The Market Today
Housing Starts Heat Up After February Freeze
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Pfizer CEO Expects a Third Booster Shot Will Be Needed within 12 Months of Initial Vaccination: The virus headlines were relatively quiet Thursday, keeping the focus on a seemingly counterintuitive bond rally that broke out following an influx of better-than-expected economic data. One item of note, a previously recorded interview with Pfizer’s CEO included a comment that a third shot would “likely” be needed within 12 months of the first two doses to ensure continued efficacy. “There are vaccines that are like polio that one dose is enough … and there are vaccines like the flu that you need every year. …The Covid virus looks more like the influenza virus than the polio virus,” he said.
24 HOURS OF MARKET ACTVITY
Yields Fall Despite Strong Economic Signals in a Day Where the Price of Everything but Corn and Cattle Appeared to Rally
Providing quite the paradox, the biggest drop for Treasury yields in some time occurred in the aftermath of a raft of stronger-than-expected economic data on Thursday. In fact, the 11.8-bps trading range was the widest in nearly a month. The 10-year yield closed down 5.6 bps at 1.58%, up from a daily bottom below 1.53% but still the lowest since March 11. Somewhat confoundingly, the moves occurred after better-than-expected initial jobless claims, retail sales, and regional Fed surveys signaled the recovery was gaining steam. Several possible explanations for the juxtaposition made the rounds, including corporate hedging flows, signs of increased foreign inflows, and technical momentum that picked up after the benchmark yield broke through 1.60%.
Regardless of the cause, one of the effects was stronger tech stocks that pushed the Nasdaq up 1.3% to a first-place finish. The Dow jumped 0.9% and the S&P gained 1.1%, both achieving new all-time high closes. Financials and energy were the only sectors to shed value on a day where everything else, except for corn and cattle, appeared to rally. Oil and gas, precious and industrial metals, and the major cryptocurrencies all gained ground Thursday along with equities and the price of bonds.
The Record Finish for U.S. Equities Has Given a Lift to Global Shares on Friday
Asian equities earlier closed up 0.3% following the release of economic data in China showing strong retail sales activity last month; spending jumped 34.2% in March from a year ago, better than the 28% gain expected. More broadly, China’s economy grew by a record 18.3% in the first quarter, marginally less than expected on softer-than-projected industrial production and investment. Europe’s Stoxx 600 had gained 0.6% before the U.S. session began. At 7:30 a.m. CT, U.S. equity futures had extended yesterday’s rally and were up 0.2% across the board. Treasury yields, which had bounced back partially in overnight trading, were back near unchanged. The 10-year yield was 0.8 bps lower at 1.57%.
Industrial Production and Manufacturing Output Partially Recover from February’s Weather-Related Drops: Industrial production recovered less than expected in March from a weather-related decline in February that was more severe than previously estimated. Total industrial production dropped 2.6% last month, worse than the initial estimate of a 2.2% decline, and only recovered 1.4% in March, below expectations for a 2.5% gain. Manufacturing output was revised down from -3.1% to -3.7% in February and rose 2.7% in March, weaker than the 3.6% gain expected. Manufacturing output remains down 2% from its pre-pandemic level. Mining also snapped back 5.7% after a similarly-size decline in February and, not surprisingly, utilities usage slumped 11.4% after surging 9.2% in February on increased heating demand.
Home Builder Confidence Holds Up: Despite some recent softness in mortgage purchase applications related to a rise in interest rates, home builder confidence inched 1 point higher in April and has remained relatively steady in recent months. The headline index improved to 83 in the current report, also representing the 2021 year-to-date average. Sales expectations were mixed – the current sales index rose 1 point while the future sales index slipped 2 points – but foot traffic of prospective buyers rose to a five-month high. The mixed messaging was echoed in the statement from the NAHB’s chairman who said, “Despite strong buyer traffic, builders continue to face challenges to add much needed housing supply to the market, …The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials.”
San Francisco Fed President Daly said “we’re not there yet” when asked about progress towards the Fed’s goals of maximum employment and stable prices that could lead to a policy shift. She also said she expects stronger growth and inflation to moderate next year after a “big rebound” in the second half of 2021. “Let’s not get too excited when we see a sequence of good numbers,” she said.
Logan Said Fed Watching Low Money Rates: After creating some speculation recently that the Fed could lengthen its asset purchases to ensure its bond buys are proportionate to market supply, New York Fed Executive Lorie Logan described possible changes the Fed could make to key policy rates to ensure control of short-term money rates. With low overnight money market rates grabbing attention lately, Logan said officials could tweak its reverse repo rate, one of the two rates used to manage the effective fed funds rate, to ensure trading remains near the mid-point of the Fed’s target range. She stressed that any adjustment would only be technical and not a signal of the direction of monetary policy.
Cleveland Fed President Mester said Thursday that, “While the economy is still far from our policy goals of maximum employment and price stability, progress is being made and the economic outlook is brightening.”
Housing Starts Heat Up after February Freeze: Housing starts recovered their lost activity from February, plus some, in March. Headline starts jumped 19.4% to a 1.74mm annualized pace, well above expectations and above January’s pre-snow level. Starts in the South gained 13.5% while activity in the West fell 13.6%. The larger gains, however, came from the Midwest and Northeast regions. Starts in the Midwest jumped 123% while the Northeast rose 64.0%.
Consumer Confidence: At 9:00 a.m. CT, the first look at consumer confidence in April from the University of Michigan is expected to show further recovery.
Fedspeak: Dallas Fed Bank President Kaplan is scheduled to speak at 11:30 A.M. CT.