Daily Markets: Stocks Watch Treasuries Dip and U.S.-China Trade Meeting

Today’s Big Picture

Equity indices in Asia finished the week on a down note with nearly all of the indices trading off on the day. Leading the move lower was the 1.7% fall in China’s Shanghai Composite, which was closely followed by the 1.4% drop in both Japan’s Nikkei and Hong Kong’s Hang Seng. By mid-day trading, equity indices in Europe were mixed while U.S. futures point to a market rebound later this morning following yesterday’s sell-off. The likely catalyst for that positive U.S. opening is the early morning decline in the 10-year Treasury yield.

With little in the way of economic data and earnings reports to be had this morning, the day’s trading will likely reflect the day’s move in Treasury yields and the outcome of U.S.-China trade talks. The first gathering of U.S. and China officials under President Biden concludes today and amid reports of bickering, we’d remind readers that expectations for forward progress from this two-day meeting are rather low. We’d also note today is a quadruple witching day, which could bring about more pronounced trading volatility given major expirations of options and futures contracts.

Over the weekend, we’ll be watching Washington for signs of progress on President Biden’s post $1.9 trillion relief bill economic agenda that looks to focus on infrastructure spending as well as a tax hike to help fund it. We’ll also be monitoring progress on COVID-19 cases, potential restrictions, and both U.S. as well as global vaccination levels.

Data Download

Coronavirus

Finally some really great news concerning the pandemic. President Biden will achieve his goal of delivering 100 million vaccination shots in his first 100 days this week, less than 60 days into this presidency, with the pace of shots hitting an average of nearly 2.5 million per day. At this pace, we will likely see 200 million shots by his 100th day as president, barring any unexpected delivery or rollout problems.

More good news also came from Lyft when the company reported last week was its biggest since March of last year, and yesterday it saw growth for the first time in a year.

European nations including Germany, France, Italy, Spain, Portugal, and the Netherlands said they would resume using the COVID-19 vaccine developed by AstraZeneca (AZN) and the University of Oxford.

German health minister Jens Spahn shared rising infections could mean that curbs to slow the spread of the virus may have to be re-imposed.

International Economy

Japan’s headline inflation rate fell 0.4% YoY in February from -0.6% in January. Core inflation also fell 0.4% YoY in February from -0.6% in January from which it was expected to rise to -0.4%. The Bank of Japan left its key interest rate at -0.1%, where it was expected to remain, and maintained its target for the 10-year Japanese government bond yield at around 0%.

Germany’s PPI rose 1.9% YoY in February, the largest increase since May 2019 but a tad below the expected 2.0% consensus forecast. Excluding energy, producer prices rose by 1.4% in February.

Domestic Economy

Yesterday’s Philadelphia Fed Manufacturing Report for March was about as good as it gets, with manufacturing activity in the region expanding rapidly. The headline index number was expected to increase from 23.1 to 24.0 but rose 28.7 points to 51.8, making for the largest 1-month gain since the record 57.6 point increase last June. Barring 2020’s anomaly, there were only two times that have seen bigger moves and they were back in 1980, with data going all the way back to 1968. Every subindex for current conditions came was in the top decline of all readings for March and the top decline of all month-over-month changes. The New Orders Index rose 27.5 points to the second-highest level on record. The Index for the Number of Employees rose to 30.1 - the only time we’ve seen a higher read was in May and June of 2018. Inventory builds were in the 99th percentile of all readings. Unfilled Orders and Delivery Times, which had been rising considerably amidst global supply chain and shipping challenges, rose more slowly, which could mean that the discombobulated (technical term) global logistics are starting to sort themselves out.

Yesterday’s initial jobless claims report was expected to hit a new low for the pandemic, but instead of dropping to 700k, claims rose to 770K (seasonally adjusted), the highest reading since the week of February 12. On a non-seasonally adjusted basis, regular state claims rose by 24.3K, a very usual uptick for this time of year. In the past 55 years, only 5.5% of years have seen claims rise during this week, the 11th week of the year. Continuing claims have continued to fall, with yesterday’s reading of 4.124 million a new pandemic low.

Markets

Equity markets were generally weak on the day, with losses accelerating into the close. The S&P 500 fell 1.5% yesterday while the Nasdaq Composite slumped 3.0% and Russell 2000 dropped 2.94% as the yield on 10-year Treasuries closed moved continued its upward climb, approaching 1.76% before trading off to close the day at 1.72%. Helping light the fire that would hit growth equities was yesterday’s Philly Fed's March survey showed the highest measure of prices paid in more than four decades. For the day, the Dow Jones Industrial Average fell just 0.5% after setting an all-time high during the day. From a sector perspective, ten of the eleven S&P 500 sectors closed in negative territory, with the larger laggards including information technology, consumer discretionary, and communication services.

