Futures Market Signals at Least One Interest Rate Hike Next Year, Perhaps Two

Posted on 04/05/2021 5:45 AM

Suez Canal traffic backlog cleared | Vilsack casts food aid as fight for racial justice


In Today’s Digital Newspaper


Market Focus:
• Futures market differs from FOMC, Powell by pricing in at least one rate hike next year
• Mortgage rates in U.S. increase for seventh straight week
• Investors cheer strong boost in U.S. job growth last month
• Japan’s Suga to be first foreign leader to meet with Biden

• U.S. defends support for IMF reserves
• CME raises soybean futures maintenance margins
• Large funds continue to jump into buying long positions in corn
• Money managers now net short wheat futures
• Saudi Arabia raised prices for oil shipments to customers in Asia
• Suez Canal authorities: traffic backlog cleared
• As Texas freeze gas bills come due, cue up the lawsuits

• IMF will post updated World Economic Outlook on Tuesday


Policy Focus:
• Democrats differ on how to pay for huge transportation package
• Infrastructure bill without Republicans?
• GOP floats smaller infrastructure bid
• Pelosi may support SALT push
• Yellen to call for global minimum corporate tax rate


Biden Administration Personnel

• Biden tasks Education Sec. Cardona with review of student debt cancellation


China Update:
• Chinese boycott on certain Western clothing brands may be backfiring


Energy & Climate Change:

• Carbon prices across Europe reaching record heights
• Challenge to Trump-era clean car standards put on hold by court

Food & Beverage Industry Update:
• Shake Shack launching new chicken sandwich
• Biden administration pushing ‘profound change’ for food relief

Coronavirus Update:
• U.S. reported another daily record of new Covid vaccinations Saturday
• Boris Johnson outlines U.K.’s international travel plans


Politics & Elections:
• GOP sees opening in New Mexico House special election

Other Items of Note:
• Iran rules out any talks with U.S. in Vienna unless sanctions go
• Waters releases April hearing schedule
• White House to discuss chip shortage with industry
• Florida wastewater reservoir at risk of a ‘catastrophic’ collapse
• Suggs’ ~40-footer sends Gonzaga to Men’s NCAA National Championship game




Equities today: U.S. stocks futures signal a higher opening, as investors cheered a strong bounce in U.S. job growth last month amid an accelerating vaccine rollout. The Labor Department reported Friday that nonfarm payrolls increased by 916,000 in March, the highest since August 2020, while the unemployment rate fell to 6%. Many stock exchanges across the globe, including those in Germany and the United Kingdom, are closed in observance of Easter. Markets in China and Hong Kong are closed for the Qingming Festival. South Korea’s Kospi rose 0.3%, and Japan’s Nikkei 225 added 0.8%.


Mortgage rates in the U.S. increase for a seventh straight week. Mortgage rates in the U.S. rose for a seventh straight week. The average for a 30-year loan was 3.18%, up from 3.17% the prior week and the highest since June, Freddie Mac data showed yesterday. Rates have increased from the record low of 2.65%, reached in early January. That’s made homes more expensive for buyers, many of whom have to stretch to afford a purchase as they compete for the slim supply of properties on the market. Meanwhile, mortgage credit availability, a measure of lenders’ willingness to issue mortgages, is near its lowest level since 2014, according to the Mortgage Bankers Association, or MBA.

On tap today:


     • IHS Markit's survey of purchasing managers in the U.S. services sector for March is due at 9:45 a.m. ET.
     • Institute for Supply Management’s services index for March, due at 10 a.m. ET, is expected to show activity is accelerating.
     • U.S. factory orders for February are expected to rise 0.3% from a month earlier. (10 a.m. ET)
     • USDA Grain Export Inspections, 11 a.m. ET
     • Chicago Council on Global Affairs holds a virtual discussion with Treasury Secretary Janet Yellen on the United States' role in the post-pandemic global economic recover. 11 a.m. ET.
     • USDA Crop Progress report, 4 p.m. ET
     • Japan household spending data for February is out at 7:30 p.m. ET.


