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LIVE MARKETS-Retail sales, et al: The economy recovers from frost bite

LIVE MARKETS-Retail sales, et al: The economy recovers from frost bite

· 03/16/2021 11:21
LIVE MARKETS-Retail sales, et al: The economy recovers from frost bite

Nasdaq up ~1%, S&P rises slightly, Dow dips; small caps weak

Tech leads S&P sector gainers; energy down most

Euro STOXX 600 up ~0.7%

Dollar up slightly; gold ~flat, crude down

U.S. 10-Year Treasury yield ~1.60%

- Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com



RETAIL SALES, ET AL: THE ECONOMY RECOVERS FROM FROST BITE (1120 EDT/1520 GMT)

The chill of last month's brutal winter weather reverberated through a spate of indicators released on Tuesday.

Receipts at U.S retailers USRSL=ECI plunged last month as arctic conditions froze wallets shut and kept consumers home. nL1N2LD1V6

The Commerce Department's retail sales report for February was much worse than expected, dropping 3% from January's upwardly-revised 7.6% surge.

The data also suggests consumers quickly burned through the $600 direct stimulus payments from December's $900 billion fiscal relief package.

However, Lydia Boussour, lead economist at Oxford Economics, expects February's drop to be a weather-induced blip.

"With healthier and warmer days nearing, and generous stimulus checks on their way, consumers are poised to shake off the winter chills," Boussour writes. "This year, we expect the combination of an improved health situation and generous fiscal stimulus to fuel a consumer boom for the history books, with real consumer spending likely to grow 7.7% – its fastest rate since 1946. This should help support real GDP growth of 7.0%."

"Core" retail sales - which excludes autos, gasoline, building materials and food services, and corresponds to the consumer spending component of GDP - dropped 3.5% from an 8.7% jump the previous month.



The U.S. Federal Reserve contributed to the buzzkill with its dreary industrial production USIP=ECI report. nL1N2LD290

The data showed U.S. factory output unexpectedly dropping by 2.2% last month, compared with the 0.3% consensus gain.

"These indicators often are found wanting in the face of weather shocks," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "(It) tells us nothing about either the current underlying trend or the outlook for the industrial sector as Covid recedes. We expect a huge rebound in production in March."

Capacity utilization USCAPU=ECI, a gauge of economic slack, dropped by 1.8 percentage points to 73.8%.



Bucking the freeze-out trend, rumors of inflation heating up were further confirmed by the cost of imported goods USIMP=ECI increasing more than anticipated. February import prices grew by 1.3% from January and 3% year-over-year, per the Labor Department. nW1N2LE005

"Recovering commodity prices and strong base effects are set to continue to boost import prices in the near term," says Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. "Yet the rise should be transient and import costs have just a moderate impact on wider prices.

Import prices now join two other major indicators above the U.S. Federal Reserve's average annual 2% target - although the Fed's preferred inflation yardstick, core PCE, remains below that level for now.



Winter's deep freeze even weighed on usually jolly homebuilder sentiment.

The National Association of Home Builders' (NAHB) Housing Market index USNAHB=ECI pulled back 2 points to a reading of 82, a bigger drop than economists predicted.

While spiking demand for new homes has driven supply to historic lows, thereby supporting the need for residential construction, rising materials costs and stretched supply chains took some spring out of the sector's step.

"Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month," noted the NAHB in its press release. "Supply shortages and high demand have caused lumber prices to jump about 200 percent since last April."



Finally, the Commerce Department also reported that U.S. businesses beefed up the goods in their store rooms USBINV=ECI by 0.3% in January, inline with consensus but a deceleration from December's more robust 0.8% increase. nL1N2LD1MN

This coincided with a 4.7% jump in sales, which drove months supply down to 1.26, the lowest level since April 2012.

Wall Street is mixed in morning trading, with the tech-laden Nasdaq .IXIC taking the lead, the S&P 500 .SPX up modestly, and the Dow .DJI set to snap a seven-day win streak.


(Stephen Culp)

*****


SIX BOOKS TO READ FOR THE POST PANDEMIC WORLD (1027 EDT/1427 GMT)

If you're still locked in at home and wish to prepare for a new narrative in a post pandemic world, here are six book recommendations, courtesy of Bernstein strategist Inigo Fraser-Jenkins and team.

  • Jonathan Crary: 24/7 - Late capitalism and the ends of sleep (2013)

  • Scott Galloway: Post Corona (2020)

  • Charles Goodhart and Manoj Pradhan: the great demographic reversal: ageing societies, waning inequality and an inflation revival (2020

  • Stephanie Kelton: The deficit myth -- Modern monetary theory and how to build a better economy (2020)

  • Alex Williams and Nick Srnicek: Inventing the Future: Postcapitalism and a world without work (2015)

  • Yanis Varoufakis: Another Now: Dispatches from an alternative present (2020)

"We recognise that the collection may appear eclectic. After all, Yanis Varoufakis' contribution is a work of fiction, Jonathan Crary is a professor of modern art and theory. Some of the authors are espousing profoundly anti-capitalist (or rather, post-capitalist) theories while others are firmly within a capitalist frame of reference," they say.

