Daily Markets: Treasury Yields Resume Their Climb as US Senate Passes Stimulus

Today’s Big Picture

Equities in Asia started the week off on a higher note but finished the day’s trading mostly lower led by the 1.9% drop in Hong Kong’s Hang Seng and the 2.3% fall in China’s Shanghai Composite. By mid-day trading, European equity indices were higher across the board while US futures point to a down open when those markets open later this morning. 

Over the weekend, the Senate passed a $1.9 trillion coronavirus relief bill that contained $1,400 stimulus checks with income limits at $75K per person and $150K per couple, $300/week more in jobless benefits, as well as aid for state and local governments. The bill that passed along party lines now heads back to the Democratic-controlled House on Tuesday and is expected to be sent to President Biden before a March 14 deadline to renew unemployment aid programs. Senate Majority Leader Chuck Schumer indicated Congressional Democrats might consider more stimulus depending on how the economy and pandemic progress in the coming months. 

In response, the yield on the 10-year Treasury once again moved higher in early trading this morning, weighing on US equity futures. As investors prepare for inflation-facing economic data later this week, they will first have to digest the high-profile attack on Microsoft’s (MSFT) email software that has become a global cybersecurity crisis - see Stocks to Watch for more on that.

Data Download

Coronavirus

Royal Caribbean's (RCL) newest ship, the Odyssey of the Seas, is stuck at port in Germany after two workers on the ship tested positive for coronavirus

Merck (MRK) and Ridgeback Biotherapeutics have announced that molnupiravir (EIDD-2801/MK-4482), their investigational oral antiviral agent against COVID-19, managed to speed up the time for the infectious agent to become negative in COVID-19 patients.

West Virginia and Arizona announced plans to allow businesses to operate at 100% capacity while California will allow theme parks and stadiums to open at limited capacity beginning April 1. 

International Economy

S&P Global (SPGI) estimates sovereign borrowing will reach $12.6 trillion in 2021, 20% lower than the historical surge in 2020 but still 50% higher than the pre-COVID multiyear average.

Bank Lending in Japan in February accelerated slightly to 6.2% YoY after rising 6.1% YoY in January.

China's National People's Congress set a 2021 GDP growth target of at least 6.0%, in-line with expectations.

Germany’s Industrial Production shrank 2.5% MoM in January after an upwardly revised 1.9% surge in December compared to a 0.2% increase during the month. 

Spain’s Industrial Production fell by 2.2% YoY in January following a revised 1.5% YoY decline in the previous month and expectations for a drop of 0.7%. 

Following reports that one of Saudi Arabia’s export facilities had been attacked, Brent crude oil futures jumped above $70/bbl for the first time since the start of the pandemic, while US WTI crude hit its highest level in more than two years, 

Domestic Economy

According to Epiq's AACER bankruptcy information service, the number of bankruptcies in February 2021 fell to 31,188, down 3% from January 2021, 45% lower YoY, and the lowest level since February 2006.

The big news last Friday was the February jobs report. The headline looked great with 379k new jobs which were roughly double the expected 200k. On top of that, January’s initial estimate was revised up 166k. So what’s not to like? 

The new jobs were from heavily pandemic affected sectors with Leisure/Hospitality adding 355k (or 94% of the total), Retail added 41k, and Education added another 44k. Goods-producers cut 48k jobs after 13k cut in Jan as the number of people not working due to the storm hit the highest level in four years and the second-highest in ten. Construction cut another 61k. Employment at booking agencies fell 1.4k, which isn’t a great sign for travel plans. State and local governments cut 83k in February and have now been down in five of the past six months

The number of people unemployed 27+ weeks rose by 125k to 4.15 million and as a share of unemployed, long-term unemployed reach a 9-year high of 41.5%, up from 39.5% in January and 37.1% in December and 36.8% in November - not a great trend. A total of 3.5m consider themselves “permanently” unemployed, which is 170% higher than a year ago. The median duration of unemployment rose from 15.3 weeks to 18.3 weeks, which is double the pre-pandemic length.

What was most concerning was that the workweek fell 0.9% for the private sector, dropping to 34.6 hours from 34.9, which is the is equivalent of a loss of over one million jobs. The aggregate total hours worked dropped by 0.5% in February and has now declined two of the past three months to sit lower than it was back in October, falling at a 0.4% annualized rate over the past three months. There was also a 0.6% decline in average weekly earnings. Put the two together and you get a 10% drop in annualized real work-based income last month. 

According to Black Knight's Mortgage Monitor, $4.3 trillion in mortgages were originated in 2020, with $2.8 trillion in refinances and $1.5 trillion in purchase loans, the largest annual volume since 2005.

Later today we’ll get the data for January Wholesale Inventories. 

Markets

The markets were initially unimpressed with the jobs report, but then following a strong late morning turnaround, the S&P 500 finished 2.0% higher on Friday in what can only be described as investors once again flowing into equities to buy the dip following the sell-off earlier in the week. All 11 sectors closed in the green, as did 464 S&P components. On the day, the Nasdaq Composite gained 1.6% after being down 2.6% intraday, the Dow Jones Industrial Average gained 1.9% after being down 0.5% intraday, and the Russell 2000 gained 2.1% after being down 2.9% intraday.

