Report (Premium Edition) 03-22-2021

It has been a rocky road for the markets in recent weeks, especially after the very poor 7-year auction on February 25. That sparked a major selloff in the longer dated Treasuries that saw the 10- and 30-year rates spike to their cheapest levels in over a year. And yields have extended higher still after Fed Chair Powell did not push-back and basically give it his tacit approval, noting it was due to improving confidence in the recovery and a function of rising inflation expectations.

The 10-year closed last week at 1.72%, with the long bond at 2.43%. Wall Street was rattled, and especially the NASDAQ amid a rethink of valuations. It was mixed on Friday with the NASDAQ 0.76% firmer to recover some of its recent losses, while the Dow gave back -0.71%.

The rising 10-year should worry stock investors because it will cause investors to sell off equities and go to bonds. This will create a bearish or sideways market. We project that portfolio managers will start moving to bonds when the 10-year moves to 1.75% which it touched last week. Investors should avoid switching right away to bonds because there are still opportunities for growth in equities.

Investors should be very careful about investing in bond funds because of rising interest rates. Bond funds are likely to see substantial decreases in value if the 10-year increases.

More of the same is likely this week. Much of the focus will be on the aforementioned 7-year sale on Thursday, preceded by the 2- and 5-year offerings Tuesday and Wednesday, respectively. There are mounting fears of a slowing in demand for auctions.

The Fed’s decision not to extend the SLR beyond the March 31 expiration date may see a significant reduction in bank demand for Treasuries. Fedspeak features prominently this week too, with several appearances by Fed Chair Powell. He takes part in a BIS panel discussion today and will be joined by Treasury Secretary Yellen later in the week to testify on the CARES Act before House and Senate committees.

Today’s data slate is light with just February existing home sales for February and the Chicago Fed National Activity Index.

Key Drivers for the Week of March 22

TIP – This is a 1 minute brief bullet-point summary as a tool that gives them a fast and simple list of what to watch for and talking points for the week.

• Markets’ focus remains on rising bond yields and impacts on outlooks, valuations
• U.S. Treasury to auction $183 bln in new 2-, 5-, 7-year notes
• Fedspeakers include Powell, Clarida, Williams, Barkin, Bostic, Daly, Evans, others
• U.S. data on home sales, durables, revised GDP, income, consumption, sentiment
• BoC Deputy Governor Gravelle speaks; CFIB Business Barometer due
• Japan reports PPI, Tokyo CPI; Hong Kong CPI; Singapore CPI; Malaysia CPI
• Thailand central bank expected steady at 0.50%; Philippines bank on hold at 2.0%
• Eurozone, countries monitoring varying covid cases and lockdown measures
• Eurozone manufacturing and services PMIs; German Ifo Business Climate due
• ECB’s economic bulletin; ECBspeak from Schnabel, Guindos
• UK optimism as it leads global vaccine programs
• UK data on CPI, earnings, unemployment, retail sales and PMIs
• SNB expected on hold, especially after ECB frontloaded asset purchases

Key Market Trends

Tip: Use this as a quick guide on the short-term direction of key markets. I once had a client that would call me nearly every day asking the direction of the markets. This is a quick cheat sheet to know the trend and help understand what is happening with the markets.

S&P 500 Sectors

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have out-performed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have on real estate investment trusts’ (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Week Ahead: Bond Bears on the Prowl

On March 22, 2021

Bond bears were on the prowl last week, and further upward pressure on yields could be in store this week. U.S. supply will feature prominently with $183 bln in 2-, 5- and 7-year auctions. The stakes are high given that it was the poor 7-year sale in February that triggered the big 20 bp selloff in longer Treasuries. A heavy slate of Fedspeak will be closely monitored too. In Europe, relatively low vaccination rates and stricter lockdowns will remain in focus, with data expected to highlight the ongoing divergence between the service and goods sectors. In Asia, a fairly light calendar has meetings from the Philippine Central Bank and Thailand’s Central Bank, both of which are expected to hold rates steady.