The IMF will post its updated World Economic Outlook on Tuesday, with Managing Director Kristalina Georgieva already indicating an upgrade to January’s forecast for 5.5% global economic growth for 2021.


Japan’s Suga to be the first foreign leader to meet with Biden. Japanese Prime Minister Yoshihide Suga will become the first foreign leader to hold a face-to-face meeting with Biden in a summit planned for April 16, where China will be high on the agenda. The meeting in Washington demonstrates the importance the U.S. attaches to relations with Japan, Chief Cabinet Secretary Katsunobu Kato said in announcing the trip. “The U.S. and Japan share the basic values of freedom, human rights and the rule of law,” he added.


U.S. defends support for IMF reserves. The Treasury Department released a detailed rebuttal of Republican criticism of support for an increase in International Monetary Fund (IMF) reserve assets, saying that it will help support the global and U.S. economic recovery. The proposed issue of $650 billion in the reserves, known as special drawing rights, or SDRs, will benefit low-income countries and impose no direct cost on the U.S., the Treasury said in a statement yesterday. Should the U.S. purchase SDRs from another country, the Treasury would earn interest that might offset any additional costs, and the U.S. can refuse to purchase reserves from any country whose policies it opposes, according to the statement. The message came after Treasury Secretary Janet Yellen in a hearing sparred with Sen. John Kennedy (R-La.), who said that American taxpayers will need to pay $180 billion for that increased allocation and direct money to American adversaries like China, Russia and Venezuela.


     IMF reserves


Market perspectives:


     • Outside markets: Developing-nation currencies and bonds posted their first quarterly decline in a year in the three months ending March 31, while the dollar approached its strongest level since November. The yield on the 10-year Treasury note edged down to 1.718% from 1.721% Friday. Yields fall when prices rise. (The pound appreciated to a two-week high against the dollar as Prime Minister Boris Johnson pushed ahead with plans to reopen the economy.)


        Short dollars trades

     • A rate hike next year is now fully baked into the futures market. Meanwhile, the market is now pricing a 50%+ chance of two rate hikes next year — a far different outlook versus the FOMC’s forecasts and Fed Chairman Jerome Powell’s statements.


     • Crude oil futures are lower as focus is on rising OPEC+, Iranian output. US crude is trading under $60.35 per barrel while Brent is under $63.65 per barrel. Crude was weaker in Asian action with U.S. crude down 37 cents at $61.08 per barrel and Brent down 43 cents at $64.43 per barrel. U.S. futures were closed on Friday for Good Friday.


     • CME raises soybean futures maintenance margins. Maintenance margins for CBOT soybean futures will rise to $3,350 per contract, up 11.7% from the current $3,000, for May 2021, the CME Group announced Thursday. The rates will be effective after the close of business today (April 5).


        Soybean prices


     • Large funds continue to jump into buying long positions in corn, according to CFTC data. Managed money funds added over 10,000 long contracts in corn for the week ended March 30, according to the latest Commitments of Traders report from the CFTC. Net longs among funds totaled nearly 388,000 contracts. Meanwhile, large funds positioning in soybeans fell by over 12,000 contracts for the week, while wheat short positions grew by nearly 4,000 contracts, according to the CFTC. However, money managers are now net short wheat futures.


     • Saudi Arabia raised prices for oil shipments to customers in its main market of Asia, signaling the kingdom’s confidence in the region’s economic recovery. The decision comes after the OPEC+ cartel, led by the Saudis and Russia, agreed to boost daily crude production by more than 2 million barrels between May and July.




