Mar 3, 2021

Axios Markets

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🎙 “People seldom see the halting and painful steps by which even the most insignificant success is achieved.” - See who said it and why it matters at the bottom.

1 big thing: The Fed could be firing up economic stimulus in disguise

Federal Reserve governor Lael Brainard at a "Fed Listens" event. Photo: Eric Baradat / AFP via Getty Images.

Even as global growth expectations increase and governments pile on fiscal spending measures central bankers are quietly restarting recession-era bond-buying programs.

Driving the news: Comments Tuesday from Fed governor Lael Brainard suggest the Fed may be jumping onboard the global monetary policy rethink and restarting a program used following the 2008 global financial crisis.

What she said: “I am paying close attention to market developments,” she said. “Some of those moves last week, and the speed of the moves, caught my eye.”

  • Brainard added that she would be "concerned" if she saw disorderly conditions or persistent tightening in financial conditions.

What we're hearing: Economists say it's unlikely the Fed will reignite its quantitative easing program as central banks in Australia and Korea have announced in recent days but could restart Operation Twist.

What it means: Operation Twist III, as it's been dubbed by economists (because it would be the third time the Fed has used the tool), would see the Fed selling some of its short-dated U.S. Treasury bonds and buying longer-dated bonds to flatten the yield curve as it did in 1962 and 2011.

Why it matters: In addition to the technical benefits for the bond market, Operation Twist has historically stimulated the economy by pulling down the benchmark 10-year Treasury yield.

  • Because most consumer interest rates — like credit cards, auto loans, mortgage rates — are set based on the 10-year yield, Operation Twist could act as an accelerant for the economy without the Fed having to add to its balance sheet and risk the appearance of concern.

Under the surface: Despite the extraordinarily bullish expectations for booming economic growth in 2021, rate-sensitive sectors of the economy are showing weakness.

  • The housing market has slowed with recent home sales numbers badly missing expectations and CoreLogic's latest Home Price Insights Report noting that "as supply/demand challenges continue to push home prices higher, we may see new barriers for some prospective buyers in 2021."
  • The rate for the traditional 30-year fixed mortgage saw its largest single-week increase in almost a year last week, rising to 3.23%, according to the Mortgage Bankers Association.
  • Auto sales are slowing after a weak 2020, with Edmunds.com estimating sales fell 2.8% last month, year over year, due to smaller tax returns and higher car prices and interest rates, Stephanie Brinley, principal automotive analyst at IHS Markit, told the Detroit News.
  • Credit card balances and other revolving credit lines fell by 10.8% year over year in December (the last month data were reported) the steepest decline ever, according to the Fed's data.

What's next: All eyes will be on Fed chair Jerome Powell tomorrow at a virtual Wall Street Journal event to see if he also is paying close attention to "market developments."

Bonus chart: 5-year inflation expectations hit highest in a decade
Expand chart
Data: St. Louis Fed; Chart: Axios Visuals

In addition to the lightning-fast jump up in nominal U.S. bond yields, the Fed also is likely watching the continued rise in 5-year inflation expectations.

  • While 10-year and 30-year breakeven rates, which measure investors' expectations for inflation over those time horizons, have been capped in recent days as the bond market selloff abated, 5-year breakeven rates have continued to surge higher.
  • The 5-year breakeven rate touched 2.43% on Tuesday, the highest since May 2011.

Got her back: Tuesday's remarks from Brainard were echoed by San Francisco Fed president Mary Daly who told reporters after a speech that the Fed could change the maturity of its bond purchases if the yield curve steepens in a problematic way.

2. Catch up quick

President Joe Biden said Tuesday the U.S. will have enough supply of coronavirus vaccines to inoculate every adult in the nation by the end of May — two months earlier than previously expected. (WSJ)

Rhode Island Gov. Gina Raimondo was easily confirmed as Commerce Secretary and is expected to shape policy on China. (Bloomberg)

Senate Majority Leader Chuck Schumer said Democrats have the votes and plan to pass Biden's favored $1.9 trillion stimulus bill next week. (CNBC)

3. Economic sentiment jumps as COVID-19 recedes
Data: Hamilton Place Strategies, CivicScience; Chart: Axios Visuals

Americans' feelings about the economy are turning up, according to the latest confidence survey from Hamilton Place Strategies and CivicScience, provided first to Axios.