NORTH AMERICA

In the U.S., supply is on tap with the $183 bln in 2-, 5-, and 7-year auctions. Remember, it was a very poor reception to the February 7-year sale that triggered the big 20 bp selloff in the 10- and 30-year maturities that sent jitters around the world. The bond market has continued to erode in subsequent weeks with lack of push-back from Fed Chair Powell, who said the rise in rates is a natural consequence of increasing confidence in the recovery. This week’s auctions include $60 bln in 2-year notes Tuesday, $61 bln in 5s on Wednesday, and $62 bln in 7s on Thursday. The when issued yields closed Friday at 0.165% on the 2-year, with the 5s at 0.905%, and the 7s at 1.385% on the 7s. A stop here on the 2s would tie for the cheapest since June, and since February 2020 for the 5s and January 2020 for the 7s. The big question is will there be decent buying at these levels.

The markets also will monitor a very heavy load of Fedspeak to try to gauge which of the FOMC members had the more hawkish views revealed in the dot plot. Importantly, Chair Powell will be speaking on several occasions though we suspect he will deliver the same message from the March 17 FOMC press conference, that the Fed is a long way from removing stimulus. On Monday he will participate in a BIS panel on central bank innovation. Barkin discusses Covid Scarring, Daly talks about the future of education, Quarles delivers a talk on the Libor transition, and Bowman covers the economic outlook. Tuesday brings another appearance by Powell and Treasury head Yellen in front of a House panel on the CARES act. Bullard will talk about the economy, Bostic covers economic inclusivity, Brainard speaks on climate change and the economic outlook and Williams takes part in a virtual talk. On Wednesday, a Senate Banking Panel hosts Chair Powell and Treasury’s Yellen. Evans tackles the economic outlook, Daly covers equitable growth, and Williams participates in a moderated discussion. As for Thursday, Williams takes part in another virtual discussion, Bostic presents a speech, Evan’s covers the economic outlook, VC Clarida discusses the outlook for the economy and policy, and Daly discusses monetary policy.

The economic reports have been volatile of late as weather impacts, an unwinding of stimulus payments and vaccine developments have all been in the mix. In short, the data have been noisy and hence fallen in the shadow of Fed policy speculation and worries about inflation down the road. Hence, while the data slate is busy this week, few reports are likely to garner much sustained attention. Personal income and consumption (Friday) are exhibit A in terms of noisy data, with a -7.5% headline drop back for personal income projected for February as the big 10.0% January bounce from stimulus payments is unwound. But more relief is on the way right now with checks in the mail from the $1.9 tln rescue deal, suggesting another bounce back in March and/or April income. Durable goods orders (Wednesday) are expected to fall -1.5% in February with a -6.0% drop in transportation orders. Revised GDP (Thursday) will not change the picture for Q4, with a boost to 4.6% from 4.1% anticipated. New (Tuesday) and existing home sales (Monday) for February are projected to decline following hits from bad weather, but remain at still elevated levels.

Corporate earnings thin to a trickle this week. Monday has Tencent Music. Tuesday has Adobe, IHS Markit, and GameStop. On Wednesday, General Mills and Paychex release results. Thursday has Darden Restaurants and Viatris. Friday is empty.

Canada’s schedule of data and events is very thin this week. BoC Deputy Governor Gravelle speaks (Tuesday) on “The role of the Bank of Canada in responding to market-wide stress” At the March announcement, the BoC repeated their pledge to continue the “QE program until the recovery is well underway.” Rates were held at 0.25%, matching widespread expectations. The inflation projection implies no moves on rates until 2023. On growth they upgraded the near term outlook, with Q1 now seen as positive versus the contraction projected in January. However, they reiterated that the path remains uncertain, saying “there is still considerable economic slack and a great deal of uncertainty about the evolution of the virus and the path of economic growth.” Moreover, employment remains well below pre-pandemic levels. The CFIB’s Business Barometer survey of medium and small firm sentiment for March is due Thursday. The report is not a market mover, but further improvement in March would be consistent with firming market expectations for a strong recovery this year. Statistics Canada releases the preliminary estimate for February wholesale shipments (Monday) and the preliminary projection for February manufacturing sales (Wednesday).

