U.S. stocks turn choppy on hedge-fund margin sales
Biden to announce new infrastructure package on Wednesday
March U.S. consumer confidence expected to show a solid increase
U.S. home prices expected to show another month of strong increases
China PMIs expected to show solid increasesU.S. stocks turn choppy on hedge-fund margin sales — The U.S. stock market on Monday was on edge as market participants waited for any more shoes to drop on reports that big banks were selling stock collateral that backed losing positions linked to Archegos Capital Management. The markets were worried about more block sales linked to Archegos, as well as the possibility that the sharp drop in the price of stocks that are popular with hedge funds could potentially topple another hedge fund and create a downward spiral.
Goldman Sachs and Morgan Stanley late last Friday reportedly sold $20 billion in stock holdings, kicking off the fire sale. There were reports of some additional block sales on Monday from Morgan Stanley and Wells Fargo.
Stocks that were hit hard by the block sales included ViacomCBS, which fell another -6.8% on Monday after Friday’s -27% plunge. Discovery fell another -1.7% on Monday after last Friday’s -27.5% plunge. Other stocks involved in the block sales reportedly included TenCent Music Entertainment Group Baidu, GSX Techedu, Farfetch, Vipshop Holdings, Iqiyi, Rocket Cos. and others.
The debacle dragged down bank stocks, with Nomura and Credit Suisse falling more than -15% on Monday on their apparent exposure to the hedge fund failure. Other bank stocks fell, even if the bank said it had little or no exposure to the debacle, since there was the possibility of other hedge fund dominos falling.
Biden to announce new infrastructure package on Wednesday — President Biden on Wednesday at a stop in Pittsburgh is expected to announce some details of his overall infrastructure and jobs program, which is expected to eventually total some $3-4 trillion.
Mr. Biden’s announcement on Wednesday will focus on physical transportation infrastructure such as roads and bridges, according to United Steelworkers president Tom Conway, who has been involved in developing the proposal. Mr. Conway said he expects Wednesday’s package to total $1.0-1.5 trillion, according to reporting by Bloomberg.
After the transportation infrastructure announcement, Mr. Biden is expected to announce the rest of the stimulus package in the coming days or weeks, which is expected to include clean energy and social programs such as child care, healthcare, and education. Democratic leaders apparently haven’t decided whether they will pursue the initiatives separately or as one massive bill.
The markets remain worried about the tax hikes that will be required to at least partially pay for the program. The Washington Post reported that the Biden administration’s latest version of the bill involves $3 trillion in new taxes, which would cover three-quarters of the program’s overall spending of $4 trillion. President Biden, during the campaign, said he favored raising the top corporate tax rate to 28% from 21%. In addition, the marginal tax rate is expected to be raised on taxpayers earning more than $400,000, and the capital gains tax may be raised for high-earners as well.
March U.S. consumer confidence expected to show a solid increase — The consensus is for today’s March Conference Board U.S. consumer confidence index to rise +5.4 points to 96.1, adding to February’s +2.4 point increase to 91.3. Expectations are strong for today’s Conference Board report since the University of Michigan has already reported that its consumer sentiment index in March rose sharply by +8.1 points to 84.9.
U.S. consumer sentiment showed a strong jump in March as Covid infection rates dropped sharply and as $1400 stimulus checks were on the way. The $1.9 trillion pandemic aid was signed into law on March 11, and the checks have since been landing in Americans’ bank accounts.
The latest batch of stimulus checks will push retail sales sharply higher in March and April. In January, when the Americans received $600 stimulus checks from the December pandemic aid bill, retail sales soared by +7.6% m/m and +9.5% y/y. Considering that this month’s stimulus checks are more than twice as large, U.S. retailers are likely to see impressive sales figures in the coming weeks.
U.S. home prices expected to show another month of strong increases — The consensus is for today’s Jan FHFA house price index to show an increase of +1.2% m/m, adding to December’s +1.1% increase. The Jan S&P CoreLogic composite-20 home price index is expected to show a strong increase of +1.2% m/m and +11.25% y/y, adding to December’s increase of +1.25% m/m and +10.10% y/y.
Home prices are expected to rise sharply again in January due to strong demand and tight supply. Existing home sales in January were strong at 6.66 million units, just mildly below last October’s 15-year high of 6.73 million units. Meanwhile, there were only 1.8 months worth of existing homes on the market in January, which was a record low.
China PMIs expected to show solid increases — Tonight’s Chinese PMI reports are expected to indicate that the Chinese economy continues to recover from the pandemic. The consensus is for strong Chinese GDP growth this year of +8.5%, gaining momentum after 2020’s weak growth rate of +2.3%. The consensus is for tonight’s March manufacturing PMI to rise +0.6 points to 51.2, reversing most of Feb’s -0.7 point decline. The consensus is for the March non-manufacturing PMI to rise by +0.9 to 52.3, reversing most of Feb’s -1.0 point decline. On Wednesday night, China’s March Caixin manufacturing PMI is expected to show a +0.4 point increase to 51.3, reversing the majority of Feb’s -0.6 point decline.