The Market Today
Fed Officials to Weigh in on Disappointing Jobs Data, Signs of Rising Inflation
by Craig Dismuke, Dudley Carter
Key Fedspeak Given Jobs Disappointment and Rising Inflation Concerns: This week will bring an insightful wave of Fedspeak with ten officials on the calendar, including seven FOMC voters. The comments will be particularly timely given 1) last week’s disappointing jobs report, 2) growing inflation concerns, and 3) this week’s CPI inflation report which is expect to show headline CPI at 3.6% YoY. Coming into this week, the 5-year TIPs breakeven rate is up to 2.65%, its highest level since 2005, and the 5-year/5-year forward rate is up to 2.33%.
Chicago Fed Bank President Evans is scheduled to speak at 1:00 p.m. CT today. He has already front-run his speech with comments on CNBC this morning minimizing the disappointing jobs report and holding to the position that it will take “quite some time” for the Fed to be satisfied with the economic progress.
24 HOURS OF MARKET ACTIVITY
Jobs Report Still On Investors’ Minds as Oil-Related Commodities Garner Attention After Cyberattack Shuts Key Pipeline
Last Friday’s jobs report continued to be a topic of discussion in market commentaries on Monday, although the price of gasoline became a topic of conversation over the weekend. Global markets were steady to start the week following the weaker-than-expected U.S. payroll report. U.S. stock futures tanked after the report but recovered to a record, likely on prospects the hiccup for hiring meant the Fed could be on hold for longer (more below). Stocks across Asia Pacific rose 0.5% Monday, helped out by a new record high for Australian business confidence that pushed the ASX 200 to an all-time high. European equities were generally flat while U.S. futures traded mixed as tech stocks turned lower.
Energy companies, however, were higher as U.S. gasoline futures moved up nearly 2% in response to a cyberattack on a critical U.S. fuel pipeline. Colonial Pipeline announced it had shut down its East Coast pipeline after a ransomware attack, infrastructure that is responsible for supplying around half of the region’s fuel supplies. Reports began to circulate over the weekend about the potential for higher gasoline prices in the eastern United States if the outage is prolonged. There has been no indication of when the company expects to re-open the pipeline and Federal authorities have been brought in to assist with the efforts. Amid the developments, Treasury yields were little changed, with the 10-year yield holding just 0.2 bps below last Friday’s closing level of 1.58%.
ICYMI – May 7, 2021 Weekly Market Recap: Stocks flipped between gains and losses in the first four sessions last week and Treasury yields had grinded gradually lower. Economic data released from Monday to Thursday generally supported the narrative that the U.S. recovery remained on track and was potentially picking up steam. Both ISM reports came up short of expectations, manufacturing more so than services, but remained at historically solid levels. The monthly estimate from ADP projected a respectable 742k private jobs were recovered in April, less than the 933k economists had forecasted would be reported in Friday’s official payroll data. New jobless claims in both the regular state and emergency PUA programs fell to new lows for the pandemic. Despite the clear momentum in those reports, numerous Fed officials, excepting Dallas President Kaplan, continued to hold the line that it was too soon to talk tapering considering the long road ahead to a full recovery. They were, at least for now, vindicated by a shockingly weak payroll report that briefly sent the 10-year yield down more than 10 bps on Friday alone. The 266k jobs recovered last month was an enormous miss relative to the 1mm jobs that were expected and unemployment rose unexpectedly and for the first time since April 2020. While longer yields recovered their drop to end the day unchanged – down 4.9 bps on the week – yields on shorter maturities remained lower on a repricing of fed funds expectations. After stumbling in the report’s aftermath, stocks reversed higher on prospects of the Fed being on hold for longer, sending the S&P 500 and Dow out at record highs. Click here to view the full recap.