Friday morning reads
- Robust Growth and a Hard Line
- Bond Fires Smoulder
- A Leading Critic of Big Tech
- Bitcoin Storm Brewing
- Wealth Managers Frustrated
- BUZZ, the ETF of Social-Media Darlings
- It’s Not Different This Time
- Investments as a Status Symbol
The last couple of months haven't been great for the U.S. job market, but many are hoping February will have turned out to be better. The first non-farm payrolls report of the Biden administration will be released this morning as congressional Democrats rush to approve a massive economic relief package. While there are many disagreements over how much aid the country currently needs, today's jobs report is not expected to trigger renewed debate.
"The Senate is going to move forward with the bill," Majority Leader Charles Schumer said on Thursday. "No matter how long it takes, the Senate is going to stay in session to finish the bill this week."
Bigger picture: Much like last month's release, forecasts are all over the place for this morning's jobs numbers. Morgan Stanley estimates a gain of 60,000, while Bank of America sees a rebound of 225,000, though consensus estimates are somewhere in the 180,000 range. That pace is not nearly fast enough to quickly help the world's largest economy recover from COVID-19, but it's still better than January's addition of 49,000 jobs. The U.S. remains 9.9M jobs short of its pre-pandemic employment level, while about 18M Americans are on some form of unemployment aid. Last month's jobless rate is expected to hold at 6.3%, above the 50-year low of 3.5% seen in February 2020.
Go deeper: Economists will also be eyeing the breakdown of job gains/losses by sector, looking for trends and remaining pandemic effects, especially on the high-contact services industry. Take a recent note from Nomura's Lewis Alexander: "As the pace of new COVID-19 cases steadily declined, restaurant activity accelerated in February, suggesting an increase in food service employment. That strength continued into March based on preliminary data, consistent with our view that private employment growth should begin to recover more rapidly in the late spring as vaccinations continue and restrictions are eased."
Fed Chair Jay Powell vowed to keep monetary policy steady on Thursday even as the economy improves from the pandemic and inflation begins to rise. The remarks echoed comments he made on Capitol Hill last month, as well as a similar stance he's taken during much of the coronavirus crisis. A selloff in equities still ensued as benchmark 10-year Treasury yields jumped another 7 basis points to 1.55%, the highest since mid-February last year.
What happened? While Powell didn't say anything different, markets focused on what he didn't say, as the backdrop for financial markets has changed quite drastically since he last made a public appearance. Treasury yields have spiked, along with a broader rise in borrowing costs, and the big concern is that these moves could be destabilizing. Powell did say that if things get disorderly, the Fed has the tools to deal with them, but investors were likely looking for something that was more specific.
Others are flagging comments he made about pressure on prices. Even if the economy sees "transitory increases in inflation... I expect that we will be patient," Powell added, but that had many investors getting nervous. "The market's translation of 'patient' is that patient doesn't mean 'never,' and that Powell is indicating that easy money will at a certain point come to an end," said Mike Loewengart, managing director of investment strategy at E-Trade Financial.
Fiscal side: The Senate is also moving forward with President Biden's mega stimulus proposal. Investors have been pricing in this package for some time - and more clearly since Democrats won both Senate seats in the Georgia Senate runoff elections - which gave the party full control of government spending powers. The $1.7T price tag for the bill, along with the trillions in stimulus released in 2020, is really what's behind the surge in inflation expectations, as well as the backup in Treasury yields. How long will the selloff continue without specific measures from the Fed? (29 comments)
Oil prices jumped another 2.5% to over $65 a barrel overnight after OPEC+ decided not to unleash millions of barrels on to the market. The main debate at the meeting was whether to go forward with a collective production increase and if the Saudis would return the 1M bbl/day they voluntarily took offline. Analysts had expected there would be some level of increase prior to the gathering - given the extraordinary level of cuts made since the outbreak of the pandemic - before reports surfaced that the group would stand down.
Thought bubble: OPEC+ is not behaving as it did in the past, where members would meet once or twice a year. The group is now holding monthly get-togethers, giving it more immediate power to meet current market conditions, as well as room to maneuver. It's also a signal that OPEC+ producers are wary about how things might play out in the months to come.
Outlook: Much of the current surge in prices was due to Saudi Arabia's unilateral action to cut Q1 production. One key question is how long the Kingdom is prepared to pay to preserve the peace within OPEC+ given the oil price war that erupted between Riyadh and Moscow last year, while tensions could also return on the way out of the COVID-19 pandemic. "The longer prices stay up, the greater the likelihood we will eventually see a supply response from the U.S. But, it's not going to be as immediate as it would have been in the past," added Bill O'Grady of Confluence Investment Management. (15 comments)
China's National People's Congress has officially convened its "Two Sessions" annual parliamentary gathering which sets economic and political priorities for 2021. Nearly 3,000 lawmakers descended on Beijing, where the nation's rubber-stamp parliament laid out targets for GDP, employment, inflation and other growth goals. The meeting took on additional importance this year as it marked the beginning of China's five-year development plan (the 14th in its history), as well as the 100th anniversary of the ruling Communist Party.
Highlights: Premier Li Keqiang said the country would target GDP growth of 6% or more this year, a figure that was lower than most economists' expectations of around 8%. It's also surprising given that it was the only major world economy to grow in 2020. China recovered relatively quickly from the initial coronavirus outbreak centered in the Chinese city of Wuhan and ended up with 2.3% growth for the year.
However, Chinese leaders scrapped a five-year GDP target, saying only that they would plan to keep the economy running "within a reasonable range." In the 2016-20 plan, the target was "more than 6.5%." Instead, they are aiming to cap the surveyed urban unemployment rate at 5.5%, with labor productivity growth outpacing overall GDP growth. The county also plans to increase its urbanization rate to 65%, from 60.6% in 2019.
Go deeper: The conservative GDP growth targets indicate more restrained monetary and fiscal policies are coming in 2021 (contrast that with the U.S.). Policymakers have further put a recent focus on reining in debt and combating an emerging bubble in the real estate market. In the annual report, the government also said it would seek to cut the fiscal deficit target to 3.2% of projected GDP this year (vs. 3.6% in 2020), and plans to reduce the amount of debt raised by local governments. (6 comments)
What else is happening...
Shutterfly in talks to go public via SPAC merger - WSJ.
Wedbush calls EV stock selloff a massive buying opportunity.
Utilities see continued place for gas during green transition.
U.S. suspends tariffs on U.K. goods in planemaker dispute.
Thursday's Key Earnings
Broadcom (NASDAQ:AVGO) -2.6% AH as investors disregarded double-digit chip growth.
Costco (NASDAQ:COST) -2.1% AH despite a comp sales expansion of 13%.
Gap (NYSE:GPS) +3.1% AH forecasting a return to sales growth in 2021.
Kroger (NYSE:KR) +2.5% on earnings beat, positive outlook.
Slack Technologies (NYSE:WORK) -1.3% AH reporting a loss for the quarter.
In Asia, Japan -0.2%. Hong Kong -0.5%. China flat. India -0.9%.
In Europe, at midday, London +0.5%. Paris -0.2%. Frankfurt -0.5%.
Futures at 6:20, flat. S&P flat. Nasdaq -0.2%. Crude +2.5% to $65.44. Gold -0.4% at $1693.50. Bitcoin -4.1% to $47344.
Ten-year Treasury Yield flat at 1.55%
Today's Economic Calendar