- Weekly global market focusÂ
- QE tapering talk increases as Harker also calls for tapering talks
- Time is running out for bipartisan talks on Biden job and family proposal
- Pandemic continues to fadeÂ
- Q1 earnings season trickles to a closeÂ
Weekly global market focus — The U.S. markets this week will focus on (1) comments by various Fed officials and whether there is increasing talk about QE tapering, (2) the fading pandemic statistics, (3) any progress this week on President Biden’s $4 trillion jobs and family plan, (4) whether Friday’s PCE deflator report fuels new inflation angst, (5) the Treasury’s sale of $209 billion of T-notes, and (6) the tail end of Q1 earnings season with reports from 15 of the S&P 500 companies.
In Europe, the markets will focus on comments by ECB officials ahead of the next ECB meeting on June 10. The Eurozone economic schedule this week is relatively light, although there are several confidence reports on tap.
QE tapering talk increases as Harker also calls for tapering talks — Philadelphia Fed President Harker last Friday joined Dallas Fed President Kaplan in calling for a discussion on QE tapering. Mr. Harker said, “It is something that, in my mind, we should start to have a conversation about sooner rather than later.”
Until last Friday, Mr. Kaplan was the most vocal proponent of QE tapering, with comments from him on QE tapering almost every day for the past 1-1/2 weeks. In his latest comment on the topic, Mr. Kaplan said last Friday that the Fed should discuss the unintended effects of its emergency tools, and he would rather talk about taper of asset purchases sooner rather than later.
The market last Wednesday was surprised to hear from the April 27-28 FOMC meeting minutes that “a number” of FOMC members suggested that discussions might have to begin at some point on QE tapering. That suggested that the talks about QE tapering could begin as soon as the next FOMC meeting on June 15-16 or certainly by the following meeting on July 27-28.
A survey taken by Bloomberg several weeks ago found that 14% of the analysts surveyed expect the Fed to start tapering its QE program in Q3, and 45% of the analysts expect tapering to begin in Q4. Opportunities for the Fed to announce the tapering could come at the July or September FOMC meetings or at the Fed’s late-August Jackson Hole conference.
The markets are still not expecting the Fed’s first rate hike until early 2023, according to the federal funds futures market and the 3-month Eurodollar futures market.
Time is running out for bipartisan talks on Biden job and family proposal — The White House last Friday released a $1.7 trillion job/infrastructure counter-proposal to Republicans, which was $500 billion below the initial plan’s cost of $2.25 trillion.
The revised White House plan was still far above the $568 billion level offered by a group of Republicans led by Senator Shelley Moore Capito (R-WV). Republicans last Friday panned the White House counter-proposal, saying the proposal was “well above the range of what can pass Congress with bipartisan support.”
There is now only a week left until President Biden’s informal deadline of Memorial Day for bipartisan negotiations to show progress. The negotiations might go past that date for political show, but there is virtually no chance of any breakthrough in a bipartisan talks. Republicans will not agree to spending levels proposed by President Biden, and they will not agree to corporate tax hikes.
Once the show of bipartisan talks is over in a week or two, then House Speaker Pelosi will be free to release her version of the infrastructure/jobs bill. It is not clear whether the size of the House bill will be cut to $1.7 trillion, in line with the revised White House proposal released last Friday. In any case, time is running short for Ms. Pelosi to get the jobs/infrastructure bill passed by the House in time for her self-imposed deadline of the 4th of July.
Pandemic continues to fade — The pandemic continues to fade, with a falling level of new infections and a steady pace of vaccinations. The 7-day average of new U.S. Covid infections fell to an 11-month low of 25,649 on Saturday, the lowest level since June 2020.
Meanwhile, the CDC reports that 39.2% of the U.S. population is now fully vaccinated and that 49.2% of the population has had at least one dose. Bloomberg reports that an average of 1.83 million doses per day have been administered in the past week.
Q1 earnings season trickles to a close — Q1 earnings season is trickling to a close, with only 15 of the S&P companies reporting this week. Notable reports this week include Autozone and Intuit on Tuesday; Nvidia on Wednesday; and Best Buy, Salesforce.com, HP Costco, and Gap on Thursday.
The consensus is for S&P 500 earnings in Q1 to show a very strong gain of +52.8% y/y, according to Refinitiv. Q1 earnings have been much stronger than expected. The current Q1 earnings estimate of +52.8% is far better than expectations of +24.2% that were seen as recently as April 1. Also, of the 476 reporting SPX companies, 87.2% have beaten the consensus, which is much better than the long-term average of 65.3% and the 4-quarter average of 75.5%, according to Refinitiv.
Looking ahead, the consensus is for even stronger S&P 500 earnings growth in Q2 of +62.2%, then easing to +23.7% in Q3 and +16.4% in Q4. On a calendar year basis, the consensus is for strong +35.6% earnings growth in 2021, overcoming the -12.2% decline seen in 2020.
