The Market Today
Senate Finally Passes Aid Package as Jobless Claims Spike to 3.28 Million
by Craig Dismuke, Dudley Carter
GDP, Inventories, Trade Balance, but Claims Are the Focus: It is an odd time when a weekly initial jobless claims report is more important to investors/analysts than the monthly trade balance release, inventories data, and GDP report. Such is the case today because of the timeliness of the unemployment data and expectations for an economic abrupt halt. The goods-only trade balance declined $6.0 billion in February on another drop in overall global trade. Exports did inch up $0.7 billion for the month but imports plunged $5.3 billion. Both wholesale and retail inventories reports for February were discouragingly weak. And the second revision to the 4Q GDP report was unchanged at the headline level showing 2.1% growth.
Record 3.28 Million People File for Unemployment Insurance Last Week: Initial jobless claims, however, jumped well above any level on record dating back to 1967. The largest number of applicants to file for unemployment insurance in one week was 695k in 1982. During the Great Recession, new weekly filings escalated rather slowly, peaking at 665k in one week in March 2009. The coronavirus is an altogether different economic stress than traditional rebalancing of supply and demand. For the week ending March 21, 3.28 million new people filed for unemployment insurance. On the negative side, this is an unprecedented economic stop that will require great creativity and will result in some very discouraging headlines. On the positive side, the rebound on the other side could be almost equally as sharp.
Republicans Identified “Drafting Error” That Delayed Stimulus: U.S. stocks rose Wednesday after Senate leaders announced they had reached an agreement in the early-morning hours, but the major indexes cut into solid gains just before the close as unexpected stumbling blocks appeared. After a rocky start, the major U.S. averages climbed strongly as numerous Senators touted the various aspects of the $2T stimulus package that is expected to help cushion COVID-19’s blow to the U.S. economy. The rally slowed but equities held their strong gains even after several Republican senators said they had identified a “drafting error” in the bill related to wording around unemployment benefits. The concern was that the expanded unemployment benefits could give workers more compensation than their typical take home pay, providing a potential incentive for workers not to go back to work once the virus passes.
Senator Sanders Warned Against Unemployment Benefit Changes: However, a sharp pullback began in the final fifteen minutes of trading after Senator Bernie Sanders said he would do his best to stall the bill if Republicans tried to make changes to the unemployment benefits. “Unless Republican Senators drop their objections to the coronavirus legislation, I am prepared to put a hold on this bill until stronger conditions are imposed on the $500 billion corporate welfare fund,” Senator Sanders tweeted. Adding to the downward pressure on equities about the time Senator Sanders stated his objection, shares of Apple erased a more-than-4% gain after a Japanese media outlet reported that the company was considering delaying their 5G iPhone for several months.
Stocks Notched Back-to-Back Gains for First Time Since February: Nonetheless, the Dow rose 2.4% and the S&P 500 gained 1.2%. The Dow’s outperformance was driven by a more-than-24% gain in shares of Boeing. Airline-related companies improved broadly because of the assistance planned for the industry in the stimulus package, but the American aircraft maker was also boosted by reports it could resume production of its 737 Max sooner than expected. The S&P 500’s gain was its second in a row, a feat it hadn’t accomplished since February 12. Treasury yields closed mixed, with the 2-year yield down 4.2 bps to 0.33% while the 10-year yield rose 2.1 bps to 0.87%.
Senate Sends Stimulus Bill to the House: After days of delays, the U.S. Senate finally and unanimously passed its stimulus package valued at more than $2T late Wednesday evening. The House is expected to vote on the bill on Friday and the President has said he will sign the bill as soon as it lands on his desk. The measures targeting support for consumers, businesses, the health care system, and state and local governments are an unprecedented effort by fiscal policymakers to prop up an economy brought to a standstill by the spread of the new coronavirus. Once the bill is signed into law, it will combine with a massive monetary stimulus package launched by the Fed in recent weeks to create an incredible amount of potential momentum behind the economy once the virus passes. Both the White House and Fed have signaled that despite the historic amounts of stimulus already provided, they are willing to do more if necessary.
Powell Says Fed Won’t Run Out of Ammo: For the Fed’s part, Chair Powell said on the Today show earlier this morning, “When it comes to this lending we’re not going to run out of ammunition. That doesn’t happen.” His remarks came just ahead of this morning’s record jump in initial jobless claims, an early indicator that the Fed’s mandate for full employment will be severely disrupted in the weeks and months ahead. Powell, however, said that while we may be in a recession there is nothing fundamentally wrong with the U.S. economy. He expects a solid bounce back for activity in the second half of the year once the virus is contained. Stuck between the stimulus efforts and the uncertainty around the degree of economic damage from the virus, S&P 500 futures were down 1.9% ahead of the jobless claims figures and the 10-year yield had dropped 9.3 bps to 0.78%. Offering evidence of how severe investors believe the economic fallout will be, markets looked hardly different after the eye-popping surge in unemployment claims.
Push and Pull Between Weak Data and More Stimulus Plays Out Globally: The market dynamics and direction were consistent with moves in foreign markets overnight. A top equity index in Singapore fell in a mixed session across Asia after data showed its economy contracted a worse-than-expected 10.6% in the first quarter. Singapore’s finance minister announced additional stimulus measures shortly after that will stretch the cumulative package to roughly 11% of GDP. In Europe, German consumer confidence plunged more than expected back to a 2009 low while manufacturing confidence in France dwindled to its weakest reading since 2015. The ECB took a surprise step overnight to increase the potency of its recently announced 750B euro quantitative easing program. Peripheral sovereign yields were leading a rally across Europe after the central bank said new purchases wouldn’t be limited to specific maturities nor capped at one-third of a member country’s debt. Italy’s 10-year yield was 15.3 bps lower as Germany’s fell 7.0 bps.