Market Reports

Five Minute Macro 3-1-2021

In this week’s Five Minute Macro, elevating Treasury yields moves into the first spot, followed by accommodative central banks. The Covid relief bill moves down to third and the inflation forecast into fourth, with Bitcoin highs remaining at the fifth spot.

Five Minute Macro 2-22-2021

In this week’s 5 Minute Macro stimulus spending remains in the tops spot, with higher Treasury yields moving up to the second spot and inflation outlook dropping a spot. Powell’s testimony to Congress and Bitcoin at new highs round out the top five.

Afternoon Markets Brief 2-5-2021

Summary and Price Action Rundown

US equities chugged higher today as January’s highly-anticipated jobs report evidenced modest improvement but missed estimates, pulling the dollar off its recent multi-month highs. The S&P 500 added 0.4% to register its second consecutive record close, bringing the ascent for the index to 4.7% on the week and 3.5% year-to-date. The Euro Stoxx Index posted similar gains, while Asian equities were mostly higher overnight. A broad dollar index retreated from its strongest level since early December after the moderately disappointing payroll figure, while longer-dated Treasuries remained under slight pressure, with the 10-year yield climbing to 1.17%. Brent crude advanced above $59 per barrel, spurred on by continued OPEC+ supply curbs and growing optimism over the demand outlook.

 

Nonfarm Payrolls Show a Tepid Jobs Rebound

After upside surprises in ADP payrolls and initial jobless claims data earlier this week, hopes had been raised for a more upbeat January jobs number. In January, the US economy added 49K jobs, missing the consensus estimate of a 100K rise. In December, COVID restrictions on businesses started to ease as case numbers and hospitalizations decreased and vaccine distribution increased. Last month saw notable job gains in professional and business services and both public and private education were offset by losses in leisure and hospitality, retail trade, health care, as well as transportation and warehousing. However, it is a small gain leaving the economy about 10 million jobs short from the peak in February 2020. Additionally, the change in total nonfarm payroll employment for November was revised down by 72K to 264K, and the change for December was revised down by 87K to -227K. With this, employment in November and December combined was 159,000 lower than previously reported.

Average hourly earnings rose by 6 cents to 29.96 or 0.2% after a 1% increase in December, below market expectations of a 0.3% gain. Average hourly earnings of private sector production and nonsupervisory employees did not change much at $25.18. The large employment fluctuations over the last few months complicate the analysis of recent trends in average hourly earnings, especially in industries with lower-paid workers. Year-on-year average hourly earnings have increased by 5.4%, the same as in the month before and above market expectations of 5.1%. – MPP view: This modest downside miss does little to dispel the overall impression that the US economy is leaning into the recovery before the double doses of stimulus are even really making much of an impact. The outsized move in the dollar seems to be more about trading dynamics after its sharp bounce rather than broader doubts about the US growth rebound, as the Treasury yield curve continued to steepen and the growth-sensitive Russell 2000 small caps outperformed meaningfully today, rising 1.4% to put year-to-date gains at a gaudy 13.1%.  

Progress Toward Super-Sized Pandemic Relief Bill

The Biden administration and Congressional Democrats move ahead with unilateral approach to the American Rescue Act. After a night-long slog of partisan amendments, the Senate approved 51-50 a measure, with minor amendments, allowing Democrats to pass Biden’s relief plan through budget reconciliation. Votes for the measure fell strictly along partisan lines, with Vice President Harris casting the tie-breaking vote. Small amendments, including holding off on minimum wage increases and ensuring that wealthy Americans do not receive the $1400 stimulus payments, were added during the session, though none remain binding. The measure now returns to the House for a vote on the amended measure and, if passed, will proceed to the indicated committees for finalization by March. President Biden plans to meet with House Committee Chairs today to discuss the timeline of his rescue plan. The President spoke today emphasizing that the COVID-19 relief bill stands as a higher priority than bipartisanship, offering his strongest criticism of Republican lawmakers since taking office and indicated that the Democrats would go it alone. if necessary, to get needed aid to struggling Americans. Speaker Pelosi has stated that the budget resolution will be brought to the floor later today and that committees will begin working on the specifics of the bill starting Monday. Democratic leadership is pushing aggressively for the bill’s speedy passage in the wake of poor unemployment figures from December and standstill numbers in January. The US economy remains 9.9 million jobs below its pre-pandemic level. – MPP view: Though not every penny is likely to make it through, the Biden administration has strongly committed to the upper end of its stimulus spending range and put the marker down that it will aggressively pursue its legislative agenda, and so far it appears that Dem moderates like Senator Manchin are disinclined to stand in the way, all of which is positive for stocks and growth.

