Powell stays dovish, Biden's big infrastructure plan, and AstraZeneca vaccine doubts.
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell are set to face lawmakers in Congress for two days of hearings starting at 12:00 p.m. Eastern Time. Yellen is likely to push the case for more spending, repeating her argument that the U.S. has a lot of room for borrowing with interest rates so low. In his prepared testimony Powell said that while the economic recovery is progressing well, it is still far from complete and so the Fed will continue to provide support.
Yellen will be closely questioned on the administration's spending plans today as President Joe Biden's advisors are set to present him with a new infrastructure-heavy spending plan that could reach $3 trillion. Biden has pitched the plan as not only an economic boost to help the pandemic recovery, but also a long-term commitment to ensure the U.S. remains competitive against China. Unlike the $1.9 trillion stimulus plan, it is very unlikely infrastructure spending could be passed through the Senate with a simple majority meaning Biden will have to get Republican support to get this deal over the line.
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Positive reaction to AstraZeneca Plc's clinical trial results seems likely to be short lived as U.S. regulators expressed concerns the release about the testing results included outdated information. The development will likely delay approval for the AstraZeneca shot in the U.S. The company's vaccine remains at the center of a battle for supply in Europe where there are some signs this morning that a deal may be reached between the EU and U.K. over deliveries. European leaders are also facing another resurgence of the virus, with Germany imposing new lockdown measures and Hungary running out of doctors amid a surge in cases.
Renewed fears that the recovery from the pandemic could take a long time are keeping a lid on risk appetite. Overnight the MSCI Asia Pacific Index slipped 0.8% while Japan's Topix index closed 0.9% lower. In Europe, the Stoxx 600 Index was down 0.4% at 5:50 a.m. with energy, travel and auto stocks the worst performers. S&P 500 futures pointed to a similar drop at the open, the 10-year Treasury yield was at 1.638%, oil fell towards $59 a barrel and gold was steady.
The U.S. fourth-quarter current account balance is at 8:30 a.m. with new home sales data for February and the Richmond Fed manufacturing index for March both at 10:00 a.m. While Powell will have the monetary limelight in Congress today, New York Fed President John Williams and Fed Governor Lael Brainard are among the other Fed speakers of note today. There is a parliamentary election in Israel today. GameStop Corp. reports earnings.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Joe's interested in this morning
Last month, Treasury yields started rising rapidly and there was suddenly a lot of talk about the Fed being "pressured' or "tested" by the market in some way. There was talk about how the Powell & Co. might need to push back against rising rates or maybe even do more asset purchases at the long end of the curve to keep things in check.
Yesterday on TV we talked to Neil Dutta of Renaissance Macro Research on how these worries are largely unfounded. The Fed isn't being tested, and there isn't much in the market action that pressures their view.
Here's three things to think about.
1. The Fed has never tried to hold down long-term interest rates. People imagine that the Fed wants to keep the rate lower, but it's never said anything like that. And in fact, given multiple opportunities to comment on it, Powell has maintained that he sees the rise in long rates as being indicative of an improving economic outlook.
2. Despite the rise in rates, a holistic look at financial conditions shows that things remain loose. The Goldman Sachs Financial Conditions Index, which includes such factors as exchange rates, equity valuations, and credit spreads (as well as interest rates), shows barely any tightening since the runup in yields really began.
3. There's no evidence that higher rates at the long end of the curve are slowing growth or doing anything else that might impede the Fed's desire to get to maximum employment. If you look at industries which you'd think would be rate sensitive, such as homebuilders or cars, those stocks are still on fire. Here's GM, Ford and the homebuilders over the last year. All basically at their highs.
So at this point, there's still no sign of trouble. You have a rise in long-end rates that the Fed has said it's not concerned about. You have financial conditions still at extremely loose levels. And you have no sign of higher rates impeding the economy. So far, anyway, nothing that should stress the Fed in the market.
Joe Weisenthal is an editor at Bloomberg.
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