Market Reports

Five Minute Macro 5-10-2021

Despite mixed growth signals, Treasury yields remain steady, while there continues to be more and more signs of inflationary pressures. Meanwhile, the disappointing jobs number bolsters the Fed’s dovish guidance, which is contributing to a weakening of the dollar. Finally, Dogecoin follies highlights the conundrum the sector poses for regulators.

Afternoon Markets Brief 5-7-2021

 Summary and Price Action Rundown

US equities hit new records today as disappointing US jobs data eased overheating fears and reinforced the accommodative policy posture of the Federal Reserve, keeping Treasuries tame and sinking the dollar. The S&P 500 advanced 0.7% today to surmount last week’s record high, taking year-to-date gains to 12.7%. The tech-heavy Nasdaq outperformed as a hint of doubt crept in over the growth outlook following the lagging nonfarm payroll data. The Euro Stoxx Index also registered solid gains while Asian bourses were mixed overnight. Longer-dated Treasury yields fluctuated but closed little changed, with the 10-year edging up to 1.58%, while the dollar fell back to a more than two-month low. Oil prices continued to chop near the top of their recent range, with Brent crude closing just above $68 per barrel.

April Jobs Figures Miss Estimates by a Country Mile

After a series of economic readings earlier this week that were strong but slightly below expectations and encouraging initial jobless claims yesterday, the nonfarm payroll tally for last month was a major disappointment, lending further credence to the Fed’s cautious guidance. The US economy added 266 thousand jobs in April, following a downwardly revised 770 thousand rise in March and well below market expectations of 978 thousand, as employers face worker shortages. Job gains were centered in leisure and hospitality, with 331 thousand and local government education with 31 thousand. However, these gains were partially offset by losses in temporary help services, losing 111 thousand and in couriers and messengers, losing 77 thousand. Jobs also fell 18 thousand in manufacturing and 15 thousand in retail trade and were unchanged in construction. In April, nonfarm employment is down by 8.2 million, or 5.4%, from its pre-pandemic level in February 2020. Furthermore, the unemployment rate rose to 6.1%, from 6.0% in March and well above market expectations of 5.8%, as more workers began looking for work and re-entered the labor market. The number of unemployed people increased by 102 thousand to 9.81 million and the number of employed was up by 328 thousand to 151.2 million, while the activity rate rose to 61.7% from 61.5%. Unemployment levels were down considerably from their recent highs in April 2020 but remained well above their levels prior to the coronavirus pandemic.” – MPP view: We’re going to see a lot of fluky numbers like this over the coming months but this downside surprise was consequential. Our base case had been that the market eventually would come around to believing the Fed’s guidance but not until the FOMC had been forced to get more explicit about the taper timeline – we may have to reassess this as today’s data is making more market participants true believers (like we are) in the Fed’s staunchly accommodative posture.

Fed Communications Focus on the Long Path to Recovery

Sagging payrolls underscore the Fed’s cautious messaging, as markets reprice policy expectations to align more closely with the dovish guidance. During a call with reporters earlier this morning, Minneapolis Fed Chair, Neel Kashkari, said it was essential to maintain the current ultra-accommodative monetary policy stance following the dramatically substandard monthly gain in US jobs. The regional Fed president noted that today’s subpar jobs report is an example of just how far the economy remains from the Fed’s employment goals, and he doesn’t “see any reason right now to change something that is working.” Kashkari expressed that the most important step right now is “to rebuild this labor market and put them back to work,” and in the future, “there will be plenty of time to normalize monetary policy,” he said. In a separate speech this morning, Richmond Fed President, Thomas Barkin, speculated that today’s disappointing jobs figure might be attributable to the growing challenges of matching unemployed job-seekers to available positions. He additionally conjectured that the stimulus checks deployed earlier this year are allowing low-wage workers to be “a little choosy” when selecting from available positions.

Elsewhere, Treasury Secretary Yellen spoke during today’s White House press briefing, and stated that while “today’s jobs report underscores the long haul climb back to recovery,…the 266,000 jobs added in April represent continued progress,” and “we should also be encouraged by the ongoing expansion of the labor force.” She continued on to state that “we will reach full employment next year.” Nonetheless, Yellen noted the unevenness present within the labor market recovery, and tied the Biden administration’s $4 trillion fiscal plans to invest in American families and workers to achieving “a strong, prosperous economy this year and in 2022,…[and to] our country’s long-term economic health.” President Biden additionally delivered remarks today and firmly defended his $1.9 trillion pandemic relief package. “When we passed the American Rescue Plan, I want to remind everybody, it was designed to help us over the course of a year, not 60 days,” he said. Markets reacted accordingly to today’s overall discourse, broadly improving as the continuation of fiscal and monetary support was again firmly acknowledged by lead policymakers. Yields on the benchmark 10-year Treasury fell below 1.5% this morning, though bounced back to 1.58%, with futures markets repriced rate expectations to incrementally push back the anticipated timing of hikes. – MPP view: Please see our Market Viewpoint this weekend for a deeper dive into the Federal Reserve outlook.

Additional Themes

MPP Video – Brendan and John discuss the Biden administration and its proposed $1.8 trillion American Families Plan, which is the more social and softer infrastructure-focused. The all-important Fed communications and what a massive earnings season. Enjoy the weekend! MPP Macro Video

MPP Video: The Crypto Dome – Markets Policy Partners enters the Nucleus195 Crypto Dome, joining Adam Blumberg from Interaxis to discuss the shifting regulatory environment for cryptocurrencies, how the Treasury is likely to work in conjunction with the SEC, and what it all means for RIA’s and the individual investor. MPP Crypto Video

Latest Podcast – Well That Number Was Unexpected – Tony, John, and Brendan are joined by Stratton Kirton, Managing Director at HPS, to break down the surprising April jobs numbers. The gang discusses why predictions may have missed the mark and what the numbers mean for the state of economic recovery. They also discuss Treasury Secretary Janet Yellen stepping on the Fed’s toes and the implications of the Biden administration’s COVID-19 vaccine patent decision. Latest Macrocast

First Quarter (Q1) Earnings Season Wraps Up with Stellar Headline Numbers and Muted Market Reactions – The overarching theme of Q1 earnings season was the lack of apparent investor enthusiasm over blockbuster headline results, suggesting that much good news was already priced into stocks. A key subplot was management commentary on rising input costs and the potential for those increases to abate over the coming quarters as supply chains are reassembled. Overall, among the 438 of the S&P 500 companies that have reported, 70.7% have topped sales estimates and 87.0% have beaten earnings forecasts, which are historically high rates of upside surprises. Nevertheless, reporting companies have, on average, experienced a 0.2% decrease in share price in the trading session following the release of their results, and while the S&P 500 is up 2.2% since the start of earnings season.

Looking Ahead – Next week will be a major week of economic data, with the US consumer price index (CPI), the producer price index (PPI), retail sales, and industrial production, initial jobless claims, consumer sentiment, and small business optimism all due. Global inflation readings will also be in focus, with China’s CPI and PPI, along with CPI for Germany and France. Industrial production data for the EU is also on the calendar, amid a recent trend of upside surprises for regional economic figures. The barrage of Fed communications will continue, with Vice Chair Clarida, Fed Governor Brainard, and hawkish outlier Dallas Fed President Kaplan all delivering remarks. OPEC will also issue its monthly oil report with crude prices fluctuating at recent highs.

Looking Ahead – Home on the Range

Millions of pandemic-weary Americans are already eagerly looking forward to their vacations in July and August, but there is one summer getaway on the calendar that market participants are eyeing warily – the Federal Reserve’s late August Economic Symposium in Jackson Hole, Wyoming. Last year, the virtual version of the event took away some of the fun of seeing global central bankers and economists cutting rather uncertain profiles in the great outdoors with creases still visible and their newly bought blue jeans – they hardly look at home on the range! Whether it happens in person or not, this year’s Symposium will be perhaps the most consequential Jackson Hole of Fed Chair Powell‘s tenure, as speculation is increasing that it could be the venue for the announcement of a tapering of the ongoing asset purchase program (aka quantitative easing or QE), which is currently at a rate of $120 billion per month.


In this week’s press conference following the FOMC decision, Chair Powell summarily dispensed with questions about the taper by saying it was still too early to talk about it, though Dallas Fed President Kaplan made headlines today by opining that it will soon be time to discuss the process. Whenever the eventual announcement is, Chair Powell has suggested that it will come well before the actual tapering process begins. All of this has served to deepen speculation around the potential for the June, July, or September meetings to feature taper talk, but with Jackson Hole on the calendar, it seems as though that could also be an auspicious intra-meeting platform for at least the start of the discussion.


Our view is that the Fed holds out for longer and, while the taper is the subject of increasing Fed chatter, the actual announcement is not until much closer to year-end, for a start in 2022. And this assumes that the markets stay placid – downside in equities, a renewed surge in longer-dated Treasury yields, swift upside in the dollar, or a combination thereof, we expect, would stay the Fed’s hand on the taper for perhaps even longer. This would reflect the Fed’s appreciation that financial market conditions can perform some of the tightening for them, even if they do not commit to a taper by the fall but leave open the possibility.