What happened: After two months of decreasing, economic sentiment climbed 2.2 points to 49.6, as COVID-19 cases, business restrictions and deaths continued to decline, while restaurant openings and vaccination numbers moved higher.

Details: All five of the Economic Sentiment Index's indicators rose last week, with a surge of 5.6 points in confidence in the U.S. economy, which rose to 55.4, its largest spike since September 2020.

  • Confidence in the job market also hit its highest level since September, increasing 1.9 points to 43.1.
  • The consumer indicators of confidence in personal finances and making a major purchase rose 1.9 and 1.8 points, respectively. Confidence in the housing market increased slightly, moving up 0.1 point to 49.4.

One level deeper: "Easing of restrictions is being reflected in a fading of weakness in the OpenTable restaurant series," TD Bank strategists said in a note to clients.

  • It is now down 39% year over year, a notable improvement from -52% a month ago.
  • The Opportunity Insights credit card transactions data series shows net strengthening this year, even with some weakening since early January, and mobility data from Google are also signaling some strengthening, TD notes.

State of play: "All in all, the recovery appears to be regaining momentum, albeit with a long way to go; payrolls are currently down 9.9 million from their pre-COVID level."

Of note: Improving consumer confidence numbers along with better-than-expected retail sales figures pushed the New York Fed's index of real-time economic indicators slightly higher this week.

  • The Atlanta Fed's GDPNow forecasting tool is indicating U.S. growth could see a 10% gain for the first three months of the year.
4. Robinhood turned away investors after GameStop blowup

Illustration: Brendan Lynch/Axios

After causing an uproar among users by restricting buying of certain meme stocks on its platform and needing to raise capital to meet regulatory requirements, trading platform Robinhood found itself turning away cash from investors.

What happened: Robinhood raised more than $3 billion over the course of a weekend, largely from early-stage investors in an effort to steady its finances.

  • The company received so many offers it was refusing investors' money, according to Howard Lindzon, general partner at Venture Capital firm Social Leverage and co-founder of social media platform StockTwits, who says he was personally rebuked.

What we're hearing: "We did try. We put together a group of people and offered to invest the money, but it wasn’t large enough to move the needle for all their headaches, I guess," Lindzon told me during an interview on the Voices of Wall Street podcast.

Background: The stock trading app raised $2.4 billion in new funding from existing backers over Jan. 30 and Jan. 31, on top of the $1 billion it secured in one evening earlier that week.

  • Investors were rewarded as new users signed up for Robinhood in droves, making it No. 1 in the Apple App Store after it had to shut down trading on some of its most popular stocks.
  • Demand reportedly also rose after Robinhood CEO Vlad Tenev testified before Congress last week.

The big picture: The increasing demand for Robinhood despite its struggles was because there "wasn’t a competitor," in terms of quality of user experience, Lindzon said.

  • "If there was a great competitor to Robinhood — and there were plenty of years where VCs and other people could’ve built an equal product to Robinhood — yes, that would’ve been a company-ending thing. There wasn’t a competitor. If this happened to Uber, people move to Lyft."

The bottom line: Robinhood still appears to be pushing toward going public, potentially with a valuation as high as $40 billion — more than triple its last publicly disclosed appraisal.

Thanks for reading!

Quote: “People seldom see the halting and painful steps by which even the most insignificant success is achieved.”

Why it matters: On March 3, 1887, Anne Sullivan began teaching 6-year-old Helen Keller, who went on to become an author, advocate and the first blind and deaf person to earn a bachelor's degree.

  • Sullivan, who gave the quote, was partially blind herself and received her education as a student of the Perkins School for the Blind.