- Weekly global market focus
- U.S. ISM manufacturing index expected to post new 37-year highÂ
- U.S. Covid infections fall to 6-month low despite slower vaccination rate
- Q1 earnings season hits second busiest week
Weekly global market focus — The U.S. markets this week will focus on (1) the pandemic statistics, (2) any legislative progress in Washington on President Biden’s $4 trillion job and family plans, (3) Fedspeak as the markets continue to worry about when the Fed might announce a QE tapering, (4) the second biggest earnings week with 139 of the S&P 500 companies reporting, (5) oil prices as the U.S. and Iran continue talks about returning to the nuclear agreement and dropping some sanctions on Iran, and (6) a busy economic calendar with key reports including today’s ISM manufacturing index and Friday’s payroll report.
The Bank of England, at its policy meeting on Thursday, is expected to leave its policy unchanged. The Chinese and Japanese markets this week are closed on Monday through Wednesday. China’s April Caixin manufacturing PMI on Monday night is expected at +0.2 to 50.8 (after March’s -0.3 to 50.6). China’s April Caixin services PMI on Thursday night is expected at -0.1 to 54.2, falling back after March’s +2.8 point increase to 54.3. China’s April trade report on Thursday night is expected to show a +23.5% y/y increase in exports and a +43.9% y/y increase in imports.
U.S. ISM manufacturing index expected to post new 37-year high — The consensus is for today’s Apr ISM manufacturing index to show a +0.3 point increase to 65.0, adding to March’s sharp gain of +3.9 to a 37-year high of 64.7. Any increase today above March’s level of 64.7 would be a new 37-year high.
The extremely high level of the ISM manufacturing index indicates that the U.S. manufacturing sector is bordering on euphoria. The U.S. manufacturing sector is getting a huge boost from the $5 trillion of pandemic aid packages seen over the past year. Also, the sector is looking towards another $4 trillion of fiscal stimulus if Congress passes President Biden’s job and family plans. Manufacturers are looking ahead to the end of the pandemic and the promise of a big increase in exports as overseas economies recover.
U.S. Covid infections fall to 6-month low despite slower vaccination rate — The U.S. administered a daily average of 2.59 million doses over the past week, which is little changed from the previous week but down from the recent peak of about 3.4 million, according to Bloomberg’s Vaccine Tracker. The lower vaccination rate is being caused by reduced demand as many of the people who were eager to get a vaccination already did so. Bloomberg reports that only 78% of the delivered shots have been used, indicating a potential oversupply of vaccine doses.
Bloomberg reports that the U.S. has not yet reached a high enough vaccination rate to break the pandemic. So far, only 31.2% of the U.S. population has been fully vaccinated, and 44.0% of the population has received at least one dose. Bloomberg reports that at the current daily vaccination rate, it will take another three months to cover 75% of the U.S. population. Even a 75% vaccination rate is not enough to provide herd immunity and completely snuff out the pandemic, since Dr. Fauci has said that things could return to normal only after 70-85% of the U.S. population has been vaccinated.
The Covid infection level in the U.S. has fallen significantly in the past two weeks. The 7-day average of new daily Covid infections posted a 2-month high of 71,343 on April 13, but has since eased to a 6-month low of 49,329 as of Saturday. The decline in new infections suggests that the current level of vaccinations and pandemic restrictions is enough to allow new infections to slowly decline.
Overseas, the situation remains dire in India where the 7-day average of daily Covid infections is now at about 390,000, by far a world record and well above the U.S. peak of about 250,000 that was seen last January. New Covid infections in Germany and France remain high but are coming down a little after recent restrictions. Much of South America continues to see a serious problem, with high Covid levels in Brazil, Argentina, and Colombia.
The good news is that vaccinations with the Johnson & Johnson Covid vaccine resumed last week after the week-long shutdown by the CDC to review blood-clot data. The J&J vaccine is expected to become a much bigger contributor to the overall vaccination rate over the next several months, reaching about a 25% share of all vaccines given by August, with Moderna and Pfizer sharing the other 75% share almost equally, according to Bloomberg projections.
Q1 earnings season hits second busiest week — There are 139 of the S&P 500 companies that report earnings this week, down from last week’s peak of 180 companies. Notable reports this week include Pfizer, T-Mobile, and Under Armour on Tuesday; GM, Hilton, and Paypal on Wednesday; and Expedia, Kellogg, and Norwegian Cruise Line on Thursday.
The consensus is for S&P 500 earnings in Q1 to show a very strong gain of +46.3% y/y (+47.4% excluding energy), according to Refinitiv. Earnings so far have been stronger than expected. The current Q1 earnings estimate of +46.3% is far better than expectations of +24.2 that were seen as recently as April 1. Also, of the 303 reporting SPX companies, 87.1% have beaten the consensus, which is much better than the long-term average of 65.3% and the 4-quarter average of 75.5%.
Looking ahead, the consensus is for even stronger S&P 500 earnings growth in Q2 of +60.0%, then easing to +22.7% in Q3 and +15.9% in Q4. On a calendar year basis, the consensus is for strong +32.8% earnings growth in 2021, overcoming the -12.2% decline seen in 2020, according to Refinitiv.
