Labor market momentum balances rising COVID-19 cases
- April 26, 2021
Although the market was quiet in anticipation of the Federal Reserve announcement scheduled for Wednesday, markets reacted to strong employment numbers and increasing global COVID-19 cases. The dollar cooled off after a blistering start to 2021, while many commodity prices continued to rise.
The second week in a row of better-than-expected initial jobless claims numbers were a highlight in a light week of economic news. Initial claims came in at 547,000, well below expectations of 603,000. The 547,000 claims marked the lowest number since the COVID-19 pandemic began and shows the labor market is gaining strength as more COVID-19 vaccinations occur across the country.
Despite the strong employment numbers, treasury yields continued to fall last week, largely due to the rising number of COVID-19 cases globally. World Health Organization Director-General Tedros Adhanom Ghebreyesus recently warned that a drastic increase in COVID-19 cases pushed global infections towards their highest level in the pandemic. After cases in India were at record lows in February, the country experienced a sudden spike in cases, leading to a new world record of daily cases previously set by the United States in January. Testing kits are also in short supply across the country, meaning the high case-number totals likely don't represent the full percentage of Indian citizens infected. Other countries, including Brazil, France, and Turkey, also experienced a recent spike in cases.
Equity markets remained relatively steady throughout the week, as the S&P 500 and Dow Jones indices erased Thursday’s losses on Friday. Markets fell slightly on Thursday after a report surfaced that the Biden administration is exploring raising the capital gains tax for individuals earning over $1 million to between 39.6 and 43.4%.
(Related insight: Read "Managing interest rate risk on future debt issuances")
Throughout 2020, the U.S. dollar weakened against most major global currencies, mainly due to a high COVID-19 case count compared to other countries. With the distribution of the COVID-19 vaccine slowing the spread of cases in the U.S. in 2021, the dollar erased some losses it had seen in the prior year. However, over the last few weeks, the dollar weakened again. Dollar weakening has largely been caused by strengthening Euro and Sterling, as the Euro has crossed the 1.20 mark for the first time since early March, while Sterling hit a six-week high early in the week.
(Related insight: Read "Building an FX hedging program from the ground up")
After OPEC’s upward revision of its demand forecast earlier in the month, oil prices fell slightly last week because of renewed demand fears brought on by the previously mentioned rise in COVID-19 cases. U.S. crude inventories rose by 594,000 barrels for the week ending April 16, compared to analysts’ expectations of a 2.98M barrel decrease. However, commodity prices overall have skyrocketed this year. Lumber futures are up nearly 50% in 2021, while steel futures have also soared in the same time frame.
(Related insight: Read "Using commodity collars to manage market volatility")
Investors will have all eyes on the market this week as several economic indicators will be released along with a Federal Reserve announcement, which will occur on Wednesday. Slated for release this week are durable goods orders, consumer confidence index, weekly initial jobless claims, consumer spending, and core inflation.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0114
Our featured insights
Inflation continues to rise as crypto plunges
Inflation numbers are hot off the press and exceeding expectations as reports that the price of goods and services rose by 8.3% since last April. Although there is hope that we are falling from the peak numbers seen in March, consumer fears of a recession are growing and permeating the market—not...
Hedging fundamentals webinar series
Join these introductions to hedging and hedge accounting to gain a foundation for managing financial risk.
Fed raises rates amid a plethora of employment data
The Federal Reserve raised the Fed Funds rate by 50 bps, bringing in the largest hike since 2000 in an effort to fight the highest inflation rate the country has seen in 40 years. Job openings and job quits hit record highs in March, while April nonfarm payrolls came in above expectations.
Mixed first quarter sets stage for volatile year
The familiar story of global volatility continues. U.S. GDP stumbled for the first time since early in the pandemic. Global currencies weakened against the dollar, as dollar strength reached its highest levels since the early 2000s. Supply chain concerns rise from record diesel fuel prices.
Uncertainty continues as markets respond to imminent rate hikes, war in Ukraine
Inflation and global turmoil continue to plague the international markets as the war in Ukraine persists. Market expectations in response to impending further rate hikes by the Federal Reserve pushed stocks down and bond yields higher. Stronger relative performance in the U.S. pushed the dollar...
How to maintain treasury proficiency and continuity amid the “Great Resignation”
Today’s job market creates challenges and opportunities for treasury teams. While high turnover warrants increased focus on retention and contingency planning, it also offers the chance to attract new talent, reinvent your team dynamic, and streamline operations.
Headline inflation hits 40-year highs, recession chatter echoes throughout markets
Headline CPI data surpassed its 40-year high in March but slowing core inflation provided investors with a glimmer of optimism. Markets are closely monitoring Fed movements as Chairman Powell attempts to navigate a difficult balancing act of cooling off alarmingly high price pressures while...
Fed hawks have landed
Released Fed minutes show a growing hawkish and tightening mindset across FOMC members. The release drove rates higher as members called for fast balance sheet reduction and double rate hikes in upcoming meetings. Meanwhile, commodity hedges for petroleum products break down.