The Market Today

Treasury Yields Trim Gains After Soft Core Inflation, Investors Eye House Stimulus Vote


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Shots and Stimulus: New York followed Florida’s lead in announcing that anyone 60 years old or older can now receive a dose of a vaccine beginning today. A White House adviser said the administration is aiming to send some stimulus checks out by the end of the month while another indicated officials are carefully monitoring inflation. Markets have become increasingly concerned the $1.9 trillion stimulus bill could lead to stronger near-term inflation pressures as increasing vaccinations allow more of the economy to reopen.

 

24 HOURS OF MARKET ACTIVITY

Tech Turns Higher as Longer Treasury Yields Pull Back from Pandemic Highs: Market moves dominated the headlines again Tuesday as investors waited on the House to pass the Senate-revised stimulus bill, in order for President Biden to sign it before unemployment support programs expire over the weekend. The Nasdaq stormed back 3.6%, its best day since November 4, ending a brief stint in correction territory following a 2.5% decline on Monday. The boost from the tech sector lifted the S&P 500 by 1.4%, despite losses for energy, industrials, and financials. After briefly climbing to a new all-time high midway through the day, the Dow retreated to close near the lows, up just 0.1%. Aiding the relief recovery for tech companies, the 10-year Treasury yield fell 5.6 bps to 1.54% after rising in four consecutive sessions to close yesterday at 1.59%, its highest level of the pandemic. Unlike two weeks ago, when a disastrous 7-year auction sent yields surging, Tuesday’s 3-year Treasury note auction stopped through on solid demand.

Equities Calm Wednesday, Treasury Yields Trim Daily Rise Following Soft Core Inflation: U.S. equity futures calmed somewhat and were mixed Wednesday as Treasury yields ticked higher, partially unwinding yesterday’s decline before the release of this morning’s CPI inflation report. While Asian stocks closed 0.4% higher on average and Europe’s Stoxx 600 was holding a 0.2% gain, Nasdaq futures were 0.4% lower following yesterday’s massive rally while Dow futures had inched up 0.3%. Contracts tracking the broader S&P 500 were hovering just below unchanged shortly after 7 a.m. CT. With many concerned that Democrats’ $1.9 trillion stimulus package, which the House is expected to pass today, could lead to faster price increases, inflation indicators will be heavily monitored in the months ahead. Prior to the release of the February CPI report and a 10-year note auction later in the day, the 2-year Treasury yield was up 0.6 bps to 0.167% and the 10-year yield had added 3.5 bps to 1.561%. The initial response to the softer core inflation data was the 10-year yield trimming its daily increase to 1.6 bps to 1.54%.


TODAY’S CALENDAR

Purchase Apps Improve but Mortgage Rates Move Higher Again: Mortgage applications for the week ending March 5 fell 1.3% as the 30-year mortgage rate inched up 3 more basis points to 3.26%.  Refi apps dropped 5.0%.  On a positive note, purchase apps did recover some of their lost activity, up 7.2% for the week.

No Signs of Consumer Inflation as of February: Consumer inflation remained soft in February with the exception of an increase in energy prices.  Headline inflation rose 0.4% MoM bringing the YoY rate up from 1.4% to 1.7%.  This was driven by a 4.1% increase in energy prices, coming on the heels of the recent rebound in oil prices.  This, however, was about the only sign of firmer price pressures.  Consumer inflation remained soft in February at the core level, up just 0.1% MoM.  The year-over-year rate fell from 1.4% to 1.3%, the third-softest monthly reading since 2011. Most categories of goods showed soft price pressure, including those areas hit hardest by the pandemic.  Apparel prices fell 0.7% and remain 3.6% below their pre-pandemic level.  Airfare dropped a sharp 5.1%, now down 25.6% from their pre-pandemic level.  Lodging away from home prices fell 2.3% and are now down 15.0% from their pre-pandemic level. New car prices were unchanged but used car prices fell 0.9%.  In the larger categories, medical care prices rose 0.25% on an increase in services costs bringing the year-over-year rate to 2.0% (was 5.1% in June 2020).  Owners’ equivalent rents were firmer for a change, up 0.27%, although overall shelter inflation continued lower, down to 1.5% year-over-year from 3.3% prior to the pandemic.


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