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.
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