For now, though, markets are reflecting no such price action. Longer-dated Treasury yields are comfortably rangebound, as are the dollar, TIPS inflation breakevens, oil prices – these key macro bellwethers have been trending generally sideways for a month or more. However, we do not expect these to stay in these ranges for much past Memorial Day, as the US economic recovery heats up over the summer, reigniting the upside bias in the Treasury yield curve and the dollar. So rather than spending Jackson Hole communicating to markets that QE tapering is impending, we think it is perhaps more likely that the Fed messaging at the Symposium is instead designed to push back on market anticipation of the taper and, hence, earlier than projected Fed rate hikes. And this is due to the importance of QE as a policy signal which sets the clock ticking to the first rate hike, which is (finger in the wind) about a year after the taper would start.    


Looking ahead to next week, the highlight is Friday’s US nonfarm payroll (NFP) reading for April, which is expected to show a powerful addition of 950k new jobs after March’s similarly robust 916k. ADP private sector employment figures on Wednesday and Thursday’s latest initial jobless claims number will provide some foreshadowing to this highly-anticipated NFP print. The Reserve Bank of Australia has a decision on Tuesday while the Bank of England and Turkey’s central bank meet on Thursday, and readings of global service sector purchasing managers’ indexes (PMIs) are also due throughout the week. Notable earnings reports next week include Pfizer, GM, PayPal.



  • Nonfarm Payrolls & Other US Labor Data
  • Bank of England
  • Reserve Bank of Australia
  • Global Service Sector PMIs
  • Corporate Earnings




Global Economic Calendar: Get a job, sha-na-na-nah sha-na-na-na-nah



Retail sales in Germany increased 1.2% m/m in February, rebounding after 2 consecutive months of declines but below market forecasts of a 2% gain, as the country remained under the coronavirus lockdown with retail partially closed. Compared to February 2020, the month before the coronavirus pandemic in Germany, sales were 9% lower. Year-on-year, retail sales sank 9%, more than forecasts of a 6.3% fall. Sales of food, beverages and tobacco went down 1.6% and sales of nonfood items dropped 13.8%, with textiles, clothing, shoes and leather, goods of many kinds, department stores for instance and furnishings, household appliances and building supplies recording the largest annual falls.


US Construction spending decreased 0.8% m/m to a seasonally adjusted annual rate of $1.52 trillion in February, following a downwardly revised 1.2% rise in January and compared to market expectations of a 1% fall. Spending on private construction went down 0.5%, dragged down by spending on residential, power, health care and office. Also, public construction outlays declined 1.7%, mainly due to highway and street and education.


The ISM Manufacturing PMI jumped to 64.7 in March from 60.8 in February, well above market forecasts of 61.3. It is the highest reading since December of 1983. Faster increases were seen in production, new orders, the highest since January of 2004 and employment and inventories rebounded. Meanwhile, both new export orders and supplier deliveries slowed a bit and price pressures remained elevated. “The manufacturing economy continued its recovery in March. However, Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus impacts limiting availability of parts and materials”, Timothy Fiore, Chair of the ISM said.


Australia’s balance of trade showed a trade surplus narrowed to AUD 7.53 billion, from the previous month’s all-time high of AUD 9.62 billion and shy of market forecasts of AUD 9.7 billion. Exports were down 1%, while imports jumped 5% to a one-year high. Considering the first two months of the year, the trade surplus soared to AUD 17.15 billion from AUD 7.92 billion in the same period of 2020.


The Caixin China General Manufacturing PMI unexpectedly fell to 50.6 in March from 50.9 a month earlier and missing market expectations of 51.3. This was the lowest reading since April 2020, indicating the post-epidemic recovery faltered. Both output and new orders grew at softer rates while employment moved closer to stabilization. Meanwhile, the measure for stocks of purchased items remained in negative territory for the third straight month, and the measure for quantity of purchases plunged into a contraction. The gauge for suppliers’ delivery times increased, though it was still in negative territory. On the price front, inflationary pressures intensified, with both input costs and output charges rising at steeper rates. Meantime, export sales returned to growth as foreign demand improves amid an acceleration in global COVID-19 vaccinations. Finally, the level of positive sentiment was among the highest seen over the past seven years.



The Reserve Bank of Australia left its cash rate unchanged at a record low of 0.1% during its April meeting, as widely expected. Policymakers reaffirmed their commitment to maintaining highly supportive monetary conditions until at least 2024 when actual inflation is sustainably within the 2 to 3% target. The board also remains committed to the 3-year government bond yield target of 10 basis points. Later in the year, it will consider whether to retain the April 2024 bond as the target bond or to shift to the next maturity. It added that the second $100 billion government bond purchase program will start next week. Regarding CPI inflation, it is expected to rise temporarily because of the reversal of some COVID-19-related price reductions. On rising housing prices, the bank said it will monitor trends in borrowing carefully and it is important that lending standards are maintained.


Canada’s balance of trade showed the surplus narrowed to CAD 1.04 billion in February from a downwardly revised CAD 1.21 billion in the previous month. This was the first time since late 2016 that the trade balance was in a surplus position for two consecutive months. After a surge of 8.2% in January, total exports decreased by 2.7% to CAD 49.9 billion in February, a level 4.1% higher than that set in February 2020. The largest declines were observed in the metal and non-metallic mineral products, motor vehicles and parts, and aircraft and other transportation equipment and parts product sections. Total imports decreased by 2.4% in February to CAD 48.8 billion, their lowest level since August 2020. Imports of motor vehicles and parts had the largest decline, followed by energy products.


The US balance of trade showed the deficit widened for the second month to $71.1 billion in February from a revised $67.8 billion in the previous month, slightly above market expectations of a $70.5 billion gap. It is the biggest trade deficit on record as imports fell less than exports, in another sign the American economy recovers faster than its trading partners from the pandemic hit. The goods deficit widened by $2.8 billion to $88 billion, and the services surplus shrank by $500 million to $16.9 billion. Exports went down 2.6% to $187.3 billion, mainly due to other industrial machinery, civilian aircraft, semiconductors, foods and beverages, autos and travel services. Imports fell at a slower 0.7% to $258.3 billion, due to passenger cars and pharmaceutical preparations. The goods deficit widened with China and Canada but narrowed with Mexico.


US factory orders dropped by 0.8% m/m in February, the first decrease since April’s record contraction and compared with market expectations of a 0.5% drop. Demand for transport equipment declined by 1.8%, due to vehicles, defense aircraft, and ships and boats. Demand was also down for machinery, fabricated metal products, primary metals, and computers and electronic products.



The ADP Employment Report showed private businesses in the US hired 517K workers in March, compared to market forecasts of 550K. It is the highest increase in private payrolls in 6 months. The service-providing sector created 437K jobs led by leisure and hospitality (169K); trade, transportation & utilities (92K); professional and business (83K); education and health (68K); other services (22K); and financial activities (9K) while the information sector lost 7K jobs. The goods-producing sector rebounded and added 80K jobs, due to manufacturing (49K) and construction (32K) while natural resources and mining shed 1K jobs. Private payrolls in midsized companies were up by 188K, small firms by 174K and large companies by 155K.


The ISM Services PMI jumped to 63.7 in March from 55.3 in February, well above forecasts of 59. The reading pointed to the strongest growth in services activity ever. Faster increases were seen in business activity, new orders and employment while price pressures intensified. Also, both inventories and new export orders slowed. “Respondents’ comments indicate that the lifting of coronavirus pandemic-related restrictions has released pent-up demand for many of their respective companies’ services. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to cause supply chain disruption” says Anthony Nieves, Chair of the ISM.


The Caixin China General Services PMI picked up to a three-month high of 54.3 in March from 51.5 in the previous month, amid a further recovery from the pandemic. The latest reading was also slightly higher than the series average, as domestic demand strengthened, with new orders expanding the most since December 2020. Also, employment returned to growth, while backlogs increased slightly following falls in the prior four months. Meantime, export orders fell for the second straight month, though the contraction was limited. On the cost front, inflationary pressure increased, with input rising for the ninth straight month while output prices expanding for the eight months in a row. Looking ahead, sentiment strengthened to its highest in over a decade amid hopes of post-pandemic recovery.



Eurozone’s retail sales rose 3.0%m/m in February, rebounding from a 5.2% slump in January and compared with market expectations of 1.5% growth. Sales of non-food products jumped 6.8%, partially recovering from a 9.9% contraction in the previous month, with on-line trade advancing only slightly by 0.4%. In addition, sales of fuel climbed 3.7%, while food, drinks, tobacco trade declined 1.1%. On a yearly basis, retail sales shrank 2.9%, less than market consensus of a 5.4% plunge. Domestic trade could see a sharp decline during March in a disappointing end to the first quarter for retailers, as many countries in Europe, including Germany, France, Italy and Spain, imposed or extended restrictive measures to contain the spread of coronavirus.


