Wednesday, March 31, 2021

Markets rise cautiously as US Covid cases rise

Dow slid back 85, advancers over decliners 3-2 & NAZ shot up 201.  The MLP index rose 4 to the 166s & the REIT index lost 1 to the 402s.  Junk bond funds fluctuated & Treasuries were sold.  Oil dropped 1+ to the 59s & gold rebounded 22 to 1708 (more on both below).

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Senate Minority Leader Mitch McConnell took an early swipe at Pres Biden's soon-to-be-announced infrastructure overhaul, decrying the “massive” tax increases in the roughly $2T plan & fretting about its impact on the national debt.  McConnell, who has opposed prior attempts to pass new infrastructure spending thru the Senate, said he was unlikely to support Biden's ambitious new proposal.  “It’s like a Trojan horse,” McConnell said.   “It’s called infrastructure, but inside the Trojan horse it’s going to be more borrowed money, and massive tax increases on all the productive parts of our economy.”  The Rep leader said that if the plan is “going to have massive tax increases & Ts more added to the national debt, it’s not likely” he would support it.  He also said that Biden called him yesterday to brief him on the plan.  It's just the 2nd time the 2 men have spoken since Biden's inauguration.  Biden shortly is set to travel to Pittsburgh, known as “the Steel City” for its once-towering status as a leading manufacturing hub, to detail his plan to update US infrastructure & create jobs.  The White House says the legislation is just the first part of a double-barreled, multitrillion-dollar economy recovery plan.  The 2nd leg of the plan, which will involve huge investments in health care & child care, is likely to be revealed later in Apr.  The infrastructure plan includes about $2T in spending over 8 years.  The legislation would raise the corp tax rate to 28% from 21%, which, in concert with other proposed reforms, would fund the new spending over 15 years, the White House said.  Biden's plan would also raise the global minimum tax rate for multinational corps to 21% & eliminate a current tax exemption on profits on foreign investments.

McConnell slams tax hikes in Biden infrastructure bill, signals he will oppose it

Gold futures ended higher, with prices recovering recent losses that dragged prices to a more than 3-week low, but the precious metal still suffered its biggest quarterly loss since Q4-2016.  The front-month Apr gold contract tacked on $29 (1.8%) to end at $1713 an ounce.  That followed 1.7% slump for the precious metal yesterday, which sent prices to their lowest finish since Mar 8, which is now the most active, rose $29 (1.8%) to end at $1715.  Prices based on the most-active contract saw a monthly loss of 0.8%.  For the qtr, it was down 9.5% — the largest quarterly percentage loss since Q4-2016.  Today, gold prices were up as investors parsed US private-sector employment data, ahead of a key jobs report due later this week.  Commodity investors also await details on an infrastructure plan from Pres Biden, which could deliver another boost to the pandemic-stricken US economy.  A private-sector report from ADP, ahead of the closely followed Labor Dept data due on Fri, showed that the US added 517K jobs in Mar, marking the biggest gain in 6 months as a decline in coronavirus cases allowed more businesses to reopen or expand hours.  The private-sector report delivers further evidence of a strengthening US economy that is being powered by a massive $1.9T federal aid package & rollout of COVID vaccines.

Gold posts biggest quarterly loss since 2016

Demand for mortgage applications fell 2.2% in the past week, according to the Mortgage Banker's Association's (MBA) latest survey.  A combination of rising mortgage rates & higher home prices is denting demand.  Even the refinancing market took a 3% hit over the prior week.  “Record-low inventory is pushing home-price growth at double the rate from a year ago, and even above the 10% growth rates seen in 2005," said Joel Kan, MBA’s associate VP of economic & industry forecasting.  "The housing market is in desperate need of more inventory to cool price growth and preserve affordability,” he added.  The 30-year fixed rate mortgage declined 3 basis points to 3.33%, which is still almost ½ a percentage point higher than at the beginning of the year.  “Higher mortgage rates continue to shut down refinance activity, as the pool of borrowers who can benefit from a refinance further shrinks," added Kan.  The seasonally adjusted Purchase Index decreased 2% from one week earlier.  The survey covers over 75% of all US retail residential mortgage applications.  It has been conducted weekly since 1990.

