- Weekly global market focus
- Weak U.S. payroll report reduces QE tapering concernsÂ
- U.S. Covid infections fall to 7-month low
- Q1 earnings season winds downÂ
Weekly global market focus — The U.S. markets this week will focus on (1) comments by Fed officials in the wake of last Friday’s surprisingly weak payroll report, (2) the prospects for President Biden’s $4 trillion job and family plan as Congress returns to Washington this week, (3) how readily investors absorb the Treasury’s $126 refunding operation on Tuesday through Thursday, (4) this week’s lighter Q1 earnings schedule, (5) oil prices as the U.S. continues talks with Iran about a resumption of the nuclear deal, and (6) this week’s economic calendar with key reports including Wednesday’s April CPI report (expected +3.6% y/y headline and +2.3% y/y core), and Friday’s April retail sales report (expected +1.0% m/m after March’s +9.7%).
Crude oil futures prices on Sunday night rallied by +1%, and gasoline prices rallied by more than +4% after the Colonial Pipeline was shut down late last Friday by a cyber-attack. The pipeline from Texas to the Northeast carries 2.5 million bpd of fuel. Fuel shortages are possible if the pipeline is down for more than a few days.
President Biden on Wednesday will host a meeting at the White House of top Democratic and Republican leaders from the House and Senate as he tries to jump-start his job and family plan.
In Europe, the European Commission will release updated macroeconomic forecasts on Wednesday. Today’s Eurozone May Sentix investor confidence index is expected to show a +1.9 point increase to 15.0, adding to April’s +1.8 point increase. Germany’s May ZEW expectations index on Tuesday is expected to show a +1.3 point increase to 72.0, reversing part of April’s -5.9 point decline.
Weak U.S. payroll report reduces QE tapering concerns — Last Friday’s surprisingly weak payroll report took some of the pressure off the Fed to begin discussions about when to taper QE. The stock market on Friday rallied on reduced fears about QE tapering.
Friday’s weak jobs report caused a slight 1 bp dovish shift in the fed funds futures contracts for late this year and a 3 bp dovish shift for the Dec 2022 fed funds futures contract. The June 10-year T-note futures contract on Friday closed up +2 ticks. The S&P 500 index on Friday rallied to a new record high and closed +0.74%. The Nasdaq 100 index last Friday recovered more ground from last Tuesday’s 1-month low and closed +0.78% higher.
Last Friday’s April payroll report of +266,000 was far weaker than market expectations for an increase of +1.0 million. In addition, payroll growth for March was revised lower by 146,000 to +770,000 from +916,000. The 3-month average of monthly payroll growth fell to +518,000 in April from +653,000 in March. In addition to the disappointing payroll figure, the April unemployment rate rose by +0.1 point to 6.1%, showing a weaker labor market than expectations for a -3 point decline to 5.7%.
The markets in the past several weeks have been fixated on any inflation figures or news suggesting that the Fed might be forced to taper QE sooner than expected. However, last Friday’s payroll report cooled those worries somewhat since the more hawkish FOMC members will likely be quieted for at least a few weeks.
Meanwhile, Fed doves now have some wind in their sails. For example, Minneapolis Fed President Kashkari last Friday said after the payroll report that the U.S. is in a “deep hole” on restoring full employment, and today’s jobs report shows we still have a “long way to go.”
U.S. Covid infections fall to 7-month low — The Covid infection level in the U.S. has fallen significantly in the past three weeks. The 7-day average of new daily Covid infections has fallen from the mid-April 2-month high of 71,343 to Saturday’s 7-1/4 month low of 42,227.
The U.S. administered a daily average of 2.02 million doses in the past week as demand wanes, down from 2.59 million the previous week and the peak of 3.4 million, according to Bloomberg’s Vaccine Tracker. The CDC reports that 34.4% of the U.S. population has now been fully vaccinated, and that 45.8% of the population has received at least one dose.
Overseas, the situation remains dire in India where the 7-day average of daily Covid infections is at about 390,000. New Covid infections in Germany and France remain high but are coming down after recent restrictions. Much of South America continues to see a serious problem.
Q1 earnings season winds down — Q1 earnings season is winding down, with only 18 of the S&P companies reporting this week. Notable reports include Tyson Foods, Marriott, and Wynn Resorts today; Electronic Arts on Tuesday; Applied Materials on Wednesday; and Disney on Thursday.
The consensus is for S&P 500 earnings in Q1 to show a very strong gain of +50.4% y/y, according to Refinitiv. Q1 earnings have been much stronger than expected. The current Q1 earnings estimate of +50.4% is far better than expectations of +24.2% that were seen as recently as April 1. Also, of the 439 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 +61.2%, then easing to +23.5% in Q3 and +16.5% in Q4. On a calendar year basis, the consensus is for strong +34.7% earnings growth in 2021, overcoming the -12.2% decline seen in 2020, according to Refinitiv.