The Bank of England (BoE) is expected to keep policy settings steady. At the BoE’s March monetary policy meeting, officials unanimously voted in favor of holding the current benchmark interest rate at the record low of 0.1% and left the pace of its asset purchase program unchanged. Following yesterday’s commentary from Fed Chair Powell, BoE officials similarly underlined improving economic conditions, citing better-than-expected output in January, new stimulus initiatives by the UK and US governments, and optimism surrounding Prime Minister Johnson’s rapid vaccination program. Meeting minutes also mentioned “upside risks” seven times compared to the two times in last month’s release. The signal to hold asset purchases (aka quantitative easing or QE) at the current pace aligns with the Fed’s current policy approach, and stands in contrast with the European Central Bank’s (ECB) positioning, as last week the ECB indicated it will seek to curb the undesirable surge in bond yields by increasing the pace of asset purchases. The narrative from US and UK central bankers in maintaining QE levels unchanged is rooted in the belief that rising yields are a reflection of improving growth and inflation outlook, rather than an undesirable tightening in financial conditions, at least to this point. To supplement this position, a report from the BoE’s regional agents showed signs of improving consumer demand and improving outlook for manufacturing by next year. Some economists project the BoE will upgrade economic forecasts significantly during the Monetary Policy Committee’s next meeting in May. UK government bonds continued their selloff, with the 10-year gilt yield rising 5 basis points to 0.88% while the pound edged lower versus the dollar to take its downside to 1.5% from its recent nearly three-year high versus the greenback


Initial and Continuing Jobless Claims will be in focus head of nonfarm payrolls the following day. Last week, the number of Americans filing for new claims for unemployment benefits continued to decrease to 553 thousand from an upwardly revised 566 thousand in the previous week and slightly above market expectations of 549 thousand. It is the third consecutive week with claims below 600 thousand and a fresh low since the pandemic hit helped by improvement in the economy due to increased vaccine rollout. Furthermore, 121 thousand people received Pandemic Unemployment Assistance, down from 133 thousand in the previous week. Additionally, continuing jobless claims increased to 3660 thousand the week ending April 17 from 3651 thousand in the previous week. Finally, in the week ending April 10, 16.559 million Americans received some sort of Federal assistance, down from 17,405 million in the previous week and continuing its downward trajectory after being above 20 million in the worst of the pandemic.


Nonfarm labor productivity fell by an annualized 4.2% in the last quarter of 2020, less than initial estimates of a 4.8% decline. Still, it remains the biggest decline in productivity since the second quarter of 1981. Output increased 5.5% and hours worked rose 10.1%. Year-on-year, nonfarm business sector labor productivity increased 2.4%, reflecting a 2.6% decline in output and a 4.9% drop in hours worked. It compares with initial estimates of a 2.5% rise.


China’s balance of trade showed a trade surplus narrowed to $13.8 billion in March, from $20.0 billion in the same month of the previous year and far below market expectations of $52.05 billion, amid an improving global demand and higher commodity prices. Exports soared 30.6% and imports jumped 38.1% to an all-time high, at the fastest pace since February 2017. The country’s trade surplus with the US declined to $21.37 billion in March from $23.01 billion in February. Considering the first three months of the year, the trade surplus widened sharply to $117.1 billion, from $12.8 billion in the same period of 2020, as exports and imports soared from last year’s record slumps.



The German balance of trade showed a narrowed surplus to €18.1 billion in February from €20.3 billion a year earlier. Exports declined 1.2% y/y to €107.8 billion while imports rose 0.9% to €89.7 billion. Sales to the EU countries edged down 0.3%, of which those to the Eurozone declined 0.9%. Imports from the EU rose 0.9%, mainly due to countries outside the Eurozone while those from the Eurozone fell 0.6%. Shipments to third countries were down 2.3%, namely to the US while those to China surged. Imports from third countries were up 1.1%, namely from China while those from the US sank 12.6%.


The Canadian employment report showed the economy created 303 thousand jobs in March, above market expectations of a 100 thousand rise, bringing employment to within 1.5% of its pre-COVID February 2020 level. Both full-time (+175,000; +1.2%) and part-time (+128,000; +3.9%) employment increased. Self-employment rose for the first time in three months, up 56,000 (+2.1%), but remained 5.4% (-156,000) below its pre-COVID February 2020 level. Employment in retail trade rose by 95,000 (+4.5%) in March, fully recouping the remainder of the losses sustained in January. The number of people working in information, culture and recreation also went up (+62,000; +9.4%) for the first time since September. There were 21,000 (+2.4%) more people working in accommodation and food services. Employment increased in most provinces, namely Newfoundland and Labrador, Prince Edward Island, Quebec, Ontario, Manitoba, Alberta and British Columbia.


The Ivey Purchasing Manager’s Index in Canada jumped to 72.9 in March from 60 in the previous month and above market estimates of 60.5. It was the highest reading since March of 2011 and the second-highest since the survey began in 2000, pointing to a strong improvement in the economic activity. Solid rises were seen in employment (62.7 vs 54 in February) and inventories (61.7 vs 57.8). Meanwhile, deliveries were slower than the previous month (39.6 vs 38.6) while prices eased (75.1 vs 80.2).


The US employment report showed the economy added 916K jobs in March, the most in 7 months, following an upwardly revised 468K in February. It compares with market expectations of 647K, amid easing business restrictions, falling coronavirus infection rates, a fast vaccine rollout and continued support from the government. The largest job gains occurred in leisure and hospitality, 280K, public and private education, 190K, and construction 110K. Employment also increased in professional and business services 66K, manufacturing 53K and transportation and warehousing 48K. Still, that leaves the economy about 8.4 million jobs short of the peak in February of 2020, as the job market still has a long way to go before fully recovering from the pandemic shock. Fed Chair Powell recently said there’s a good reason to expect job creation to pick up in the coming months although it will take some time to get back to maximum employment.


The unemployment rate fell to 6% from 6.2% in the previous month, the lowest rate in a year and in line with market expectations. The rate has been falling steadily in recent months after reaching an all-time high of 14.8% in April last year but many believe it has been understated by people misclassifying themselves as being “employed but absent from work”. The number of unemployed people fell by 262 thousand to 9.710 million while the number of employed rose by 609 thousand to 150.85 million. The labor force participation rate edged up to a 3-month high of 61.5 percent from 61.4 percent. Fed Chair Powell recently said the participation rate is seen expanding and holding the unemployment rate up which would be a highly desirable outcome.

Looking Ahead – Wile E Coyote

Looking Ahead – Wile E. Coyote


We at Markets Policy Partners do not claim to be experts on cryptocurrency – if we were, we would probably be on a yacht somewhere rather than pounding out these briefings and reports. But while the crypto crowd can give you their latest prediction for the price outlook of Dogecoin or the merits of Ethereum versus XRP, they may not have as good a handle on how US policymakers are reorienting their approach to these assets under the Biden administration.


As we wrote this morning, Bitcoin, the flagship cryptocurrency, is trading below $50k today, which represents a 22% loss from its all-time high of nearly $64k last Thursday, with the ongoing downtrend accelerating over the past day amid news of the Biden administration’s reported proposal to hike the capital gains tax rate to 39.6% for those earning more than $1 million. These worries were compounded by rumors on Twitter yesterday that Treasury Secretary Yellen will advocate a capital gains rate of 80% on cryptocurrencies. Other popular cryptocurrencies, like XRP and Ethereum, are experiencing similar corrective episodes after their steep valuation gains year-to-date.


We doubt that Secretary Yellen will propose such a lofty capital gains tax rate targeting Bitcoin and cryptocurrencies – in fact, Treasury officials may well have had a chuckle over this probably unfounded report at their senior staff meeting this morning. But we cannot rule out its veracity, and neither should crypto speculators. US policymakers have all kinds of policy justifications for a more heavy-handed approach to an asset class that is associated with tax evasion, money laundering, and other illicit activities, not to mention being a vehicle for rampant speculation, securities fraud, and investor protection problems. It is certainly to the benefit of policymakers to keep the crypto crowd on notice, as rumors like this might on the margin curb some of the ongoing criminal behavior in this space and cool the speculative frenzy through the sentinel effect (i.e. Uncle Sam is watching). For US economic policymakers, a rough patch for Bitcoin also brings the benefit of suppressing the animal spirits that have been running wild in financial markets and have threatened to make the Fed’s job of maintaining appropriately easy monetary conditions harder to achieve without risking an adverse degree of asset price froth.


Over the past few months, we had pondered whether Bitcoin and crypto in general could buck the downtrend in other “bubble basket” assets (like Tesla and the ARK Innovation ETF) and keep diverging to the upside, but they finally appear to have had a Wile E. Coyote moment over the past week, where they stop running, look down, and drop. News that the Treasury will be more proactive in taxing cryptocurrencies should come as no surprise, but it seems to have for some – and we suspect that the process of mainstreaming Bitcoin will involve further meaningful challenges to its valuation.