Housing market thirsty for inventory, mortgage applications fall

The highly contagious coronavirus variant first identified in the UK is starting to become the predominant strain in many regions of the US, the head of the Centers for Disease Control & Prevention (CDC) said.  The variant, known as B.1.1.7, now accounts for 26% of Covid-19 cases circulating across the nation, CDC Director Dr Rochelle Walensky told reporters.  It is the predominant strain in at least 5 regions, she added.  The UK identified B.1.1.7, which appears to be more deadly & spread more easily than other strains, last fall. It has since spread to other parts of the globe, including the US, which has identified almost 12K cases across 51 jurisdictions, according to the CDC.  Florida has the most confirmed cases of the new variant, according to a map of the CDC data, followed closely by Michigan, Wisconsin & California.  Public health officials say they are working as quickly as possible to identify more cases.  Walensky said she expects to see more infections in the US due to the transmissibility of the B.1.1.7 variant.  She urged the public to continue pandemic safety measures, such as washing hands, wearing masks & practicing social distancing.  Her comments come 2 days after she issued a dire warning to reporters when she said that she worried the nation is facing “impending doom” as variants spread & daily Covid-19 cases begin to rebound once again, threatening to send more people to the hospital.  “I’m going to pause here, I’m going to lose the script, and I’m going to reflect on the recurring feeling I have of impending doom,” Walensky said.  “We have so much to look forward to, so much promise and potential of where we are and so much reason for hope, but right now I’m scared.”

CDC director says UK variant becoming predominant strain in many parts of U.S.

The US' Covid-19 cases are trending upward again, with nationwide infection levels far below Jan's peak of about 250K new cases per day but approaching numbers seen during the summer surge when average daily case counts reached nearly 70K.  In an effort to speed up the vaccination campaign, many states are expanding eligibility guidelines for who qualifies to get a shot.  Dr Scott Gottlieb said that the initial period of expanded eligibility may leave some Americans frustrated.  “Some states are willing to make a broader population eligible to be vaccinated and tolerate the fact that the first two or three weeks of that are going to be messy,” Gottlieb added.  “Once a state opens eligibility wide open, a lot of people are going to complain that they’re going onto the website and can’t get an appointment. It’s going to take a couple weeks to work that excess demand off.”  About 67K daily new coronavirus cases are being reported in the US, based on a 7-day average of data from Johns Hopkins University.  That figure has been trending upward, raising concerns about a potential “fourth wave” of infections.  The daily death toll has fallen significantly from its winter peak but remains elevated at nearly 1K per day.  Since the start of the pandemic, more than 550K Covid deaths have been reported in the US.

U.S. Covid cases rise as vaccinations pick up amid expanded eligibility

Oil futures settled lower as uncertainty continued to surround the outlook for energy demand, with Mohammad Barkindo, secretary general of OPEC calling the economic environment "challenging."  However, prices ended higher for the qtr as traders bet that the OPEC & its allies (OPEC+) will agree tomorrow to extend production curbs.  West Texas Intermediate crude for May lost $1.39 (2.3%) to $59.16 a barrel.  Prices based on the front-month contracts fell 3.8% for the month, but gained nearly 22% for the qtr.

Oil prices settle lower for the session, gain more than 20% for the quarter

For the month Dow rose all of 50, but is still under 33K.  The first ½ of the month saw gains, then it was choppy.  There is a lot of uncertainty about the new spending bill.  It's easy to find experts (?) who like it or don't like it.  And it faces a tough fight in the Senate.  In the meantime, the virus is not giving up its fight.