The US dollar also gained on the day and is now less than 3% below its pre-pandemic level after having gained more in the past two weeks than during any two-week period since the downturn in March 2020. US Treasury yields remained flat on the day. 

Stocks to Watch

The White House urged computer network operators to take further steps to gauge whether their systems were targeted amid a hack of Microsoft Corp’s Outlook email program, saying a recent software patch still left serious vulnerabilities. According to reports, more than 20,000 US organizations have been compromised through a back door installed recently via patched flaws in Microsoft's (MSFT) email software. While Microsoft released a patch last week to shore up flaws in its email software, reports indicate the remedy still leaves open a so-called back door that can allow access to compromised servers and perpetuating further attacks by others. The European Banking Authority shared that access to personal data through emails held on the Microsoft server may have been compromised.

Xpeng (XPEV) reported a December quarter loss of RMB0.95 per share while revenue for the quarter rose 345.5% YoY to RMB2.85 billion vs. the RMB2.62 billion consensus. Vehicle deliveries during the quarter skyrocketed 302.9% YoY to 12,964 units, including 8,527 P7 units. For the current quarter, Xpeng expects vehicle deliveries of approximately 12,500 vehicles, up ~450% YoY, and total revenues to be ~RMB2.6 billion, up 531% YoY. Xpeng also shared the launch of a long-distance navigation-assisted autonomous driving expedition from March 19 to 26, 2021 that is expected to cover a total distance of 3,675 km across six provinces in China.

Integrated smart payment and commerce platform Paya Holdings (PAYA) reported Q4 Adjusted Net Income of $10.4 million, up 67.7% YoY even as revenue for the quarter increased a more subdued 5.5% YoY to $54.0 million vs the $53.3 million consensus. For 2021, the company sees revenue in the range of $234-242 million vs the $205.3 million consensus.

United Microelectronics (UMC) reported February net sales grew 9.9% YoY to NT$14.95 billion; YTD sales up 10% YoY to NT$30.48 billion. 

Grupo Aeromexico (GRPAQ) reported February revenue per kilometer (RPKs) fell 57.9% YoY to 1.292 billion with Domestic RPKs falling 15.2% and international RPKs plummeting 74.6%.

DuPont (DD) will acquire Laird Performance Materials for $2.3 billion. Laird is a leader in high-performance electromagnetic shielding and thermal management with a comprehensive offering of performance components and solutions that manage heat and protect devices from electromagnetic interference. DuPont also approved a new $1.5 billion share buyback program that will expire on June 30, 2022

Photonics manufacturer Coherent (COHR) announced its board of directors has unanimously determined that a revised acquisition proposal from II-VI Inc. (IIVI) constitutes a "Company Superior Proposal" under Coherent's pending merger agreement with Lumentum Holdings (LITE). Coherent has notified Lumentum that it intends to terminate their merger agreement unless Coherent receives a revised proposal from Lumentum by 11:59 p.m. Pacific Time on March 11, 2021.

LG Chemical Co. (LGCLF) agreed to be responsible for a majority of the cost of a recall of electric vehicles tied to the risk of battery fires, including covering 81,700 Hyundai Motors (HYMLF) vehicles sold in South Korea, the US, and Europe.

General Electric (GE) is reportedly close to a $30 billion deal to combine its jet-leasing business with independent aircraft leasing company AerCap Holdings (AER).

Panasonic Corp (PCRFY) will buy US software firm Blue Yonder for $6.45 billion, the Japanese electronics firm's biggest acquisition since 2011.

Nestlé (NSRGY) bought US-based ionized alkaline water company Essentia Water that booked $192 million in revenue during 2020. 

After today’s market close, Apartment Investment & Management (AIV), Casey’s General (CASY), GoHealth (COGO), and National Cinemedia (NCMI) are among the companies reporting their quarterly results. Investors looking to get the nitty-gritty on those reports and the sea of others to be had later today should visit Nasdaq’s earnings calendar page. 

On the Horizon

• March 9: API Crude Oil Stocks
• March 10: Inflation, EIA Energy Stocks, Monthly Budget Statement
• March 11: JOLTs report for January, weekly jobless claims
• March 12: Producer Price Index, Michigan Consumer Sentiment
• March 15: NY Empire State Manufacturing, Net Capital Flows
• March 16: Retail Sales, Export/Import Prices, Industrial Production, NAHB Housing Market, Business Inventories, API Crude Oil Stocks
• March 17: Building Permits, Housing Starts, EIA Energy Stocks
• March 18: Philadelphia Fed Manufacturing, Weekly Jobless Claims
• March 22: Chicago Fed National Activity Index

Thought for the Day

“You have enemies? Good. That means you've stood up for something, sometime in your life.” ~ Winston Churchill

Disclosures

• IIVI (IIVI) is a constituent of the Tematica BITA Digital Infrastructure and Connectivity Index.
• Microsoft (MSFT) is a constituent of Tematica Research's Thematic Dividend All-Stars Index. 

Xpeng (XPEV) is a constituent of Tematica Research’s Cleaner Living Index

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

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