As we mentioned earlier, yields were on a wild ride yesterday, spiking up in the morning, but easing later in the day. The 10-year Treasury yield spiked from 1.64% on Wednesday to 1.75% yesterday, hitting a 14-month high, then falling down to 1.72% toward the end of the day.

Crude oil fell more than 8% yesterday, breaking below its post-November uptrend and falling below $60 a barrel while agriculture futures were also feeling the downward pressure. The U.S. dollar rose 0.5%.

Stocks to Watch

Nike (NKE) reported mixed February quarter results with EPS topping the consensus forecast but revenue for the quarter rising 2.9% YoY to $10.4 billion, missing the $10.98 billion consensus. Nike direct sales were $4.0 billion, up 20%; brand digital sales increased 59% with strong double-digit increases in all geographies; North America reported revenue declined 10% due to supply chain challenges, including global container shortages and U.S. port congestion; Greater China revenues increased 42%. For its current quarter, Nike sees revenue growth of roughly 75% versus the prior year due to government-mandated restrictions in Europe starting to ease in April and inventory transit times slowly improving in North America.

February quarterly results from FedEx (FDX) topped top and bottom line consensus expectations primarily due to strong volume growth in U.S. domestic residential package and FedEx International Priority services as well as pricing initiatives across all transportation segments. Severe winter weather during February reduced the quarter's operating income by an estimated $350 million. For its fiscal 2022, FedEx sees EPS of $17.60-$18.20.

Chubb (CB) submitted a proposal to acquire The Hartford (HIG) for $65 per share and Hartford's board said it will consider the unsolicited proposal.

Shares of Limelight Networks (LLNW) rose in aftermarket trading following the company announcing several actions including cutting 16% of staff in a bid to "improve execution, profitability and accelerate growth."

Amazon (AMZN) announced it finalized a deal with the NFL to be added as an exclusive partner for Thursday Night Football.

Sony Interactive Entertainment (SNE) and esports venture RTS jointly acquired the Evolution Championship Series fighting-game event.

Electric vehicle startup Rivian (RIVN) is building an EV charging network called the Rivian Adventure Network that is targeted to include more than 3,500 fast chargers across the U.S. and Canada by the end of 2023.

Ford (F) said it will continue for now to assemble its flagship F-150 pickup trucks and Edge SUVs in North America but without certain parts due to the global semiconductor chip shortage, while it cancels shifts at two assembly plants. Ford says the chip shortage, combined with the shortage of a part caused by last month's U.S. winter storm, will prompt it to build the vehicles numbering "in the thousands" and then hold them "for a number of weeks" until the parts are available.

Restaurant Brands International’s (QSR) Popeyes announced an agreement with JK Capital to bring “hundreds” of new Popeyes restaurants to Mexico over the coming years.

After today’s market close, there are no companies expected to report their quarterly results. Why? Because it’s Friday! Investors looking to get a jump on the earnings reports coming at us next week should visit Nasdaq’s earnings calendar page.

On the Horizon

• March 22: Chicago Fed National Activity Index
• March 23: New Home Sales, API Crude Oil Stocks, Apple event?
• March 24: Durable Goods Orders, Markit Manufacturing and Services PMI, EIA Energy Stocks
• March 25: US Corporate Profits Q4, weekly jobless claims,
• March 26: Personal Income & Spending, PCE Price Index, Goods Trade Balance, Wholesale Inventories, Michigan Consumer Sentiment
• March 29: Dallas Fed Manufacturing
• March 30: S&P/Case-Shiller Home Price report, Conference Board Consumer Confidence, API Crude Oil Stocks
• April 1: Alien Nation IPOs on Nasdaq through a Mars Rover SPAC sponsored by the Wormhole Venture Fund led by Jean Luc Picard from Hawkins, Indiana, Weekly jobless claims, Markit Manufacturing PMI, Construction Spending, ISM Manufacturing PMI, Total Vehicle Sales
• April 2: Nonfarm Payrolls
• April 5: Markit Services PMI, ISM Non-Manufacturing PMI, Factory Orders
• April 6: JOLTS Job Openings, IBD/TIPP Economic Optimism, API Crude Oil Stocks
• April 7: Balance of Trade, EIA Energy Stocks, FOMC Minutes
• April 8: Weekly jobless claims
• April 9: PPI, Wholesale Inventories

Thought for the Day

“Maturity is when you have the power to destroy someone who did you wrong but you just breathe, walk away and let life take care of them.” ~Vanessa Ledin

Disclosures

• Nike (NKE) is a constituent of Tematica Research's Thematic Dividend All-Stars Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy Central Banks Jobs & Unemployment Coronavirus Earnings