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Markets edge higher as investors assess infrastructure plan

Dow went up 14, advancers over decliners 5-4 & NAZ jumped 216.  The MLP index was fractionally lower to the 163s & the REIT index fell 1+ to the 401s.  Junk bond funds drifted sideways & Treasuries were bid higher for a slightly higher yields.  Oil rose to 61 & gold recovered 20 to 1706.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil60.53 
-0.02 -0.0%













GC=FGold   1,695.30
+9.30+0.6%


















 

 

 



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US private employers added more jobs in Mar than at any point over the previous 5 months as a reopening of the economy boosted growth in the service sector, according to the ADP National Employment Report.  The economy added 517K private-sector jobs this month, below the 550K that was expected.  Feb's reading of 117K jobs added was revised up to 176K.  “Job growth in the service sector significantly outpaced its recent monthly average, led with notable increase by the leisure and hospitality industry,” said Nela Richardson, chief economist at ADP.  “This sector has the most opportunity to improve as the economy continues to gradually reopen and the vaccine is made more widely available.”  The leisure & hospitality sector added 169K jobs, helping the service sector to an increase of 437K jobs.  The goods-producing sector gained 80K jobs amid strength in manufacturing & construction.  Only 2 sectors lost jobs during Mar.  Natural resources/mining saw a decline of 1K jobs & information services shed 7K.  The stronger-than-expected ADP reading could be a precursor to Fri's employment report for Mar.  The Labor Dept is expected to say the economy added 650K nonfarm jobs this month, up from a much stronger-than-expected increase of 379K jobs in Feb.  The unemployment rate is anticipated to fall to 6% from last month's 6.2%, the lowest since Mar 2020.

ADP jobs report shows biggest gains since September

Pres Biden will detail his proposal to revamp the nation's infrastructure, alongside a revenue-raising plan that aims to ensure the nation's largest corps are paying their fair share in taxrs.  Dubbed the American Jobs Plan, the White House said the “once-in-a-century capital investment” in US infrastructure will create “millions” of good-paying jobs & position America to “out-compete” China by spending about 1% of GDP per year over the course of 8 years.  Overall, the plan is to spend $2T over the course of the coming decade.  Among the key tenets of the plan are modernizing 20K miles of highway, repairing 10K small bridges & 10 economically significant bridges, eliminating all lead pipes in drinking water systems, expanding access to high-speed broadband, modernizing schools & upgrading veteran's hospitals.  The plan also aims to create better-paying jobs for care workers & allocate $100B to workforce development programs targeted at underserved groups & students.  Overall, the administration intends to spend around $650B on revamping bridges & roads, $300B on housing infrastructure, $300B on reviving US manufacturing, $400B on care for the elderly & disabled, $400B on clean-energy credits, as well as an unspecified amount on broadband, water systems & other measures.  In order to pay for this legislation, Biden also proposed what he has called the Made in America Tax Plan, which would raise the corp tax rate to 28% from 21%.  It would also increase the minimum tax on multinational corps to 21% & “calculate it on a country-by-country basis so it hits profits in tax havens,” alongside several other efforts to eliminate perceived loopholes in the corp tax code.  Those changes, the White House said, will raise $2T over 15 years – paying off the initial investment in the infrastructure plan & reducing deficits thereafter.  Yesterday, the Business Roundtable said it would oppose any effort to raise the corp tax rate to fund the legislation – though it supports the overall idea of investing in the nation's infrastructure.  “Policymakers should avoid creating new barriers to job creation and economic growth, particularly during the recovery,” Business Roundtable Pres & CEO Joshua Bolten said..

$2T infrastructure proposal includes funding by corporate tax hike

The US housing market is suffering from its lowest supply in history & that is taking an increasingly hard toll on sales.  Pending home sales, a measure of signed contracts on existing homes, fell a wider-than-expected 10.6% in Feb compared with Jan, according to the National Association of Realtors, & were 0.5% lower year over year.  “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift,” said the Realtor's chief economist, Lawrence Yun.  “But contracts are not clicking due to record-low inventory.”  There were just 1.03M homes for sale at the end of Feb, a 29.5% drop compared with Feb 2020.  That is the largest annual decline ever & the lowest supply on record.  Sales are now varying dramatically by price point because supply is so lean on the low end & more plentiful on the higher end.  Homes priced above $250K have seen the most active sales, but Yun notes that homes priced above $500K to less than $1M are starting to see the same low inventory problems.  “Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Yun added.  “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”  A recent rise in mortgage rates does not appear to be affecting homebuyer demand that much.  The average rate on the popular 30-year fixed loan started the year below 3% and is now at 3.45%, according to Mortgage News Daily, but still low.  Home prices, however, are climbing quickly.  They are up more than 11% from a year ago.  Price increases are strongest at the lower end of the market, where supply is weakest & bidding wars are rampant.

