The Market Today
Senate Sends $1.9T Stimulus Back to House for Approval
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Senate Passed Its Version of a $1.9 Trillion Stimulus Bill: The Senate passed its version of President Biden’s $1.9 trillion stimulus package on Saturday, moving the U.S. economy one step closer to receiving the second-largest stimulus injection of the pandemic. Because of changes made to the original bill, the updated legislation must be voted on and approved again by the House, a step that is expected to occur early this week, before it can be sent to the president for his signature. Among the key amendments to the initial House bill, the size of direct checks to individuals were unchanged at $1,400 but the payments will be phased out more quickly for higher-income recipients. The federal unemployment supplement would be kept at the current $300 per week, lower than the $400 weekly benefit the House approved, but would run for an additional week into early September. The $350 billion in state aid was included. The minimum wage portion of the original bill was removed.
24 HOURS OF MARKET ACTIVITY
Treasury Yields Continue Push Higher After Senate Stimulus Agreement, Keeping Pressure on Stocks: The Senate’s Saturday agreement to provide around $1.9 trillion in new aid for the U.S. recovery has kept Treasury yields propped up at high level, a countervailing force that has left equities struggling amid growing economic optimism. Equities stormed back on Friday following the better-than-expected jobs report (more below), but S&P 500 futures were 0.6% lower at 6:45 a.m. CT amid tech-led weakness. Dow contracts had slipped 0.2% while Nasdaq futures fell around 1.6%. Stock valuations continued to be pressured by higher rates, with Treasury yields extending a sizeable and steady increase that began last Wednesday and has lifted the 10-year Treasury yield from around 1.40% to over 1.60% early Monday. The 3.5-bp increase just before 7 a.m. CT was outsized relative to smaller changes in Europe. Oil prices, also a beneficiary of a brightening economic outlook and tightly managed supply, remain in focus to start the week. A missile attack on some Saudi oil facilities on Sunday sent U.S. WTI briefly up to $68 per barrel, its highest level in almost two years. Oil prices have since retreated and were lower one the day at 7 a.m. CT. At 7:30 a.m. CT, stock futures had trimmed their losses with the Dow edging into positive territory and the 10-year yield pulled back slightly to up 2.1 bps on the day.
Quiet Start to Quiet Week – Yellen and Inventories: The January Wholesale Inventories report will be finalized at 9:00 a.m. CT. At the same time, Treasury Secretary Yellen is slated to speak at an IMF event.
Investors Watch Oil Prices Closely as Inflation Fears Already Heightened: With investors particularly anxious about inflation, the recent run higher for oil prices is adding to investors’ concerns. Several recent factors have contributed to prices moving sharply higher, to over $70 per barrel this weekend. The decline in COVID-19 cases and associated resumption of mobility for many people are driving demand, and future expected demand, higher. On the opposite side of the ledger, OPEC+ voted last week not to remove limitations on supply despite the improving demand environment. Third, drone attacks on Saudi Arabian oil facilities over the weekend have sparked concerns over the dependability of supply.
ICYMI: Equities were under tech-led pressure again for most of last week as longer Treasury yields broke to new pandemic highs. Growing inflation fears caused a spike in Treasury yields two weeks ago, sparking an equity sell-off and leading some to speculate the Fed might intervene to cap longer rates. Yields remained biased higher early after the House passed its $1.9 trillion stimulus bill over the weekend and the FDA approved Johnson & Johnson’s vaccine for emergency use. After being pulled up further by rising U.K. yields on Wednesday, Treasury yields rocketed higher Thursday after Fed Chair Powell provided a consistently dovish outlook but gave no indication the Fed was considering a response to the move up in rates. After the Senate voted later that day to begin debating a stimulus bill Democrats hope will strengthen the recovery, an unexpectedly strong February jobs report Friday appeared to show an acceleration already underway. Primarily due to a surprisingly strong recovery in leisure and hospitality jobs and despite some winter weather effects, the total payroll increase of 379k handily beat expectations of 200k. For the week, the 10-year yield rose 16.1 bps to 1.57%, a high back to February 2020, and its spread to the 2-year note widened to more than 142 bps, the steepest since November 2015. Click here to view the full recap.