ASIA

This week’s relatively light regional calendar won’t provide a lot of new information, although inflation data will be closely tracked given the rising concerns over price pressures. Japan’s docket does feature PPI and Tokyo CPI. The BoJ will release minutes from its January 20-21 policy meeting. There is nothing from China. Elsewhere, a smattering of price, trade, and production numbers are slated for the smaller economies. For central banks, the Bank of Thailand meets, with no change to its 0.50% repo rate expected. The Philippines central bank is also seen on hold, with rates at 2.00%. Attention will remain on bond yields and their impact on equity markets, as well as the usual interest in Covid, including case growth and vaccination progress.

In Japan, the BoJ will release minutes from its January 20-21 policy meeting on Wednesday. The Bank left its policy parameters unchanged. February PPI (Wednesday) is expected to warm slightly to -0.4% y/y from -0.5%. March Tokyo CPI (Thursday) is penciled in at -0.2% y/y from -0.3% on both the headline and core. South Korea February PPI is due Wednesday, with March consumer sentiment due Friday. Taiwan February export orders (Monday) are forecast to have fallen to a -4.0% y/y contraction rate from a 0.4% pace of expansion. February unemployment (Monday) is expected at an unchanged 3.8%, while February industrial output (Tuesday) likely slowed to a 10.0% y/y clip from 18.8% previously.

Hong Kong February CPI will be released Monday, with February trade (Thursday) to see the deficit narrow to HKD 20.0 bln from HKD 25.2 bln. Thailand’s central bank meets (Wednesday) with no change to its 0.50% repo rate expected. February exports (Wednesday) likely dropped to a -4.0% y/y rate after rising 0.4% in January. Singapore February CPI (Tuesday) is forecast edging up 0.5% y/y from 0.2%. February manufacturing production (Friday) is anticipated to have surged to an 18.0% y/y rate of growth from 8.6%. Malaysia February CPI (Wednesday) is seen rebounding to a 0.1% y/y pace from -0.2%. The Philippines central bank is also seen on hold when it meets Thursday, with rates at 2.00%.

In Australia, a lean docket awaits with no top tier economic releases on the schedule. The next central bank event is the April 6 policy meeting. We expect no change to the current 0.10% rate setting. This month, the RBA left monetary policy unchanged, as had been widely anticipated and maintained guidance that the cash rate won’t be hiked until employment and inflation targets are met. New Zealand’s calendar features the trade report (Wednesday), expected to reveal a NZ$0.3 bln surplus in February following the -NZ$0.6 bln deficit in January.

EUROPE

Eurozone: Germany and most Eurozone countries have had a pretty relaxed type of “lockdown” during the early part of the year. However, with more infectious mutations spreading fast and vaccination rates remaining relatively low, governments have been forced to implement stricter measures. Consequently, the Eurozone as a whole and individual countries have a huge variety of different restrictions currently in place. Against that background the European Council meeting on March 25/26 will likely contain a lot of criticism for the European Commission. Yet to be fair, squaring the circle between the rich nations who could have moved much faster on their own and the smaller ones (who would have struggled without the joint procurement scheme) was never going to be easy. EU nations as a whole have now vaccinated just 10% of the population at least once, while just 4.3% have had the two doses necessary for all the vaccines approved so far. Individual vaccination rates vary considerably and it is worth keeping in mind that vaccine procurement aside EU institutions has nothing to do with the roll out of vaccination programs, which are very different across countries and even regions, depending on national health care systems. Still, the Eurozone’s services sector is likely to continue to struggle and countries relying on tourism will feel the pain.