Pending home sales fell over 10% in February, as record low supply stifles the housing market

Investors are  not sure what to make of the infrastructure plan.  More spending is generally welcome.  However, gov is noted for being reckless with money (can you spell pork?).  Additionally higher corp taxes have a way of working their way thru to higher prices & will add substantially to gov deficits requiring more borrowing.   There is a lot to think about in this plan.

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Tuesday, March 30, 2021

Markets slip as Treasury yields rise

Dow dropped 104, advancers over decliners 3-2 & NAZ went down 14.  The MLP index fell 1+ to the 162s & the REIT index was off 1 to the 403s.  Junk bond funds fluctuated & Treasuries slipped lower, bringing even higher yields.  Oil went under 61 again & gold tumbled plummeted 32 to 1682 (more on both below).

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil40.35
  -0.77-1.9%







GC=FGold  1,888.20
+14.90+0.8%












 

 

 



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US home prices grew at their fastest pace in seven years in Jan as supply plummeted to a new low.  The Case Shiller 20-city index posted an 11.1% year-over-year gain, up from 10.2% in the previous month, the largest jump since 2014, while the 10-city index an annual increase of 10.9%, compared to 9.9% in the previous month.  On a monthly basis, the 10 & 20-city indexes increased 0.8% & 0.9% between Dec-Jan, respectively.  Seasonally adjusted, those indexes both increased by 1.2%.  In Jan, 19 out of 20 cities reported increases before seasonal adjustment, & all 20 cities reported increases after seasonal adjustment.  Meanwhile, the S&P CoreLogic Case-Shiller National Home Price index rose 11.2% in Jan, compared to 10.4% the previous month, marking the highest annual rate of price growth since 2006.  Phoenix had the fastest home price growth for the 20th consecutive month, posting a 15.8% year-over-year increase, followed by Seattle at 14.3% & San Diego at 14.2%.  The city with the slowest home price growth was Las Vegas, though it was still an impressive 8.5% year-over-year gain.  “January’s data remain consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” Craig Lazzara, managing director & global head of index investment strategy at S&P DJI, said.  Lazzara noted it is unclear whether the trend will fade as the pandemic is brought under control or if the higher demand will be a permanent shift.  The latest data comes as existing home sales fell 6.6% in Feb to a seasonally adjusted annual rate of 6.2M units, according to the National Association of Realtors (NAR).  However, existing home sales were still 9% higher in Feb compared with a year ago.  Housing inventory reached a record low of 1.03M units as of the end of Feb, a 29.5% year-over-year decline compared to 1.46M units, marking the sharpest yearly drop since NAR began collecting home inventory data in 1982.  Higher mortgage rates could slow sales a bit in the coming months, but borrowing costs remain near historic lows.  The average rate on a 30-year fixed mortgage rose to nearly 3.2% last week, the highest since Jun, up from 3.1% the week before.  That's still below the pre-pandemic rate of 3.5%.  According to the Federal Housing Financy Agency's (FHFA) home-price index, nationwide home prices saw a 12% increase compared to a year ago & a 1% uptick month-over-month.  The FHFA reported home prices in the Mountain region rose 14.8%, in line with the regional data reported in the Case-Shiller indices.

