Weekly Market Update: Continued recovery optimism energizes rates and wobbles stocks
Stock market volatility continued this week alongside rising interest rates. Adding to the consternation surrounding rising rates and its potential signal on inflation, crude oil prices surged 10% in the back half of the week, to over one-year highs, after OPEC decided against raising production in any meaningful way. The US 10-year yield traded back above 1.5% and rising inflation expectations were evident when the 5-year TIPS breakeven topped 2.5% for the first time since 2008. Speculative growth, in particular small caps, bore the brunt of a significant drawdown in equity markets, while value stocks performed much better, led by a resurgent energy complex.
Bond yields surged on Thursday after Fed Chairman Powell failed to signal that the recent jump in market rates was worrisome enough to force to central bank to adjust asset purchase in an attempt to manipulate rates lower. Stocks wobbled noticeably after he repeated a highly dovish mantra that the Fed will remain patient and is nowhere near reaching the policy goals that are the prerequisites for beginning the process of reversing accommodative policy. The stronger than expected February employment report on Friday was decidedly positive, thanks in large part to a rebound of 355K jobs in the leisure and hospitality sector. The jobs numbers capped of a week of generally strong economic reports and caused some to question the timing and size of Democrats $1.9B fiscal stimulus package which remained on track to get through the Senate this weekend. The US dollar tracked to its highest levels since November and gold prices dipped below $1,700 for the first time in nearly a year. For the week, the S&P eked out a 0.8% gain, the DJIA rose 1.8%, and the Nasdaq fell 2.1%.
In corporate news this week, big box retailer Target handily beat expectations but is still unable to provide guidance due to uncertainty over the pandemic. Walmart updated its 10-year investment plan, announcing it would spend $350B over the next decade to support 750K new jobs related to US-made and assembled items. In the tech sector Hewlett Packard Enterprise beat expectations and raised guidance, diminishing the impact of the punishing sell off that hit the rest of the stock market. Micron also held up relatively well as it raised Q2 guidance substantially. Google is trying to get ahead of the curve on a coming reckoning on the use of personal data -- the tech giant is reportedly planning to stop using ad tools that track users across websites in 2022, and will stop selling ads based on individuals' browsing history. Amgen announced it will acquire cancer drug developer Five Prime Therapeutics in a $1.9B all-cash deal.
SUN 2/28 *(CN) CHINA FEB MANUFACTURING PMI (GOVT OFFICIAL): 50.6 V 51.0E (12th month of expansion) (HK) Macau Feb Casino Rev (MOP): 7.3B v 8.0B prior; Y/Y: +135.6% v 145%e
MON 3/1 *(IT) ITALY FEB MANUFACTURING PMI: 56.9 V 56.8E (8th month of expansion and highest since Jan 2018) *(DE) GERMANY FEB FINAL MANUFACTURING PMI: 60.7 V 60.6E (confirms 8th month of expansion and highest since Jan 2018) *(US) FEB FINAL MARKIT MANUFACTURING PMI: 58.6 V 58.5E (lowest since Dec 2020) *(US) FEB ISM MANUFACTURING: 60.8 V 58.6E; PRICES PAID: 86.0 V 80.0E (US) Atlanta Fed GDPNow raises Q1 GDP to 10.0% from 8.8% SQ Starts Banking, Loan operations after obtaining FDIC approvals in Utah *(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 0.10%, AS EXPECTED; MAINTAINS 3-YEAR YIELD TARGET AT 0.10%; MAINTAINS A$100B BOND BUYING PROGRAM
