The Market Today

Fed Dusts Off Its Book of Adverbs to Describe Today’s Economy

by Craig Dismuke, Dudley Carter


An uptick in confirmed cases overnight has not quelled optimism that containment measures are working.  Discussions continue about the appropriate time to re-open economies. Coronavirus Chartbook (Click Here) – Updated by 9:30 a.m. CT



Another 5.25 Million File for Unemployment Bringing Four-Week Total to 22.0 Million: Initial jobless claims for the week ending April 11 increased another 5.245 million, less than expected but disastrous nonetheless.  Over the past four weeks, over 22 million Americans have now filed for unemployment insurance.  Accounting for the March payroll loss of 3.0 million, the additional 19 million unemployed persons are likely to take the unemployment rate to near 15%.  This assumed there is not a mass exodus from the labor market as older persons simply retire or younger persons do not look for work out of frustration.  It now appears, through four weeks alone, that the unemployment rate is likely to reach the peak in our 2020 economic forecast, perhaps surpassing it.

Philly Fed Index Shows Sharp Decline in Activity and Employment: The Philadelphia Fed’s Business Outlook Index plunged 43.9 points in April to -56.6.  There were no bright spots in the report. The new orders index fell to -70.9 while the employment index dropped to -46.7. Combined with the New York Fed’s report, the two regional indices collectively point to the April ISM Manufacturing Index falling to 31.

New Construction Shuttered: Housing starts fell 22.3% in March as construction came to an abrupt halt.  The drop was spread across both single-family and multi-family construction, down 17.5% and 31.7% respectively.  Filings for new building permits fell 6.8%, not as bad as expected, as multi-family permits were actually up 4.9%.  Single family permits did contract 12.0%.

Fedspeak: A number of Fedspeakers are on the tape today including Atlanta’s Bostic (10:00 a.m. CT), Richmond’s Barkin (1:00 p.m.), San Fancisco’s Daly (2:00 p.m.), and St. Louis’s Bullard (2:00 p.m.).  Most important to observers, however, will be New York Bank President Williams’s comments to the Economic Club of New York at 1:00 p.m.


Day Full of Dreadful Data: Treasury yields tumbled Wednesday and stocks failed to hold a midday recovery amid big declines in bank profits and abysmal economic data showing the depth of the U.S. economic destruction resulting from the virus-related lockdowns. Moving lower during European trading on weaker oil prices and reports Germany would extend its lockdown until early May, markets were already in a risk-off mood before Bank of America, Citigroup, and Goldman all posted double-digit profit declines for the first quarter as loan loss provisions ballooned. The ominous economic signal from the bank earnings reports were echoed by an influx of awful economic reports. U.S. retail sales for March and the New York Fed’s April manufacturing index both registered their largest declines on record. Later, manufacturing output was reported to have declined in March by the most since 1946 and home builder confidence notched its largest decline since the series began (more on both below). The Fed’s Beige Book released in the afternoon summed it all up by saying activity had “contracted sharply and abruptly” across the country (more below).

Stocks and Yield Fell Under the Weight of Worry: Later during the U.S. session Germany did confirm it was extending its national lockdown until May 3, but allowing some smaller businesses to re-open Monday. Some schools in the country will gradually open starting May 4 but large public gatherings are expected to be disallowed until at least September. Other European countries, including Italy, have already begun the process of attempting to restart portions of their economies as signs have appeared that the virus is slowing there. New cases in Italy fell Wednesday to a four-and-a-half-week low. Policymakers in the U.S. are attempting to keep the economy frozen in time until similar steps to resume activity stateside can be made. Stimulus deposits to U.S. consumers were slated to start on Wednesday while uncertainty continued to overhang the future of the funding available for small businesses under the PPP. Several officials said the $349B approved under the CARES Act could run dry within the day. Under the weight of the weak earnings and economic data, the S&P 500 ended down 2.2%. The 2-year yield slipped 2.2 bps to 0.20% as the 10-year yield slid 12.0 bps to 0.63%.


Global Markets Mixed; Japan Expands Emergency Declaration: After falling early during the Asian session, markets have recovered higher despite expectations for this morning’s jobless claims report to show millions more filed for unemployment insurance last week. This week’s market gyrations have occurred as investors digested dire corporate earnings results and economic data, but began to see signs of several European countries relaxing some virus-related restrictions. Japan’s Nikkei fell 1.3% to lead losses in Asia before PM Abe said he was expanding the state of emergency declaration initially placed on larger cities to the entire country. Reports also indicated fiscal assistance may be broadened to include smaller payments to every citizen, not just larger checks for those who have suffered lost income. Stocks in Asia outside of Japan fell 0.6% while Europe’s Stoxx 600 rose to gain 0.6%.

White House to Release New Virus Guidelines: Conversations about restarting the economy have begun in the U.S. as well as the epidemiological data has improved. President Trump said in yesterday’s daily briefing that the data suggests the U.S. has “passed the peak,” and speculated certain parts of the country, counties and states less impacted by the virus, could open even before the current CDC guidelines expire on April 30. He said his administration would announce updated virus guidelines on Thursday. White House health advisers have said those guidelines recommending America stay home are the reason why U.S. cases and fatalities haven’t reached worst-case model projections. This week’s economic data and corporate earnings releases, however, show the financially-destructive dark side of social distancing. Before jobless claims were released, Dow futures were flat and the 10-year Treasury yield had inched 2.4 bps lower. Following the release, yields inched higher with the 10-year yield trimming its daily decline to 1.4 bps. Stock futures initially moved up to 0.6% at 7:45 a.m. CT.


The “Worst Since” Season Continued in Wednesday’s Second Wave of Reports: The ongoing season of superlatives continued in the second wave of economic reports released on Wednesday. Following the sharpest drops on record for retail sales and the New York Fed’s manufacturing index, industrial production and home builder confidence both posted incredibly steep declines. Industrial production slumped a worse-than-expected 5.4% in March as manufacturing activity recoiled 6.3% on weaker output from every major sector outside of food production. Mining contracted 2.0% and utilities usage dropped 3.9%. The declines in overall industrial production and the manufacturing component were the most severe since 1946. Shifting to the housing sector, home builder confidence plunged 42 points to a reading of 30 in April, easily the largest one-month decline in NAHB records back to 1985 and the weakest level since June 2012. The NAHB’s chairman said of the results, “This unprecedented drop in builder confidence is due exclusively to the coronavirus outbreak across the nation, as unemployment has skyrocketed and gaps in the supply chain have hampered construction activities.”

Beige Book Confirms Deep and Wide Contraction: The Fed’s latest Beige Book confirmed what most already knew, that U.S. economic activity has “contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 Pandemic.” The update echoed the message from the March jobs report that leisure and hospitality were the hardest hit sectors but almost none had been spared from the virus’s vicious disruptions. The tone was quite dour with heavy use of colorful adverbs – “profoundly”, “markedly”, “severely”, “dramatically”, “drastically” – to describe the degree of economic damage that has been caused. Looking forward, every District said the outlook was “highly uncertain” and most expect the situation to get worse in the weeks ahead. While some of the rise in unemployment was the result of temporary furloughs businesses hope to recall when activity picks back up, the “near-term outlook was for more job cuts in coming months.” Several deflationary developments were highlighted in the form of lower wages and salary cuts as well as declines in other input costs and final selling-prices.

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