By: Ariel Segal
January retail sales came in hot on Wednesday, beating all estimates with its largest advance since June. Overall sales value increased 5.3%, bolstered by stimulus checks and a curb in Covid-19 cases. Online shopping and food services saw increases in sales of 11% and 6.9% respectively.
Chinese foreign minister Wang Yi gave a speech on Monday, imploring the Biden administration to try and reopen trade discussions and roll back tariffs and sanctions that were results of discussions with the previous administration. However, the Biden administration has made it clear that they have found some merits in Trump’s intense review of the U.S’ trade policies with China. Biden plans to keep the tariffs in place and is looking to get his $700 billion infrastructure bill passed quickly, in part due to his fears of falling behind Chinese automotive and rail technological investments.
Bad weather in the U.S. substantially slowed the distribution of vaccines last week. Over 205 million doses have been given worldwide with 63 million of those being given in the U.S.
Fixed Income Market:
By Joseph Colleran
Last week saw more of the same trend that we have been experiencing since mid-January with yields trending higher and spreads grinding tighter. The “reflation trade” continues to have legs as investors stretch for yield. The energy sector continues to be the best performer as oil prices pushed higher on the belief a global recovery is all but certain. West Texas Intermediate (WTI) broke through the $60/bbl barrier and is currently trading at $61.50. HY bond yields remain near at all-time low yields while IG spreads tightened another 3bps and are closing in on historic tight levels vs USTs.
Our retail clients remain mostly on the sidelines regarding fixed income products. The lone exception continues to be in new issue Structured Notes, where demand remains robust.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $0.9BLN
IG Bond Funds up $4.5 BLN
HY Bond Funds down $1.3 BLN
Municipal Bond Funds up $1.6 BLN
Domestic Equity Funds down $3.0 BLN
IG Bond Funds up $2.7 BLN
HY Bond Funds down $0.2 BLN
Municipal Bond Funds up $2.3 BLN
By: James Zurovchak
All three major indices again set new all-time highs before trimming gains. DJI finished the week up 0.2%, while NASDAQ and S&P 500 were lower 1.5% and 0.7% respectively. Last week’s optimism generated by an extremely robust retail sales number (5.3% vs consensus 1.1%) was tempered by the breakout to the upside in long term US Treasury rates* (US 10y now at 1.36% from 1.19% as week’s start). Only 4 of 11 GICS sectors were up with Energy (+3.4%) and Financials (+2.8%) outperforming. Communication Services (-3.0%) Health Care (-2.4%) and Utilities (-1.9%) lead the way down. Value again outperformed Growth -1.0% vs -1.7%. Small Caps were in line with the majors losing 1.0%. Equity markets will continue to watch the three main headline grabbers: stimulus, continued accommodating Fed Policy and vaccine rollout.
*Note: A move in higher in US Treasury rates can negatively affect equity markets in two ways: 1) Higher bond yields mean risk averse investors do not need to move into equities to find a positive return. 2) Future earnings are now discounted at higher rates.
By Anthony Minardo
The US dollar continues to be pulled in both directions as we witnessed last week. Higher US yields, and risk aversion due to lower equities, created a short-lived rally in the dollar before trading lower to end the week. Looking ahead, the key event this week will be the voting result on President Biden’s stimulus plan. The “reflation” theme will also be in the forefront as Fed Chair Powell will give his semi-annual monetary report to Congress. The market will focus on any indications from Powell with regards to employment and inflation targets. An abundance of economic data this week, which could provide a clearer direction of the dollar, include durable goods, second release of GDP, PCE, and personal income spending.
By Brian Stigliano
Potential Estate Tax Changes
I recently had a very informative conversation with a highly regarded estate planning attorney about potential changes to the current estate/gift tax exemption. In short, the Biden administration is advocating for a drop in the exemption from $11.7 million per person ($23.4 million for a married couple) to as low as $3.5 million per person ($7 million for a married couple). Due to the economic climate and stimulus spending, this change could happen as early as January 1, 2022 in order to generate additional tax revenue.
With federal estate tax rates as high as 40%, the attorney I spoke to is advising his clients with a net worth greater than $5 million ($10 million if married) to begin their planning now. The risk to waiting until “we are sure the change is happening” is that good estate planners may be too busy to help at that point. Additionally, the appropriate solutions including the creation of trusts and potential life insurance strategies take time to develop and implement.
