The Market Today

Europe Double Dips; U.S. Consumer Income Turbo-Charged by Stimulus Payments


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

American Rescue Plan Transfers Boost Income Even Higher: Direct transfers of $1,400 per person from the American Rescue Plan boosted personal income 21.1% in March, the highest monthly gain on record.  While the transfer payments drove the headline result, employment income was also up a solid 0.9% MoM and continues to gain ground after surpassing its pre-pandemic level in February.  Unemployment insurance payments remain elevated but did not increase by a notable amount in March. Personal spending, however, could not keep pace with the income gains, rising 4.2% for the month.  In any other month, this result would be quite remarkable.  With spending not keeping pace, the savings rate increased from 13.9% to 27.6%.  Total cumulative excess savings since the pandemic began rose from $1.9 to $2.2 trillion.  The Fed’s preferred measure of inflation, core PCE, rose 0.4% MoM in March bringing its YoY rate up from 1.4% to 1.8%.  Including volatile energy prices, headline PCE rose from 1.5% YoY to 2.3% YoY.

Consumer Confidence Revision and Kaplan: The University of Michigan final revision on April’s consumer confidence is expected to be revised slightly higher at 9:00 a.m. CT.  Speaking today from the Fed is Dallas Bank President Kaplan (8:45 a.m.).


CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Virus Headlines from Europe are Economic-Positive: Portugal’s prime minister announced his government would proceed with plans to ease virus restrictions. Ireland’s prime minister said the virus situation in his country supported paring back some measures, with the next step to be taken on May 10. Non-essential shops will re-open and be followed by hotels, bars, and restaurants in June. The Czech government said all stores will be allowed to open on May 10. Germany reported a record for daily vaccinations and local news outlets said the government was considering easing rules for those who’ve been vaccinated starting May 28. France’s president said the country will begin a phased re-opening on May 3. The curfew will become less restrictive on May 19 and be fully repealed from June 30.


24 HOURS OF MARKET ACTIVITY

Stocks Closed at a Record on Strong Earnings and Increased Economic Optimism

The S&P 500 fully erased a strong opening gain Thursday before staging a v-shaped afternoon recovery to close up 0.7% and at a new record high. Data released before the open showed the U.S. economy recovered 6.4% in the first quarter to within 0.9% of its pre-pandemic peak, largely on strong fiscal support and increased economic re-opening. More timely jobless claims data showed another pandemic low for new filings, signaling the labor market recovery remains afoot. Shares of Facebook rallied more than 7% after a strong earnings report showed the real world impacts of those economic developments, helping push the communication services sector to a first place finish. Financials and energy, two sectors likely to be among top beneficiaries of an improving economic situation, closed in the second and third spots. Apple also posted surprisingly strong quarterly results but faded earlier gains, ending the day little changed and helping to drag the Nasdaq down from its daily peak. After gaining as much as 1%, the tech-focused index ended up just 0.2%. Treasury yields also rose, but ended near session lows. The 10-year yield added 2.5 bps to 1.63%, a more-than-two-week high, after touching 1.69% early in the session.

U.S. Futures Ignore Amazon’s Stellar Earnings, Decline with Most Global Shares

Amazon’s first quarter revenue and earnings, released after markets closed Thursday, crushed expectations and the company’s second quarter guidance was stronger than analysts expected. However, a 2.6% gain overnight for the company’s share value has been an insufficient boost to sentiment more broadly. S&P 500 futures dipped 0.5%, splitting losses for the Dow and Nasdaq, as most global shares retreated. Yesterday’s U.S. data reflected reasons for increasing economic optimism while foreign data overnight reminded investors there remains a ways to go. A pair of manufacturing PMIs from China were mixed while the official services index dipped more than expected. The European economy shrank 0.6% in the first quarter, confirming forecasts for a double-dip recession, as contractions in Germany, Spain, Italy, and other countries offset a growth surprise in France. Despite weaker equities and a drag from European sovereigns, Treasury yields were little changed before, and after, the personal income and spending and PCE inflation data were released.


NOTEWORTHY NEWS

Pending Home Sales Bounced Back Less Than Expected in March: Pending home sales recovered less than expected in March following a February plunge amid unusually harsh winter weather across much of the country. The 1.9% gain fell short of the 4.4% recovery economists expected and left the index at its second-lowest level since May 2020. February’s decline, which pushed the index to a low for the recovery, was revised from -10.6% to -11.5%. Activity in the Midwest fell again while new contracts rose in the three other geographic regions. Although the monthly average for the Mortgage Bankers Association’s reported 30-year fixed rate mortgage did rise 0.25% during the month, the National Association of Realtors placed more blame on tight housing supply. The group’s chief economist said, “Low inventory has been a consistent problem. With mortgage rates still very close to record lows and a solid job recovery underway, demand will likely remain high.”


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