"Yet we think that all are important in defining an intellectual basis for a post pandemic policy environment, and hence a basis for investing," they argue.

Happy reading!


(Danilo Masoni)

*****


U.S. STOCKS MIXED, BUT GROWTH TOPS VALUE (1014 EDT/1414 GMT)

Major U.S. indexes are mixed in early trade with the Nasdaq .IXIC showing the most strength. The S&P 500 .SPX is slightly higher, while the Dow Industrial Average .DJI is modestly down. Small caps are being hit with the Russell 2000 .RUT off more than 1%.

This ahead of the Federal Reserve's two-day policy meeting against the backdrop of rising borrowing costs. .N

In any event, growth .IGX is outperforming value .IVX. Tech .SPLRCT and communication services .SPLRCL are the best performing major S&P sectors, while more economically sensitive groups, such as energy .SPNY, financials .SPSY, industrials .SPLRCI, and materials .SPLRCM are packed at the bottom of the S&P 500 tote board.

Meanwhile, the Dow's 7-day winning streak is in jeopardy. The blue-chip average last rose 8-straight days in late-July/early-August of last year. nL1N2LD27G

Here is where the changes in the major averages in early trade:


Nasdaq Composite

+0.83%

S&P 500

+0.20%

Dow Industrials

-0.24%

(Terence Gabriel)

*****

STOXX 600: POST-CORONA EARNINGS BONANZA (0910 EDT/1310 GMT)

The consensus for earnings growth is already quite bullish when it comes to European equities: about 33% for the MSCI Europe index according to Refinitiv IBES data:

But there are analysts out there who believe it could be much better than that.

The UBS strategy team for European equities now expects European corporate earnings to rise by 50% in 2021, on the back of higher global GDP growth boosted by the $1.9 trillion U.S. stimulus package.

Almost two-thirds of 2021 EPS growth in Europe will come from just five sectors, the bank said: energy, autos, capital goods, banks and mining.

This comes after a thorough pandemic-driven drubbing to earnings in 2020, which are expected to have fallen by around 29%.

The third and fourth quarters of 2020 did already see improving sentiment, as companies recovered from the initial shock of the pandemic, and fiscal stimulus released earlier in the year began to take effect.

Other tailwinds such as COVID-19 vaccine rollouts and the Brexit trade deal also bolstered the UBS' outlook, and it flagged a 470 level year-end target for the pan-European STOXX 600 index .STOXX, representing a 17.8% jump from the index's 2020 close.

The improving earnings outlook is also reflected in share prices, with the STOXX 600 trading about 6.5% higher so far this year. The pace of the index's recovery has also surpassed its U.S. peers, with the latter coming under pressure from a drop in heavyweight tech.

UBS also flagged a bullish outlook for UK equities, raising its year-end target for the FTSE 100 .FTSE to 7,600 from 7,200- a 17.6% premium to its 2020 close.

But the bank warned that a sharper-than-expected spike in bond yields posed a threat to any recovery. A slower exit from virus-led lockdowns and vaccination hiccups are also downside risks.


(Ambar Warrick)

*****


S&P 500: TURN-DATE TUMBLE, OR TIME TO THROTTLE UP? (0900 EDT/1300 GMT)

The S&P 500 index .SPX ended Monday at a record high. However, with the Northern Hemisphere's spring equinox this Saturday, it may shortly become clear whether the benchmark index is on the verge of a moon-shot to fresh records, or if the equinox's orb of influence will coincide with a reversal.

Proponents of Gann Theory, or methods of technical analysis developed by trader W.D. Gann, may look for either acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes.

Just looking back over the past year, there has been interesting market action around these events:



The 2020 spring equinox took place on Thursday, March 19, at 11:49 PM EDT. Two trading days later, on March 23, the S&P 500 put in a surprise bottom that ended the more than 30% February/March bear market.

The 2020 summer solstice then occurred on Saturday, June 20, at 5:43 PM EDT. Earlier that week, the SPX abruptly ended what was a more than 8% one-week slide.

The 2020 fall equinox took place on Tuesday, September 22 at 09:30 AM EDT. Just one day later, the SPX concluded what was a more than 10% intraday drop from its early September high.

Most recently, the 2020 winter solstice occurred at 5:02 AM EST on December 21st. The SPX ended a more than 2% decline that day, and has since tacked on another 9% into Monday's high.

The 2021 spring equinox occurs at 05:37 AM EDT on Saturday, March 20.

Meanwhile, just as this potential turn date arrives, the SPX is up five straight days nL1N2LD27G, and nearing a more than 10-year channel resistance line that now resides around 4,010, or just 1% above Monday's finish. nL1N2K7193

This, as the Dow Industrials .DJI, up seven straight days, ended Monday within 0.5% of a 92-year resistance line. nL1N2LD0ZV

Thus, action may be about to heat up, one way or the other.


(Terence Gabriel)

*****


FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: nL1N2LE0RG


(Terence Gabriel is a Reuters market analyst. The views expressed are his own)