This week’s economic data is likely to reflect that pain, as developments remain uneven across sectors and countries. Germany’s manufacturing sector is racing ahead, it seems only hindered by supply chain constraints. We expect another strong reading for the preliminary Eurozone Manufacturing PMI (Wednesday), which at 57.8 (median 57.6), would just be fractionally below February’s 57.9. The services PMI meanwhile is likely to remain in contraction territory — although at 45.9 (median 46.0), likely to lift slightly from the 45.7 in the previous month. We expect the composite at 48.9 (median 49.1), indicating ongoing contraction in overall activity that justifies the ECB’s decision to frontload the asset purchase schedule.

Germany’s ZEW investor confidence reading continued to jump higher in March, but the movements in the Ifo Business Climate (Thursday) are likely to be more cautious, although we still expect an improvement in the headline rate to 92.9 (median 93.0), based on better expectations as well as current conditions indicators. French business climate readings on the same day are expected to hold pretty steady.

The rest of the data calendar includes Eurozone M3 money supply growth, which is likely to remain extremely strong thanks to the ECB, as well as consumer confidence data for Germany, which is expected to hold firmly in negative territory against the background of the pandemic. Events include the release of the ECB’s economic bulletin, which as usual will mainly flesh out the last ECB decision, which included the frontloading of the asset purchase program. There are also a number of ECB speakers, including Executive Board members Schnabel and Guindos on Thursday and markets will keep a very close eye on the ECB’s release of asset purchases under the PEPP program on Monday.

U.K.: the UK economy looks primed for a strengthening rebound as 2021 progresses. It has also become increasingly recognized that UK value stocks are at relative bargain prices following years of Brexit uncertainty and the impact of the Covid pandemic. The UK’s world-leading Covid vaccination program is also encouraging, with nearly 40% of the population having now received at least one dose of a vaccine, with only Israel and UAE ahead, alongside sharply contracting new cases and mortality rates.

The BoE noted in its March policy statement last week that the Covid vaccination program in the UK, and the government’s reopening from restrictions, albeit gradual, as being consistent with a slightly stronger outlook for consumption growth in the second quarter of 2021. The BoE also noted that the U.S. fiscal stimulus package should provide “significant additional support to the outlook.” But the ‘Old Lady’ also took trouble to emphasize that it will not tighten policy until there is clear evidence that its mandated 2% inflation goal is being met sustainably, suggesting, like the Fed, that it’s not in the mode for pre-emptive tightening. Policymakers have signalled that they are sanguine in the face of rising yields due to the Philips curve being so flat so as to allow full employment to be nearly reached before monetary tightening would be needed to quell the risk of second round inflation effects.

The data calendar this week highlighted by labour, inflation, PMI survey, and retail sales data. The labour report is expected to show a continued rise in average household earnings, with 5.0% y/y growth anticipated in the three months to January, despite unemployment also expected to tick higher, to 5.2%. As for inflation, the February y/y rate is expected to tick fractionally higher, to 0.8% from 0.7%. Inflation will burst higher in the y/y price comparison as oil and other commodity price driven base effects kick in over the coming months. The preliminary March PMI surveys are expected to showed modest improvement in private sector activity after the much stronger than anticipated outcomes in February. UK nations remain in a relatively high state of lockdown, though strong prospects for continued reopening in the months ahead bodes well of an acceleration in economic growth. Trade with the EU might be impaired by the fact that many nations on the continued are heading in the opposite direction due to a swell up in new Covid cases and a disappointing vaccination rollout. February retails are expected to jump 2.2% m/m after the 8.8% decline in January.

Switzerland: The SNB is widely expected to keep policy settings on hold at the quarterly policy review on Thursday. Like other central banks, the SNB is likely to keep all options open against the background of a pandemic that is far from over. The economic outlook for the second half of the year may have improved considerably, thanks to developments in the U.S., but the near-term risks for the domestic economy remain tilted to the downside given the prevailing increase in Covid restrictions across much of the continent, which will keep the central bank committed to providing ongoing monetary support. The ECB decided to front-load its asset purchase schedule to try and keep control of longer term rates, and that may help the Swiss central bank to sit on the fence for now.