     • Suez Canal authorities said Saturday they have cleared the traffic backlog that resulted when a giant container ship got stuck and blocked the important waterway, disrupting global trade. More than 400 vessels that were waiting at the northern and southern ends of the 120-mile waterway on March 23 when the Ever Given ran aground have passed through the canal since Monday, authorities said. New ships were entering the waterway, returning movement to normal, they said, and marking the end of a 12-day saga that upended the maritime shipping industry and strained already struggling global supply lines. Reinsurers are taking a financial hit from covering losses due to cargo delays. The latest shipping glitch raises questions about how much bigger ships can get and still safely transit through crucial maritime bottlenecks such as the Suez Canal.


     • As Texas freeze gas bills come due, cue up the lawsuits. At least 30 lawsuits related to natural-gas contracts have been filed in four states since the February storm that knocked out power for millions of Texans and sent gas prices soaring. Billions of dollars are on the line. Link to details via the WSJ.


       Texas bill
        Texas gas prices



— Democrats differ on how to pay for huge transportation package. Rep. Peter DeFazio (D-Ore.), the chairman of the House Transportation and Infrastructure Committee, said he didn’t think paying for the full cost of the plan through tax increases was necessary. DeFazio said he would support an increase in the gas and diesel tax to pay for the new investments over time, as well as more borrowing to cover part of the cost. “When you’re borrowing money for current consumption versus borrowing money for investment it’s a different thing,” he said. President Biden’s plan doesn’t include any increases in the gasoline tax, which the White House has opposed as a regressive tax.


     Background: The Highway Trust Fund, used to pay for road and transit programs, gets money from the federal fuel tax, which is 18.3 cents per gallon on gasoline and 24.3 cents for diesel, the same rates since 1993. The situation is getting worse as cars get more fuel-efficient and electric vehicles proliferate. The federal tax on gas currently stands at 18.4 cents a gallon.


     A vehicle-miles-traveled tax (VMT) has generated some talk in Washington and was briefly mentioned by Transportation Secretary Peter Buttigieg before he quickly backtracked on the topic. Under any such plan, vehicles would be charged a penny or two for each mile driven, monitored by onboard meters, mobile phones odometer checkpoints or some other system. Any move to a VMT is not seen at this time but even if odds increase, most say it would be several years before it commenced. However, some states will continue to consider a VMT. For example, Oregon and Utah have launched major pilot programs, while some other states are expected to follow.


     What’s next? Under current law, the authorization for highway and transit programs expires on Sept. 30. Link to CBO information about reauthorization issues and optons.



     HTF options

— Infrastructure bill without Republicans? White House chief of staff Ron Klain suggested that the White House is willing to move forward on Biden's infrastructure plan without the help of congressional Republicans, saying that "when I talk to Republicans, I see that they want to deliver, too" but that "in the end, let me be clear, the president was elected to do a job." Klain didn't say whether Democrats would use budget reconciliation to get the plan through Congress.


     However, Republicans may be ready to support limited infrastructure funding, which would require scaling back President Biden’s $2.25 trillion plan by more than two thirds, a senior GOP senator said. Sen. Roy Blunt (R-Mo.) said he could envisage bipartisan support on improving facilities like roads and airports, and possibly water systems and expanding broadband access — if the administration pared the package to something like $615 billion. “You’d still be talking about less than 30% of this entire package and it’s an easily doable 30%, I think,” he said on Fox. “When people think about infrastructure, they’re thinking about roads, bridges, ports and airports.”


— Pelosi may support SALT push. House Speaker Nancy Pelosi (D-Calif.) signaled support for a move to put a repeal of the $10,000 cap on state and local tax deductions in the infrastructure and social-spending program that Democrats are hoping to pass as soon as this summer. She called the deduction limit enacted by President Donald Trump “devastating” to taxpayers in her home state of California, and said she is sympathetic to the move by a group of lawmakers to remove the cap in any tax legislation that is part of President Joe Biden’s long-term economic plan. While individual tax measures are anticipated in Biden’s forthcoming “American Families Plan” — to help fund social-spending proposals — the administration has been cool to the idea of including a SALT-limit repeal, which would add to the deficit.


