The Market Today
Bank of Japan Follows Fed, Will Buy Whatever Is Needed
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT
Daily Growth Still Shows No Convincing Evidence of Slowing: The number of new cases globally increased 75,773 over the past 24 hours bringing the total to 2.994 million. The number of deaths increased 3,725 to 207,270. In the U.S., the number of cases has increased 26,684 bringing the total to 965,933. There have now been 54,877 reported deaths in the U.S. Most importantly, the daily case growth has yet to show convincing evidence of slowing, neither in the U.S. or globally. While it has plateaued, the remains concern that the number of cases continues to grow – despite all of the various lockdown measures.
Quiet Start to Week: The only report on today’s calendar will be the April Dallas Fed Manufacturing Index at 9:30 a.m. CT. All of the regional Fed reports have been disastrous and that trend is likely to continue.
Busy Week: FOMC Decision, 1Q GDP, Corporate Earnings: The remainder of the week will bring some key economic data including the Fed’s fourth policy decision of the year, but only the second to not be an emergency decision. We expect the Committee to begin making use of their forward guidance as they seek to calm markets. We do not anticipate negative rates in the near term. Also on Wednesday, the 1st Quarter GDP report is expected to show the economy contracted nearly 4.0%. Amazon, Twitter, Microsoft, Google, Facebook, and Boeing are a few of the important corporate earnings reports to catch this week.
Bank of Japan Kicks off Week of Bank Decisions with More Stimulus: Market sentiment remains favorable for risk assets following Friday’s gains in the U.S., nudging Treasury yields up modestly ahead of key central bank decisions (BoJ, Fed, ECB) and corporate earnings announcements spread throughout the rest of the week. Kicking off those decisions, the Bank of Japan (BoJ) kept its key policy rates unchanged but “judged it appropriate to further enhance monetary easing through” several other avenues. The BoJ announced significant increases to the amount of commercial paper and corporate bonds it buys, enhanced the size and terms of its emergency lending and liquidity facility, and said it would buy as many government bonds as is needed to stabilize “the entire yield curve at a low level.” Japanese yields inched lower after the decision and the Nikkei rose 2.7% to lead a solid day of equity gains in Asia. The continued efforts by central bankers and global governments are attempts to bridge the financial market and economic gaps until economies can re-open.
Italy Joins Other European Countries with Re-open Plans: As April fades and May begins, many countries are approaching previously-announced dates for gradually phasing out restrictions that were implemented to slow the spread of COVID-19. Over the weekend, Italy said it would begin to loosen restrictions beginning next Monday by allowing some manufacturing and construction companies to open. Italy’s FTSE MIB was 2.6% higher around 7:15 a.m. CT and near the top of wide-reaching regional gains which had boosted the broader Stoxx 600 by 1.7%. Also aiding Italian assets, S&P affirmed Italy’s BBB sovereign credit rating last week, putting to rest for now some fears of a potential downgrade to junk. Italy’s 10-year yield was 10.0 bps lower, easily outpacing moves in other sovereign yields. At 7:30 a.m., U.S. futures were stronger by approximately 1% and Treasury yields remained modestly higher. The 2-year yield had risen 0.4 bp to 0.23% with the 10-year yield 2.5 bps higher at 0.62%. Oil prices remained in focus with U.S. WTI down more than 20% to $13.30 after three days of strength to end last week that had trimmed a historic collapse.
ICYMI – April 24, 2020 Weekly Market Recap: Stocks fell last week as an unprecedented collapse in oil prices on Monday shook sentiment early and economic data confirming a deep ongoing global contraction kept late-week strength in check. Futures contracts for May delivery of U.S. WTI shocked markets with a 300% collapse on Monday to -$36.73, the first-ever negative price for oil futures. Demand has been decimated at a faster pace than supply has been pared back, leading to swelling supplies and capacity constraints that forced some investors to pay others to take inventory off their hands. Crude recovered as the week progressed with June WTI contracts ending the week at $16.94 per barrel. Stocks recovered in the second half of the week as $484 billion in additional stimulus worked its way through the legislative process, but were kept in check by more weak economic data and worries about the virus. Among the data, all of which was dreadful, global PMIs continued their plunge to shocking record lows in April and 4.4 million more Americans filed for unemployment. Virus worries returned on Thursday as hopes Gilead’s remdesivir could successfully treat COVID patients were dented by a report of little success in a trial in China. For the week, the S&P 500 fell 1.3%, oil dropped 6.4%, the 2-year Treasury yield rose 1.3 bps to 0.21%, and the 10-year yield dropped 5.0 bps to 0.60%. The 0.11% high-to-low range for the 10-year Treasury yield was the smallest since the week of February 14. Click here to view the full recap.