Home prices see biggest jump since 2014

The IMF is even more optimistic about global growth this year, but has insisted there is still “high uncertainty” ahead.  Back in Jan, the IMF struck an upbeat tone in its global economic forecasts, estimating a GDP (gross domestic product) rate of 5.5% this year.  At the time, this represented a 0.3 percentage point increase from previous forecasts.  However, Pres Biden's massive fiscal plan & an improved vaccine rollout over the past 3 months have made the IMF even more confident about the rest of the year.  “We now expect a further acceleration: partly because of additional policy support — including the new fiscal package in the United States; and partly because of the expected vaccine-powered recovery in many advanced economies later this year,” IMF's Managing Director Kristalina Georgieva said.  “This allows for an upward revision to our global forecast for this year and for 2022.”  The new forecasts will be announced Tues, when the fund releases its latest World Economic Outlook.  The rate of coronavirus vaccinations around the world is also picking up pace.  Yesterday, Biden said that 90% of adults in the US will be eligible for a Covid-19 vaccine by Apr 19.  Meanwhile, the UK plans to have offered the first Covid-19 shot to all of its eligible population by the end of Jul & the EU is expecting to have 70% of the adult population vaccinated this summer.  However, the IMF has warned that one of the risks to the outlook is the high uncertainty provoked by the pandemic, including potential new variants.  “One of the greatest dangers facing us is extremely high uncertainty,” Georgieva said.  At the same time, it has noted that there is an uneven economic recovery taking place.  “While the outlook has improved overall, prospects are diverging dangerously not only within nations but also across countries and regions. In fact, what we see is a multi-speed recovery, increasingly powered by two engines — the U.S. and China,” Georgieva added.  “They are part of a small group of countries that will be well ahead of their pre-crisis GDP levels by the end of 2021. But they are the exception, not the rule.”  As a result, the IMF is advising countries to ramp up vaccine production, distribution & deployment.  It also advised they keep loose fiscal policies & invest in climate-friendly policies.  “This is how we can protect people’s health — and accelerate the recovery. Faster progress in ending the health crisis could add almost $9 trillion to global GDP by 2025. But the window of opportunity is closing fast. The longer it takes to speed up vaccine production and rollout, the harder it will be to achieve these gains,” Georgieva added.

IMF to raise global growth forecasts on U.S. stimulus and Covid vaccination progress

Gold futures settled lower for a 2nd session, hit by rising bond yields & strength in the $, with coronavirus vaccine rollouts lifting expectations for higher inflation as economies recover, particularly the US.  Gold for Apr fell $28 (1.7%) to settle at $1683 an ounce, after shedding 1.2% in the previous session.  Prices based on the most-active contract settled at their lowest since Mar 8.  A rise in the 10-year Treasury yield, which pushed as high as 1.778% for the first time since Jan 2020, was credited with weighing on appetite for precious metals, which don't offer a coupon.  Yields & bond prices move in opposite directions.  Meanwhile, the $ has been perkier amid prospects of a stronger economic recovery from the COVID pandemic & rising bond yields.  The $ was up 0.4% at 93.30.  Gold has traded inversely to the $ in recent trade, with the currency up 2.7% so far in Mar, while bullion is down 2.7% on the month.  Data released today revealed that US consumer confidence rose to 109.7 in Mar, from a revised 90.4 in Feb.  Meanwhile, Pres Biden has pledged that 90% of the US population will be eligible for the coronavirus vaccine by Apr 19, fueling further hope of a robust rebound from the pandemic.  The US is now giving 2.8M doses daily of COVID-19 vaccine, as the supply increases & states increase eligibility.  Some strategists expect Fri's jobs report, when the markets will be closed in observance of Good Friday, to register around 1M jobs for Mar 625K, with range of 439K-1M.

Gold suffers back-to-back declines on bond yield surge, dollar strength

Oil futures settled loweras ships resumed moving thru the Suez Canal & traders turned their attention to a meeting of OPEC & its allies (OPEC+) later this week.  Saudi Arabia is likely to urge OPEC+ to extend existing production curbs thru May at the Thurs meeting.  West Texas Intermediate crude for May fell $1.01 (1.6%) to settle at $60.55 a barrel.  Global benchmark May Brent crude, ahead of the contract's expiration tomorrow, lost 84¢ (1.3%) at $64.14 a barrel.  Crude is on track for monthly declines, with WTI down over 1% in the month to date & Brent off less than 1%, though both remain up more than 20% so far this year.

Oil prices settle lower as Suez Canal reopens; focus shifts to OPEC+

Economic data continues to be about as good as could be hoped for & vaccinations are coming along.  But higher interest rates are haunting traders & investors.  More bond selling is in coming which brings higher interest rates.  The Dow looks vulnerable at its present level, above 33K.

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