerning a forward-looking trend. Last week’s drop in purchase mortgage applications points to a sharp drop in existing home sales in the months ahead. The more timely March survey of manufacturing activity across the Dallas Federal Reserve District is more reflective of the current economic strains and uncertainty present since the new coronavirus spread around the globe. The Dallas Fed’s manufacturing index plunged from 1.2 to -70, much worse than the -10 reading expected by economists. The size of the drop and the absolute level were both the worst results in the survey’s history. In addition to the coronavirus disruption, plunging oil prices have had an outsized impact on the crude-heavy Texas economy. Providing a silver-lining of sorts, roughly 70% of business leaders who responded to the survey believe the negative impact to employment will prove to be temporary.

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