The Market Today
Senate Parliamentarian Opens Door to Multiple Reconciliation Bills… but Sen. Manchin Not on Board
by Craig Dismuke, Dudley Carter
ECONOMIC OUTLOOK WEBINAR (Register): Vining Sparks will host our 2Q21 economic outlook presentation on Thursday at 10:00 a.m. CT. We will look at the confluence of tailwinds set to turbocharge the recovery and the implications for inflation over the short and medium terms.
Senate Parliamentarian Says Democrats Could Bypass GOP with Reconciliation More than Once in a Year: A Monday ruling from the Senate’s parliamentarian pushed back against the modus operandi that the reconciliation process could only be used once each fiscal year to pass certain legislation with simple majority support. From the Wall Street Journal: “Under the reconciliation process, lawmakers pass a budget resolution that then provides committees with instructions to craft legislation meeting the budget’s target. Because budget resolutions are tied to the fiscal year, lawmakers had been limited to using reconciliation once per fiscal year. But the parliamentarian advised lawmakers that they can edit the underlying budget resolution, giving committees additional instructions for meeting the new target. It is unclear if there will be a limit on the number of times lawmakers can edit a budget resolution each fiscal year.” The parliamentarian ruling cracks open the door for Democrats to pass portions of President Biden’s Build Back Better initiatives, despite having already used reconciliation this fiscal year to pass the American Rescue Plan.
HOWEVER, Sen. Manchin Not on Board: However, Democratic leadership must keep their full caucus together in the evenly split Senate to use reconciliation, a task that may not be so easy. From Politico: “The bill, basically, is not going to end up that way,” Manchin said…”If I don’t vote to get on it, it’s not going anywhere. So we’re going to have some leverage here. And it’s more than just me, …there’s six or seven other Democrats that feel very strongly about this.” Manchin said he would be comfortable raising the corporate tax rate from 21 percent to 25 percent but said the United States has “to be competitive and we’re not going to throw caution to the wind.” He also signaled he wants a tighter focus on infrastructure and still wants bipartisan buy-in, though he said his Republican colleagues “can’t just be against everything.”
ISM Services Index Surges to New All-Time High as Recovery Broadens: The ISM’s services index was unambiguously strong in March. The headline PMI rebounded sharply from 55.3 to 63.7, beating expectations for 59.0 with a new all-time high for the series. In the underlying details, business activity spiked 13.9 points to 69.4 and new orders soared 15.3 points to 67.2, both marking the best levels in records back to 1997. Employment posted a solid 4.5-point gain to 57.2, its best reading since May 2019, and supplier delivery times were relatively steady at an elevated level. The message of strength was consistent across almost every other metric away from those key metrics. While the index doesn’t measure the degree of improvement, it does highlight a broadening of the breadth of activity as a stimulus-backed recovery continues to reopen amid an accelerating vaccine rollout.
Transports Weigh on Headline Activity While Core Orders Drop Less Than Expected: Factory orders fell by slightly more than expected in February, ending a run of nine consecutive monthly gains. Total factory orders fell 0.8% compared with expectations for a 0.5% decline. However, orders were down just 0.6% when a drop in the transportation categories was excluded, beating expectations for a 1.1% pullback. Tracking the trends for current and future business equipment investment, capital goods orders and shipments were both notched down 0.1% from initial estimates to -0.9% and -1.1%, respectively.
Job Openings Data Is Old, Snow-Affected Data: Today’s calendar brings the Job Openings and labor Turnover report at 9:00 a.m. CT. The report is one of the more lagging labor market reports; covering the dreaded, snow-affected data from the month of February; and is expected to show a small decline in openings. Richmond Fed Bank President Barkin is on the tape at 1:30 p.m. CT.
24 HOURS OF MARKET ACTIVITY
U.S. Equity Futures Cool after Monday’s Record Performances as Treasury Yields Edge Lower Again on Tuesday
While much of the world was on holiday for Easter Monday, the U.S. equity indices rallied more than 1% after another economic report showed the U.S. recovery accelerated in March. The ISM’s Services Index posted its biggest monthly gain since June to its highest level in records back to 1997 (more below). Data last week showed similarly strong manufacturing activity and a larger-than-expected payroll increase. The S&P 500 rallied 1.4% to a new record with every sector except energy up on the day. Oil slumped 4.6%, with blame placed on non-U.S. virus concerns and OPEC’s recent decision to gradually increase production from next month. The Nasdaq led index gains with a 1.7% improvement while the Dow added 1.3%, also to a new record. Even as equities rallied, Treasury yields gave back a portion of Friday’s post-payrolls jump. The 2-year yield dipped 2.0 bps to 0.16% as market expectations for Fed rate hikes flattened out some after jumping Friday. The 5-year yield led declines, down 5.5 bps to 0.92%, while the 10-year yield shed 2.1 bps to 1.70%.
Global follow through on that optimistic tone from U.S. trading yesterday has been uneven Tuesday. Amid a mixed Asian session, China’s CSI 300 dipped 0.4% despite the Caixin Services PMI recovering more than expected in March to a three-month high of 54.3. Performances have been more convincing across Europe, where synchronized gains have supported an 0.8% gain for the Stoxx 600. At 7:15 a.m. CT, U.S. equity futures had drifted just below Monday’s closes and the 10-year Treasury yield had declined 1.1 bps to 1.69%.
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