- Weekly global market focus
- Stocks sink as T-note yields continue to rise
- Pandemic improvement stalls
Weekly global market focus — The U.S. markets this week will focus on (1) whether T-note yields continue to rise and cause renewed weakness in stocks, (2) a very busy week for Fedspeak as the markets have largely given up hope for any push-back from the Fed to the recent rise in T-note yields, (3) remote testimony on Tuesday and Wednesday by Fed Chair Powell and Treasury Secretary Yellen before Congressional committees on the quarterly pandemic-aid CARES Act report to Congress, (4) the Treasury’s sale of $209 billion of T-notes this week, (5) oil prices after last week’s -6% plunge, and (6) this week’s busy U.S. economic calendar.
In Europe, the focus will continue to be on the pandemic and vaccination figures after the recent disappointment about the need for continued lockdowns. Chancellor Merkel is seeking another four weeks of lockdowns due to the alarming pandemic infection rates, extending curbs until April 18, according to weekend reporting by Bloomberg.
Wednesday’s March Markit Eurozone manufacturing PMI is expected to be unchanged at the relatively strong level of 57.9 after Feb’s small increase of +0.2 points. Wednesday’s March Eurozone consumer confidence index is expected to show a small +0.3 point increase to -14.5, adding to Feb’s +0.7 point increase.
The ECB on Thursday will publish its monetary economic bulletin. ECB President Lagarde on Thursday will speak at the BIS Innovation Summit on how innovation can support sustainable growth.
In Asia, the markets will continue to watch the Chinese stock market, which has corrected sharply lower in the past month. The Shanghai Composite index last week consolidated above its early-March 3-month low, where the index corrected lower by -10.8% from February’s 5-1/2 year high.
Stocks sink as T-note yields continue to rise — The 10-year T-note yield last Thursday rose to a new 13-month high of 1.75% and closed the week up +10 bp at 1.72%. The 10-year T-note yield this year has soared by +81 bp from the end-2020 level of 0.91%. The yield is now only 20 bp below the pre-pandemic level of 1.92% seen at the end of 2019.
Yields rose last week after Fed Chair Powell at the FOMC’s policy meeting restated his view that the recent rise in yields is the result of expectations that the economy will reach a full recovery and that he would only become concerned if the yield rise becomes “disorderly.”
Also, several FOMC members turned more hawkish in their forecasts in the Fed’s dot-plot forecast for the funds rate. The new dot-plot showed that there are now 4 FOMC members who are expecting a rate hike in 2022, up from one member in the December dot-plot. For 2023, there are now 7 members predicting higher rates, up from 5 members in the December dot-plot forecast. Moreover, 2 of those 7 members are very hawkish for 2023 and are predicting a +100 bp rate hike, while 3 of the members expect a +75 bp rate hike.
The T-note yield also rose last week after the 10-year breakeven inflation expectations rate rose to a new 7-3/4 year high of 2.34%, which was 34 bp above the Fed’s +2.0% symmetrical inflation target. Inflation expectations are on the rise as the markets worry that the U.S. economy might turn very hot in the middle of this year as the pandemic fades and the massive amount of fiscal stimulus kicks in. The U.S. government approved a $900 billion pandemic aid package in late December and then another $1.9 trillion pandemic aid package on March 11.
The S&P 500 index last week largely took the yield-rise in stride with SPX posting a new record high on Wednesday and closing the week just mildly lower by -0.77%. However, the rise in T-note yields did damage in specific stock sectors. Technology stocks continued to show weakness, and homebuilder stocks took a hit on fears about higher mortgage rates. Also, oil company stocks took a sharp hit on last week’s -6.4% plunge in April WTI crude oil prices.
Pandemic improvement stalls — The recent decline in U.S. Covid infection rates stalled in the past week. The 7-day average of new daily Covid infections on March 14 fell to a 5-month low of 51,820, but then moved mildly higher to the 54,000 area this past weekend. The good news is that the 7-day average of daily Covid deaths continues to fall and hit a 4-month low of 1,089 on Saturday. However, the Covid death rate is a lagging indicator and is simply catching up with the recent decline in the new-infection figures.
Dr. Fauci has recently warned that a new Covid wave is possible due to variants. He also warned states about letting down their guard and expressed concern about people who are refusing to get vaccines. However, he recently said that he has a “great degree of confidence” that pandemic guidelines can be loosened by July 4.
According to Bloomberg’s vaccine tracker, 124 million vaccine doses have so far been given in the U.S. In the past week, an average of 2.49 million doses per day were given, which means that good progress is being made with 0.7% of the total U.S. population being vaccinated every day.
Bloomberg reports that 24.5% of the U.S. population has received one vaccination dose, and 13.3% have been fully vaccinated, which means a total of 38% of the U.S. population has at least some immunity from a vaccine dose. That means that more than 47% of the U.S. population has some degree of Covid immunity after adding in people who have recovered from Covid and have some antibodies.