Plus, investors are well aware that big, splashy IPOs/listings at market highs (like Coinbase last Wednesday) can mark an inflection point (Blackstone’s IPO in 2007 was a last hurrah for the financial sector, as was the Glencore IPO in 2011 for commodity prices). Yes, these are big cyclical industries and it is clear that cryptocurrencies play by a different set of market rules, but it would not be surprising if we look back on the past week as a turning point (at least an interim turning point) for the digital asset complex.

Looking ahead to next week, Thursday’s Federal Reserve decision is the headliner, which will be preceded by a Bank of Japan meeting overnight Monday, with both expected to retain their current dovish settings. On the data front, US personal income, spending, and prices (the Fed’s favored inflation metric) for March are due on Friday, with EU and German preliminary Q1 GDP prints earlier in the week, along with EU regional economic confidence gauges, China’s March PMI, and durable goods and jobless claims in the US. Meanwhile, corporate earnings reporting will feature the heaviest concentration of mega-tech companies, like Amazon, Microsoft, Google, Facebook, Apple, Twitter, and Tesla, which bring a greater potential for these reports to drive broader market sentiment.


  • Federal Reserve Meeting
  • Bank of Japan Meeting
  • US Personal Income, Spending & Prices
  • EU/German Q1 GDP
  • China PMI
  • US Initial Jobless Claims
  • Corporate Earnings


Global Economic Calendar: Fed decision time



The Ifo Business Climate indicator for Germany rose to 96.6 in March, the highest level since June 2019 and comfortably above market expectations of 93.2. Companies became optimistic regarding developments over the coming months, while their assessments of the current situation were also better. Sentiment among manufacturers improved firmly as export expectations exploded due to strong demand from the US and China, while that among service providers also rose markedly. Business confidence among constructors was also back in positive territory and that among traders became less negative.


US Durable Goods Orders unexpectedly sank 1.1% m/m in February, compared to market forecasts of a 0.8% increase. It is the first decline in durable goods order in ten months, mainly due to a 1.6% drop in transportation, namely motor vehicles. Other declines were also seen in orders for computers and electronic products, fabricated metals, communication equipment, machinery and primary metals. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.8%, reversing from a 0.6% gain in January. Excluding transportation, new orders decreased 0.9% and excluding defense, new orders fell 0.7%.


The day closes with a Bank of Japan Interest Rate Decision. The BoJ left its key short-term interest rate unchanged at -0.1% and maintained the target for the 10-year Japanese government bond yield at around 0% during its March meeting, as widely expected. Meantime, the central bank decided to widen the band at which it allows long-term interest rates to move around its 0% target, amid efforts to make its ultra-easy policy more sustainable on the back of the COVID-19 pandemic and a continued battle to boost inflation. Policymakers removed their explicit guidance to buy ETF at an annual pace of roughly JPY 6 trillion, saying they would buy it when necessary and maintain a JPY 12 trillion ceiling for annual purchases. The BoJ also mentioned that it would allow long-term rates to move up and down by 0.25% from its target, instead of by 0.2%.



The S&P CoreLogic Case-Shiller 20-city home price index in the US jumped 11.1%y/y in January, following an upwardly revised 10.2% growth in the previous month and slightly above market expectations of 11%. It is the biggest annual increase in house prices since March of 2014. Phoenix, Seattle, and San Diego continued to report the highest year-over-year gains among the 20 cities in January. Considering the whole nine US census divisions, house prices increased 11.2%, the highest price growth since February of 2006 and following a 10.4% rise in November. House prices have been rising at faster pace in the past year amid strong house demand supported by low interest rates, the need of more space and as many people moved away from the big cities due to the coronavirus pandemic.


Retail sales in Japan declined by 1.5% y/y in February, following a 2.4% drop a month earlier and compared with market expectations of a 2.8% fall. Sales continued to fall for: general merchandise, fabrics, apparel & accessories, food & beverages, fuel, and medicine & toiletry. On the flip side, sales grew for motor vehicles, machinery & equipment, and others. On a monthly basis, retail sales rose by 3.1% in February, the most since June 2020.


The annual inflation rate in Australia unexpectedly was at 0.9% in Q4 2020, compared with market consensus and the prior quarter’s figure of 0.7%. This was the highest reading in three quarters, amid a rise in tobacco excise and the introduction, continuation, and conclusion of childcare fee subsidies and home building grants. Prices increased faster for both alcohol & tobacco and education. Also, there were rises in cost of food, furnishings & household equipment, and insurance & financial services. At the same time, cost of recreation & culture was flat. In contrast, cost fell further for housing, transport, clothing & footwear, and communication. On a quarterly basis, consumer prices also went up by 0.9%, after a 1.6% gain in Q3 and above forecasts of a 0.7% gain.



The GfK Consumer Climate Indicator in Germany increased to -6.2 heading into April, the highest level for five months and well above market expectations of -11.9, due to the gradual easing of lockdown measures to contain the rapid spread of coronavirus. However, the survey took place from March 3rd to 15th, before the extension of German lockdown until April 18th and the temporary suspension of Astra Zeneca COVID-19 shots. The income expectations sub-index increased 15.8 points to 22.3, while the gauge for economic outlook rose 9.7 points to 17.7, the willingness to buy indicator increased 4.9 points to 12.3, and consumer climate rose 2.8 points to -12.7 “Another hard lockdown will seriously damage the consumer climate and the current improvement will remain a flash in the pan”, GfK consumer expert Rolf Buerkl said.


Retail sales in Canada dropped 1.1% m/m in January, less than market forecasts of a 3% decline. Still, it marks the second consecutive month of falls in retail sales as the resurgence of COVID-19 cases led to the reintroduction of physical distancing measures, which directly affected the retail sector. Approximately 14% of retailers were closed at some point in January for an average of three business days. Sales at motor vehicle and parts dealers contracted 1 percent. Core retail sales which exclude gasoline stations and motor-vehicle, and parts dealers also posted their second consecutive decline, falling 1.4 percent because of lower sales at clothing and clothing accessories stores, furniture and home furnishings stores, and sporting goods, hobby, book and music stores. In contrast, sales at gasoline stations rose 0.9%.


Wholesale inventories in the US increased 0.6% m/m in February, after a 1.4% rise in January and above a preliminary estimate of a 0.5% advance. It was the seventh consecutive month of gains in wholesale inventories. Nondurable goods stocks rose 1.1% and durable goods inventories were up 0.3%. On a yearly basis, wholesale inventories advanced 2% in February.


The US Goods Trade Balance showed a record deficit record of $86.7 billion in February from $84.6 billion in January. Exports of goods were $130.1 billion, $5.1 billion less than January exports. The biggest decreases were seen in sales of capital goods, autos, consumer goods and food and beverages. Imports of goods were $216.9 billion, $3.0 billion less than in the previous month, dragged down by a 10.7% slump in purchases of autos.


The main event of the week will be a Fed Interest Rate Decision. Minutes of the last meeting in March showed Fed officials commented on the notable rise in Treasury yields and generally viewed it as reflecting the improved economic outlook, some firming in inflation expectations, and expectations for increased Treasury debt issuance. Also, the outlook for inflation is seen broadly balanced while supply disruptions and strong demand could push it up more than anticipated. The Fed also noted that asset purchases would continue at least at the current pace until substantial further progress toward maximum-employment and price-stability goals would be realized and highlighted the importance of clearly communicating its assessment of progress toward its goals well in advance of a change in the pace of asset purchases. At the meeting, the Fed left the target range for its federal funds rate unchanged at 0-0.25% and signaled a strong likelihood that there may be no rate hikes through 2023.



The unemployment rate in Germany inched down to 4.5% in February, remaining close to the previous month’s five-and-a-half-year high of 4.6%, as the number of unemployed went down 0.3% to 2.01 million while employment was little-changed at 42.16 million. Still, the number of persons in employment in February was down by 1.7%, or 765,000, February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany. The youth unemployment rate, measuring job seekers under 25 years old, declined to 6.1% percent from 6.3%.


Consumer prices in Germany increased 1.7% y/y in March, in line with preliminary estimates and following a 1.3% rise in February. It is the highest inflation rate since February of 2020 as the temporary reduction of the VAT rates ended. Reduced VAT rates came into effect on July 1st 2020 for six months, as part of government measures to support the economy during the pandemic. Higher commodity prices, a CO2 charge introduced at the beginning of the year and a base effect as last year the inflation fell, also contributed to the rise in the CPI. Main increases were seen for energy, namely heating oil, motor fuels, natural gas, fruit and dairy products and tobacco. On a monthly basis, consumer prices were up 0.5%, also in line with early estimates.


The Advanced Estimate of First Quarter GDP is expected to be 6.3%. The US economy expanded an annualized 4.3% on quarter in Q4 2020, higher than 4.1% in the second estimate, mainly due to an upward revision to private inventory investment that was partly offset by a downward revision to nonresidential fixed investment. Still, the expansion was slower compared to a record 33.4% growth in Q3 as the continued rise in COVID-19 cases and restrictions on activity moderated consumer spending. Considering full 2020, the GDP shrank 3.5%, the most since 1946 and following a 2.2% growth in 2019. The outlook for 2021 seems brighter than a few months ago as the vaccination campaign continues, the $1.9 trillion aid bill was approved, and Americans already started receiving stimulus checks.


