The Market Today

Europe and U.S. on Divergent Paths

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Tracking Europe’s Pandemic: Austria scrapped plans to ease restrictions and reports indicated Germany plans to extend its lockdown through April 18. Earlier in the day, Germany announced that it was increasing its expected borrowing this year and suspending its debt limit for a third year in 2022.

Tracking U.S. Vaccinations: Following AstraZeneca’s announcement early Monday that its vaccine was shown to be effective in a U.S. trial, a top U.S. government health agency “expressed concern that AstraZeneca may have included outdated information from that trial.” Separately, U.S. health advisors expect to see a “nice increase” in shipments of the Johnson & Johnson vaccine this week, but wouldn’t say if the company’s 20 million target for March will be achieved. Despite a pick-up in vaccinations, the head of the CDC said she’s concerned about an “avoidable surge” in cases if Americans become complacent and pull back on mitigation measures.

Tracking U.S. Stimulus: The IRS said the next blast of payments to individuals provided for by the American Rescue Plan will be sent out this week. A “large number” of those payments will be mailed while funds deposited directly into bank accounts should be available on Wednesday. Later on Monday, multiple reports signaled that advisers to President Biden are pulling together another spending package that will be centered around satisfying key campaign pledges of the president. The plan is likely to be structured in multiple phases, begin with a focus on infrastructure, and total to an estimated cost of around $3 trillion. The White House confirmed that “those conversations are ongoing” but said “any speculation about future proposals is premature and not a reflection of the White House’s thinking.”



Treasury Yields Extend Monday’s Decline Overnight as Futures Fall Tuesday Amid Global Weakness: Stocks opened and closed higher to start the week as Treasury yields declined, although the final daily changes were less pronounced than levels reached earlier in the day. The 10-year Treasury yield had declined overnight following last week’s increase and remained lower throughout U.S. trading. However, after falling to as low as 1.66% during early European trading hours, the 10-year yield closed 2.6 bps lower at 1.70%. The slippage in yield supported tech and other non-cyclical sectors which trailed the broader indices last week amid rising rates. The Nasdaq gained 1.2% to lead the major indices higher, with the S&P 500 adding a smaller 0.7% and the Dow rising 0.3%. After enjoying some recent strength in response to growing economic optimism, banks, energy, and industrials all ended the day lower.

The positive tone for risk assets receded quickly Tuesday, however, as Asian equities traded lower and Europe’s Stoxx 600 slipped into negative territory on widespread losses across the continent. U.S. futures were caught up in the daily decline and around 0.3% weaker. The growing concerns about Europe’s economic recovery, a contributor to oil’s recent weakness, were fanned further yesterday by reports of a longer lockdown in Germany. Oil prices were down more than 4% at 7 a.m. CT with U.S. WTI trading below $59 per barrel, its lowest level in over a month. The daily aversion for riskier assets was clearly evident on world bond screens, where sovereign yields were exclusively lower on a Treasury-led drop. The 10-year yield was 4.2 bps lower at 7:15 a.m. CT while the 2-year Treasury was unchanged below 0.15% ahead of a $60 billion auction around lunch.


Fed’s Barkin Believes Some Hot Spring Inflation Readings Will Be Short-Lived: Richmond Fed President Barkin reiterated his past projections for “very strong” growth in the months ahead. He also noted base effects will boost inflation in the near-term but said he will look through those higher readings as temporary. While the outlook for the U.S. economy remains uncertain, he’s not surprised that yields have risen in response to improving trends.

Existing Home Sales Decline Sharply as Weather Exacerbates Price and Rate Pressures: Existing home sales fell by an unusually large 6.6% in February, the largest monthly decline since May of last year, to 6.22 million units, a six-month low. Winter weather surely played a role in the larger-than-expected decline as sales dropped 14.4% in the Midwest, 11.5% in the Northeast, and 6.1% in the South. However, the National Association of Realtors’ top economist said “It really is a lack of supply,” that’s putting pressure on the underlying trend. Nonetheless, he remained optimistic. “The fact that even with the decline in sales, days on the market is swift, prices are rising strongly – it’s implying that demand isn’t disappearing from the marketplace,” he added. Sales rose 4.6% in the West.

Tracking Chair Powell’s Comments: Powell’s first of three scheduled appearances this week was uneventful and mainly focused on the concept of a central bank supported digital currency, an idea he said is far from the front of officials’ current points of focus. Prepared remarks for today’s testimony before a House committee showed the Fed chief will tell lawmakers that activity has picked up recently but that the Fed will continue to support a recovery that is “far from complete,” echoing the sentiment from last week’s meeting.

Fed’s Quarles Sees Regulators Intensifying Scrutiny of Libor Transition: Fed Governor Quarles said there is “no scenario” in which LIBOR will remain a benchmark past June 2023 and that the ongoing transition will be placed under “intense supervisory focus.”


New Home Sales Likely Hit by February Snow: New home sales are expected to drop 5.7% in the February report at 9:00 a.m. CT.  Following yesterday’s existing home sales report, the snow may well cause an even larger decline.  However, continued low interest rates and strong price gains are likely to keep housing positive after the February weather effects.

Richmond Fed Index: The Richmond Fed will release is March report on regional manufacturing activity at 9:00 a.m.

Powell and Yellen Headline Busy Day of Fedspeak: There are a host of policymakers speaking today, headlined by Fed Chair Powell and Treasury Secretary Yellen speaking before the a House panel on the progress of the CARES Act (11:00 a.m. CT).  Also speaking are St Louis’s Bullard, (8:00 a.m.), Atlanta’s Bostic (9:10 a.m.), Richmond’s Barkin (10:00 a.m.), Governor Brainard (12:30 p.m.), and New York’s Williams (1:45 p.m.).

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