Additional Themes

Earnings Season Continues to Provide Little Direction for Stocks – Fourth quarter (Q4) corporate results continue to be overshadowed by overarching market themes, like the GameStop episode and the brightening growth outlook, and today’s calendar is light. Next week features the last major concentration of reports, with Twitter, GM, Coca-Cola, Disney, and Expedia among the most high-profile. With 292 of the S&P 500 companies having reported Q4 results so far, 74.7% have topped sales expectations and 81.2% have beaten earnings estimates, continuing the pandemic trend of overly conservative analyst forecasts. To this point, however, upside surprises on these quarterly figures have provided scant support for stock prices, though this week featured broadly more upbeat price action amid the waning volatility in short-squeeze stocks and better-than-expected growth data.

Regulators Focus on GameStop – Yesterday, Treasury Secretary Yellen convened a group of regulators, including the heads of the SEC and CFTC, as well as the Federal Reserve and New York Fed, to consider the proper policy response to this high-profile episode of significant market anomalies. Though no specifics of the meeting were published, a statement released by the Treasury indicated that the group would work to ensure that the events around GameStop and other affected stocks “are consistent with investor protection and fair and efficient markets” while characterizing market functionality during the episode proved “resilient.” Meanwhile, the House Financial Services Committee and Senate Banking Committee are preparing to hold hearings on this issue later this month. – MPP view: We certainly do not expect any hasty conclusions from regulators but we do expect meaningful follow-though and a policy direction that takes a more encompassing look at the evolution of systemic risk in the system, as well as considers specific regulatory fixes for discrete market issues, such as IPO allocations and retail investor protection.

Latest Podcast – On this week’s Macrocast, we unpack the complicated jobs report, discuss the Biden stimulus package and its critics, and take a moment to review the Trump economy — including discussing how the jobs numbers would have played out in an alternate universe with no pandemic. We also chat about the potential for a pandemic-related baby bust and its economic impact. Latest Macrocast

Looking Ahead – Next week, the focus will be on efforts to pass the American Rescue Act through the narrow straits of the slim Democratic majorities in both houses of Congress. On the data front, US inflation figures will be in the spotlight as market-based gauges of inflation expectations advance to multi-year highs.

Looking Ahead – Fresh Squeezed 2-5-2021

Looking Ahead – Fresh Squeezed

 

A week ago, when shares of GameStop and other heavily-shorted companies were still soaring and exacting a heavy toll on the hedge funds caught offside, analysts had their heads on a swivel looking around for the next target of the Reddit WallStreetBets short-squeeze mob. The crosshairs locked onto silver, spiking it nearly 15% last Friday morning but, after a half-session head fake, it settled back down, with the CME not waiting long to dial up margin requirements on transactions in the precious metal. Another reason a silver short-squeeze never caught on seemed to be that positioning was not heavily short in the first place, despite what a few posts on Reddit apparently claimed, spurring plenty of dissention in the ranks of fellow Redditors.

In scanning for other areas of heightened investor vulnerability to countertrend price action, plenty of analysts flagged another asset with heavily-concentrated downside positioning that had recently halted its precipitous slide and had been showing signs of incipient reversal. But this was no penny stock or nearly bankrupt retailer but rather an asset that would be particularly insusceptible to even the most concentrated retail speculative energies – the US dollar.

