The Market Today
Economic Outlook Webinar: Vaccinations, Stimulus^5, and a Faster Recovery
by Craig Dismuke, Dudley Carter
ECONOMIC OUTLOOK WEBINAR (Register): Vining Sparks will host our 2Q21 economic outlook presentation today 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)
AstraZeneca Shot Back in the News, Ontario Goes on Lockdown: AstraZeneca’s vaccine was back in the news Wednesday after regulators from the U.K. and EU said there was a possible linkage between the shot and blood clot issues, although both said the risks were “extremely rare.” Seemingly out of an abundance of caution, however, the U.K. regulator recommended that anyone under 30 be offered an alternate vaccine. As promised yesterday, Ontario’s Premier announced a stay-at-home order would go into effect for four weeks, banning residents from leaving their homes except for essential travel. Many retailers will be forced to close as in-store shopping will be limited to certain essential items. In Germany, there are many, including Chancellor Merkel, who have shown support for a short, strict lockdown to curb infections.
24 HOURS OF MARKET ACTIVITY
The S&P 500 inched up to a new all-time high on Wednesday while the Dow (up) and Nasdaq (down) closed mixed and within 0.1% of where they opened. The S&P 500’s rise of less than 0.2% followed a mixed global session overnight and came after intraday fluctuations flipped the index between gains and losses several times. The index retested its high mark for the day after the Fed Minutes showed officials were still not discussing pulling back on accommodation, either through rate hikes or by tapering their asset purchases (more below). Treasury yields also closed mixed, with the 2-year yield finishing 0.4 bps lower at 0.15% while the 10-year yield added 1.8 bps to 1.67%. The short-end of the curve moved up from its lows after the Minutes showed officials could tweak their policy rates to keep effective fed funds well within the target range. The 10-year yield closed near its highest level of the day after a late-afternoon jump that coincided with the release of stronger-than-expected consumer credit activity in February (more below).
U.S. equity futures rose further overnight during a generally positive global session and were higher leading up to the release of this morning’s weekly jobless claims results. Tech was leading with a 0.9% gain, consistent with a move lower in rates, while S&P 500 contracts had added 0.4%. The 10-year Treasury yield was 1.6 bps lower.
Consumer Credit Spikes in February Amid Improving Outlook: Data from the Federal Reserve showed consumer credit jumped in February by the most since November 2017, a potential sign that consumers are increasingly confident in the outlook. The report, which excludes borrowings related to real estate, showed total consumer credit outstanding rose $27.6 billion to $4.21 trillion, handily surpassing expectations for a $2.8 billion increase. Revolving credit, which primarily consists of credit card balances, rose $8.1 billion, while non-revolving balances, made up of bigger ticket items such as autos, student loans, and recreation vehicles, jumped $19.5 billion.
Fed Minutes Don’t Change Pledge to Keep Policy Accommodative: Minutes from the Fed’s March meeting said “participants significantly revised up their projections for real GDP growth this year,” largely due to the “encouraging developments regarding the pandemic.” However, uncertainty about the outlook remained elevated and “economic activity and employment were currently well below levels consistent with maximum employment.” Importantly, there was little discussion to detract from officials’ repeated pledges to keep policy accommodative until further notice. Key to that pledge, “participants generally anticipated that annual inflation readings would edge down next year” after the “transitory effects” of year-over-year base effects and strains in the supply chain fade. Officials described risks to the inflation outlook as “broadly balanced.” Away from the economic outlook, the consensus belief was that a rise in longer yields reflected increasing optimism and there was some discussion about potentially making technical adjustments to the policy rates if needed, even between meetings, to ensure effective fed funds traded well within the 0.00% to 0.25% target range as reserve balances grow.
A DAY OF FEDSPEAK
Chicago Fed President Evans remained upbeat Wednesday, saying he’s “very optimistic” about the U.S. recovery but repeating that it could take a while for inflation to pick-up. Even if it does, he said inflation between 2.5% and 3.0% would be welcomed, not unwanted.
President Kaplan from the Dallas Fed agreed with Evans that growth will be strong this year, noting his forecast for GDP growth of around 6.5%. And while he too sees inflation moving up to 2.5%, he expects it will moderate from there. He again stated concerns about financial imbalances. Evans also addressed the topic, saying regulatory policy is more suited to address such concerns.
Touching on another area of concern, Richmond Fed President Barkin said the biggest risk he sees now to the recovery are supply-chain bottlenecks.
San Francisco Fed President Daly said the pandemic isn’t over yet but there are glimmers of the light at the end of the tunnel.
Fed Governor Brainard also expects growth to pick up in response to more widespread vaccinations and the latest stimulus package, but repeated that it will take “some time” before the Fed achieves its dual mandate goals. She joined most others who expect some firmer inflation readings this year caused by “unique factors” to be transitory.
Jobless Claims Show Mixed Picture, Remain Elevated: Initial jobless claims for the week ending April 3 unexpectedly rose from 728k to 744k. The reference week included the Good Friday holiday and holidays have historically created temporarily volatile results for claims. Thirty-eight states reported changes in their state totals of 15% or more. Additionally, volatility in California drove the headline result higher: new claims jumped 39k (non-seasonally adjusted). Initial PUA claims were more encouraging, dropping 85k to 152k. A large percentage of the decline came from Ohio, where new PUA claims fell 76k. Total new claims in both programs combined inched down 69k to 896k.
State-Level Noise Continues to Plague Continuing Claims: Continuing jobless claims were equally disappointing but, again, related to state volatility. Continuing claims fell just 16k to 3.73mm, losing some of the recent momentum for the time being. Continuing PUA claims rose 203k to 7.55mm, driven by a 507k jump in California and despite a 222k decline in Michigan. Continuing PEUC claims rose 117k to 5.63mm as California reported an increase of 144k and Texas an increase of 153k. Total claims for unemployment assistance fell just 51k to 18.17mm for the week ending March 20.
Fedspeak: Fed Chair Powell will speak at 11:00 a.m. CT on an IMF panel discussing the global economy. St Louis Bank President Bullard speaks at 10:00 a.m. and Minneapolis’s Kashkari speaks at 1:00 p.m.