U.S. and World News
U.S. shoppers boosted retail spending by nearly 10% in March, as a result of the federal-stimulus check, warmer weather, and a reopening economy. Retail sales jumped about 9.8% last month, becoming the largest monthly gain since May 2020. Shoppers spent more across several categories, where restaurants and bars are in the top registering double-digits gains in sales. Due to the past lockdown, consumers were not able to spend as much in restaurants and bars, which is the main reason why the entrainment industry reported double digits sales in March. Moreover, going down the list, clothing, electronics and sporting goods increased at physical and online stores. In more positive news, March industrial production increased while unemployment decreased thanks to positive outlook of the economy and reopening of businesses. Interesting enough, due to the reopening and the amount of American’s getting vaccinated debit and credit card’s expending graphs completely turned around compared to March 2020. In March 2020, the top 3 expenses in a credit and debit card were Groceries, and home improvement. Now, March 2021, those two are in the bottom of the list with Airlines, Gas, and Clothing being the top 3 most expenses in American’s credit and debit cards.- On Tuesday, Johnson & Johnson’s COVID-19 vaccine rollout was recommended to be stopped by the FDA after 6 out of nearly 7 million recipients developed dangerous blood clots. Although many people agreed with the decision, other people believed it shouldn’t have been stopped as only a very small group of people suffered from the previously mentioned side effect. Alex Tabarrok, an economist at George Mason University had another perspective, he said “ It’s very clear that the dangers of COVID are much larger than the dangers of the J&J vaccines” who also added at the end “I worry that the public will confuse a pause to mean that the FDA thinks people shouldn’t take the J&J vaccine”. The rollout paused have bigger impacts in the process of getting American’s vaccinated by the middle of summer. This decision not only obligated many test centers to shut down for the week as the vaccine they were providing was J&J, which ultimately slows down the process as thousands of American’s now have to reschedule at another test center where J&J isn’t provided, but could also send the wrong message to American’s as Alex Tabarrok mentioned. In addition, the University of Cambridge supported indirectly Alex’s comment by saying “the virus is a much bigger risk than blood clots”. Moreover they said “In every 100,000 people in their 40s with low exposure to the virus, the vaccine will cause blood clots in 0.5 while preventing COVID-19 virus serious enough to require intensive care in six others”
Markets
- Markets increased this week. The S&P 500 rose by 1.38% and closed at 4,185.74. The Dow Jones rose by 1.18% and closed at 34,200.12. Year-to-date, the S&P 500 is up 11.87% and the Dow Jones is up 12.28%
- Yields moved slightly lower this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.83% and 1.58%, respectively.
- The spot price of WTI Crude increased this week. Prices rose by 6.41% and closed at $63.12 per barrel. Year to date, Oil prices are up 30.09%.
- The spot price of Gold rose by 1.84% and closed at $1,775.90 per ounce. Year to date, Gold prices are down -6.47%.
Economic Data
- Initial jobless claims declined by 193,000 to 576,000 for the week ended April 10, much larger decline than expected.
- The Empire manufacturing index increased by 8.9pt to +26.3 in April, well above expectations.
- March core CPI rose by 0.34% month-over-month, beating consensus and boosting the year over year rate +1.6%.
- March CPI rose +0.62% month over month beating expectations of +0.5%
- Import prices increased above expectations +1.2% month over month vs median forecast of +0.9%. Year over year, import prices increased by +6.9%
- Import prices ex-petroleum rose +0.9% month over month for March, beating expectations by 0.5%. Year over year, pries increased +4.1%
- Retail sales increased by +9.8% month over month in March, 4.0pp above expectations.
- Key retail control measures increased by +6.9%, 0.3pp below expectations
- Retail sales core/control increased +6.9% month over month for March, just below expectations of +7.2%
- The Philadelphia Fed manufacturing index increase by 5.7pt to 50.2 in April from a downwardly revised March value and above expectations for a slight decrease.
- Trade deficit rose to -$71.1bn versus expectations of a balance of -$70.3bn.
Fact of the Week
- Just 1 in 39 homeowners (2.5%) was at least 3 months behind in paying their monthly mortgage as of 12/31/20. However 1 in 5 renters (20.5%) was at least 3 months behind in paying their monthly rent as of 12/31/20 (source: Consumer Financial Protection Bureau)
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Friday morning, the La Soufriere volcano erupted on the Caribbean island of St. Vincent, making roughly 16,000 people required to evacuate their homes. Erouscilla Joseph, director of the University of the West Indies’ Seismic Research Center, has warned more explosions could occur as it is impossible to predict whether any potential explosions would be bigger or smaller than the first one. Two Royal Caribbean cruise ships and two Carnival cruise ships arrived after the explosions to help those that ad to evacuate their homes. The volcano last erupted in 1979.
