The Market Today
Positive Data Points to Strength in 2Q
by Craig Dismuke, Dudley Carter
This morning’s flurry of economic reports painted a generally positive picture. Business investment in equipment appears to be picking up even more steam, jobless claims dropped more than expected, and the 1Q GDP revision was, at the headline level, unchanged at 6.4%.
Durable Goods Data Portend Strong Start to 2Q for Business Investment: Durable goods orders for the month of April fell 1.3% on the disruption in auto manufacturing, down 6.2% for the month, along with a decline in notoriously volatile defense aircraft orders, down 8.5%. Excluding transportation items, orders for goods that last longer than 36 months rose 1.0% on broad strength. The data tracking business investment in equipment were positive, portending a strong start to the 2nd quarter. Shipments of core capital goods orders rose 0.9%, fractionally better than the expected 0.8% gain. More encouraging, orders for core capital goods jumped 2.3% even taking into account a positive revision to the already solid March figures.
1Q GDP Remains Unchanged at 6.4% in First Revision: According to the first revision of the 1Q GDP report, the U.S. economy expanded at 6.4%, unchanged from the initial estimate despite some significant revisions. The revisions are generally neutral as it relates to implications for 2Q growth. Personal consumption was revised up $18.3 billion, bringing the QoQ SAAR rate up from +10.7% to +10.3%. Driving the revision was a higher tally of goods consumption, indicative of consumers spending more of the March stimulus payments. However, consumers still go into 2Q with plenty of savings on the sideline to continue propelling activity. Inventories were revised down $7.4 billion, now down $155 billion for the quarter which sets up future quarters for a significant tailwind from an inventory rebuild. Government spending was notched down $4.4 billion on a $4.3 billion revision lower in state and local spending. State and local spending is expected to accelerate on the $360 billion in assistance provided by the American Rescue Plan. Exports were revised down $10.3 billion while imports were revised up $8.1 billion, also setting the economy up for an even stronger rebound as the global economy heals.
Weekly Jobless Claims Data Have Continued to Improve in Recent Weeks According to the Latest Figures from the DOL: New filings for unemployment insurance from state programs dropped from 444k to 406k last week, beating expectations, and claims in the emergency PUA program inched down from 95.1k to 93.5k, tallying to a total of 500k individuals seeking unemployment assistance. Individually and when combined, the levels represent new lows since the start of the pandemic. Adding to the upbeat tone from the report, continuing claims in state programs declined from 3.74mm to 3.64mm two weeks ago, notably the reference week for May’s payroll report, beating expectations and settling at their second lowest level since the start of the pandemic. While a couple of states continued to report some volatile figures for federal emergency programs, total claims in all programs improved from 15.977mm to 15.802mm, still elevated but marking another pandemic-era best. The latest data, which doesn’t consider the upcoming withdrawals of more than 20 GOP-governed states from federal emergency programs starting in mid-June, provide additional comfort that April’s payroll report doesn’t reflect an imminent unwinding of the labor market’s previous recovery.
24 HOURS OF MARKET ACTIVITY
Stocks Continue to Fluctuate and Treasury Yields Had Unwound Their Weekly Drop Ahead of the Jobless Claims Update: The S&P 500 recovered nearly all of Tuesday’s decline on Wednesday as many sectors rebounded in an energy-led day of gains. The broader index rose 0.19% after dropping 0.21% on Tuesday as the Nasdaq rose 0.6% and the Dow lagged behind to close little changed on the day. The overnight global session had been uneventful and the economic calendar was void of meaningful information ahead of this morning’s deluge. Treasury yields reversed course after four daily declines which had pushed the 10-year to a five-week low and just above 1.53%, which could prove to be a technically sensitive level. While the 10-year yield’s 1.7-bps increase was relatively modest and only partially unwound the 11-bps drop over the prior four sessions, the timing of the increase was interesting. An intraday chart showed the 10-year yield netted most of that move in the minutes after a strong auction of 5-year Treasury notes. Traders pointed to some idiosyncratic operational and positioning trades as potential explanations for the paradox.
Sovereign yields have moved higher in a mixed day for global equities Thursday as investors awaited a daily flood of U.S. economic reports, including the most recent jobless claims data. The 10-year Treasury yield was up more than 3 bps and at session highs heading into the 7:30 a.m. CT economic releases. At 1.61%, the 10-year Treasury yield was trading back near its highest levels since beginning its weekly decline early Monday morning. Following a second day of uneventful moves across both Asia and Europe, U.S. equity futures were mixed with the Dow 0.3% higher and the Nasdaq 0.2% lower. S&P 500 futures were essentially flat. The moves held after encouraging data on jobless claims and business investment.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
President Biden Asks U.S. Intelligence to “Redouble Their Efforts” In Identifying COVID-19 Origin: Although it has become somewhat of a presupposition in virus discussions of late, U.S. cases have continued to decline recently pushing the seven-day average for new infections to the lowest level since June. However, a statement from President Biden published on the White House’s website was the focus in a quiet day for the virus headlines. The statement indicated that U.S. Intelligence officials have “coalesced around two likely scenarios” related to the origin of COVID-19 based on previous analyses. While confidence levels were characterized as “low or moderate,” officials suspect the virus “emerged from human contact with an infected animal or from a laboratory accident.” President Biden said he has asked Intelligence officials to “redouble their efforts” to find a more “definitive conclusion,” and “report back to me in 90 days.”