US stocks are rebounding as Treasury yields remain heavy after a big miss with the Philly Fed manufacturing index supports the idea that the Fed’s dovishness will probably last longer than markets are thinking. Jobless claims also improved to a fresh pandemic-era low, but a supply problem in the labor market is making the impact on claims less meaningful at the moment. The 10-year Treasury yield is down 3.2 basis points to 1.639%, while the dollar index is 0.4% weaker at 89.86.
US Data
US jobless claims declined for a third consecutive week, which shows the downward trend is firmly intact. Weekly filings for unemployment fell from a revised higher 478,000 to 444,000, a fresh pandemic-era low. Continuing claims rose by 111,000 to 3.751 million, which confirms the high level of job openings and exemplifies the struggle businesses are having with filling job vacancies. Now that over 20 states have signaled they will cancel federal unemployment programs, continuing claims should start to improve dramatically in June.
The Philly Fed Business Outlook posted a sharp-than-expected decline and softer growth six months from now. The Philly Fed headline activity index fell from 50.2 to 31.5, a much worse decline than we saw with the Empire State survey, and also a huge miss of the 41.5 consensus estimate. Business activity has been very volatile but this steep decline this early in the reopening will lead to greater concerns that supply chain delays and trouble filling job vacancies will have a greater impact over the short-term. Investors might start to question how strong the economy will get in the second quarter if businesses continue to struggle hiring and if the chip shortage doesn’t seem like it will get rectified until the end of the year. With each disappointing Fed regional survey, Powell and company appear to be justified with their ultra-accommodative stance.
The Philly Fed price indicators surged to a 40-year high on widespread pricing pressures. Prices paid rose 8 points to 76.8, with 77% of businesses reporting increases with input prices, while none reported declines. On Monday, the Empire State survey report showed both input prices and selling prices rose at record-setting pace.
The Fed regional surveys are all screaming pricing pressures, which is not surprising anyone, and also supporting the argument that inflation might not be transitory. The fear is that price increases will continue when we get closer to the end of the summer and that some investors will fear this is more like the beginning of persistent inflation.
Bitcoin/Ethereum
Bitcoin bulls have not been shy about touting that every crypto trader needs to buy this dip. The two-day Bitcoin crash was mostly new holders of Bitcoin according to CoinShares strategy officer Demioros, which explains why we saw a flash-crash-like move before yesterday’s NY open.
The next several days will turn to many macro defenses in supporting Bitcoin’s ESG problem and regulatory future. Claims are being made that China’s percentage of Bitcoin mined is anywhere from 40% to as much 50% (Ark’s Wood) in renewables.
Beijing’s crackdown on crypto will be a hard fear to alleviate given that nearly 80% of global cryptocurrencies are powered in China, but crypto loyalists will try. The argument of how FaceBook and Alphabet were still able to succeed despite restrictions from China will be recycled frequently.
Bitcoin seems poised to trade rangebound between the USD40,000 and USD50,000 levels over the short-term.
Ethereum will likely still outperform Bitcoin given they are already months from slashing their carbon emissions with a new infrastructure model.
S&P downgrades Colombia
Many LATAM investors were surprised over S&P Global Ratings’ move to cut Colombia’s debt rating to junk. S&P made the decision to cut Colombia after the government failed to deliver on fiscal reform. Colombia is still holding onto investment-grade status with Fitch and Moody’s.
Colombia is one of the countries leading the recovery in LATAM, so many investors might be looking to shortly jump back into the Colombia assets. The Colcap index should see strong support ahead of the 1,200 level.