Axios Markets: Powell's doublespeak

Plus: The big takeaway from a disappointing business report | Tuesday, May 04, 2021

Open in app View in browser   Presented By Canadian Pacific   Axios Markets By Dion Rabouin ·May 04, 2021 Happy Star Wars Day! May the 4th be with you. Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 956 words, 3.6 minutes.) 🎙 "Just don't give up trying to do what you really want to do. Where there is love and inspiration, I don't think you can go wrong." - See who said it and why it matters at the bottom.     1 big thing: Powell talks inequality, ignores the Fed's role in it Photo: Daniel Acker/Bloomberg via Getty Images   Fed chair Jerome Powell further detailed the U.S. central bank's focus on inequality and disparities in outcomes for poor Americans and communities of color but never mentioned the part the Fed has played in exacerbating that inequality. Why it matters: The Fed's newly trained aim of achieving a "broad and inclusive" recovery, as Powell has termed it, rings hollow for many when Fed policymakers neglect to acknowledge the enormous role they play in the issue. That could contribute to the continued low marks Americans give the Fed in trust and popularity. What happened: Powell spoke to the National Community Reinvestment Coalition ahead of the release of the Fed's Survey of Household Economics and Decisionmaking (SHED) report later this month. He focused much of his message on how the Fed is working to improve outcomes for larger portions of the population. Specifically, the chairman highlighted low-income workers, small businesses and communities of color as facing "immense difficulties" and being "disproportionately affected" by the pandemic-induced recession and top of mind in the Fed's new framework. By the numbers: The report found that 22% of parents "were either not working or working less because of disruptions to childcare or in-person schooling," and even higher numbers for Black and Hispanic mothers, 36% and 30%, respectively. Powell also noted the report's findings that around 20% of people aged 25 to 54 without a four-year college degree were laid off in 2020, versus 12% for those with at least a bachelor's degree. And about 14% of whites in their prime working years were laid off at some point last year compared to 20% or more for Black folks and Hispanics in that group, Powell said. Yes, but: Notably absent from the speech and a 40-minute question-and-answer session was any significant discussion of how the Fed's policies have increased and entrenched that inequality. By propping up big businesses and financial markets with its QE4ever program, the Fed disproportionately helps give wealthy individuals and corporations a massive advantage. And those most impacted by the pandemic have been the ones least assisted by the Fed's easy monetary policy. The bottom line: Powell's goals seem to be improving outcomes for marginalized communities while also bolstering the Fed's reputation and standing in those communities. However, by ignoring the elephant in the room, the Fed has had little success with either goal. Go deeper: Deep Dive — How the Fed took control of the economy     2. Catch up quick CVS and Walgreens wasted nearly 128,500 COVId-19 vaccine doses, more than most states combined, per government data. (Kaiser Health News) Treasury Secretary Janet Yellen is expected to appoint Fed bank supervisor Michael Hsu as acting comptroller of the currency. (WSJ) The U.K. seeks to lead an effort by the Group of Seven (G7) wealthy nations on "threats to democracy, freedoms and human rights" posed by China and Russia. (Reuters) The U.S. Treasury more than quadrupled its borrowing estimate to around $1.3 trillion for the second half of the fiscal year to help pay for new pandemic relief spending. (Bloomberg)     3. Spectacular earnings refocus traders on the reopening trade The S&P 500's economically sensitive cyclical sectors like consumer staples, energy and materials outperformed Big Tech stocks meaningfully on Monday, as stellar earnings reports have again focused traders' attention on the reopening trade. Where it stands: The Dow rose 0.7%, with the S&P up 0.3% while the Nasdaq fell 0.5%. Major names like Amazon, Alphabet, Facebook and Microsoft all ended lower, despite each of those companies reporting strong earnings for Q1. Chipmakers also fell, with the Philadelphia SE Semiconductor index down by 1.2%. "We've seen a slight change in the pace of value stocks outperforming growth stocks year-to-date," Rod von Lipsey, managing director at UBS Private Wealth Management, told Reuters. The intrigue: Just over 60% of S&P 500 companies have now reported first quarter results, and it's looking like a spectacular earnings season. Earnings are on pace to grow 45.8% for Q1, up from an expected 24.5% at the start of earnings season and a 15.8% forecast at the start of the quarter, according to FactSet's Earnings Insight report. Further, a record 86% of companies so far have surpassed consensus EPS expectations, well above the 77% one-year average. Companies are beating earnings expectations by nearly 23%, better than the 14.5% one-year average positive surprise rate and the second-highest rate on record.     A message from Canadian Pacific One railroad connecting U.S.-Mexico-Canada     A Canadian Pacific transaction offers greater certainty for stockholders and creates more rail competition for shippers. Remaining the smallest Class 1 railroad, a combination with CP appropriately manages regulatory risk and creates significant benefits for customers and stakeholders.     4. Strong U.S. business sentiment hit a snag in April Data: Investing.com; Chart: Dion Rabouin/Axios Visuals While the overall ISM manufacturing index fell in April after a big jump in March and missed expectations, the prices paid index increased again, touching a fresh 13-year high. What it means: Prices continue to rise for businesses as supply chain disruptions have been unrelenting and commodities prices march steadily upward. But the positive sentiment for businesses that has accompanied those price hikes could be fading. By the numbers: The headline ISM manufacturing reading was 60.7, a disappointment compared to expectations of 65.0 by economists, which would have been a continuation from March's strong 64.7 reading. The prices paid index rang in at 89.6, suggesting the overwhelming majority of businesses surveyed are seeing price hikes. New orders unexpectedly slipped to 64.3 versus the expected 69.5 and a reading of 68.0 in the prior month. The index's backlog of orders reading was the highest on record at 68.2. Employment declined to 55.1 from 59.6 in March. What they're saying: "Combined with slower supplier delivery times and manufacturer inventory drawdown in April, these indicators suggest supply chain issues are contributing to a pullback in activity for large manufacturers," Lewis Alexander, U.S. chief economist at Nomura, says in a note to clients. Watch this space: "Overall, the takeaway was one of being underwhelmed by the data — although it is important to keep in mind the >50 readings across the board are constructive," Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, says in a note. Lyngen also notes that construction spending for March came in meaningfully below expectations at 0.2% month over month. Construction spending was expected to rise by 1.6% month over month as housing prices have soared and after an unexpected -0.6% print in February that was largely blamed on the weather. But, but, but: Alexander cautions that the report "is likely a reminder that supply constraints matter for how quickly the economy can rebound post-COVID, but are not necessarily a cause for concern with respect to the overall direction of economic activity."     A message from Canadian Pacific One railroad connecting U.S.-Mexico-Canada     A Canadian Pacific transaction offers greater certainty for stockholders and creates more rail competition for shippers. Remaining the smallest Class 1 railroad, a combination with CP appropriately manages regulatory risk and creates significant benefits for customers and stakeholders.   Thanks for reading! Quote: "Just don't give up trying to do what you really want to do. Where there is love and inspiration, I don't think you can go wrong." Why it matters: On May 4, 1959, the first-ever Grammy Awards were held in Los Angeles. Legendary jazz singer Ella Fitzgerald, known as the First Lady of Song or the Queen of Jazz, won one of the first awards and took home two Grammys. ************** This newsletter is written in Smart Brevity®. Learn how your team can communicate in the same smart, clear style with Axios HQ.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: