The Market Today
Economic Outlook Presentation Tomorrow: Vaccines, More Stimulus, and Faster Recovery
by Craig Dismuke, Dudley Carter
ECONOMIC OUTLOOK WEBINAR (Register): Vining Sparks will host our 2Q21 economic outlook presentation on Thursday at 10:00 a.m. CT. We will look at the confluence of tailwinds set to turbocharge the recovery and the implications for inflation over the short and medium terms.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
U.S. Neighbors See Concerning Virus Trends: Prime Minister Trudeau warned that Canada faces a “very serious” third wave of COVID-19 infections and Ontario’s premier said the province would be implementing new restrictions soon. To our south, Brazil surpassed 4,000 virus deaths in a day for the first time as the country’s pandemic debacle continues.
Some U.S. Officials See Risk of U.S. Case Increase: While many states have eased restrictions, California’s governor said he has no plans to lift a mask mandate in the near-term and doesn’t expect schools to fully open until mid-June. Although the U.S. has enjoyed some reprieve from the pandemic in recent months, White House medical adviser Fauci said the U.S. is on the brink of another case surge. Officials from the CDC have also signaled concern in recent days about the trajectory of U.S. infections. However, President Biden reiterated yesterday that all adults in the U.S. should be eligible for a vaccine in less than two weeks. Largely because of the successful vaccine rollout in the U.S., the IMF raised its global growth forecast for this year from 5.5% to 6% and said, “a way out of this health economic crisis is increasingly visible.”
24 HOURS OF MARKET ACTIVITY
Unwind of March Payroll Yield Pop Continued on Tuesday: The S&P 500 dipped 0.1% on uneven sector results as the Dow drifted down 0.3%. Those indices both closed at historic highs on Monday following a record-high ISM Services PMI that added to optimism stoked last week by stellar reports on U.S. manufacturing and hiring. While those same reports had pushed the 10-year yield up solidly last Friday, momentum has reversed this week led by a move lower in the belly of the curve. The 5-year yield slid 5.0 bps Tuesday to take its weekly decline to 10.5 bps, more than erasing Friday’s post-payrolls 7.6-bp increase. Expectations for the fed funds rate drifted higher on Friday after the jobs data but have since erased those gains. The 10-year yield dropped 4.4 bps Tuesday and is down 6.6 bps this week, more than unwinding Friday’s 5.3-bps increase.
Treasury yields continued to hover around those levels early Wednesday with U.S. stock futures essentially flat near record levels amid a mixed and quiet global session. Stocks were little changed in Asia and the Stoxx Europe 600 slipped 0.6% after setting its first record high of the pandemic on Tuesday. The 10-year yield was up 0.4 bps to 1.66% at 7:15 a.m. CT before the influx of Fedspeak and the March meeting Minutes and all three major equity indices were less than 0.1% changed.
JOLTS Data Provide More Evidence Labor Market Recovery Is Picking Up: While lagged by a couple of months and overshadowed by the impressive March payroll report, the February JOLTS data echoed the broader belief that the labor market recovery is gaining steam after slowing around the turn of the year. Total job openings rose from 7.1mm to 7.4mm in March, beating expectations for a small decline and marking the highest level since January 2019. Relative to the level of employment, openings improved to 4.9%, a fresh high for the series which stretches back to 2000. The rise was led by education and health services and the leisure and hospitality sectors. Consistent with actual payroll data from the month, job openings in the construction industry fell amid the winter weather. Hires occurred at the fastest rate in three months and should improve further based on the previously released March nonfarm payroll report. Relative to the size of the workforce, layoffs were unchanged at 1.2%.
Mortgage applications for the week ending April 2 fell 5.1% as mortgage rates ticked up 3 bp to 3.36%, matching their highest level of the cycle. Purchase apps fell 4.6% and refi apps dropped 5.3%.
Trade Data Shows More February Disappointment, Larger Deficit: The February monthly trade data showed another increase in the trade deficit, up a larger-than-expected $3.3 billion. The deficit increase as imports fell 0.7% but exports declined a larger 2.6%. The 12-month trade deficit grew to $738 billion, its largest level since 2008. As we will discuss in our economic outlook presentation tomorrow, the globalization of trade and subsequent U.S. trades deficit is one of the global factors weighing on the long-term inflation outlook.
Fed Communications: There is a flurry of Fed communications today including the 1:00 p.m. CT release of the March 17 FOMC Meeting Minutes. Speaking today are Chicago’s Evans (8:15 a.m.), Dallas’s Kaplan (10:00 a.m.), Richmond’s Barkin (11:00 a.m.), and San Francisco’s Daly (12:00 noon).