 

Currency markets are notorious for wrongfooting consensus trades and bearish positioning on the dollar has been as consensus as they come. A fiscal flood + determined Fed dovishness + risk on = dollar weakness, right?

Sentiment on the dollar was similarly dire at the beginning of 2018, but positioning was not even as extreme as it is now, and the dollar refused to break lower for a few choppy months and then surged higher, as US economic outperformance took hold. At the time, gold prices sank and oil prices climbed (a somewhat atypical divergence), while the dollar marched upward in an almost uninterrupted two-month, 7% ascent, while US equities ran higher in tandem.

 

A similarly dollar- and risk-positive scenario, with US growth diverging to the upside from the G-10, may be emerging this year to upend consensus bearishness on the greenback. After a run of dismal December data amid the seasonal and mutated Covid-19 resurgence, further backsliding in early 2021 seemed like the clear base case, particularly given that that second pandemic relief bill in 2020 was delayed until late in the year. But recent US economic figures have been surprisingly resilient, despite a slight downside miss on January jobs numbers, and even outright strong in the case of housing market metrics and survey-based gauges like purchasing managers’ indexes (PMIs). Meanwhile, the Biden administration has decided that bipartisanship plays a distant second to their intent and urgency to deploy a super-sized pandemic relief package, while vaccine distribution appears to be picking up momentum after a slow start, with 35 million doses now administered and a trend that hits 100 million by mid-April – plus, the vaccines are deemed to be effective against the current set of mutations. And with the Reddit short-squeeze army regrouping in their barracks for now, the abatement of volatility has allowed investors to refocus on the brightening growth outlook.

 

One key distinguishing factor between the current setup and early 2018 is Fed policy. In 2018, Chair Powell was guiding the policy rate steadily upward, continuing the trajectory of 2017. Now, the FOMC is nearly unanimous in trying to tamp down speculation that they will taper their asset purchase program anytime soon, while “not even thinking about thinking about raising interest rates.” But it seems that the markets are skeptical, as futures continue to reflect expectations for incrementally earlier rate hikes than the Fed is projecting. Economic and market conditions later this year certainly seem aligned to test the Fed’s commitment to their current ultra-dovish formulation in the face of higher inflation and strong growth, which may be pivotal moment for any ongoing dollar rally.

 

Looking ahead to next week, the focus will be on efforts to pass the American Rescue Act through the narrow straits of the slim Democratic majorities in both houses of Congress. On the data front, US inflation figures will be in the spotlight as market-based gauges of inflation expectations advance to multi-year highs. The impeachment trial of former President Trump is also on the docket. Lastly, next week also features the last major concentration of fourth quarter earnings reports, with Twitter, GM, Coca-Cola, Disney, and Expedia among the most high-profile.

 

 

  • US Consumer Price Data
  • Global PMIs
  • Bank of England
  • Reserve Bank of Australia
  • US Initial Jobless Claims

 

 

 

Global Economic Calendar: Price check

 

Monday

The week begins with German Industrial Production. In November, IP rose 0.9% m/m, following an upwardly revised 3.4% increase in October and above market forecasts of 0.7%. Output increased for intermediate and capital goods, while production of consumer goods decreased 1.7%. It is the 7th consecutive month of rising industrial production although it still was 3.8% lower than in February, the month before the pandemic began.

 

The evening brings the National Australia Bank’s Index of Business Confidence, which dropped sharply to 4 in December from an upwardly revised 13 in November, reflecting the impact of the Sydney COVID-19 outbreak. Sentiment deteriorated in all industries, except mining, construction, and transport & utilities. Meanwhile, business conditions rose to 14, the highest since September 2018, from 7 in November, with all three sub-indices were above average for the first time since early 2019. Capacity utilization saw further gains and is now around its long-run average and pre-virus levels, while forward orders pulled back but remain in positive territory. “The rise in the employment index is very encouraging and is consistent with the big gains we’ve seen in the official jobs data,” said Alan Oster, NAB Group Chief Economist.

