The Market Today
Daily Virus Growth Remains Concerning; House Set to Vote on Aid Package
by Craig Dismuke, Dudley Carter
The number of cases globally, and in the U.S., continue to rise at exponential rates with little evidence of slowing. Total confirmed cases are now up to 549,604 globally. The U.S. now has more confirmed cases than any other country, including China. During the outbreak in China, no province other than Hubei saw 1,500 or more cases. A growing concern in the U.S., there are now twelve states with more than 1,500 cases. In Italy, the death toll is up to 8,215 and the daily case growth, after showing signs of slowing, jumped again yesterday.
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Personal Income Gains Strong, Savings Rate High … before Coronavirus Crisis: This morning’s personal income and spending data for the month of February confirm one thing: the economy was quite strong heading into the coronavirus crisis. Personal income gained 0.6% MoM for a second consecutive month. This makes for the best back-to-back, monthly gains since early 2018. Interestingly, spending was once again soft, up just 0.1% MoM in February. Through two months, the personal spending data point to 1Q consumption growth of just 1.0%. With income outpacing spending, the household savings rate jumped to 8.2%. March is expected to completely upend all of the previous trends; but, consumers had plenty of capacity and incomes were growing at a reasonable pace.
PCE Inflation Firmer … Before Oil Dropped 60%: Also released this morning, PCE inflation for the month of February was slightly firmer than expected in previous-month revisions. Headline PCE gained 0.1% but a firmer January reading helped lift the year-over-year rate from 1.7% to 1.8%. The same was true for core PCE. A firmer January revision pushed the year-over-year rate up from 1.6% to 1.7%. A 09.2% MoM increase in February lifted the year-over-year rate to 1.8%. However, oil prices averaged $50.54 per barrel in February. They are currently at $21.81.
Stocks Surged As Stimulus Passed in the Senate: U.S. equities rallied Thursday after surging three days in a row in anticipation of a massive fiscal package to aid the economy. While the Fed has launched a barrage of stimulus efforts from the monetary side, fiscal stimulus had been delayed as Democrats and Republicans worked through the final details of an unprecedented $2T rescue package. The Senate finally passed the bill late Wednesday night and the House is expected to move it along to President Trump Friday with “strong bipartisan” support according to Speaker Pelosi. The President has said he would sign it into law immediately. A portion of the delay resulted from disagreement around the wording and parameters of unemployment benefits.
Officials Signaled Willing to Do Whatever it Takes: The necessary nature of the enhanced unemployment benefits became candidly clear on Thursday as initial jobless claims surged to 3.28MM for the prior week, 4.7 times as large as the previous record from 1982. Even after the eye-catching claims spike, however, U.S. equities opened higher and climbed steadily for most of the morning. While claims were significantly higher than the median estimate, expectations were wide-ranging and reached as high as 4.4MM among Bloomberg economists. The recent return of optimism to the markets has reflected hope that incredible amounts of fiscal and monetary stimulus will mitigate the negative economic effects and could grow larger if necessary. Fed Chair Powell said earlier in the day that the Fed would not “run out of ammunition” and an adviser to the President and Speaker Pelosi both hinted at a possible phase four fiscal package.
Equities Held Steady After Case Uptick in Italy: Equities briefly broke lower from their highs shortly after Italy reported an uptick in new cases. Italy is ahead of most countries in the virus fight and is therefore considered somewhat of a leading indicator for the efficacy of drastic containment measures. Prior to Thursday’s jump, new cases had slowed for three days stirring hopes it had bent the curve. Nonetheless, equities proved resilient and pushed to new highs just before the close. The Dow and S&P 500 both rose more than 6% and have surged since Monday. The Dow finished Monday down 37% from a mid-February high, but has rocketed 21.3% higher. The S&P 500 is up 17.6% since Monday. The rally in equities pulled Treasury yields well off their lows by the close with the 2-year yield finishing down 3.7 bps at 0.29% as the 10-year yield fell 2.3 bps to 0.85%. Yields were much lower earlier in the day as yields tumbled across Europe. The ECB removed issuer limits for its new asset purchases of 750B euros, removing a major stipulation from its recently-announced stimulus package.
Equities Cool Down, Chinese Profits Plunge: U.S. equities took a breather overnight after rallying at breakneck speed over the last three days in response massive stimulus efforts from the Federal Reserve and Congress. The pullback in U.S. equity futures has unfolded during a mixed day for global markets, with European indexes down 3.5% on average after a mostly upbeat day across Asia. China’s CSI 300 inched 0.3% higher but lagged larger gains in other countries. Data showed year-to-date profits at Chinese industrial companies plunged 38.3% YoY in February, the largest decline on record. Widespread weakness in European equities has pulled yields across most of the region lower. Italian yields diverged higher, however, following notable declines in consumer, manufacturing, and broader economic sentiment in the country in March.
EU Leaders Hesitant to Take On Joint Debt Response: There have been growing calls from some European officials, including ECB President Lagarde, for the EU to issue joint debt in its fight against the virus, alleviating some of the financial burden from the smaller economies. Italy and Spain are currently reporting the largest number of confirmed cases in Europe and the greatest mortality among all countries. A call between leaders from the EU countries on Thursday, however, failed to reach such an agreement. The leaders said they would continue discussions over the next two weeks in exploring options for a joint response. At 7:30 a.m. CT, Italy’s 10-year yield was 11 bps higher while Germany’s 10-year yield was 9 bps lower. With equities falling back, the 2-year Treasury yield had slipped 1.4 bps to 0.28% and the 10-year yield was down 7.7 bps to 0.77%. S&P 500 futures were lower by 2.7%.