Rapid Rise in Yields Rattles Markets…..
U.S. equities closed sharply lower, as the rapid move higher for Treasury yields appeared to unnerve investors, continuing to put pressure on growth issues, most notably the Information Technology and Consumer Discretionary sectors. As well, Energy and Financials sectors, which have benefited from the continued rise in crude oil prices, confidence of a robust second-half 2021 recovery and the spike in rates, paused from their recent rallies. Meanwhile, progress on the COVID-19 vaccine front also continued to bolster optimism for the economic outlook, amplified by some upbeat reads on durable goods orders and weekly initial jobless claims—though weather distortions may have played a role in the latter. Treasuries fell, extending the rise in yields, and the U.S. dollar was little changed, while crude oil prices gained ground and gold came under solid pressure. Earnings news continued to trickle in, as NVIDIA topped estimates, Anheuser-Busch warned of margin pressures, Booking Holdings remained hampered by the struggling travel industry and Viacom-CBS posted an upbeat report. Europe finished mostly lower in choppy action, while markets in Asia were higher.
The Dow Jones Industrial Average fell 560 points (1.8%) to 31,402, the S&P 500 Index was down 96 points (2.5%) at 3,829, and the Nasdaq Composite lost 479 points (3.5%) to 13,119. In heavy volume, 1.2 billion shares were traded on the NYSE and 6.3 billion shares changed hands on the Nasdaq. WTI crude oil added $0.31 to $63.53 per barrel. Elsewhere, the Bloomberg gold spot price tumbled $31.93 to $1,773.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 90.20.
Treasury yields continue to run, jobless claims and durable goods orders better than expected…..
Treasuries were lower as optimism regarding a strong economic recovery in the second half of 2021 remained, and as inflation expectations continued to gain traction. The rate on the 2-year note advanced 5 basis points (bps) to 0.17%, the yield on the 10-year note gained 14 bps to 1.53%, and the 30-year bond rate rose 8 bps to 2.32%.
The increase in bond yields came on the heels of this week’s two-day monetary policy testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell. The Fed Chief suggested that the Central Bank remains squarely focused on employment and fostering the recovery as nearly 10 million jobs remain lost compared to pre-pandemic levels. “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell continued to stress, adding that the Fed does not expect inflation to rise to “troubling levels.”
In economic news, weekly initial jobless claims came in at a level of 730,000 for the week ended February 20, well below the Bloomberg estimate of 825,000, and compared to the prior week’s downwardly revised 841,000 level. The four-week moving average fell by 20,500 to 807,750, and continuing claims for the week ended February 13 dropped by 101,000 to 4,419,000, south of estimates of 4,460,000. The four-week moving average of continuing claims declined by 91,500 to 4,547,000. However, economists are pointing out that last week’s figures may have been impacted by the severe weather conditions across the country, which may have hampered the reporting and processing of claims.
January preliminary durable goods orders jumped 3.4% month-over-month (m/m), versus estimates of a 1.1% rise and compared to December’s upwardly revised 1.2% increase. Ex-transportation, orders grew 1.4% m/m, above forecasts of a 0.7% gain and compared to December’s favorably adjusted 1.7% rise. However, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were up 0.5%, below projections of a 0.8% rise, while the prior month’s figure was revised nicely higher to a 1.5% increase.
The second look (of three) at Q4 Gross Domestic Product the broadest measure of economic output, showed a q/q annualized rate of expansion of 4.1%, revised from the first release’s figure of a 4.0% pace of growth, and versus forecasts of an adjustment to a 4.2% gain. Q3’s figure was unadjusted at a 33.4% surge. Personal consumption was revised to a 2.4% increase, south of expectations of an unrevised 2.5% rise. Q3 consumption was unadjusted at a 41.0% jump.
On inflation, the GDP Price Index was revised to a 2.1% rise, versus estimates of an unadjusted 2.0% increase, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.4% gain, matching forecasts.
Pending home sales fell 2.8% m/m in January, versus estimates calling for a flat reading after December’s upwardly revised 0.5% gain. Sales were 8.2% higher y/y, compared to December’s favorably revised 23.1% increase. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.
The February Kansas City Fed Manufacturing Activity Index unexpectedly moved further into a level depicting expansion (a reading above zero). The index rose to 24 from January’s 17 reading, and compared to forecasts calling for a dip to 15.
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