The Market Today

Houses Passes $1.9T Stimulus; ECB Increases Bond Purchases

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Watching for Re-openings: New York City restaurants will be allowed to increase capacity to 50% on March 19 while other eateries in the state will move up to 75%. The announcement was made at the same time that New Jersey said it too would allow restaurants to serve patrons at 50% of their capacity limit, as well as gyms and barbershops in the state.

House Democrats Vote for $1.9 Trillion in Additional Stimulus: The House passed the Senate-revised $1.9 trillion stimulus bill shortly after lunch on Wednesday, sending the legislation to President Biden for his signature. The White House said the President plans to sign the bill on Friday, prior to the expiration of key federal unemployment support programs. Treasury Secretary Janet Yellen said later in the afternoon that “today was a pivotal day for the American economy.”

European Central Bank (ECB) Pledges Faster, More Flexible Bond Purchases: ECB officials have sounded somewhat concerned about the impact that rising yields may be having on financial conditions across the Eurozone. While the overall size of bond purchases under the pandemic emergency purchase programme (PEPP) was unchanged, “Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.” The ECB “will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy.”



Softer Inflation Nudged Yields Lower, Helped the Dow Climb to a Record After House Agrees on More Stimulus: Following a relatively uneventful overnight session, U.S. equities turned sharply higher heading into U.S. trading Wednesday after the softer-than-expected reading on core CPI inflation tabled concerns about accelerating price pressures for now. The Nasdaq, which had dropped 0.6% overnight, rose as much as 1.6% shortly after the open before sliding backwards to end the day essentially unchanged. The S&P 500, however, rose 0.6% and the Dow rallied 1.5% to a new all-time high after the House passed the $1.9 trillion stimulus bill. Away from lagging tech stocks, the gains were broad-based and led by energy and other cyclical sectors such as financials and industrials. Despite the optimism in equity sector performances, Treasury yields ended lower on the day. The 10-year yield closed down 0.9 bps at 1.52%, up from lows reached shortly after a middling 10-year note auction.

Sovereign Yields Drop After ECB Agrees to Quicken Emergency Asset Purchases: Tech stocks recovered overnight and into Thursday morning and Dow futures pointed to another record at the open. Treasury yields had drifted down again prior to the ECB policy decision and the most recent U.S. jobless claims report, with the 10-year yield 1.5 bps lower at 6:45 a.m. CT. The ECB, which has appeared more bothered by rising yields than the U.S. Fed, pledged a faster pace and more flexibility for bond purchases under its PEPP. European sovereign yields sank after the announcement and the Stoxx Europe 600 jumped back to near its high mark of the day, both moves moderating slightly before President Lagarde’s press conference on a report that officials believe risks to the outlook have become more balanced. While Treasury yields trailed larger declines in the common-currency bloc, the 10-year Treasury yield fell to down 3.5 bps on the day to 1.48% at 7 a.m. Prior to the jobless claims update, the 10-year yield had drifted back up to a daily decline of 1.6 bps and was down just 1.0 bps after the release.


Deficit Continues to Swell: The Federal budget deficit totaled $310 billion in February, slightly wider than expected amid the continued relief efforts related to the pandemic. Total spending of $559.2 billion compared with January’s $547 billion and the prior-year level of $423.2 billion. Receipts fell from $384.7 billion in January to $248.3 billion, higher than $188.0 billion in February 2020. The deficit was funded with roughly $200 billion of operating cash and $110 billion of new borrowing. On a 12-month basis, the deficit rose from $3.479 trillion to $3.554 trillion and from 16.2% of GDP to 16.5%, both metrics hitting new historic highs.


Initial Jobless Claims Flat: Initial jobless claims for the week ending March 6 fell 42k to 712k, a larger decline than was expected and within 1k of matching the lowest weekly total since last March.  However, initial PUA claims rose 42k to 478k keeping the total number of new weekly unemployment claims anchored at 1.19mm.

Continuing Claims Jump on Volatility in Pandemic Programs, Again: Like the initial claims data, continuing claims showed a drop in the traditional state programs but an offsetting increase in the pandemic programs.  Traditional continuing claims fell 193k to 4.14mm.  However, the pandemic programs saw very volatile results, once again.  Continuing PUA claims, the program providing additional broader access to UI, jumped 1.06mm to 8.39mm.  Driving that increase was an 895k increase in California, alone.  Continuing PEUC claims, the program which extends traditional state programs upon expiration, saw a 986k increase.  California, alone, reported a 980k increase.

The total number of persons filing for some form of unemployment for the week ending February 20 jumped 2.09mm to 20.1mm, its highest level since November.  However, given the state-level volatility particularly coming from California, the weekly data are essentially meaningless.  The four-week average is now up to 18.9 million and has risen steadily since mid-January.

JOLTs, Household Net Worth, Treasury Auction: The BLS will release its January Job Openings reports at 9:00 a.m. CT.  The Federal Reserve will release its 4Q Household Flow of Funds report at 11:00 a.m., showing total household net worth.  Also on the calendar today is a $24 billion Treasury auction of 30-year bonds.

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