The Market Today

Europe Struggles with Outbreak and Vaccines; U.S. Retail Sales Snowed In

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Gauging U.S. Travel Demand: The CDC highlighted that air travel last Friday was the strongest since the pandemic decimated the industry early last year. More than 1.35 million travelers passed through TSA checkpoints on Friday, the most since March 15, 2020. At a JPMorgan conference yesterday, airline executives sounded increasingly optimistic about the outlook. Delta’s CEO noted that the recent improvement in travel demand appears “real and substantive,” adding he expects business travel to begin recovering in the third quarter. An American Air official said domestic leisure travel is “coming back quickly,” disclosing that bookings last week were the strongest of the pandemic. That trend is expected to continue and prices could start to move up to reflect the firmer demand.

AstraZeneca Vaccine Gives Europe the Chills: Most of Monday’s vaccine headlines emanated out of Europe, where country after country announced halting the use of AstraZeneca’s vaccine due to reports of concerning side effects from the shot. While the WHO and U.K. government both said there were no direct links between the vaccine and reports of unusual blood clotting cases, Germany, Italy, France, Spain, and Slovenia were among 19 countries that have suspended use of the jab until further notice. AstraZeneca’s vaccine was expected to account for one-fifth of Europe’s total. Data Thursday showed that economic expectations across the Eurozone had picked up more than expected in early March to a new high for the pandemic.



Stocks Return to Record Levels as Treasury Yields Decline from Pandemic Peaks Before Fed Day: U.S. equities closed broadly stronger Monday as longer Treasury yields drifted down from pandemic highs and economically sensitive sectors gained momentum with investors looking forward to economic reopening. The 10-year Treasury yield, which closed last Friday above 1.62% at a new high for the pandemic, pulled back 2.1 bps to start the week to 1.604%. That pushed bond-like stock sectors such as utilities and real estate to the front of the pack. However, stocks primed to benefit from a pick-up in economic activity performed even more strongly. Airlines led most other industries with a 4% gain on the signs of demand improving while restaurants, hotels, and leisure gained more than 2%. The S&P 500 rose 0.6% and the Dow gained 0.5%, both setting new all-time highs but trailing a larger 1.1% gain for the Nasdaq. The more narrow index remains 4.5% below its record close from February 12 after rising rates hit shares of tech companies hard in recent weeks.

Dow futures were flat Tuesday ahead of the U.S. retail sales data while those tracking the S&P 500 and Nasdaq rose modestly following solid gains across most of Asia and Europe. Treasury yields edged lower for a second consecutive session, sending the 10-year yield down 1.4 bps to 1.59% at 7:20 a.m. CT. The knee-jerk disappointment to February’s retail sales results briefly drove the 10-year yield down to a new session low, a move that faded following the delayed release of revisions showing January’s stellar month was even stronger. At 7:36 a.m. CT, the 10-year yield was back near unchanged at 1.604%.


Retail Sales Snowed Over in February After Even Better January Than Initially Reported: January’s retail sales were revised up from 5.3% to 7.6% as the second round of stimulus checks filtered through consumer pocketbooks more quickly than expected.  However, sales did slow more than anticipated in February, down 3.0% at the headline level, at least partly the result of snow.  Excluding autos and gasoline, sales dropped 3.3% after gaining 8.5% in January. Some of the categories that benefit from stimulus-check spending were hardest hit in February.  Sporting goods/hobby/books/recreation items were down 7.5% while home furnishings fell 3.8%, clothing sales fell 2.8%, and electronics/appliances dropped 1.9%.  However, the data were broadly weak. Evidencing that the mid-February snow storm had at least some impact on the report, building materials fell 3.0% despite the continued strength in the sector and food services/drinking places sales dropped 2.5% despite continued reopenings. February was not expected to be a strong month for retail sales given the weather phenomenon.

FOMC Meeting Kicks Off with All Eyes on Dot Plot: Fed officials begin their two-day meeting today.  Expectations are for no changes to policy but almost requisite will be changes to their communications via their economic forecasts.  Attention will be on the infamous dot plot to see any evidence of policymakers changing their view on how long they can hold the overnight rate at zero.

Manufacturing Output, Inventories, Homebuilder Confidence: At 8:15 a.m. CT, the February Industrial Production report is expected to show a 0.2% recovery in manufacturing output, a slower pace than recent months.  At 9:00 a.m., the Business Inventory data is expected to show a 0.3% recovery in inventories in January.  Also at 9:00, Homebuilder Confidence is expected to remain elevated at 84 for the month of March.

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