It's jobs day, Senate passes stimulus blueprint, and more vaccine news.
Back to growth
Today's payrolls report is expected to show that U.S. employers added 105,000 positions in January, according to the median estimate of economists surveyed by Bloomberg. The unemployment rate is seen holding at 6.7%, with the rise in hourly earnings moderating, when the data is published at 8:30 a.m. Eastern Time. All that would echo the recent trend of promising U.S. economic data, something which investors are starting to see as a risk to the easy passage of a stimulus bill.
Progress
Speaking of stimulus, the groundwork for President Joe Biden's $1.9 trillion package continues to make progress through Congress. The Senate voted this morning along party lines -- with Vice President Kamala Harris casting the tie-breaking vote -- to adopt a budget measure that will allow the stimulus to pass without any Republican support. The measure now moves back to the House for agreement on the amendments added in the 15-hour Senate session, before lawmakers can craft a relief bill under special rules. House and Senate committees have until Feb. 16 to agree the details under the budget rules.
Vaccines
Johnson & Johnson asked U.S. drug regulators to clear its experimental Covid-19 vaccine for emergency use. If it is given approval at a scheduled Feb. 26 meeting of outside advisors to the U.S. Food and Drug Administration, the single-shot vaccine would be a strong addition to the country's fight against the pandemic which has killed 450,000 Americans. Elsewhere Russian and Chinese vaccine makers are in talks to test a combination of their shots aimed at better results. Economists are becoming increasingly concerned about the uneven global distribution of vaccines, with a report from the International Chamber of Commerce saying the cost of failing to inoculate the world could be $9.2 trillion.
Markets rise
The progress on stimulus, vaccines and a strong earnings season continues to be met with investor optimism. Overnight, the MSCI Asia Pacific Index added 0.7% while Japan's Topix index closed 1.4% higher. In Europe, the Stoxx 600 Index had climbed 0.4% by 5:50 a.m. boosted by positive construction and bank earnings. S&P 500 futures pointed to another move higher at the open ahead of the jobs report, the 10-year Treasury yield was at 1.157%, oil rose and gold gained.
Coming up...
Canada is also releasing its January employment report at 8:30 a.m. The U.S. December trade balance is also at that time. The latest Baker Hughes rig count is at 1:00 pm. and U.S. consumer credit numbers for December are at 3:00 p.m. Earnings include Regeneron Pharmaceuticals Inc., Cboe Global Markets Inc. and Estee Lauder Cos Inc. Voters go to the polls in Ecuador this weekend and the Super Bowl is on Sunday.
What we've been reading
This is what's caught our eye over the last 24 hours.
And finally, here’s what Katie's interested in this morning
A common refrain in markets is that with global rates so low, investors are being pushed into riskier securities, such as stocks -- the "there is no alternative" attitude. The yield-seeking behavior that environment fosters is often blamed for inflating asset bubbles.
However, Bank of America thinks the end of TINA may be in sight. Currently, over 60% of the stocks in the S&P 500 carry a dividend yield higher than the 10-year Treasury yield, which is around 1.13%. Should benchmark rates climb to 1.75% by year end -- Bank of America’s current house view -- that total would drop to 44%, making the bullish TINA mantra for stocks “less compelling,” the analysts wrote.
“A move higher in rates, forecast by our rates team, would likely be most painful for themes that have thrived over the last few decades,” wrote Bank of America strategists led by Savita Subramanian in a note Thursday. “Both ends of the equity duration spectrum are at risk: long duration growth stocks that benefited from a falling discount rate could suffer a reversal of fortune. And short duration high-coupon stocks with no room to raise dividends would pale relative to bond income.”
Judging by ETF flows this year, it doesn’t look like investors are seriously prepping for that possibility yet. Nearly $41 billion has poured into U.S. equity ETFs so far in 2020, outpacing inflows of roughly $24 billion into fixed-income funds, data compiled by Bloomberg show.
Still, it’s worth noting that the reflation trade picked up further steam this week. Five-year breakeven inflation rates hit the highest level since 2013, while the 5s30s Treasury yield curve climbed to the steepest since 2015. The long-bond selloff was fueled in part by the U.S. Treasury keeping next week’s refunding at a record size. The Bank of England delivered another bump Thursday, with an assurance that the U.K. economy is heading for a rapid rebound.
While the Federal Reserve seems to have successfully convinced markets that interest rates aren’t moving for the foreseeable future, what a roiling reflation trade means for the future of its asset purchases is an open question. Though some officials have discussed the idea of a 2021 taper, Fed chair Jerome Powell reiterated last week that “the whole focus on exit is premature.”
As Bloomberg News reported this week, Powell has enjoyed fewer dissents from Board members than his predecessors. But that tranquility may not last. Last week, Dallas Fed President Robert Kaplan said he expected “very enthusiastic debates” about scaling back asset purchases.
“I think they’re going to have a very difficult time holding the very accommodative line over the course of this year,” said Mark Cabana, head of U.S. interest rates strategy at Bank of America, in a Bloomberg Television interview. “As growth picks up, supported by fiscal policy, it’s going to be increasingly difficult for the Fed to keep saying that it’s appropriate to keep the asset purchases.
Follow Bloomberg's Katie Greifeld on Twitter at @kgreifeld
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