Initial and Continuing Jobless Claims. Last week the number of Americans filing new claims for unemployment benefits dropped to 547 thousand from 586 thousand and now the lowest level since the beginning of the pandemic in March 2020. Claims came in well below market expectations of 617 thousand, as continued moves to reopen the economy continued to support the labor market, as now 50% of adults are vaccinated. An additional 133 thousand people filed for Pandemic Unemployment Assistance, up from the previous week’s which saw 131 thousand. Furthermore, continuing jobless claims, which measure unemployed people who have been receiving unemployment benefits for a extended period of time, fell to 3.67 million in the week ending April 10th, from 3.71 million in the previous period and in line with market expectations. In total, 17.405 million people received some sort of Federal assistance in the week of April 3, up from 16.913 in the previous week.


Pending home sales in the US fell 0.5% y/y in February, following an upwardly revised 13.5% rise in January. It is the first decline since May as interest rates edged up and supply was near all-time lows. On a monthly basis, pending home sales shrank 10.6%, the second consecutive month of declines. “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory. Only the upper-end market is experiencing more activity because of reasonable supply. Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates”, said Lawrence Yun, NAR’s chief economist.


Japan’s unemployment rate stood at 2.9% in February, unchanged from the previous month and slightly below market consensus of 3.0%. The number of unemployed was flat at 2.03 million in February, while employment rose by 30 thousand to 66.97 million. The non-seasonally adjusted labor force participation rate edged up to 61.9%. Meantime, the jobs-to-application ratio decreased to 1.09 from 1.10. A year earlier, the unemployment rate was at 2.4%.


Industrial production in Japan dropped 1.3% m/m in February, compared with a preliminary estimate of 2.1% decline and following a downwardly revised 3.1% jump a month earlier. The industries that mainly contributed to the decline were motor vehicles, electrical machinery, and information and communication electronics equipment, transport equipment, petroleum and coal products and food and tobacco, pulp, paper and paper products. On a yearly basis, industrial output fell 2.0% in February, after an upwardly revised 5.3% decrease in January.


The official NBS Manufacturing PMI for China rose to 51.9 in March from 50.6 in February, beating market consensus of 51.0. This was the highest reading since December 2020, as factories resumed their production after being closed for the Lunar New Year holiday. Output, new orders, and buying levels all grew the most in three months, export sales returned to expansion and employment rose for the first time in eleven months. As for prices, both input costs and output charges continued to rise at a solid pace. Looking ahead, business sentiment remained upbeat.



The consumer confidence index in Japan increased by 2.2 points from the previous month to 36.1 in March, the highest since February last year, as all main sub-indices have improved: overall livelihood, income growth, willingness to buy durable goods, and employment perceptions.


Germany will release First Quarter 2021 Flash GDP Estimates. The German economy expanded 0.3% on quarter in the last three months of 2020, much better than initial estimates of a 0.1% growth, led by an 8.3% jump in gross capital formation, namely in construction and inventories. Net trade also contributed positively while consumer and government spending shrank due to the second coronavirus wave and another lockdown imposed from November. Year-on-year, the economy contracted 3.7%. Full 2020 drop was revised lower to -4.9% from a preliminary -5.3%. The German economy is seen expanding 3% in 2021, according to government estimates from late January 2021.


The consumer price index in the Eurozone was confirmed at 1.3% y/y in March, the highest since January 2020, driven mainly by higher cost for services and energy. On the other hand, prices rose at a softer pace for non-energy industrial goods and food, alcohol & tobacco. The ECB has said already it is expecting a spike in headline inflation on the back of base effects and temporary factors, warning that it may even exceed the central bank’s target by the end of the year. Meanwhile, the annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco eased to 0.9% from 1.1% in February. On a monthly basis, consumer prices climbed 0.9% in March.


The Eurozone will release the Flash Estimate for First Quarter 2021 GDP. The Eurozone economy shrank by 0.7% in the fourth quarter of 2020, following a record 12.5% expansion in the previous three-month period and an unprecedent 11.6% contraction in the second quarter due to the COVID-19 crisis. Household consumption decreased by 3.0%, and net external demand contributed negatively to the GDP as exports rose less than imports. Meanwhile, fixed investment grew by 1.6% and changes in inventories added 0.6% points to growth. Among the bloc’s largest economies, France, Italy and the Netherlands contracted in the fourth quarter, while GDP growth in Germany and Spain slowed sharply. For the year 2020 as a whole, GDP fell by 6.6%, following a 1.3% expansion in 2019.


US Personal income declined 7.1% m/m in February, down from an upwardly revised 10.1% jump in January and compared to market expectations of a 7.3% drop. It is the biggest fall on record reflecting a decrease in government social benefits to persons. Within government social benefits, “other” social benefits, specifically the economic impact payments to households, decreased. The CRRSA Act authorized a round of direct economic impact payments that were mostly distributed in January.


US Personal spending declined 1.0% m/m in February, following an upwardly revised 3.4% growth in January and compared with market consensus of a 0.7% drop. It was the largest decline in consumer spending since the April 2020 record slump as the cold weather weighed on demand and the boost from a second round of stimulus checks faded. Consumption of durable goods slumped 4.7% and that of non-durable goods dropped 2.0%. Meanwhile, spending on services was up 0.1%. Real PCE fell 1.2% in February, due to decreases in spending for both goods and services.


The personal consumption expenditure price index went up 0.2% m/m in February of 2021, easing from a 0.3% rise in January. Cost of goods increased 0.3%, easing from a 0.6% advance in the previous month, while services inflation was steady at 0.2%. Excluding food and energy, Core PCE edged up 0.1%, slowing from a 0.2%. Year-on-year, the PCE price index advanced 1.6%, the biggest gain in a year as energy cost increased and the core index increased 1.4%.


The MNI Chicago Business Barometer increased by 6.8 points to 66.3 in March, the highest level since July 2018 and above market expectations of 60.7. Among the main five indicators, production saw the largest gain, followed by new orders while order backlogs saw the biggest drop. Through the first quarter the index gained 4.4 points to 63.2, the strongest reading since Q3 2018.

Five Minute Macro 4-19-2021

Stable Treasury yields continues to help rally markets, while peak earnings season continues. Inflation worries remain the main concern for markets and crypto markets see increased volatility, while geopolitical risks continue to simmer.

Morning Markets Brief – Nuanced Start to Earnings Season While Treasuries Take Inflation Data in Stride

Summary and Price Action Rundown

Global risk assets are tentatively higher this morning as corporate earnings reporting season kicks off in earnest today with megabank results, while investors await more key US economic data tomorrow. S&P 500 futures point to slightly higher open after the index rose 0.3% yesterday, posting a new record high and upping year-to-date gains at 10.3%. EU equities are posting modest upside, while Asian equities mostly rallied overnight. Longer-dated Treasuries are holding most of their recent gains, with the 10-year yield trading at 1.63%, which is toward the bottom of its three-week trading range. Meanwhile, the broad dollar index is flat around its lowest level since mid-March. Oil prices are extending this week’s rebound, with Brent crude climbing toward $65 per barrel, amid a continued sideways trading pattern.

Treasury Market Equanimity Continues Ahead of More Key US Economic Data

Longer-dated Treasuries have evidenced encouraging stability in the face of upside inflation and labor market metrics over the past few weeks, though the tests to this newfound placidity will continue. Yesterday’s highly-anticipated data release indicated that the US Consumer Price Index (CPI) rose 0.6% month-on-month in March, up from 0.4% in February and above consensus expectations of 0.5%. Gasoline prices were the biggest contributor to the monthly gain, surging 9.1% in March and responsible for about half the overall CPI increase. Gasoline is up 22.5% from a year ago, part of a 13.2% increase in energy prices. Food was up 0.1% overall, with food away from home the largest contributor at 3.7%. The shelter component also came in above expectations at 0.3%. This pushed the annual rate up to 2.6%, above expectations of 2.5% and well above February’s 1.7%, as the base effects of the pandemic take hold. Furthermore, Core CPI, which excludes the more volatile food and energy components, rose 0.3% m/m and 1.6% y/y, both above expectations of 0.2% and 1.5%.

Despite headline CPI growth of 0.6% marking the fastest increase in consumer prices since 2012, investors were seemingly cognizant of base-effect and other distortions in the data, which Fed officials have repeatedly flagged, as both equity and Treasuries rallied notably following the CPI numbers. Adverse headlines regarding Johnson & Johnson’s Covid-19 vaccine may have also added to the bid for safe haven Treasuries, with solid demand also evident in the afternoon’s auction of $24 billion in 30-year notes.

The next test for the newfound stability of the Treasury yield curve will be tomorrow’s retail sales data and, to a lesser extent, industrial production figures for March, with both expected to surge after a weather-related setback in February. Today’s import and export price figures will be noted, along with commentary from the Fed’s Beige Book report, but none of these are expected to elicit a market response. – MPP view: We still believe that the current Treasury equanimity will run into questions about a taper over the summer, amid an accelerating recovery, unless the Fed begins to message more forcefully about the continuation of QE over the coming months rather than focusing on rate hikes, as the two are inextricably linked and the taper fires the starting gun on the process of accommodation withdrawal. Some analysts are predicting an announcement of the taper as early as the June meeting, whereas we expect the Fed over the next few months to begin to ramp up its signaling of a steady path of QE to year-end.