     Senate Majority Chuck Schumer’s (D-N.Y.) top priorities is the repeal of SALT. “It’s something that I think is very important, and I’m going to fight to make sure it gets done,” Schumer said of repealing the cap. The odds of lifting the cap are getting “better and better,” Schumer said.


— Yellen to call for global minimum corporate tax rate. Treasury Secretary Janet Yellen is planning to call for a global minimum tax rate in a speech today to the Chicago Council on Global Affairs, Axios reports, citing an excerpt of her prepared remarks. “Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen will say in her first major address as secretary. The proposal is in line with Biden’s infrastructure plan.



— Biden tasks Education Sec. Cardona with review of student debt cancellation. President Biden asked the Education Department to review the president’s legal authority to cancel student debt via executive action, White House Chief of Staff Ron Klain said yesterday. The White House said earlier this year that the Department of Justice would look into legal questions around student debt cancellation. Several national labor groups also asked Education Secretary Miguel Angel Cardona to cancel student debt for public service workers. Unions representing teachers, firefighters, and auto workers said executive action was needed because borrowers have been slow to receive debt relief through the Public Service Loan Forgiveness program,



A Chinese boycott on certain Western clothing brands may be backfiring. After several brands, including Nike and Adidas, said they would no longer buy cotton from Chinese suppliers in Xinjiang over reports that the growers rely on forced labor by ethnic minorities in China to produce their cotton, Beijing called for a boycott. But now, sales of most of the boycotted stuff are soaring as Chinese consumers rush to buy items, lest the government block their sale entirely. This is certainly not the impact Beijing intended.



— After years of low prices and stagnant trading, carbon prices across Europe are now reaching record heights: €40 ($47) per metric ton. Policymakers in Brussels say they’re committed to maintaining a meaningful price on carbon in the future to drive more emission reductions.


     Carbon prices Europe


— Challenge to Trump-era clean car standards put on hold by court. A federal court has pressed pause on litigation over the Trump administration’s decision to scale back standards for fuel efficiency and greenhouse gas emissions from vehicles. The U.S. Court of Appeals for the District of Columbia Circuit on Friday granted the Biden administration’s request to halt proceedings while the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) review the regulation. At issue is the second prong of the Trump-era Safer Affordable Fuel-Efficient Vehicles Rule, which loosened federal efficiency standards. An Obama-era plan would have required cars to improve efficiency by 5% per year through 2026; the Trump plan lowered the target to 1.5% per year.




— Shake Shack is launching a new chicken sandwich at all if their U.S. locations. The new menu offering is Korean-style Fried Chick’n made with crispy chicken breast glazed with Gochujang sauce on top of a white kimchi slaw, topped with toasted sesame seeds, sandwiched on a bun. The chicken sandwich follows new offerings in the category from McDonald's and Wendy's. All three are trying to take market share away from Popeyes and Chick-Fil-A.


— Biden administration is pushing food relief. With more than one in 10 households reporting that they lack enough to eat, the Biden administration is accelerating a vast campaign of hunger relief, the New York Times reports (link). “The campaign has increased food stamps by more than $1 billion a month, provided needy children a dollar a day for snacks, expanded a produce allowance for pregnant women and children, and authorized the largest children’s summer feeding program in history,” the article details. “We haven’t seen an expansion of food assistance of this magnitude since the founding of the modern food stamp program in 1977,” said James P. Ziliak, an economist at the University of Kentucky who studies nutrition programs. “It’s a profound change.” USDA Secretary Tom Vilsack cast these efforts as part of a fight for racial justice. Vilsack called himself an “older white guy” and added, “I haven’t had the experience of being Black.” But he said an equity commission in the department would re-evaluate policies to ensure racial fairness.


     Low-income Americans spent $8.4 billion a month on food using SNAP and Pandemic-EBT benefits during the pandemic last year, according to a new study (link) by USDA’s Economic Research Service. That was an 86% increase over a comparable six-month period in 2019.