 

Tuesday

German Balance of Trade kicks off the day. The trade surplus narrowed slightly once again to EUR 17.2 billion in November from EUR 18.5 billion a year earlier. Exports decreased 1.3% to EUR 111.7 billion, the 9th straight annual decline and imports edged down 0.1% to EUR 94.6 billion. Sales to the EU declined 1.7% and those to the Eurozone were down 2.2%. Shipments to China increased 14.3% while those to the US fell 3.1%. Imports from the EU went up 2.6% and those from China 5.4%, while purchases from the US fell 1.5%.

 

The NFIB Small Business Optimism Index fell to 95.6 in December, the lowest since May and compared to 101.4 in November. This month’s drop is one of the largest as the outlook of sales and business conditions in 2021 deteriorated sizably. Small businesses are concerned about new economic policy in the new administration and a further spread of COVID-19 that is causing renewed government-mandated business closures across the nation.

 

The Jobs and Labor Turnover Survey (JOLTS), showed the number of job openings in the US declined by 105 thousand to 6.527 million in November, remaining below its pre-pandemic level of 7 million. Job openings decreased in durable goods manufacturing by 48K, information by 45K, and educational services by 21K. The number of job openings was little changed in all four regions. Meanwhile, the number of hires rose by 67K to 6.0 million, while total separations including quits, layoffs and discharges, and other separations jumped by 271K to 5.4 million.

 

The Consumer Price Index in China closes out the day. In December the CPI rose by 0.2% y/y, after a 0.5% fall a month earlier and compared with market consensus of a 0.1% gain. Food prices increased 1.2%, reversing from a 2.0% fall in November, amid adverse weather and rising demand ahead of the Lunar New Year festival. Pork prices fell less after soaring last year due to the African Swine outbreak. Also, there were rises in cost of health, education, and other goods and services. At the same time, prices of household goods and services were flat for the second straight month, while cost fell for transport, rent, fuel, and utilities, and clothing. On a monthly basis, CPI increased by 0.7%, the most since February, after a 0.6% fall in November. For full 2020, consumer prices rose 2.5%.

 

Wednesday

Continuing the inflation data this week the day begins with the German consumer price index CPI. In January, the CPI increased 1% y/y, the first rise in seven months, preliminary estimates showed. The temporary reduction in the VAT rate aimed to revive the economy during the coronavirus crisis ended on December 31st. Higher CO2 prices and an increase in minimum wages from January also accounted for the CPI rise. On a monthly basis, inflation increased to 0.8% from 0.5%. The harmonized index went up 1.6% year-on-year and 1.4% month-over-month.

 

In the US, CPI increased 0.4% m/m in December, higher than 0.2% in November and in line with expectations, mainly driven by an 8.4% increase in the gasoline index, which accounted for more than 60% of the overall increase. The other components of the energy index were mixed, resulting in an increase of 4% for the month. The food index rose 0.4% in December, as both the food at home and the food away from home indexes increased 0.4%. Other increases were also seen for shelter, apparel, and new vehicles. Furthermore, Core CPI, which excludes volatile items such as food and energy, rose 0.1% m/m, following a 0.2% increase in November and matching market expectations.

 

Wholesale Inventories increased 0.1% m/m in December, following a flat reading in November. Nondurable goods inventories rebounded while durable ones stalled, following a 0.7% rise in October.

 

The day closes with the Westpac Consumer Confidence Index. Consumer Confidence in Australia decreased to 106.99 points in January from 112 points in December.

   

Thursday

The focus on a light data day will be US Initial and Continuing Jobless Claims. In the last week of January, 779K Americans filed for unemployment benefits, a significant decrease to from the previous week’s level of 812K, and also well below market expectations of 830K. It marks the third straight week of falls in claims and the lowest amount since the last week of November, however, still far above pre-pandemic levels of around 200K.

 

Friday

The UK Trade Deficit rose to GBP 5 billion in November from an upwardly revised GBP 2.3 billion in October. It was the largest monthly trade shortfall since April of 2019. Imports surged 8.9% to GBP 55.3 billion, as an 11.9% jump in purchases of goods more than offset a 1.1% decrease in acquisitions of services. Exports rose at a slower 3.9% to GBP 50.3 billion, as goods shipments increased 7.5% while services sales were down 0.3%.

