The Market Today

ECB Expands Asset Purchases; U.S. Continuing Claims Increase

by Craig Dismuke, Dudley Carter


Vining Sparks Coronavirus Chartbook (PDF) (Link) (Updated by 9:00 a.m. CT)

Monitoring the Headlines – On Reopening: Florida’s governor said most of the state would enter phase two on Friday, which among other changes allows movie theaters, bars, and bowling alleys to open. Texas’s governor said the state would immediately move into its third phase, while Oregon indicated that several counties would enter its second phase on Friday. A survey by the U.S. Chamber of Commerce and Metlife showed nearly 80% of small businesses were at least partially opened in May. Belgium increased the allowable gathering size from 4 to 10 and joined the Netherlands in lifting travel restrictions within the EU from June 15. An international air travel industry group said it had seen a 30% pick-up in flight activity in May. From the sports world, the NBA has planned an abbreviated season that would include 22 teams competing in Orlando. Separately, Representative Scalise said professional sports teams were seeking liability protections if they’re to resume competition.

Monitoring the Headlines – On Stimulus: Around lunch, the Federal Reserve announced that it was expanding its Municipal Liquidity Facility to ensure that each state has at least two cities or counties eligible to participate, regardless of population size. Based on the previous criteria, four states only had one locality which qualified under the population limits and fourteen states had no localities qualify.  The changes also give governors the discretion to designate two entities that operate government activities, such as public transit, as eligible to access the facility. The Treasury and IRS jointly announced that “159 million Economic Impact Payments, worth more than $267 billion, have been distributed to Americans in two months.” Late Wednesday evening, the Senate passed the House’s bill to ease restrictions on PPP funds to make it easier for businesses to have those emergency loans forgiven. In Germany, Chancellor Merkel’s coalition announced an agreement on a 130-billion-euro stimulus package and plan to temporarily lower the value-added tax until the end of the year.

Monitoring the Headlines – Areas of Concern Unrelated to COVID-19: The headlines covered all areas of recent interest on Wednesday. Related to the interplay of the protests and pandemic, House Speaker Pelosi said she was concerned about protesters not wearing masks and New Jersey’s governor asked those protesting to maintain social distancing. The U.S. announced it was banning passenger flights from China starting June 16 in response to China’s ban on U.S. carriers and the Commerce Department confirmed that previously-announced additions of Chinese entities to an economic blacklist would go into effect on Friday.



Initial Jobless Claims Slowly Decline, Continuing Claims Increase: Initial jobless claims for the week ending May 30 slowed from the previous week for the ninth consecutive week, dropping from 2.13 to 1.88 million. Through eleven weeks of COVID-related shutdowns, 42.6 million people have now filed for unemployment insurance.  After dropping almost 4.0 million in last week’s release, continuing claims discouragingly increased 649k in this week’s report.  This week’s release covers the week ending May 23 as continuing claims are reported with a one-week lag.  On a positive note, 39 states reported a decline in continuing claims illustrating a broad-based improvement.  However, California and Oregon reported out-sized increases.  Oregon reported a 137k (46.7%) increase in their continuing claims while California reported a 618k (+28.7%) increase.


Hopeful Data Helped Lift Stocks, Yields to Highest in Some Time: U.S. equities and Treasury yields surged early in Wednesday’s domestic session after separate data reports strengthened investors’ hope that economic recovery began in May. Ahead of U.S. trading, mortgage purchase applications rose for a seventh consecutive week before ADP’s estimate that 2.8 million private-sector jobs were lost in May came in well below the 9 million expected. Shortly after U.S. trading began, the ISM’s Non-manufacturing report showed a solid recovery in activity and orders (more below). Despite escalating U.S.-China tensions and violence erupting in cities across the country, a growing amount of global data shows some recovery of activity in May.

Full-Risk On Feelings in Wednesday’s Market Moves: The S&P 500 leveled off midday after a strong opening jump before recharging in the afternoon to close up 1.4% and at its highest level since March 4. The index has recovered nearly 40% from its late-March low to within 8% of its all-time high from February 19. The gains were again led by cyclically-sensitive sectors, with industrial, financials, and energy all rising more than 3%. The optimism pushed the Treasury curve higher and steeper as the 2-year yield rose 2.8 bps to 0.19% and the 10-year yield closed up 6.1 bps at 0.746%, its highest level since April 14.


ECB Expands and Extends Its COVID-19 QE Program: The global equity rally finally took a breather overnight ahead of a couple of important economic events on Thursday, after consecutive days of gains had pushed a measure of global stocks to its highest level since early March. In the first of those events, the ECB left its key policy rates unchanged but announced an expansion and extension of its emergency asset purchase program, PEPP. Planned purchases as part of the program were increased by 600 billion euro to 1.35 trillion and the end of new purchases under the program was pushed from at least the end of 2020 to at least the end of June 2021. The ECB also announced it would reinvest maturity payments related to these assets until at least the end of 2022.

U.S. Markets Steady Despite Active Session in Europe: The euro quickly erased a loss against the U.S. dollar and peripheral European yields rallied sharply lower. Italy’s 10-year yield fell more than 20 bps from pre-decision levels while Spain’s 10-year yield fell nearly 10 bps. Europe’s Stoxx 600 briefly turned positive before edging back below Wednesday’s close, still holding above levels from earlier in the session. Prior to Thursday’s second main event, Treasury yields were mixed but little changed with U.S. equity futures signaling modest opening losses. The mixed moves in jobless claims data had little effect on yields, with the 2-year yield down 0.6 bps and the 10-year yield 0.3 bps higher.


ISM Services Supports May Recovery Story: Similar to the dynamics in Monday’s ISM manufacturing survey, the recovery in the headline non-manufacturing index understated the rebound in some key underlying activity indicators. The headline index rose 3.6 points to 45.4 in May, softened by a significant reduction in supplier delivery delays. That index dropped 11.3 points, a positive indication of less supply-chain pressures, and dragged almost 3 points from the headline. The most upbeat signal came from business activity which recovered 15 of April’s 22-point plunge. New orders rose a solid 9 points while employment improved a more modest 1.8 points to remain near April’s record low. The survey is consistent with other data showing the economy beginning to recover as the economy began to reopen in May.

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