The Market Today

Investors Optimistic on Eve of Worst Payroll Report on Record

by Craig Dismuke, Dudley Carter


Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT

Monitoring the Headlines

Reopening Activity: The U.K. will announce its plans Sunday with some changes expected beginning Monday. Denmark will loosen some restrictions beginning Monday while Belgium and the Netherlands announced some businesses could reopen May 11. Germany took the biggest step, extending social distancing but announcing that all shops can begin reopening with certain conditions. Soccer will resume in Germany without fans mid-May. In the U.S., there was more evidence of the delicate balance governors are faced with. Michigan’s legislature sued the governor over her stay-at-home order while the U.S. Supreme Court said it wouldn’t address challenges to Pennsylvania’s. California reported its biggest single-day case increase just as some restrictions are set to be phased out on Friday.

Other Headlines: President Trump shifted positions saying the White House Virus Task Force would “continue on indefinitely” but shift its focus to safety and reopening. President Trump also mentioned that he could better answer a question about China’s compliance with the trade agreement next week, adding to resurging tensions between the two countries. White House Press Secretary McEnany later said there is currently disappointment and frustration overhanging U.S.-China relations. In the corporate world, Uber announced it was cutting 14% of its global workforce and BlackRock’s CEO said his bet is that Washington will eventually raise corporate taxes to recoup some of the stimulus spending.


Initial jobless claims for the week ending May 2 increased another 3.17 million, bringing the seven-week total up to 33.48 million. After seven weeks of trying to contain the virus, it now appears that 22% of workers have lost their jobs.  Heading into tomorrow’s payroll report for the month of April, we now expect to see 22 million payrolls lost in by-far the worst month on record for U.S. job loss.

Also released this morning, nonfarm productivity declined 2.5% in 1Q as the economy contracted 4.8% (initial estimate that is likely to be revised lower).  Because hours worked remained elevated despite the lack of output, unit labor costs jumped 4.8%.

Speaking today are Atlanta Bank President Bostic (7:30 a.m. CT), Minneapolis President Kashkari (11:00 a.m.), and Philadelphia President Harker (3:00 p.m.).  All three are speaking on the impact of Covid-19 on the U.S. economy.


Investors Continued To Look Through Vicious Data to Hopes for Activity to Resume: As has been the case this week, investors mostly looked through historically-tragic and previously-unimaginable economic data with hope that the gradual reopening of global economies will help prevent the pain from becoming any deeper. Ahead of U.S. trading, German factory orders plunged by a record, PMIs in Italy and Spain fell to incredulously low levels, and ADP confirmed the historic job loss evident for weeks in more timely jobless claims data. And still equities traded around unchanged for most of the day. Optimism has grown as European countries and states across the U.S. take the first steps to reopen their economies. That continued Wednesday with several additional European countries announcing plans to ease lockdowns.

Treasury Yields Rose as Supply Swell Begins to Fund Stimulus: The major indexes turned lower in the final thirty minutes, however, about the time President Trump said he’d have a better feel next week for if China was complying with its pledges in the phase one trade deal. The S&P 500 ended the day down 0.7%. The retreat for equities trimmed a rise in yields that was spurred by the Treasury’s early-morning refunding announcement. The Treasury will issue a record $96B spread across 3-year, 10-year, and 30-year bonds this quarter, hold the first auction of 20-year bonds ($20B) since the 1980s, and plans to “shift financing from bills to longer-dated tenors over the coming quarters.” The 2-year yield fell 1.0 bp to 0.18%, the 5-year yield fell 0.3 bps to 0.37%, and the 10-year yield added 4.1 bps to 0.70%. The 10-year yield’s close and its spread above the 2-year yield were the highest since April 14.


More Data Showing Virus Fallout: Global markets were mixed Thursday with investors closely tracking the virus and its economic fallout. Asian markets that were opened fell 0.4% after mixed economic news out of China. The country’s services PMI inched up from 43.0 to 44.4 in April, short of the improvement to 50.1 economists had expected and a third consecutive contraction. Separately, trade data showed a larger-than-expected 14.2% YoY decline in Chinese imports but an unexpected 3.5% gain for exports. While the export gain is likely to be temporary with the world in recession, the positive surprise nudged risk assets higher. The Stoxx Europe 600 was up 0.8% around 7 a.m. CT as investors seemed unsurprised by more dire March data. Industrial production in Germany (-9.2%) and France (-16.2%) and retail sales in Italy (-21.3%) all plunged more than expected as lockdowns bit.

Bank of England Holds but Bets on Doing More: In the U.K., the Bank of England voted to keep its interest rate and bond buying program unchanged while pledging that it “stands ready to take further action as necessary.” An illustrative scenario run by the central bank estimated U.K. GDP could shrink 14% in 2020, the largest contraction since the 1700s according to Bloomberg, before recovering sharply in 2021. In his post-meeting comments, Governor Bailey said “We’re keeping all options open” and “could do more QE in June.” U.K. markets were little changed after the decision. Ahead of this morning’s jobless claims data, U.S. futures were up well more than 1% and Treasury yields were lower by less than 1.5 bps across the curve. Those moves held up after the release.


Thursday’s Fedspeak: Dallas Fed President Kaplan said Wednesday he’s expecting an incredible contraction in the second quarter to be followed by a return to growth in the second half of the year. However, he also echoed others by noting the Fed will, “have to obviously run a very accommodative policy for some extended period of time.” Richmond Fed President Barkin was less optimistic about the second half of the year, saying he expects the economic “valley” to be wider than most think and the recovery to look more like a backwards J than the optimist’s V.

WSJ: Small Investors Ruled the Municipal-Bond World for a Few Days in March

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