 

UK Industrial Production edged down 0.1% m/m in November, compared to market forecasts of a 0.5% gain. It is the first decline in industrial output since a record 19.6% plunge in April, as the country was under another lockdown during the month of November to prevent the spread of the coronavirus. The decline was led by falls in mining and quarrying, electricity and gas and water and waste. In contrast, factory output rose 0.7%, led by transport equipment. Production output was 4.7% below February of 2020, the previous month of “normal” trading conditions, prior to the coronavirus pandemic. Year-on-year, industrial output sank 4.7%.

 

Eurozone Industrial Production rose 2.5% m/m in November 2020, a seventh consecutive month of growth and compared with market expectations of a 0.2% increase. Capital goods output jumped 7.0% and intermediate goods production advanced 1.5%. Meanwhile, output of durable consumer goods, such as televisions and washing machines, dropped 1.2%, after a 1.5% rise in the previous month. Production also fell for both energy and non-durable consumer goods.

 

The University of Michigan’s Preliminary Consumer Sentiment for February will close out the week. In January the index was revised lower to 79 from a preliminary of 79.2 and below 80.7 in December. There was a decrease in the assessment of current economic conditions, while the expectations component improved slightly. On the price front, both one-year inflation expectations and five-year were unchanged at 3% and 2.5%, respectively. “The overall level of the Sentiment Index has shown only relatively small variations since the pandemic started, averaging 81.5 in 2020, marginally above January’s 79.0. Needless to say, sentiment levels were well below the average of 97.0 from 2017 to 2019. Importantly, the level of key confidence indicators remained well above prior cyclical lows despite the sudden historic collapse in economic activity.”

Morning Markets Brief 2-8-2021

Summary and Price Action Rundown

Global risk assets are building on last week’s gains as optimism continues to build for an impending economic recovery amid upbeat growth signals, upsized US fiscal stimulus, and expanding Covid-19 vaccine distribution. S&P 500 futures indicate a 0.3% higher open after the index advanced 4.7% last week to put gains for the year at 3.5%. Equities in the EU are also continuing upward, while Asian stocks posted robust gains overnight. A broad dollar index is hovering below its recent two-month highs, while longer-dated Treasury yields are continuing to edge higher, with the 10-year at 1.19%. Brent crude prices are extending their gains above $60 per barrel amid rising optimism over demand.

 

Secretary Yellen Advocates Bold Pandemic Relief Bill

The Biden administration and Congressional Democrats move ahead with unilateral approach to the American Rescue Act as Treasury Secretary Yellen makes the case for super-sized stimulus. Investors are noting Secretary Yellen’s strong advocacy for the $1.9 trillion plan on Sunday’s news programs, in which she indicated that a return to full employment would be possible next year with this degree of muscular fiscal support. This follows a series of maneuvers designed obviate the need for GOP support for the program and some high-profile criticism from ex-Treasury chief Larry Summers, who expressed concerns that overdoing stimulus would overheat the economy and spur inflation. Late last week, the Senate approved 51-50 a measure, with minor amendments, allowing Democrats to pass Biden’s relief plan through budget reconciliation. Votes for the measure fell strictly along partisan lines, with Vice President Harris casting the tie-breaking vote. Small amendments, including holding off on minimum wage increases and ensuring that wealthy Americans do not receive the $1400 stimulus payments, were added during the session, though none remain binding. The measure now returns to the House for a vote on the amended measure and, if passed, will proceed to the indicated committees for finalization by March. On Friday, President Biden emphasized that the Covid-19 relief bill stands as a higher priority than bipartisanship, offering his strongest criticism of Republican lawmakers since taking office and indicated that the Democrats would go it alone. if necessary, to get needed aid to struggling Americans. Speaker Pelosi has stated that the budget resolution will be brought to the floor later today and that committees will begin working on the specifics of the bill starting today. – MPP view: Though not every penny is likely to make it through, the Biden administration has strongly committed to the upper end of its stimulus spending range and put the marker down that it will aggressively pursue its legislative agenda, and so far it appears that Dem moderates like Senator Manchin are disinclined to stand in the way, all of which is positive for stocks and growth.

