- Powell likely to weigh in today on T-note yield surge
- Senate today expected to begin voting on $1.9 trillion pandemic aid bill
- OPEC+ today expected to be cautious about raising production
- Initial claims expected to show some backsliding due to the cold snap
Powell likely to weigh in today on T-note yield surge — Fed Chair Powell today will discuss the U.S. economy during a virtual event hosted by the Wall Street Journal. The main topic of interest will be whether Mr. Powell reiterates his recent laissez-faire view of the recent surge in T-note yields, or whether he expresses some concern.
Mr. Powell and most other Fed officials have recently taken the view that the recent surge in T-note yields is fine because of the implication that the markets are expecting a full recovery. Chicago Fed President Evans added to that drumbeat yesterday by saying that he shares the view that the recent rise in bond yields is healthy, and that he doesn’t expect that the Fed will need to change the duration of its bond purchases.
One of the very few comments of concern about the surge in yields came from Fed Governor Brainard on Tuesday, when she said, “I am paying close attention to market developments. Some of those moves last week, and the speed of the moves, caught my eye.” She said she would be concerned if she saw disorderly conditions or a persistent tightening of financial conditions.
After trading sideways for three sessions, the 10-year T-note yield on Wednesday rose sharply by +9 bp to a 3-session high of 1.48%. That was only 13 bp below last Thursday’s 1-year high of 1.61%.
The 10-year T-note yield rose on Wednesday partly because of the +2.5 bp rise in the 10-year breakeven inflation expectations rate to 2.22%, which was the fourth consecutive daily rise. The 10-year breakeven rate is only 4 bp below the mid-Feb 6-1/2 year high of 2.26%. T-note yields also continued to rise due to the fading pandemic and the expected passage next week of the $1.9 trillion pandemic aid bill.
Senate today expected to begin voting on $1.9 trillion pandemic aid bill — The Senate today is expected to begin voting on President Biden’s $1.9 trillion pandemic aid bill. Today’s voting will be a “vote-a-rama” where Senators are forced to vote on a steady stream of amendments.
Republicans Senators will be offering amendments that try to pick up the support at least one Democratic Senator, which would allow the amendment to pass and thus change the bill. However, Democratic Senators, in general, are expected to stick together and get the basic bill passed by tomorrow.
The House next week will then have time to pass the Senate’s revised version. Democratic leaders want to get the bill passed by March 14, when unemployment benefits start expiring.
President Biden yesterday compromised with moderate Democratic Senators and trimmed the eligibility requirements for the $1400 stimulus checks. However, Democratic leaders are trying to maintain the unemployment benefit at $400 per week, shaking off the effort by at least two Democratic Senators to trim the benefit to the current level of $300 per week.
Today, the markets will be on the lookout for any disruptions in Washington after the police and FBI issued warnings about a possible Capitol attack today tied to conspiracy theories involving “true inauguration day.” The House is taking the threats seriously enough to take precautions and change its voting schedule.
OPEC+ today expected to be cautious about raising production — April crude oil prices on Wednesday rallied sharply and closed +1.53 (+2.56%) at $61.28 per barrel. That was just mildly below last week’s 14-month nearest-futures high of $63.81.
Oil prices have risen steadily since last November due to the production cut by OPEC+ and the improvement in crude oil demand sparked by the fading pandemic. The combination of improved demand and restricted supply has caused the oil market to come back into supply/demand balance.
In fact, the OPEC+ Joint Technical Committee (JTC) yesterday forecasted that global crude stockpiles will remain on track to decline each month this year and drop below their 5-year averages even if OPEC+ restores 2.4 million bpd of crude output by June.
The rise in oil prices has convinced OPEC+ that there is room to trim their production cuts and allow overall OPEC+ production to rise. The consensus is for OPEC+ today to agree on a production hike of up to 1.0 million bpd. Oil bulls are hoping that Saudi Arabia will follow through with its idea of only gradually phasing out its 1.0 million bpd voluntary production cut over several months instead of reinstating its production cut all at once.
Initial claims expected to show some backsliding due to the cold snap — The consensus is for today’s weekly initial unemployment claims report to show an increase of +20,000 caused by the recent cold snap that disrupted businesses in many areas and led to some temporary layoffs. Continuing claims are expected to fall -119,000 to 4.300 million, adding to last week’s decline of -101,000 to 4.419 million. From the pre-pandemic levels seen in late-February, initial claims are still up by +513,000 and continuing claims are up by 2.720 million.
The consensus is for tomorrow’s Feb payroll report to show an increase of +195,000, recovering somewhat after Jan’s very weak report of +49,000. Payrolls need to rise by another 9.9 million to reach last February’s pre-pandemic record high. Tomorrow’s Feb unemployment rate is expected to be unchanged from Jan’s 10-month low of 6.3%.
