Rising yields continue to take the air out of stocks and commodities; Fed affirms dovish stance
Investors and markets continued to grapple with rising interest rates this week despite the US Federal Reserve doubling down with yet another highly dovish FOMC meeting. Fed Chair Powell reiterated now is still not the right time to begin discussions about tapering. By emphasizing he wants to see “actual” progress towards both the employment and inflation mandates, not just theforecastedprogress as indicated in the latest round of SEP projections, the Chairman’s message remained clear. The Fed is still comfortable with letting the economy run hot as it emerges from the pandemic given the incomplete jobs recovery and continued subpar inflation. The benchmark US 10-year surged to 1.75% for the first time in more than a year after the meeting and the curve continued to steepen. By Friday, many Wall Street analysts had raised their forecasts calling for the 10-year yield to reach 2% by this summer.
Some stock indices reached new high water marks early on before volatility tied to rising interest rates and concerns surrounding pandemic weighed on sentiment into week’s end. Significant portions of Europe announced plans to return to lockdowns to fight rising Covid variant cases which resulted in weakness in the Euro. Bitcoin stayed near $60K buoyed by the Fed messaging. WTI crude prices traced back towards $60/bbl and the VIX appeared to put a bottom in below 20 in the immediate aftermath of the FOMC decision. For the week, the S&P lost 0.8%, the DJIA was fell 0.5%, and the Nasdaq dropped 0.8%.
In corporate news this week, Nike shares slipped after missing revenue estimates for Q3, though the shoe giant pointed to congestion at backlogged US ports as the reason for stymied sales numbers. FedEx posted a beat on its Q3 earnings thanks to a robust holiday shipping season and strong margins. Some airlines gave an update this week on the current air travel situation. Southwest said it was seeing a rise in leisure bookings that could counter the diminished business travel sector. JetBlue said that, despite trends remaining choppy, in recent weeks they have experienced improved bookings. Homebuilder Lennar notched a big earnings beat amid continued ‘robust market conditions,’ noting margins remained high and deliveries improved. Volkswagen announced a large expansion of its electric vehicle plans this week, with major battery cell production investments in Europe, while targeting one million EV unit sales in 2021. Hartford Financial Services Group confirmed the receipt of an unsolicited non-binding acquisition proposal from Chubb, reportedly valued in the $21B range, and said it would carefully consider the proposal.
SUN 3/14 (IN) India said to propose a law that ban & criminalize cryptocurrency, including Bitcoin, imposes penalties to mining, trading, and possession of Cryptocurrency - India press citing Govt official
MON 3/15 LUV Raises Mar Rev -20% to -15% y/y (prior -30% to -20% y/y), Load factor 60-70% (prior 65-70%); Recently experienced an increase in bookings farther out in the booking curve - filing SJR To be acquired by Rogers for C$40.50/shr in ~C$26B cash deal STAY Blackstone and Starwood Capital Group confirm they will acquire Extended Stay America for $19.50/sh cash in $6B deal *(US) MAR EMPIRE MANUFACTURING: 17.4 V 14.5E IPI Raises Trio price by $20/ton, effective March 15th
TUES 3/16 VOW3.DE Targets FY21 EV sales 1M units; Expects business to recover significantly y/y *(DE) GERMANY MAR ZEW CURRENT SITUATION SURVEY: -61.0 V -62.0E V -67.2 PRIOR; EXPECTATIONS SURVEY: 76.6 V 74.0E *(US) FEB ADVANCE RETAIL SALES M/M: -3.0% V -0.5%E; RETAIL SALES (EX-AUTO): M/M: -2.7% V +0.1%E *(US) FEB INDUSTRIAL PRODUCTION M/M: -2.2% V 0.3%E; CAPACITY UTILIZATION: 73.8% V 75.5%E *(US) MAR NAHB HOUSING MARKET INDEX: 82 V 84E (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -3.8% v +15% prior (US) TREASURY $24B 20-YEAR BOND REOPENING DRAWS 2.290%, BID-TO-COVER 2.51 v 2.28 PRIOR (Strongest BTC on 20-year auction since last June) (US) Atlanta Fed GDPNow cuts Q1 GDP to 5.9% from 8.4% CHIME.IPO Reportedly held early stage talks with banks about going public in 2021, could be valued at $30B - press LEN Reports Q1 $2.04 adj v $1.65e, Rev $5.33B v $5.08Be UBER Plans to give ~80K UK drivers 'worker' status following a court ruling; drivers to receive vacation pay, pension payments, and guaranteed minimum wage - filing (RU) US government is expected to impose sanctions on Russia by as early as next week , the sanctions would relate to alleged meddling in the 2020 US election - financial press 7267.JP Said to suspend some production at All US and Canada plants citing supply chain issues - Press
WEDS 3/17 IEA Monthly Oil Report: Oil demand will return to 2019 level by 2023; Oil glut remains despite improving demand - Does NOT see supercycle *(EU) EURO ZONE FEB FINAL CPI Y/Y: 0.9% V 0.9%E; CPI CORE Y/Y: 1.1% V 1.1%E (RU) US Pres Biden: think Russia President Putin is a killer and will pay a price for meddling in US elections *(US) FEB HOUSING STARTS: 1.421M V 1.560ME; BUILDING PERMITS: 1.682M V 1.750ME *(US) DOE CRUDE: +2.4M V +1.5ME; GASOLINE: +0.5M V -2.5ME; DISTILLATE: +0.3M V -1.5ME 762.HK FCC initiates proceeding to revoke China Unicom allowances; finds Unicom did not dispel serious concerns - press *(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25% (AS EXPECTED); ECONOMY'S PACE HAS PICKED UP; INFLATION CONTINUES TO RUN BELOW 2 PERCENT (US) Fed Chair Powell: it is not time to start talking about tapering yet; we want to see actual progress, not forecast progress - post-decision Q&A
THURS 3/18 *(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.00%; AS EXPECTED; Revises rate path outlook to "gradual rise in H2 2021" from "remain at current level for some time to come"; raises 2022 and 2023 rate outlook *(UK) BANK OF ENGLAND BANK (BOE) LEAVES INTEREST RATE UNCHANGED AT 0.10%; AS EXPECTED *(UK) BOE VOTED 9-0 TO LEAVE INTEREST RATES UNCHANGED *(US) MAR PHILADELPHIA FED BUSINESS OUTLOOK: 51.8 V 23.3E (highest since 1973) *(US) INITIAL JOBLESS CLAIMS: 770K V 700KE; CONTINUING CLAIMS: 4.12M V 4.03ME AZN (EU) EMA statement on vaccine: concludes AstraZeneca COVID vaccine benefits outweigh risks; vaccine is not associated with blood clots; says vaccine is safe and effective (FR) France PM Castex: New lockdown measures will begin Friday (Mar 19th) at midnight and last for four weeks; will be implemented in 16 departments regions including Paris HIG Confirms receipt of unsolicited non-binding proposal from Chubb; to carefully consider the proposal FDX Reports Q3 $3.47 adj v $3.21e, Rev $21.5B v $20.0Be NKE Reports Q3 $0.90 v $0.75e, Rev $10.4B* v $10.9Be; Sees resuming share buyback under existing plan in Q4 2021
FRI 3/19 (US) Fed: temporary change to supplementary leverage ratio (SLR) for bank holding companies will expire as scheduled on March 31; Treasury market has stabilized (US) New York Fed Nowcast: cuts Q1 forecast to 6.3% from 8.6%; cuts Q2 forecast to 1.2% from 4.0%