TUES 3/2 (DE) GERMANY FEB NET UNEMPLOYMENT CHANGE: +9.0K V -10.0KE; UNEMPLOYMENT CLAIMANT RATE: 6.0% V 6.0%E (EU) EURO ZONE FEB ADVANCE CPI ESTIMATE Y/Y: 0.9% V 0.9%E; CPI CORE Y/Y:1.1% V 1.1%E (RU) Russia Foreign Min Lavrov: Russia will respond to any new US sanctions TGT Reports Q4 $2.67 v $2.54e, Rev $28.3B v $27.5Be; Not providing any guidance (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +15% v +3.0% prior HPE Reports Q1 $0.52 v $0.40e, Rev $6.83B v $6.78Be (HK) Macau casinos will no longer require nucleic acid test certificate to enter, effective Midnight March 3rd
WED 3/3 *(IT) ITALY FEB SERVICES PMI: 48.8 V 45.7E (7th month of contraction) *(FR) FRANCE FEB FINAL SERVICES PMI: 45.6 V 43.6E (confirms 6th straight contraction) *(DE) GERMANY FEB FINAL SERVICES PMI: 45.7 V 45.9E (confirms 5th straight contraction) *(EU) EURO ZONE FEB FINAL SERVICES PMI: 45.7 V 44.7E (confirms 6th straight contraction) *(UK) FEB FINAL SERVICES PMI: 49.5 V 49.7E (confirms 4th straight contraction) *(EU) ECB SAID TO SEE NO NEED FOR DRASTIC ACTION TO CURB BOND YIELDS - financial press (UK) Chancellor of the Exchequer Sunak (Fin Min) Budget speech: Damage to the economy has been acute; will do whatever it takes *(US) FEB ADP EMPLOYMENT CHANGE: +117K V +205KE GOOGL Reportedly plans to stop using or investing in ad tools which track users across websites in 2022; will stop selling ads based on individuals' browsing history - press MU Raises Q2 $0.93-0.98 v $0.72e, Rev $6.2-6.25B v $5.83Be, gross margin 32-33% (prior $0.68-0.82, Rev $5.6-6.0B, gross margin 30-32%) *(US) FEB ISM SERVICES INDEX: 55.3 V 58.7E (lowest reading since May 2020) *(US) DOE CRUDE: +21.6M V -1ME; GASOLINE: -13.6M V -2ME; DISTILLATE: -9.7M V -3ME WMT Plans to spend $350B over 10 years to support 750K new jobs related to US-made and US-assembled items (UK) Chancellor of the Exchequer Sunak (Fin Min): We have to get borrowing and debt under control - press conf
THUR 3/4 *(EU) EURO ZONE JAN UNEMPLOYMENT RATE: 8.1% V 8.3%E *(EU) EURO ZONE JAN RETAIL SALES M/M: -5.9% V -1.4%E; Y/Y: -6.4% V -1.2%E (largest declines since last April) AAPL Reportedly UK CMA investigates Apple over suspected anti-competitive behavior - press FPRX To be acquired by Amgen for $38.00/shr in cash valued at $1.9B FAST Reports Feb net sales $437.7M, +1.5% y/y *(US) Q4 FINAL NONFARM PRODUCTIVITY: -4.2% V -4.7%E; UNIT LABOR COSTS: 6.0% V 6.6%E *(US) INITIAL JOBLESS CLAIMS: 745K V 750KE; CONTINUING CLAIMS: 4.30M V 4.30ME OPEC+ decides it will not hike output by 500K in April, according to delegate source; Russia and Kazakhstan will receive exemption from OPEC+ supply agreement (US) Congressional Budget Office (CBO) issues 30-year budget projections: forecasts annual GDP growth 1.8% over next 30 years (prior: 1.6%)
FRI 3/5 (US) FEB CHANGE IN NONFARM PAYROLLS: +379K V +200KE (US) FEB UNEMPLOYMENT RATE: 6.2% V 6.3%E (IN) India said to threaten to jail some Facebook and Twitter employees in attempt to quash political protests - press US and EU have reached an agreement to suspend tariffs on Boeing-Airbus for 4 months (US) Fed’s Bullard (non-voter): We have the right policy for this situation: do not see an Operation Twist as an option right now