The Swiss data calendar is quiet this week.

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated weekly to help provide our readers with timely insights. Readers should do their own research before making any investment.

Solid Picks

This group of stock/ETF picks is likely to experience growth and perform well into the near future. The “Fair Value” is a calculation using a discount cash flow analysis to determine the Intrinsic Value. The rank score of a stock, where a score of 1 is best. This algorithm compares a company to its peers and considers the consistency of key return metrics. Share Value is what they think the price per share should be. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.

Income Stock & ETFs Picks

This list of stocks and ETFs are selected for their ability to pay dividends. The dividend score of a stock, where a score of 99 is best. This algorithm compares a company to its peers and considers the consistency of key dividend metrics as well as their direction of change. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.

Dividend Growth Stocks

ETFs

Dogs of the Dow

This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. The dividend score of a stock, where a score of 99 is best. This algorithm compares a company to its peers and considers the consistency of key dividend metrics as well as their direction of change. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.

Economic Data Calendar

The last full week of March should reveal a boost in a Q4 GDP growth to the 4.6% area from 4.1%. We expect a big headline pull-back for personal income in February as we unwind stimulus payments, alongside a weather-led pull-back in sales. A vehicle-led drop in transportation orders should lead a February decline in durable goods orders. Advance indicators should reveal a slight widening in the trade gap and further big inventory gains. We expect big February drops in both existing home sales and new home sales due to weather, while the current account balance widens in Q4 to a new 13-year high.

Week of March 22

Thursday’s massive Philly Fed surge to a 48-year high in March of 51.8 followed Monday’s Empire State pop to a 2-year high of 17.4. We now expect the remaining producer sentiment reports for March, to be released over the coming two weeks, to support a rise in the ISM-adjusted average of the major surveys to the 59 all-time high last seen in 2018, for a series we have calculated back to 2004 with the start of the Dallas survey. The average posted a 2-year high of 57 over the three months through February. It’s clear that the two massive stimulus packages passed over the last three months has boosted optimism.

Yet, does the good news on the factory front simply expand the list of industries now functioning at capacity constraints, like housing?

Semiconductor shortages are preventing a ramping up of the vehicle sector, and the massive petrol-chemical complex that drives much of the U.S. economy is now capped by a permit moratorium for new drilling and significant pipeline construction bottlenecks.

Does new stimulus mean faster growth, or just greater pricing power for manufactures, alongside the monopoly pricing now evident for holders of real estate in this sellers’ market? Here in Colorado, anecdotes of dozens of immediate bids on new property listings at prices 15% above asking price are now common. Will stimulus deposits drive up the economy, or just prices? We saw $242 bln in stimulus deposits into household checking accounts on March 17 alone, and the CBO expects that $1,160 bln of the March stimulus will be spent by the end of September.

Will stimulus trickle through to the narrow range of industries that were depressed by the coronavirus, or are these industries just now vastly smaller, while other industries face short-term constraints as they try to ramp up to new highs? The last two stimulus packages were the opposite of “targeted,” and many hard-hit companies may see no benefit at all. Will anyone be booking a family theater and shopping weekend in New York City, or will purchases of suburban homes, bitcoin, and bigger TVs be the norm? Will people move back to their offices any faster because they now feel richer?

The macro releases over the last few weeks, and over the coming three weeks as well, will provide important signals on the degree to which the economy can grow any faster with this new cash in hand, or if prices will just be pushed upward. Sentiment and prices have already soared, but we have yet to see if real output can really grow much faster.

