The Market Today
Small Business Confidence Recovers Less than Expected as Hiring Becomes Difficult
by Craig Dismuke, Dudley Carter
Small Business Confidence Recovered for Third Month in April But By Less than Expected: The NFIB’s headline index added 1.6 points to 99.8, stopping short of the median expectation of 100.8. The details of the report were mixed, but touched on the hot topics of hiring difficulties and inflation. The number of businesses which said they were unable to find workers to fill open positions moved up to its highest level in records since 1973 and those who said there were few or no qualified applicants rose to its highest level since August 2019. The number of businesses that had raised prices jumped to a net 36%, the highest level since the early 1980s. Those expecting to raise prices also moved up to a net 36%, the firmest measure since 2008. The NFIB’s chief economist said, “Small business owners are seeing a growth in sales but are stunted by not having enough workers. Finding qualified employees remains the biggest challenge, …Owners are raising compensation, offering bonuses and benefits to attract the right employees.”
Away from those measures, all but three of the major underlying metrics improved from March, including the number of businesses which were experiencing stronger earnings, were planning to make capital investments and grow their inventories, and saw now as a good time to expand. Discouragingly, however, the number of businesses expecting the economy to improve shrank by a net 7 percentage points.
Flood of Fedspeak: Picking up where Monday left off, Tuesday is full of scheduled appearances for Fed officials likely to offer their view of last Friday’s payroll miss and the current hot topic of rising inflation metrics. Four officials that vote on policy decisions this year will kick-off the remarks, including New York’s Williams (9:30 a.m. CT), Governor Brainard (11:00 a.m.), San Francisco’s Daly (12:00 p.m.), and Atlanta’s Bostic (12:15 p.m.). Philadelphia’s Harker (1:00 p.m.) and Minneapolis’s Kashkari (1:30 p.m.) will also speak.
24 HOURS OF MARKET ACTIVITY
Dow and S&P 500 Fall from Friday’s Records as Tech Shares Drop
The Dow dipped 0.1% into negative territory in the final minutes of Monday’s session as tech weakness sent the Nasdaq down more than 2.5% to a finish at its daily low. The S&P 500 shed more than 1%, joining the Dow with a pull back from a record last Friday. The S&P 500 had flirted with positive territory around midday, propped up momentarily by gains in several cyclical sectors, before sliding in the second half of trading. Energy companies closed just below the flatline as support from stronger gasoline prices faded. Gasoline futures spiked at the open following news over the weekend that Colonial Pipeline had shut down its pipeline that supplies around half of all fuel supplies to the Eastern U.S. after a ransomware attack. Gasoline prices slowly bled away most of their earlier gains after the company said it hoped to return to full operations by the end of the week. Treasury yields turned up mid-morning, erasing an earlier decline and likely adding to the pressure on equities. The 10-year yield rose 2.5 bps to 1.60% with a focus on supply, including an issuance from Amazon, cited as a catalyst for the afternoon climb.
Monday’s U.S. Stumble Spreads around the World on Tuesday as Global Shares Slip and Sovereign Rates Rise
Monday’s tech-led negative momentum extended into U.S. futures trading overnight and has spilled over into global markets. Stocks declined more than 3% in Japan, more than 2% in Hong Kong, and were down more than 2% across most of Europe. Nasdaq futures had declined 1.6% at 7:15 a.m. CT while those for the S&P 500 and Dow slipped 0.9% and 0.5%, respectively. Despite the underwhelming April jobs report last week, headlines have continued to harp on inflation risk amid global economic reopening. Data from China overnight showed a stronger-than-expected 6.8% YoY jump in producer prices, the fastest rate since late 2017, ahead of a known-to-be-hot U.S. CPI report tomorrow. The inflation story and global supply issuance were cited as a couple of factors driving global rates higher in the face of tumbling equities. Germany’s 10-year yield, after a report showed economic optimism in the country surged to a 21-year high in April, was up 4.0 bps to -0.17%, its highest level since January 2020. The Treasury curve was close to unchanged at 7:30 a.m.
Chicago Fed President Evans gave an afternoon speech that echoed the sentiment he shared in an unscheduled CNBC appearance earlier in the day. He described last Friday’s April payroll report as a “head scratcher” but said he remains “very optimistic” about the labor market and still expects unemployment to fall below 5% by the end of the year. While he also expects strong growth in the second half of the year thanks to strong vaccination efforts, he noted that “it will be a while” before the economy makes the “substantial further progress” necessary to discuss tapering asset purchases.
Dallas Fed President Kaplan also indicated a bit of surprise with the big miss in the April payroll report. He said supply issues, such as the enhanced unemployment benefits and childcare issues, could be responsible for the unexpected slowdown in hiring last month. Nonetheless, he, like Evans, expects the labor market to pick back up in the months ahead and perform well this year.
San Francisco President Daly said she remains “bullish” on the U.S. labor market recovery, despite the April disappointment, but thinks “we’re a long way from normalization.” “We’re in a transition state. I see some momentum building. I’m very encouraged. I remain bullish about the future. But we’re not there yet, and we’re going to have some fits and starts,” Daly said. After some months above 2%, primarily because of bottlenecks and base effects, she expects inflation “will come back down to the underlying rate of inflation, which I think of as about 1.8 going forward.”
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
The U.K. and Czech Republic announced plans to ease some restrictions next week in response to continued improvement in their pandemic statistics. Europe has seen cases come down at a rapid pace recently, catching up with earlier improvement in the U.S. which trails an even more positive trend in the U.K. Rising vaccinations have been credited with the turn lower in new infections and deaths in these countries. The White House said it hoped 10 million AstraZeneca doses would be approved for export soon.