Economic Optimism on the Rise Despite Tepid Payrolls

Although this week’s data calendar is relatively light, market participants are increasingly on the lookout for signs that the US recovery is getting a head start. In January, the US economy added 49K jobs, missing the consensus estimate of a 100K rise but still representing an improvement on December, while the unemployment rate dipped from 6.7% to 6.3%. The nonfarm payrolls print was preceded last week by Thursday’s initial jobless claims tally, which showed that 779K Americans filed for unemployment benefits in the last week of January, a significant decrease to from the previous week’s level of 812K, and also well below market expectations of 830K. It marked the third straight week of falls in claims and the lowest amount since the last week of November but remains far above pre-pandemic levels of around 200K. And on Wednesday, payroll provider ADP estimated that private businesses hired 174K workers, handily outpacing market expectations of an increase of 49K, and recovering from a 78K decline in December. Other US data last week was also solid, with January Purchasing Managers’ Indexes (PMIs) and December factory orders and durable goods reflecting robust activity. January consumer price (CPI) data and weekly jobless claims figures will be in focus this week. Regarding the former, recent inflation readings have been punchier than expected though January’s CPI reading is expected to show little change from December. Market-based gauges of inflation expectations are at multi-year highs, however, revealing investor expectations of rising price pressures. – MPP view: We think inflation data will be noisy after the distortions of 2020 but that the pandemic will, over the medium to longer term, have an inflationary sting in the tail. We expect the Fed to hold to its commitment to be permissive rather than proactive in its policy posture toward the first wave of post-pandemic price pressures that are likely to materialize in the second half of this year. We expect that, around the summer or fall, the Fed passing the test of its new inflation targeting policy will restrain dollar appreciation and keep the Treasury yield curve biased toward steepening.   

Additional Themes

Earnings Season Continues to Provide Little Direction for Stocks – Fourth quarter (Q4) corporate results continue to be overshadowed by overarching market themes, like the GameStop episode and the brightening growth outlook, and today’s calendar is light. This week features the last major concentration of reports, with Twitter, GM, Coca-Cola, Disney, and Expedia among the most high-profile. With 295 of the S&P 500 companies having reported Q4 results so far, 74.5% have topped sales expectations and 81.0% have beaten earnings estimates, continuing the pandemic trend of overly conservative analyst forecasts. To this point, however, upside surprises on these quarterly figures have provided scant support for stock prices, though last week featured broadly more upbeat price action amid the waning volatility in short-squeeze stocks and better-than-expected growth data.

Latest Podcast – On this week’s Macrocast, we unpack the complicated jobs report, discuss the Biden stimulus package and its critics, and take a moment to review the Trump economy — including discussing how the jobs numbers would have played out in an alternate universe with no pandemic. We also chat about the potential for a pandemic-related baby bust and its economic impact. Latest Macrocast

Tom Terrific – In his first year with the Tampa Bay Buccaneers, Tom Brady won his seventh Super Bowl in a lopsided contest last evening against the Kansas City Chiefs. He now has more Super Bowl wins than any franchise in the league, with New England and Pittsburgh having six each. – MPP view: Patriots Nation is strongly represented at MPP and we were rooting heavily for Brady, which was slightly bittersweet but far more sweet than bitter. 

Five Minute Macro 1-25-2021

The Biden Relief Bill remains front and center, while investors wait for the Fed on Wednesday and corporate earnings season continues. Finally, data continue to show the uneven effects of the pandemic and US-China tensions continue to percolate.

Five Minute Macro 1-19-2021

In this week’s Five Minute Macro, the Biden administration lays out a two-stage stimulus plan, while political tensions continue to simmer and Fed sends mixed policy signals. Meanwhile, US economic data continues to weaken and China tensions continue to percolate.