Existing Home Sales: 6.460 mln

We expect existing home sales in February to dip to 6.460 mln from 6.690 mln in January, versus a 14-year high of 6.860 mln in October, with a hit from bad weather. Pending home sales fell -2.8% in January, as this measure continues to unwind the all-time high in August. The MBA purchase index fell by -15.4% in February, after gains of 4.7% in January, 2.6% in December, and 2.7% in November. The two measures are consistent with a still-elevated sales pace into 2021. Sales are supply-constrained, as the months’ supply of homes have posted a 5-month string of new all-time lows. Existing home sales are tracked at closings, which leaves a lag for this series of one or two months. The median sales price is expected to rise to $303,900 from $309,200 in January and a $313,000 all-time high in October. We expect a rise in the y/y median price gain to a lofty 14.6% from 14.1% in January. In Q4, we saw an average sales pace of 6.657 mln, after a 6.103 mln rate in Q3, and we expect a strong 6.573 mln pace in Q1.

Current Account: -$184.0 bln

The current account balance is expected to widen to a -$184.0 bln level in Q4 that would mark a new 13-year high, from a -$178.5 bln deficit in Q3. We saw a -$200.00 bln goods and services trade deficit in Q4. As a percentage of nominal GDP, the gap is expected to sit at -3.4% in Q4, the same as in the prior quarter. We saw Q4 growth for goods, services, and income of 29% for exports and 27% for imports, thanks to continued rebounds after disruptions from COVID-19 for trade in goods and services, as well as income receipts and payments. We expect an annual current account deficit of -$635.4 bln in 2020, versus a high from the last expansion of -$480 bln in 2019. The deficit remains well below the -$806 bln record deficit back in 2006.

New Home Sales: 830k

We expect a -10.1% weather-led February drop for new home sales to an 830k pace, following a jump to a 923k clip in January that left an 8-month stretch of sales rates that are the highest since a 1,016k reading in September of 2006. We expect a median sales price rise to $358,000 from $346,400 in January, leaving a y/y increase of 7.9%. We expect an 874k Q1 pace for new home sales, after a 896k pace in Q4. The housing sector is continuing to boom into 2021, as solid fundamentals even before the pandemic are now being exacerbated by further mortgage rate declines and migrations to suburban areas that are boosting new home construction. We’ve also seen a de-linking of the housing cycle from the school year, and a boost in activity through the holiday’s due to reduced seasonal disruptions with virus restrictions. The new construction data have notably lagged sales, but we expect a steady climb in starts, construction, and completions in 2021 given likely ongoing strength in new home sales.

Durable Goods Orders: -1.5%

Durable goods orders are expected to fall -1.5% in February with a -6.0% drop in transportation orders, after a 3.4% headline increase in January that included a 7.7% transportation orders gain. The durable orders rise ex-transportation is pegged at 0.7%, after a 1.3% January rise. A defense orders drop is pegged at -7.7%, following a 22.0% January surge. Boeing orders improved to 82 planes in February from 4 in January, but a lofty 90 in December with the lifting of the 737 MAX grounding. The vehicle assembly rate fell to 9.3 mln in February from 10.6 mln in January, versus a 0.1 mln trough in April last year. Durable shipments should fall -2.0%, and inventories should rise 0.2%. The I/S ratio is expected to climb to 1.67 from a 2-year low of 1.63 in January, versus an all-time high of 2.24 in April for a series extending back to 1992. We saw a prior 1.88 I/S peak in April and May of 2009.

Revised Q4 GDP: 4.6%

We expect a Q4 GDP growth boost to 4.6% from 4.1%, with hikes of $12 bln for retail inventories, $7 bln for wholesale inventories, and $2 bln for both public construction and exports, alongside a -$1 bln trimming for factory inventories. The revised Q4 GDP data will still document a sharply diminished rebound in consumer activity in Q4, before a bounce into Q1, and a still-robust climb for business fixed investment through Q4 that will likely extend into 2021. The inventory aggregate returned to accumulation in Q4 after a massive four-quarter liquidation through Q3. Residential construction continued to boom through Q4 at a powerful double-digit growth pace, while government purchases continued to fall. Stimulus payments and vaccines have lifted growth in early 2021.

