03122021 :: Friday finance

A partial digest:

  • Friday was day 52 of the Biden-Harris administration. The $1.9 trillion H.R. 1319, the American Rescue Plan Act of 2021, was signed by Biden into law Thursday, after quickly clearing the House again following Senate action last weekend. According to a Tax Policy Center analysis being widely circulated, the lowest quintile of income earners in the nation is set to receive the lion’s share of the package’s after tax income benefits.

  • This brings us to one of the more significant trading developments from this past week, which is that in spite of stimulus passage, markets reacted weakly on Friday, the first trading day thereafter. The implication could be that people are no longer investing ahead of the curve, or otherwise preemptively spending.

    If such behavior persists, we may have finally arrived at the moment where we need real improvements in fundamentals to back it all up, in order for the markets to register any further gains; an actual recovery taking shape, not a pipe dream.

    If rising yields are to blame for cooling sentiment, then we're especially stuck for the moment. The Fed would have to exert some yield curve control.

    Or, perhaps it will take a giant infrastructure bill, next.

  • Quick wrap:

    [tracking: TECK, FCX, TMF/TMV, GLD, JDST, GUSH/DRIP, ETH]
  • Initial jobless claims rose to 712k (SA) for the week ending March 6 from an upwardly revised 754k for the week prior. One year ago, we saw 211k. Note that quite often, the previous week's figures are being upwardly revised.

    To add to this, approximately 478k on an unadjusted basis applied for PUA, up from the previous week’s downwardly revised 436k+.

    As of February 20, more than 20.1 million people (UA) were still claiming unemployment benefits of some kind, up over 2 million from the week prior. In the comparable week one year ago, the US witnessed more than 2.1 million people claiming unemployment insurance from all programs together.

    Almost all UI benefits programs saw increases in continued claims. The PUA program saw the biggest jump of 1+ million, followed by the PEUC at close to 1 million people as they remain unemployed, working their way through the UI system on their way to running out of benefits altogether.1

    A reminder that UI eligibility has now been expanded under the Biden-Harris administration. This will involve the retroactive payment of benefits to claimants who were faced with a “devil’s bargain” of returning to work in spite of concerns over safety in the midst of a pandemic, or declining some level of employment—and therefore income—with no recourse.

    The expansion falls within the PUA UI benefits program structure, and its administration will be handled at the state level. Claims should be filed with a person’s local benefits office.

  • Mortgage applications decreased a blended 1.3% (SA) for the week ending March 5, due to decreases of 5% in refis and 7% in homebuyer applications.

    The report once again neglected to mention the average loan size across purchase applications. MBA’s choice for a 30Y fixed benchmark came in higher at 3.26%. The simple national average as reported by Freddie Mac (via FRED) for March 11 was 3.05% on the 30Y fixed.

    ARM activity increased, signifying the relaxing of borrower standards previously mentioned here to pull more people into the market. Again, not a great development with no dependable foothold for an economic recovery, yet.

    At the same time, the forbearance rate fell slightly to 5.20% as some households made their exit in one way or another. Exits, the good, the bad, and the ugly, are expected to pick up now and into next month as we mark a year of being beset by the pandemic in the US.

    Of concern is that the percent of households that are current is falling, now above 12% as opposed to closer to 14% at the close of January. Additionally, the relative number of households on extended forbearance grew, while those continuing to make payments in these days of forbearance shrunk.

    The expectation here remains that we’re due for housing market—and more generally, real estate—weakness. However, massive infrastructure spending could help matters.

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  • Used car trends: The latest Carvana car count as of March 13 dropped 4.86% to 36,949 vehicles from 38,836 the week prior, marking the first drop in several weeks. Meanwhile, the CarGurus average price index continued rising, this time by 0.50% to $22,615 from $22,503.

  • Sovereign matters:

    • S&P Global downgraded Kenya on account of the negative impact of the pandemic upon the nation’s economic growth, as well as rising fiscal deficits. This, in spite of IMF and World Bank assistance.

    • S&P Global downgraded Montenegro given the major hit its international tourism industry took with the pandemic in full effect, among other things.

    • Moody’s upgraded Serbia with a stable outlook, thanks in part to a reliance on industries that proved less vulnerable to the pandemic than others, such as agriculture versus tourism. What’s more, the continued implementation of structural reforms played a part in the rating action, as well as a trend of privatization, reasonable fiscal management, lower cost of debt, solid vaccine rollout, and more.

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Footnotes

1

Unemployment Insurance Weekly Claims News Release.” Release Number: USDL 21-420-NAT. US Department of Labor (March 4, 2021).

2

Valenta, Philip. “Death by COVID-19 Hides in Plain Sight.” HedgeHound (June 29, 2020). This research includes the full methodology behind the figures, as well as other details regarding death categorization in the US during the global pandemic. It was last updated on December 4, 2020.