Mega-Bank Results Mark Official Start to Earnings Reporting Season

The first quarter (Q1) is projected to feature robust earnings growth, but analysts are questioning whether the good news is already reflected in equity prices, while today’s reports from leading US banks will be scrutinized for margin improvement amid rising interest rates. Earnings reporting season kicks off in earnest today, with JPMorgan, Goldman Sachs, and Wells Fargo announcing their results before the opening bell, along with Bed, Bath & Beyond and First Republic Bank also reporting today. Thus far, JPMorgan’s figures have topped estimates but its shares are trading lower in the pre-market as investors ponder the nuances of the report. Yesterday, Fastenal stock lost 1.4%, though off the lows of the morning, after the industrial fastener giant and manufacturing bellwether lagged sales expectations and cited rising production costs and the challenges of meeting a shifting demand preference for mainstream product lines at the expense of safety products in Q1. Tomorrow features a continuation of mega-bank results, including Bank of America and Citi, with other industry mainstays like BlackRock, Delta Airlines, UnitedHealth Group, PepsiCo, Rite Aid, Alcoa, and JB Hunt reporting. Overall, Q1 is estimated to feature earnings growth of 24.5% but analysts anticipate that actual results will better this rate to rival the torrid 26.1% pace in Q3 2018, with a statistical lift from the comparison to last year’s challenged start to the year amid the onset of the pandemic. But with expectations already elevated, the bar to impress investors is higher and analysts have flagged the risk of shrinking profit margins from higher production and operating costs. – MPP view: The last few earnings seasons have delivered quite nuanced price reactions during the course of reporting but have not durably altered the broad equity market trends, and we anticipate that this will pattern will repeat. More traditional economy stocks, which have outperformed in anticipation of the post-Covid recovery, will be more impacted by rising input prices than the tech sector, for instance. Overall, it may be hard for equities to establish clear directionality amid all the noise and crosstalk from these results and management guidance, but we do not think that anything will amount to a gamechanger for either the bull market or the relative advantage of value stocks as the economic recovery builds momentum.    

Additional Themes

Bitcoin Surges Ahead of Coinbase Public Trading Debut – Coinbase, the leading cryptocurrency exchange, will be listed on the Nasdaq today, with analysts noting the expected valuation of approximately $100 billion and noting the somewhat rare direct listing approach, as opposed to the typical IPO process. Meanwhile, increasing the buzz over the Coinbase debut, Bitcoin, the flagship cryptocurrency, is registering an all-time high this morning above $64K. Though anticipation of increasing mainstream acceptance and demand for digital assets is fueling interest in the Coinbase listing and optimism for further upside in cryptocurrency valuations, some analysts express wariness over the heightened regulatory scrutiny that will inevitably follow. Treasury Secretary Yellen has made broadly balanced statements on Bitcoin and cryptocurrencies, but has been consistent in her concerns over their use for tax avoidance and illicit funding purposes. – MPP view: So far, Bitcoin has weathered the 2021 storm for momentum-driven assets admirably, displaying a lack of correlation that investors/speculators are certainly taking note of – the ARK Innovation ETF, Tesla shares, and the SPAC index all remain well off their highs from earlier this year.  

Mixed EU Economic Data – Industrial production for the EU contracted 1.0% month-on-month (m/m) in February, bettering expectations of a 1.3% retrenchment but deteriorating from the 0.6% the prior month. This translates into a -1.6% year-on-year pace, highlighting the persistent challenges to the regional recovery during a period of Covid-19 resurgence and reintroduction of containment measures in various areas. This comes after yesterday’s ZEW economic expectations survey for the EU reflected deterioration in April, slipping from 74.0 the prior month to 66.3, though this remains at the high end of the survey range. Germany’s ZEW outlook reading showed a similar pattern of backsliding, though overall levels remained high. The euro has managed a roughly 2% rally versus the dollar this month as the ongoing uptrend in longer-dated Treasury yields paused, removing a key source of lift for the greenback. – MPP view: We expect the widening economic divergence between the US and EU over the coming months will rekindle dollar strength against the euro to some degree, with the Fed’s decision to taper or not to taper (that is the question) over the summer offering the most salient catalyst for renewed upside pressure on longer-dated Treasuries and the greenback. 

Afternoon Markets Brief – Equities Gain as Treasuries Take Inflation Data in Stride and Rally on Bad Vaccine News

Summary and Price Action Rundown

US equities were mostly higher today as Treasuries rallied amid today’s key inflation data and adverse Covid-19 vaccine news, while investors await tomorrow’s unofficial start to first quarter earnings reporting. The S&P 500 rose 0.3% today, posting a new record high and upping year-to-date gains at 10.3%. The Euro Stoxx Index closed slightly higher while Asian equities were mixed overnight. Longer-dated Treasuries rallied after today’s inflation print delivered only a modest upside surprise and the 30-year auction was well-received (more below), with the 10-year yield declining to 1.62%, which is on the lower side of the recent trading range. Meanwhile, the dollar extended its recent reversal from multi-month highs. Oil prices gained but remained well shy of recent highs, with Brent crude rising toward $64 per barrel after an upbeat OPEC report.

Treasuries Sail Through Today’s Challenges

With a highly-anticipated inflation data release and a 30-year note auction on the calendar, traders were wary of the potential for renewed volatility in Treasuries but the actual price reaction was encouragingly favorable. The Consumer Price Index rose 0.6% month-on-month in March, up from 0.4% in February and above consensus expectations of 0.5%. Gasoline prices were the biggest contributor to the monthly gain, surging 9.1% in March and responsible for about half the overall CPI increase. Gasoline is up 22.5% from a year ago, part of a 13.2% increase in energy prices. Food was up 0.1% overall, with food away from home the largest contributor at 3.7%. The shelter component also came in above expectations at 0.3%. This pushed the annual rate up to 2.6%, above expectations of 2.5% and well above February’s 1.7%, as the base effects of the pandemic take hold. Furthermore, Core CPI, which excludes the more volatile food and energy components, rose 0.3% m/m and 1.6% y/y, both above expectations of 0.2% and 1.5%.

Despite headline CPI growth of 0.6% marking the fastest increase in consumer prices since 2012, investors were seemingly cognizant of base-effect distortions in the data, as both equity and sovereign bond markets were notably indifferent. Traders instead focused on the announcement from US federal health officials calling for a suspension of Johnson & Johnson’s Covid-19 vaccine amid the rare formation of blood clots in a handful of inoculated individuals. The statements rattled market confidence in the nation’s vaccination campaign, as the Dow Industrials opened lower following the announcement. Shares of J&J dropped 3% in premarket but closed only 1.3% lower in today’s trading. Jeff Zients, the White House Covid-19 response coordinator, assured the public that “this announcement will not have a significant impact on our vaccination plan.” Vaccine production from Pfizer and Moderna currently comprise 95% of weekly allocated vaccines with J&J accounting for the remaining 5%. The White House stated the US expects to have enough vaccine supply to meet demand by May despite the suspension.

Meanwhile, longer-dated Treasuries yields declined this morning amid broad market circumspection, and further descended following today’s auction of $24 billion in 30-year debt. The US Treasury offered the 30-year notes at an auction high-yield of 2.32%, falling below the when-issued rate of 2.34%, and the bid-to-cover ratio of 2.47 outpaced the six-month average of 2.28. The benchmark 10-year rate headed to 1.62% after the sale, which is its lowest level since late March. – MPP view: Nice win for the Fed here, with the data very much adhering to their story of a transient boost and market participants clearly looking for an upside surprise that exceeded today’s magnitude. We still believe that the current equanimity will run into questions about a taper over the summer unless the Fed begins to message more forcefully about the continuation of QE over the coming months rather than focusing on rate hikes, as the two are inextricably linked and the taper fires the starting gun on the process of accommodation withdrawal.

OPEC Conveys Upbeat Signals

As some of the world’s wealthiest nations continue to struggle with resurgent Covid-19 rates, the Organization of the Petroleum Exporting Countries reported that a brightening outlook ahead and historic stimulus packages will boost both economic activity and oil demand this year. OPEC increased its 2021 global demand forecast by 100,000 barrels a day and raised its forecast for global economic growth by 0.3 percentage points to 5.4%. The increased demand forecast driven by a better than expected second half of the year forecast is credited to stimulus programs, ease of pandemic lockdowns, and an acceleration in the vaccination rollout mainly in wealthy nations. For context, OPEC and its allies (OPEC+) have maintained disciplined supply cuts that helped support oil prices since the crash last spring but announced a taper of the curbs at their most recent meeting earlier this month. Also, Iran, which is exempt from the cuts of the OPEC+ alliance, increased its output by 137,000 barrels a day in March. China has been importing more oil from Iran in recent months, with Tehran circumventing US sanctions. Investors have been closely monitoring indirect talks between Iran and the US as the two sides consider reviving the 2015 nuclear deal that could possibly have Washington lift those sanctions that currently prevent Tehran from exporting oil at will. Additionally, the cartel slightly reduced its forecast for the 2021 supply growth from outside of OPEC, decreasing its forecast by 30,000 barrels a day. – MPP view: Since they just announced a taper of output curbs, the cartel is certainly incentivized to put the best face on the demand outlook and it is hard to tell whether they are tapering because they can’t keep their members disciplined or whether they really see demand improving so much, we suspect that this report contains some meaningful element of wishful thinking.

