Texas big freeze goes global, claims data due, and GameStop hearings begin.
With millions of Texans in the dark for a fourth day after the unusually cold weather caused widespread blackouts, the fallout for energy markets is becoming a worldwide problem. Almost 40% of U.S. crude production is now offline, helping push the global benchmark Brent price above $65 a barrel in Asia trading. While temperatures are forecast to rise this weekend, it could take weeks for production to be fully restored as operators need to assess wells for damage. There may also be some political fallout after Texas Governor Greg Abbott said he was putting a ban on gas leaving the state, a move which some are saying violates the U.S. Constitution's commerce clause.
Weekly initial jobless claims data at 8:30 a.m.. Eastern Time is expected to show only a small improvement to 770,000, according to the median estimate of economists surveyed by Bloomberg. While economic data for the U.S. economy has been coming in stronger than expected recently, there was little in yesterday's Fed minutes to suggest officials are in the mood to reduce stimulus any time soon. The biggest challenge for Fed Chair Jerome Powell, entering the last year of his term, will be whether he gets the timing right in signaling a pullback in accommodative measures.
WSB vs Congress
The congressional hearing on the retail investor-fueled rally in GameStop Corp. shares in January gets underway today. Robinhood Markets and Citadel, central players in the events that unfolded, will deliver a unified message that conspiracy theories suggesting they worked together to harm retail investors are completely false. Among those scheduled to testify today is Keith Gill, also known as Roaring Kitty and DeepF—-ngValue online, who said he invested in the company as he believes in it. Gill has also been hit with a lawsuit accusing him of misrepresenting himself as an amateur investor and profiting by artificially inflating the price of the stock.
Bond yields resumed their march higher this morning, while industrial commodities are getting another boost. Equities are slipping. Overnight the MSCI Asia Pacific Index dropped 0.8%, while Japan's Topix index closed down 1%. In Europe, the Stoxx 600 Index was off by 0.3% at 5:50 a.m. with banks leading the losses. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.282% and gold rose.
As well as claims data, U.S. housing starts for January and the Philadelphia Fed Business Outlook for February are at 8:30 a.m. Crude oil inventory data is at 11:00 a.m. Fed Governor Lael Brainard and Atlanta Fed President Raphael Bostic speak later. It's another big day for earnings with Walmart Inc., TripAdvisor Inc., Barrick Gold Corp. and Dropbox Inc. among the many companies reporting.
What we've been reading
This is what's caught our eye over the last 24 hours.
And finally, here’s what Joe's interested in this morning
Yesterday I wrote about how the U.S economy seems to be perpetually underestimated and indeed right after that, we got a retail sales figure that smashed estimates.
With the economy seemingly ready to cook, naturally there's going to be more talk about whether the Fed needs to hike interest rates sooner than planned or that Biden should pare back his spending plans. Things might get so good that we need to cool things down.
But maybe the answer is to spend even more, and for the Fed to ease more. After all, when we talk about the economy "overheating" or inflation emerging, what are we talking about? We're talking about the emergence of bottlenecks or the lack of productive capacity to absorb all this spending. After years of perpetual underinvestment, is the answer to curtail spending (either by raising interest rates) or for the government to ease back? Or is the answer to expand productive capacity?
In Chapter 22 of The General Theory (which my colleague Matt Boesler posted years ago) Keynes wrote:
It may, of course, be the case—indeed it is likely to be—that the illusions of the boom cause particular types of capital-assets to be produced in such excessive abundance that some part of the output is, on any criterion, a waste of resources;—which sometimes happens, we may add, even when there is no boom. It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield, say, 2 per cent in conditions of full employment are made in the expectation of a yield of; say, 6 per cent, and are valued accordingly. When the disillusion comes, this expectation is replaced by a contrary 'error of pessimism', with the result that the investments, which would in fact yield 2 per cent in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 per cent in conditions of full employment, in fact yield less than nothing. We reach a condition where there is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are.
Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.
My emphasis added as it makes sense today. We actually do have a housing shortage, a classic macro situation which some economists might argue justifies higher rates or total lending. But if there's a housing shortage, it's because people want houses and there aren't enough, which seems like an argument to loosen the purse strings such that more are built. So that demand is so steady that the homebuilders feel the confidence to match the supply, rather than worry that a slump will come soon, diminishing the case for investment, leaving the economy overall under-housed.
For real, I don't have a view on what the Fed or any other entity should do policy-wise. However, when the talk turns to so-called overheating, it's not immediately obvious why the fixes always center on draining income from the private sector, rather than boosting demand and investment in a sustained fashion, so that the incentive exists to eliminate the bottlenecks and shortages.
One last point. This need for reinvestment seems crystal clear when looking at something acute like the crisis in Texas. That will likely create, for at least some period, upward pricing pressure on a range of goods and commodities which may further the inflation story. And yet it seems clear that that the answer is spending more in energy investment (making the entire system more robust and sustainable) rather than paring back people's incomes by rate cuts or budget cuts.
Joe Weisenthal is an editor at Bloomberg.
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