Last Week's Economic Data 2/22
|Last Week's Economic Data||Actual||Survey|
|PPI Final Demand Mom||1.3%||0.4%|
|Retail Sales Advance MoM||5.3%||1%|
|Initial Jobless Claims||861k||773k|
|Existing Home Sales||6.69m||6.60m|
This Week's Economic Data 2/22
|This Week's Economic Data||Release Date||Survey|
|New Homes Sales||2/24/21||855k|
|Durable Goods Orders||2/25/21||1.1%|
|Initial Jobless Claims||2/25/21||825k|
|GDP Annualized QoQ||2/25/21||4.2%|
|Wholesale Inventories MoM||2/25/21||0.3%|
|Source: Bloomberg L.P.|
Market Data Values 2/22
|Interest Rates||Current||WoW||MoM||YoY||US Swap Spreads||Current||WoW||MoM||YoY|
|1 Month Libor||0.11%||+0.9 bp||(1.0 bp)||(151.2 bp)||12-Month||+13 bp||+0.5 bp||+2.5 bp||+11.4 bp|
|3 Month Libor||0.18%||(1.6 bp)||(4.0 bp)||(150.4 bp)||2-Year||+10 bp||(0.4 bp)||+1.5 bp||+18.4 bp|
|6 Month Libor||0.20%||(0.1 bp)||(3.2 bp)||(147.1 bp)||3-Year||+11 bp||+0.3 bp||+3.1 bp||+22.2 bp|
|12 Month Libor||0.29%||(1.5 bp)||(2.7 bp)||(144.3 bp)||5-Year||+13 bp||(1.2 bp)||+3.8 bp||+26.0 bp|
|Fed Funds Effective||0.07%||(1.0 bp)||(2.0 bp)||(152.0 bp)||7-Year||+9 bp||+0.5 bp||+5.0 bp||+26.8 bp|
|SOFR||0.02%||(0.0 bp)||(5.0 bp)||(157.0 bp)||10-Year||+9 bp||+13.1 bp||+35.3 bp||+139.7 bp|
|US Treasury Yields||Current||WoW||MoM||YoY||30-Year||(23 bp)||+14.3 bp||+35.8 bp||+173.6 bp|
|12-Month||0.05%||(1.0 bp)||(4.1 bp)||(136.9 bp)||Equity Markets||Current||WoW||MoM||YoY|
|2-Year||0.11%||+0.4 bp||(0.8 bp)||(124.1 bp)||Dow Jones||31,609||+0.4%||+2.0%||+9.0%|
|3-Year||0.22%||+2.9 bp||+3.7 bp||(109.6 bp)||S&P 500||3,895||(0.3 %)||+1.4%||+16.7%|
|5-Year||0.60%||+10.4 bp||+16.4 bp||(72.7 bp)||NASDAQ||13,613||(1.9 %)||+0.5%||+42.1%|
|7-Year||1.00%||+15.0 bp||+23.4 bp||(40.7 bp)||Currencies||Current||WoW||MoM||YoY|
|10-Year||1.37%||+0.4 bp||(0.8 bp)||(124.1 bp)||Euro||1.2162||+0.3%||(0.1 %)||+12.1%|
|30-Year||2.19%||+0.4 bp||(0.8 bp)||(124.1 bp)||Japanese Yen||105.0600||+0.3%||(1.2 %)||+5.4%|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY||British Pound||1.4067||+1.2%||+2.8%||+8.8%|
|12-Month||0.18%||(0.6 bp)||(1.6 bp)||(125.5 bp)||Canadian Dollar||1.2609||+0.2%||+1.0%||+5.4%|
|2-Year||0.21%||+0.0 bp||+0.7 bp||(105.8 bp)||Australian Dollar||0.7917||+1.7%||+2.6%||+19.9%|
|3-Year||0.33%||+3.2 bp||+6.8 bp||(87.4 bp)||Swiss Franc||0.8959||(0.6 %)||(1.1 %)||+9.3%|
|5-Year||0.73%||+9.2 bp||+20.2 bp||(46.7 bp)||Israeli Shekel||3.2631||(0.6 %)||+0.3%||+5.0%|
|7-Year||1.09%||+15.6 bp||+28.4 bp||(14.0 bp)||Bitcoin||54,306||+12.7%||+63.0%||+465.3%|
|10-Year||1.46%||+13.5 bp||+34.5 bp||+15.5 bp||Commodities||Current||WoW||MoM||YoY|
|30-Year||1.96%||+14.7 bp||+35.0 bp||+49.5 bp||Gold||1,807||(0.6 %)||(2.6 %)||+10.0%|
|Source: Bloomberg L.P.||Crude Oil||61||+3.4%||+17.6%||+15.2%|
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