Additional Themes

US Small Businesses Grow More Confident – The NFIB Small Business Optimism Index increased to 98.2 in March, the highest in 4 months, from 95.8 in February. While seven of the ten components increased in a positive sign, the uncertainty index increased to 81 from 75 which was the lowest since April last year, as owners struggle if it is a good time to expand their businesses. NFIB Chief Economist Bill Dunkelberg added, “Main Street is doing better as state and local restrictions are eased, but finding qualified labor is a critical issue for small businesses nationwide. Small business owners are competing with the pandemic and increased unemployment benefits that are keeping some workers out of the labor force. However, owners remain determined to hire workers and grow their business.”

SPACs in Focus– Following the SPAC (Special Purpose Acquisition Company) boom of the last few years, the SEC issued new guidance that warrants, which are issued to early investors in the deals, might not be considered equity instruments and may instead be liabilities for accounting purposes. This is likely to disrupt filings for new SPACs until the issue is resolved. The SEC has been raising concerns that investors are not being properly informed on risks related to what are often described as blank check companies. The SEC has been reaching out to accountants last week and the judgment is that it is unlikely the SEC will declare any registration statements effective until they rule on the warrant issue. More than 550 SPACs have filed to go public in 2021, seeking to raise a combined $162 billion, which exceeds the total for all of 2020, during which SPACs raised more than every prior year combined. In an April 8 statement, John Coates, the SEC’s top official for corporate filings, warned against viewing SPACs as a way to avoid securities laws.

However, deals are still getting done through existing SPACs, evidenced by Southeast Asia’s ride-hailing giant Grab announcement that they will go public through a SPAC merger with Alimeter Growth Corp. The deal values that company at $39.6 billion, which would be the largest blank-check merger to date. As part of the deal, SoftBank-backed Grab will receive about $4.5 billion in cash, which includes $4 billion in a private investment in public equity arrangement, managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley’s Counterpoint Global fund and Singapore’s sovereign wealth fund Temasek.

Five Minute Macro 4-12-2021

The stabilization in Treasury yields calms markets while the Biden Administration pushes the Jobs Plan. CPI data tomorrow is in focus along with the beginning  of 1Q 21 earnings season. Finally, geopolitical risks continue to simmer.

Looking Ahead – Procedural Thriller

Looking Ahead – Procedural Thriller


Please join us today at 2:30 PM ET for a call on the Biden Administration’s American Jobs Plan spending proposals and accompanying tax increases. We will be joined by our colleagues at Hamilton Place Strategies, Meghan Pennington and Bryan DeAngelis. Both have extensive experience on Capitol Hill and will have insights on the reconciliation process, as well as perspective on what elements are likely to make their way into the final bill and what may not have the votes. We will also touch on other themes, like US corporations being embroiled in politics, whether over voting rights, pay/unions, taxes, etc.

Please reply to Jeff Easter ( if you would like to join the call.

Some of the key questions we will be pondering are as follows:

The Biden administration has split this massive legislative campaign into two main fronts – physical infrastructure (the American Jobs Plan) and social programs/caring economy (the yet-to-be unveiled American Families Plan). The total price tag of the combined proposals is estimated to be around $4 trillion. What is the reason for this bifurcated approach?

Related to question 1 above, what is the importance of this week’s ruling by the Senate Parliamentarian, which indicated that Democrats could utilize budget reconciliation an additional time to bypass Republican support with a simple Senate majority. The ruling permits Democrats to revisit the fiscal 2021 budget resolution that Congress used to approve the $1.9 trillion relief bill earlier this year, in effect creating three opportunities to use reconciliation to pass a significant portion of the administration’s economic agenda before the midterm elections in 2022.

Related to question 2 above, if the Biden administration goes for an omnibus approach to this next bill, what might they use their third and final budget reconciliation procedure for later this year?

How does this physical infrastructure bill cut across party lines? Is there any hope of a bipartisan segment, such as a smaller infrastructure package free of tax hikes that would potentially draw out some GOP support? Would that be worth doing from a political and policy standpoint?

Senator Manchin has come out with some strong statements on the current American Jobs Plan draft, pushing back on the increase in corporate taxes to 28% and expressing a preference for 25%, while indicating that he is uncomfortable with the overall size of the package and favors a more bipartisan approach. He has a lot of political capital, but does he have enough to truly steer this bill in a radically different direction if in fact that is what he wants to do?  

So much of the focus is on what Senator Manchin wants, but with such a slim majority in the House, will the Blue Dog contingent have a similar power over what makes it in? 

Looking ahead to next week, the macro calendar features some consequential global economic data, with US consumer price inflation figures in sharp focus, while March retail sales and industrial production for the US and EU could highlight their diverging economic fortunes. Economic sentiment gauges for the US, Germany, and Australia are also due, alongside first quarter Chinese GDP and key growth metrics for March.  


  • US Consumer Price Inflation
  • US & EU Retail Sales
  • US & EU Industrial Production
  • Chinese GDP and March Data
  • US Initial Jobless Claims
  • Global Economic Sentiment Surveys


Global Economic Calendar: In bloom



Eurozone’s retail trade slumped 5.9% m/m in January, the steepest decline since last April’s record slump and compared with market expectations of a 1.1% drop, as a number of member states re-imposed or extended coronavirus lockdown measures. Non-food products sales plunged 12%, despite a 7.1% increase in on-line trade, while fuel sales were down 1.1%. Meanwhile, food, drinks and tobacco trade rose 1.1%, compared with a 2.3% growth in December. On a yearly basis, retail sales shrank 6.4% , also the largest decrease since April.

The NAB business confidence index in Australia rose 4 points from the previous month to 16 in February 2021, its highest level since early 2010, with all states and industries reporting gains, except for retail. In addition, the gauge measuring business conditions climbed 6 points to 15, matching the December reading, which was the highest level since August 2018, with all three sub-components improving: trading, profitability and employment. Meantime, capacity utilization and capex continue to rise and have now exceeded pre-virus levels and their long-run averages. Forward orders also rose and are now well above average. “Business conditions and confidence are both at multi-year highs and, importantly, we’re starting to see an uptrend in business hiring and investment activity.” said Alan Oster, NAB Group Chief Economist.

Chinese Balance of Trade showed a trade surplus of $103.25 billion in January-February 2021 combined, rebounding sharply from a $7.21 billion deficit in the same period a year earlier, and easily beating market consensus of a $60 billion surplus, as the economy recovered from the disruption caused by COVID-19, with more factories resuming their production. Exports surged 60.6% y/y, the eighth straight month of increase, while imports rose at a softer 22.2%, the fifth consecutive month of growth. China’s trade surplus with the US for the first two months of the year stood at $51.26 billion, much larger than a surplus of $25.37 billion in the corresponding period a year earlier. To smooth distortions due to the Lunar New Year festival, Chinese customs combine January and February trade data.



The UK Balance of Trade showed the trade deficit fell to £1.6 billion in January, the smallest trade shortfall in five months, as both imports and exports fell at a record pace following the end of EU exit transition period and the reintroduction of COVID-19 restrictions on activity. Imports declined 18.5% to £43.03 billion, with purchases of goods slipping 22.8% and services imports falling 2.4%. Meantime, exports fell at a record 11.2% to £41.40 billion, as goods shipments slumped 18.3% and services sales decreased 0.9%.

The ZEW Indicator of Economic Sentiment for Germany rose by 5.4 points from the previous month to 76.6 in March, not far from September’s 20-year high of 77.4 and slightly above market expectations of 74.0. Optimism surrounding the economic outlook continued to improve, with investors anticipating a broad-based recovery of the German economy and at least 70 percent of the population to be offered a COVID-19 vaccine by autumn. In addition, the survey showed inflation is seen increasing further and long-term interest rates are forecast to be higher.

The Consumer Price Index (CPI) increased 0.4% m/m in February, slightly higher than 0.3% in January but matching market forecasts. The gasoline index continued to increase, up 6.4%, accounting for over half of CPI gain. The electricity, and natural gas indexes also increased and the energy index rose 3.9%. The food index edged up 0.2%. This pushed annual CPI up to 1.7% from 1.4% in January, and in-line with market forecasts of 1.7%. Core CPI, which excludes food and energy, inched up 0.1%, less than forecast of 0.2%, with increases seen in cost of shelter, recreation, medical care, and motor vehicle insurance while falls were seen for airline fares, used cars and trucks and apparel. Annual Core CPI, rose 1.3%, the least since June 2020 and missing expectations of a 1.4% advance.