Initial Jobless Claims: 740k

Initial jobless claims are expected to ease to 740k following last week’s BLS survey week bounce to 770k from 725k. The unwind of initial claims from the holiday peak has proven quite slow, as job churn likely remains high. Claims are expected to average 740k in March after averages of 788k in February, 852k in January, and 825k in December. The 770k BLS survey week reading follows prior survey week figures of 841k in February, 914k in January, and 892k in December. We assume a 500k March payroll rise after the 379k February gain.

Continuing claims fell by -18k to 4,124k in the week of March 6, following a downwardly revised 4,142k figure. We expect continuing claims to fall -194k to the 3,930k area for the week ending on March 13. We expect continuing claims to extend their downtrend through Q1. We expect continuing claims to fall -499k between the February and March BLS survey weeks. We saw prior drops of -366k in February, -537k in January, -767k in December, -1,734k in November, -4,924k in October, -1,745k in September, -2,459k in August, -2,280k in July, and -1,610k in June.

Advance Indicators Goods Deficit: -$83.6 bln

We expect the advance indicators report to reveal a February narrowing in the goods trade balance to -$83.6 bln from -$84.6 (was -$83.7) bln in January and an all-time high -$86.1 bln in November. We expect exports to grow 1.5% to $137.3 bln, while imports grow 0.5% to $220.9 bln. A steep February oil price climb will boost both exports and imports of petroleum products, but bad weather will depress volume, and trade in vehicles should fall in response to parts shortages. We expect a $20 bln bilateral goods deficit between the U.S. and China with elevated import and export figures as businesses rebuild inventories, though with a hit from the Chinese New Year. The bilateral gap previously fell between mid-2019 and March 2020 to an -$11.8 bln deficit that marked the smallest gap since 2004, versus a -$43.1 bln all-time wide bilateral gap in October of 2018. The advance report should also reveal February gains of 1.1% for wholesale inventories and 0.2% for retail inventories.

Personal Income/Consumption: -7.5%/-0.2%

We expect a -7.5% headline drop back for personal income in February as the big January bounce from stimulus payments is unwound. We expect a -0.2% February decline for wage income and compensation due to a -0.5% February drop for hours-worked and a 0.2% increase for hourly earnings. We expect a -0.2% dip in consumption after a likely revised 2.6% (was 2.4%) January jump. We expect a savings rate dip to 13.5% after a spike to an assumed 20.3% (was 20.5%) in January, versus a 12.9% recent-low in November. We saw a 33.7% prior peak last April with previous direct deposits. We peg disposable income growth at 67.2% in Q1, after contraction rates of -8.6% in Q4 and -14.4% in Q3, but a 46.2% growth pace in Q2. We expect a growth rate for real consumption of 5.0% in Q1, after growth rates of 2.4% in Q4 and 41.0% in Q3. The next round of stimulus checks should support a March income surge of around 24%, with a savings rate of 30%.

Michigan Sentiment, Revised: 83.5

We expect the final March Michigan sentiment report to revealed an upwardly-revised 6.7 pop to a 1-year high of 83.5 (was 83.0) from a 6-month low of 76.8 in February, with a big lift from expanding vaccine availability and new stimulus spending. Expectations rose to a 5-month high of 77.5 from a 3-month low of 70.7, versus a 7-month high of 79.2 in October. Current conditions rose to a 1-year high of 91.5 from a 4-month low of 86.2, versus a 9-month high of 90.0 in December. We assume both components are boosted by 0.5 points. The 1-year inflation gauge pulled back to 3.1% from a 3.3% high in February that was last seen in July of 2014. The 5-10 year inflation measure remained at the 2.7% high since January that was also seen last August, September and May, and previously in March of 2016. All the confidence measures are climbing into the end of Q1 with vaccine distributions, stimulus deposits, and easing of coronavirus restrictions, following a slight downward tilt through the holidays.