The Market Today
Mixed Data Shows Economy Improving but Jobless Claims Remaining Elevated
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Vaccines: The ongoing winter storms that have caused power outages and travel disruptions across many U.S. states are also impacting U.S. vaccination efforts. New York City blamed the storms for its shortage of doses and a top medical adviser to the White House suggested that vaccination sites should work longer hours once the weather passes to catch up. Related to vaccines, the White House press secretary said President Biden believes teachers should be prioritized for vaccination doses but doesn’t consider it a prerequisite for schools to open. On Tuesday evening, the president said at a town hall his plan is for most elementary schools to be open five days a week by the end of April. Across the Atlantic, the EU announced a deal for more doses over the coming months from Pfizer and Moderna, a step it hopes will hasten its lagging vaccination campaign.
24 HOURS OF MARKET ACTIVITY
Equities Mitigated Early Losses Wednesday but Are Weaker Ahead of Jobless Claims Data: The S&P 500 gradually erased and nearly fully recovered from its opening decline as the Dow rose 0.3% to a third consecutive record high. Energy companies led most S&P 500 sectors higher as WTI crude notched a new one-year high. U.S. WTI broke above $61 per barrel amid the production disruptions caused by the recent winter storms. Shares of U.S. retailers were also among the top performers following data showing consumer spending recovered more strongly than expected to start 2021. Tech fell to the bottom of the index, helping explain the Nasdaq’s disappointing 0.6% decline. As part of another mixed global session on Thursday, U.S. index futures were lower by at least 0.3% with tech continuing its underperformance.
Longer Treasury Yields Fluctuate Near Pandemic Highs: While equities pared early declines throughout Wednesday’s session, longer Treasury yields fell back from Tuesday’s pandemic highs. Despite the unexpected surge for retail sales, signs of some producer price inflation, another better-than-forecast improvement for manufacturing, and a notably weak auction of 20-year Treasury notes, the 10-year yield closed down 4.4 bps at 1.27%. The benchmark note jumped more than 10 bps Tuesday to above 1.31%, matching its sharpest increase since March and notching its highest level in a year. Prior to this morning’s jobless claims data, the 10-year Treasury yield had bounced back 2.9 bps amid a global updraft in yield. U.K. yields were leading the rise after an official from the Bank of England said “the scope to cut interest rates is very limited.” Treasury yields were little changed after the influx of data at 7:30 a.m. CT.
Industrial Sector Sees Further Improvement to Start 2021: Both industrial production and its manufacturing output component were better than expected in January and continue to make up ground lost during the pandemic. Industrial output rose 0.9% from December, stronger than the 0.4% gain expected, and shrank the deficit relative to February’s output from just prior to the pandemic from 2.8% to 1.9%. Manufacturing activity gained 1.0%, beating expectations for a 0.7% improvement and narrowing the gap with last February from 2.0% to 1.0%.
Home Builder Confidence Inched up in February: The NAHB’s Housing Market Index showed a small recovery after two monthly declines. The 1-point gain to 84 leaves the index several points shy of November’s series record of 90 but well above any reading from prior to the second half of 2020 back to the beginning of records in the mid-1980s. Increased interest from prospective buyers drove the slightly firmer headline as a current sales indication was unchanged and six-month sales expectations softened somewhat.
No Surprises Found in the Fed’s January Minutes: The Minutes from the Fed’s January meeting offered no surprises around the outlook for the economy or monetary policy. As Powell stressed in his press conference after that meeting, the Committee noted the recovery had moderated as cases and hospitalizations climbed to their worst levels of the pandemic. And while both health metrics had begun to improve as of the January meeting date, the Committee, which acknowledged that progress on vaccinations and Congress’s recent and future stimulus actions had brightened the medium-term outlook, still saw outlook uncertainty as extremely high and risks weighted to the downside. Officials seemed to agree it would take some time for enough progress to be made to warrant any shift in policy.
Despite Post-Meeting Improvement in the Outlook, Recent Fedspeak Signals Officials Still Comfortable Being Patient: Since that meeting, the seven-day average for new cases has been more than halved, from 166k to 81k, daily vaccinations have accelerated from below 1.2 million to above 1.6 million, and Democrats in Congress have indicated they will opt for a larger stimulus package through budget reconciliation, avoiding forced Republican moderation. While each of those factors has likely shifted the tone of Fed discussions, remarks since the January meeting indicate officials remain comfortable with the current policy stance and with allowing the recovery and underlying inflation pressures to gain more steam.
Initial Jobless Claims Rise to Highest Level Since September: Initial jobless claims for the week ending February 13 rose 13k to 861k after the previous week’s total was revised up 55k higher than initially reported. Initial PUA claims also rose, up 174k to 516k. Ohio, alone, reported an increase of +222k for the week after the state first began accepting new PUA claims since the December stimulus package was enacted. Between both programs, total new claims for unemployment assistance rose 187k to 1.38 million, the highest level since mid-September. All of this data covers the reference week for February’s nonfarm payroll report.
Continuing Claims Drop to Lowest Since Last March; Pandemic Programs Remain Volatile: Continuing jobless claims for the week ending February 6 fell 64k to 4.49 million, the lowest level since last March. Thirty-two states saw continuing claims drop while 18 showed increases. State-by-state noise continued to plague the reporting of the pandemic-era programs. Continuing PUA claims for the week ending January 30 fell 258k, again with California reporting an outsized level of change (-896k). In addition to California, Georgia (+321k) and Michigan (+401k) both reported unusually large week changes. Continuing PEUC claims (the extension program) fell 718k; but, California, alone, reported a decline of 950k. Adding all programs together, continuing claims fell 1.33 million to 18.3 million for the week ending January 30. Removing the most volatile states, it appears that overall continuing claims continue to make fractional improvement but not the rapid decline that could be expected given the recent downturn in virus cases.
Housing Starts Drop but Expected to Be Temporary: Housing Starts plunged 6.0% in January, disappointing expectations but consistent with the recent pullback in homebuilder confidence. Single family starts fell 12.2% while multi-family starts jumped 17.1%. Based on strength in building permits and yesterday’s homebuilder confidence report, the headline weakness in starts is likely to be short-lived.
Building Permits Jump on Multi-Family: Building Permits jumped 10.4% in January, far-outpacing expectations as multi-family permits increased 27.2%. Multi-family permits remain down 40.0% on a year-over-year basis. Single family permits rose a less notable 3.8%.
Philly Fed Index Remains Solid: The Philly Fed report on regional manufacturing conditions in February dropped from 26.5 to 23.1, still well above the 10-year average level. The details show strong labor metrics and a jump in prices paid. The forward outlook for employment remains soft but the outlook for capex positive (despite a sizeable pullback in February’s capex metric).