Insights

WuRevue Week Ending 3/26/2021

 

Top News:

03/22: US saw a pair of positive vaccine developments (here, here), while France began reimposing lockdown to contain a third wave of infections.  Existing home sales declined 6.6% in February from the prior month as inventory remained constricted. Investor appetite for risk in emerging markets was curtailed, after Turkey abruptly sacked its third central bank chief in two years.

 

03/23: Investors took some money off the table as Fed Chair Powell and Treasury Secretary Yellen began their two-day congressional testimony. Caution also stemmed from extended lockdowns announced in Germany and in the Netherlands, as well as nagging concerns eroding public perception of the AstraZeneca vaccine. 

 

03/24: February’s weak durable goods orders report was dismissed as temporary, following some notable strength in prior months.  Vaccine rollout, steady reopening of the economy, and additional governmental stimulus all helped the U.S. private sector register a substantial increase in business activity in March.  Meanwhile, both the Eurozone and the UK also saw glimmers of a nascent recovery this month. 

 

03/25: Biden is targeting infrastructure upgrades, reportedly with a price tag of $3T, as his next major initiative.  Initial unemployment claims were at the lowest since March 2020, providing some fodder for bulls focused on the recovery narrative. Despite this encouraging movement, enthusiasm was capped early in the session by the Fed Chairman’s hint that the central bank will “gradually” roll back monetary support.

 

03/26: Largely in-line with expectations, personal income and spending declined in February on the heels of a robust January.  Meanwhile, the headline figure for the PCE Index, the Fed’s preferred measure of inflation, inched higher to 1.6%.  Consumer optimism continued to rise in late March, due to vaccination progress and pending third stimulus payments.  In Asia, borrowing by Chinese state-owned enterprises fell to its lowest level in 10 years as the government seeks to clamp down on systemic financial risks.  An unfolding imbroglio over Chinese human rights abuses heated up between Europe and China (here, here).

 

 

Heard on the Street:

“Over the next few months, 12-month measures of inflation are expected to move temporarily above our 2 percent longer-run goal… However, I expect most of this increase to be transitory and for inflation to return to—or perhaps run somewhat above—our 2 percent longer-run goal in 2022 and 2023.”

— Richard Clarida, vice-chair of the Fed., in a speech webcast on 03/25/2021

 

“There is some concern out there certainly that consumers are seeing now. They’re seeing the price of oil rise, the cost of goods is going up faster than the cost of services, and there’s a lot of inflation in the system.  The question is whether or not it becomes a self-fulfilling prophecy… We actually think that concern is a little bit overblown.”

— Yung-Yu Ma, chief investment strategist at BMO Capital, as quoted by CNBC on 03/26/2021

 

 

Longer Game:

Alarmed by the exchange of barbs between US & Chinese diplomats during their meeting in Alaska, the former chairman of Morgan Stanley Asia believes the key to a reset of the tense relationship lies in initiating negotiations within a framework of bilateral investment treaty, setting aside thornier political and trade issues.

 

The Covid pandemic has demonstrated the omnipresence and omnipotence of Big Tech.  Not surprisingly, this has garnered the attention of governments worldwide, including the US, where the House is gearing up to reshape the industry’s contours through antitrust regulations.

 

 

Bonus Item:

Latest reading of the New York Fed’s Weekly Economic Index confirmed an acceleration of economic momentum since mid-February.