The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 2.6% to 111.8 in March, just 0.2 points below the December level which was a ten-year high driven by are improving economic conditions and prospects, both domestically and abroad, particularly as they relate to our labor market. Australia’s success in containing COVID-19, the promise of vaccine rollouts bringing an end to the pandemic, and support from stimulatory government policies have all contributed to the sustained lift. All components of the index were higher in March. Confidence around the economic outlook led the gains with the ‘economy, next 12 months’ sub-index up 3.7% and the ‘economy, next 5 years’ sub-index up 2.3%.



Industrial production in the Eurozone rose 0.8% m/m in January, rebounding from a downwardly revised 0.1% fall in December and compared with market expectations of a 0.2% increase. Output of durable consumer goods, such as televisions and washing machines, rose 0.8%, after a 0.9% advance in the previous month. Production also grew for non-durable consumer goods, capital goods, energy and intermediate goods. On a yearly basis, industrial production was up 0.1% in January, ending a 26-month period of contraction and compared with forecasts of a 2.4% decline.

US Import prices increased 1.3% m/m in February, easing from an upwardly revised 1.4% rise in January, which was the largest monthly advance since March 2012. Still, the reading came in above market expectations of 1.2%. Nonfuel import prices increased 0.4%, due to higher prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; capital goods; consumer goods; and automotive vehicles. Meantime, prices for import fuel advanced 11.1%, the most since July 2020, mainly due to an 11.3% rise in petroleum prices and an 11.2% advance in natural gas prices. Year-on-year, import prices jumped 3%, the most since October 2018 as petroleum cost surged.

US Export Prices rose 1.6% m/m in February, after a 2.5% advance in January which was the largest increase since records began in December 1988. It also compared with market expectations of a 0.9% gain. The price index for agricultural exports rose 2.9% and nonagricultural export prices rose 1.5%. Year-on-year, export prices jumped 5.2% in February, the largest over-the-year increase since June 2018.

The Australian Employment Report showed the seasonally adjusted unemployment rate fell to 5.8% in February from 6.4% a month earlier and below market consensus of 6.3%. This was the lowest jobless rate since March 2020, as the economy recovered further from the disruption caused by the COVID-19 shocks. The number of unemployed declined by 69,900 to 805,200 people, as people looking for full-time work was down by 39,800 to 576,700 and those looking for only part-time work decreased by 30,100 to 228,500. Employment grew by 88,700 to a one-year high of 13,006,900, easily beating market estimates of an increase of 30,000, as full-time employment went up by 89,100 to 8,895,000, while part-time employment dropped 500 to 4,111,900. The participation rate stayed at 66.1% and below forecasts of 66.2%. The underemployment rate rose 0.4 points to 8.5%, and the underutilization rate fell 0.1 points to 14.4%. Monthly hours worked in all jobs gained 102 million hours, or 6.1% to 1,767 million hours.



US Retail sales shrank 3% m/m in February, following an upwardly revised 7.6% jump in January and much worse than market forecasts of a 0.5% fall. It is the biggest decline since a record drop in April of 2020 amid unusually cold weather and winter storms in Texas and some other parts of the South region during the month. Biggest decreases were seen in sales at department stores, sporting goods, hobby, musical instruments and book stores, non-store retailers, auto dealers, furniture, miscellaneous retailers, building material and garden equipment, clothing, food services and drinking places, electronics and appliances and health and personal care. In contrast, sales at gasoline stations jumped 3.6%. Retail Sales Excluding Autos decreased 2.7% m/m, much worse than forecasts of a 0.1% fall, amid unusually cold weather in the South.

Initial and Continuing Claims will be in focus after the latest reading featured another disappointing degree of deterioration. Last week, the number of Americans filing for unemployment benefits rose for the second straight week, after a surprise drop to 658 thousand in late March, up to 744 thousand, from the previous period’s revised figure of 728 thousand, and well above market expectations of 680 thousand. The weekly report followed on the heels of news last week that that nonfarm employment rose by 916 thousand in March, the most in seven months, while the number of job openings hit their highest level in two years in February. In total, 18.164 million Americans received some sort of federal assistance, down slightly from 18.215 million.

Industrial production slumped 2.2% m/m in February, following an upwardly revised 1.1% growth in the previous month and missing market expectations of a 0.3% increase. It was the steepest contraction in industrial output since April’s record 12.7% slump, due to the severe winter weather in the south-central region of the country in mid-February. Most notably, some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month. Manufacturing output and mining production fell 3.1% and 5.4%, respectively, the utilities output increased 7.4%.

The NAHB housing market index fell 2 points to 82 in March compared to forecasts of 83. It is the lowest reading in 7 months amid rising interest rates and building materials costs, especially lumber. Current sales conditions for the single-family segment fell 3 points to 87 while sales expectations in the next six months increased 3 points to 83. Also, the prospective buyers’ sub-index was unchanged at 72.

Business inventories went up 0.3% m/m in January, in line with market expectations and easing from an upwardly revised 0.8% growth in December. It was the seventh consecutive month of gains in business inventories. Stocks at manufacturers edged up 0.1%, slowing from a 0.3% advance in the previous month and inventories at retailers fell 0.5%, down from a 1.7% rise. Meantime, stocks at wholesalers rose faster. Year-on-year, business inventories dropped 1.8%.

China’s fixed-asset investment (FAI) surged 35% y/y to CNY 4.52 trillion in January-February 2021, accelerating from a 2.9% advance in 2020 but below market consensus of a 40% growth, as the economy continued to recover from the pandemic crisis. Public investment jumped 32.9% and private investment soared by 36.4%. Investment in the primary industry grew 61.3%, and that in the tertiary industry expanded 34.6% boosted by transport, storage & postal industry; water conservancy, environment and public facilities management industry; education; health and social work; and culture, sports and entertainment industry. Also, investment in the secondary industry jumped 34.1%. In January-February 2020, fixed-asset investment had plunged by a record 24.5% due to the coronavirus pandemic.

China’s 1st Quarter GDP will be released. China has set its 2021 economic growth target at more than 6%, Premier Li Keqiang said in his annual work report on Friday. Chinese leaders announced that the world’s second-largest economy intends to keep consumer price inflation at around 3% and seeks a budget deficit goal of about 3.2% of GDP. The government also aims for an urban unemployment rate of approximately 5.5% and plans to create more than 11 million new urban jobs. In 2020, the country’s GDP expanded 2.3%, the slowest pace in more than four decades.



Eurozone’s trade surplus widened to €6.3 billion in January from €1.6 billion in the corresponding month of the previous year. Still, it was the smallest trade surplus since last April, linked to the reintroduction of coronavirus restrictions in several European countries. Imports declined 14.1% from a year earlier to a five-month low of €156.8 billion. China was the main partner for the EU due to an increase of exports while imports decreased. Trade with the US recorded a significant drop in both imports and exports.

The Eurozone consumer price index is expected to accelerate to 1.3% y/y in March, the highest level since January 2020 and in line with market expectations, a preliminary estimate showed. Energy prices should rebound 4.3%, compared with a 1.7% drop in February, and services inflation is seen picking up to 1.3% from 1.2%. Meanwhile, cost will probably rise at a slower pace for both non-energy industrial goods and food, alcohol & tobacco. The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, is expected to slow to 0.9% in March, below market forecasts of 1.1%.

US Housing starts sank 10.3% m/m to an annualized rate of 1.421 million in February, the lowest reading in six months and well below forecasts of 1.56 million. Housing starts reached the highest rate in 14 years in December as people moved away from the big cities due to the coronavirus pandemic. In February, single-family housing starts were at a rate of 1.040 million, 8.5% below January and the rate for units in buildings with five units or more dropped 14.5% to 372,000. Starts fell in the Northeast, the Midwest and the South but rose in the West.

Building permits tumbled 10.8% m/m to a seasonally adjusted annual rate of 1.682 million in February, down from the previous month’s 15-year high of 1.886 million and below market expectations of 1.75 million. Single-family authorizations plunged 10.0% to a rate of 1.143 million while permits for the volatile multi-segment dropped 12.5% to a rate of 539 thousand. Across regions, permits went down in the South, the West, and the Northeast. Meanwhile, building permits in the Midwest rose 1.2% to 249 thousand.

The University of Michigan’s consumer sentiment was revised higher to a one-year high of 84.9 in March of 2021, up from a preliminary estimate of 83 and above market forecasts of 83.6. It was also the largest increase in consumer morale since May 2013, as households welcomed the third disbursement of relief checks and a better than anticipated vaccination progress. Meanwhile, expectations were revised higher to 79.7 from 77.5 and compared to February’s 70.7. The current conditions gauge rose to 93, above a preliminary of 91.5 and up from February’s 86.2. Inflation expectations for the year ahead decreased to 3.1% from 3.3% in the previous month, matching initial figures; while the 5-year outlook rose to 2.8% from 2.7%, above preliminary figures of 2.7%. “The data clearly point toward robust increases in consumer spending.”