     Food aid



Summary: Global cases of Covid-19 are at 131,370,050 with 2,854,127 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 30,706,128 with 555,001 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 165,053,746 doses administered, 57,389,464 have been fully vaccinated, or 17.5% of the U.S. population.


 — The U.S. reported another daily record of new Covid vaccinations Saturday, pushing the weekly average of new shots per day above 3 million.


— Boris Johnson outlines the U.K.’s international travel plans. The prime minister is considering is a traffic light system that grades destinations by Covid-19 risk. Also, twice weekly rapid Covid-19 tests will be offered to everyone in England starting Friday.




— GOP sees opening in New Mexico House special election. A special election in New Mexico’s 1st Congressional District gives Republicans a long-shot chance to add a seat in the House, further squeezing House Speaker Nancy Pelosi’s (D-Calif.) slim majority. Details via Washington Examiner.




— Iran rules out any talks with U.S. in Vienna unless sanctions go. Iran said it will hold no direct or indirect talks with the U.S. when the two countries and other world powers gather in Vienna on Tuesday for planned talks on the possible resurrection of the 2015 nuclear deal. “We will have no negotiations with Americans in Vienna, either directly or indirectly,” Abbas Araghchi was quoted as saying. The remaining parties to the nuclear accord “should persuade the United States any way they can” to lift all sanctions the Trump administration imposed before Iran will undo its own breaches of the agreement, he said. Araghchi also ruled the prospect of a “step-by-step” initiative for lifting sanctions and returning to nuclear deal commitments. “There is but one step; the U.S. must remove all sanctions rebranded, imposed or re-imposed under Trump,” he said. On Saturday, Iranian Foreign Minister Mohammad Javad Zarif urged his French counterpart, Jean-Yves Le Drian, to “show a constructive stance” at the Vienna meetings and “cease abiding by illegal sanctions imposed by the U.S.”


— Waters releases April hearing schedule. House Financial Services Chair Maxine Waters (D-Calif.) announced the panel’s April hearings schedule in a statement (link). A virtual hearing April 14 will examine the need for investments in housing and financial infrastructure and an April 15 hearing will explore trends in financial institution charters, among others.


— White House to discuss chip shortage with industry. President: Biden’s top national security and economic advisers plan to meet April 12 with semiconductor and auto companies to discuss the global shortage of microprocessors, according to people familiar with the matter. National Security Adviser Jake Sullivan and National Economic Council director Brian Deese will discuss the impacts of the shortage and a path forward with industry leaders, an administration official said. The official added that the White House is also engaged with Congress and allies abroad on the issue. Companies invited to the meeting include automakers and semiconductor manufacturers, as well as technology and medical devices firms, according to one of the people.


— A Florida wastewater reservoir is at risk of a “catastrophic” collapse. Governor Ron DeSantis declared a state of emergency around Piney Point, and its acidic water is being pumped out to prevent a breach that would flood nearby areas. Crews were attempting to prevent water from an old phosphate mine from deluging residents of 300 Manatee County homes and running off into Tampa Bay. A state of emergency was declared as workers were creating slow releases of the hazardous water to contain a complete collapse. "What we are looking at now is trying to prevent, and respond to if need be, a real catastrophic flood situation DeSantis said at a press conference after viewing the site by helicopter Sunday.  DeSantis said emergency workers, assisted by the Florida National Guard, were pumping about 33 million gallons of water daily out of a wastewater reservoir at the site, which has sprung a growing leak. The wastewater "meets water-quality standards for marine waters," DeSantis said, with the exception of phosphorous and nitrogen levels, which could trigger a "red tide" that can be deadly to aquatic life.


— In case you missed it: Jalen Suggs shocked the world with a ~40-footer at the end of OT sending Gonzaga and not UCLA to the Men’s NCAA National Championship game. Link for one of the best buzzer-beaters in men's NCAA Tournament history.



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