Following with last week’s newsletter story, the Suez Canal has been freed and the Ever Given refloated after 6 days and more than 300 ships waiting to cross through the canal in Egypt. There was work needed to be done in the sand, where engineers were utilizing conventional earthmoving equipment working on shore. In addition, work was also needed to be done under water, where tugboats and dredgers were working on a daily basis. Dredgers are ships equipped with machines to remove underwater sand and sediment. On the other hand, 14 tugboats were used to pull and nudge the Ever Given away from the canal walls. Lastly, as many people are saying “the moon, the earth, and the sun helped”. According to the Associated Press, the full moon offers spring tides, which are higher and lower than average. Also, gravity affected tides during the straight-line alignment of the Earth, the moon, and the sun. The spring high tides added a few inches of water inside the canal, making removal easier.
On Tuesday, a container ship blocked one of the world’s busiest shipping arteries, the Suez Canal. This canal is a key trade route between Asia and Europe, as not only oil and natural gas is transported through it, but also clothing, electronics and heavy machinery. According to the maritime industry trade group Bimco, an average of 39 ships transit the canal which connects the Red Sea with the Mediterranean on a daily basis, and 19,000 vessels crossed the canal in 2020. Due to a dust storm where wind speeds reached 40 knots, the huge “Ever Given” carrying 20,000 containers ran aground, blocking the whole canal both ways. Although Egyptian authorities are working daily trying to dig out the huge vessel to make it partially refloat again, the issue has created concerns to analysts due to the delay in oil shipment. Dredging the “Ever Given” to make it refloat and taking weight off the ship by removing containers, fuel and ballast water, will help to open the canal for the 120 other boats waiting in traffic.
Oil prices fell Thursday afternoon due to the weighing fear of dwindling crude demand while stockpiles remain plentiful. The International Energy Agency this week has stated in their latest monthly report that an ample amount of global oil inventories and supplies will remain, which will ease some concern of possible shortages as well as a prolonged increase in gas prices at the pump.
President Biden signed the American Rescue Plan into law on March 11th, a front-loaded relief bill costing $1.9 trillion that will support the economy at least until September. The bill includes $400 billion in stimulus payments to Americans in the form of $1,400, which phases out starting at incomes over $75,000 per year. Also included in the relief package is $350 billion that will be allocated to state and local governments and an extension of the enhanced federal unemployment of $300 per week until September 6th. There will be $130 billion spent on education, specifically on efforts to make K-12 schools a safer environment. Other smaller items within the fiscal package include vaccine distribution, an expansion of the child tax credit and the Affordable Care Act, and the Paycheck Protection Program. The American Rescue Plan was President Biden’s first significant fiscal policy bill, and the third Covid related bill on top of the $2 trillion CARES Act, and the $900 billion Consolidated Appropriations Act 2021.
On Tuesday, Texas Governor Greg Abbott announced that the state is lifting the mask mandate along with all other pandemic restrictions as new daily cases and hospitalizations rapidly decline. Effective March 10, all businesses will be allowed to open at 100% capacity. The Governor stated that “Too many Texans have been sidelined from employment opportunities; too many small-business owners have struggled to pay their bills”, and that “It is now time to open Texas 100%”. The state of Mississippi followed suit on Wednesday, also ending their state’s mask mandate and allowing businesses to operate at 100% capacity. President Biden responded to these actions, calling it a “big mistake” and CDC Director Rochelle Walensky urged residents of Texas and Mississippi to continue wearing masks.
Late Thursday night, military air strikes were carried out in eastern Syria, ordered by President Biden. According to the Pentagon, the airstrikes were authorized “in response to recent attacks against American and coalition personnel in Iraq, and to ongoing threats to those personnel.” The strikes destroyed facilities located at a border control point used by a number of Iranian backed militant groups. The sites that were targeted are believed to have been used as areas to smuggle weapons that were ultimately used for the attacks. President Biden is the third successive United States president to bomb Syria and the airstrikes against Iranian facilities is likely to make any sort of nuclear deal with Iran more difficult. It is estimated that 22 people were killed in the airstrikes.
The Arctic weather system that moved in as far south as Houston brought a week of chaos to the state of Texas and is estimated by Accuweather to have costed $50 billion in damage. In one of the largest forced outages in American history, Texas has been suffering through rolling blackouts, controlled power outages, downed cellular networks and water treatment facilities, and temperatures as cold as 4 degrees for the past six days. Roughly 15 million people in Texas were left freezing in their homes among other complications and deaths due to the failure of the power grid to withstand a once in a century storm. The forced outages were necessary to provide a grid-wide collapse. Electricity prices that are normally around $25 per megawatt-hour rose as high as $9,000/MWh for extended periods of time, creating record electricity bills for people. As of this morning, a few hundred thousand people in Texas remain without power and forced outages are expected to continue for the next few days.
The proposed $1.9 trillion stimulus package is expected to provide a family of four making $150,000 per year with $12,800 of support over the next 15 months. This includes $1,400 stimulus payments, as well as child tax credits that would be paid monthly. Currently, the tax break is paid out as a tax refund, but with this proposal, households would receive $300 per month for children five and under or $250 per month for those six and older beginning in July. Most of this benefit will go to households making up to $91,000 per year, while about 10% will go to those making $164,000 or more. Additionally, struggling multi-employer pension plans would be bailed out in the form of loans to give them the ability to continue to make contributions. The overall package will be voted on by the House of Representatives on the week of February 22nd.