The Market Today
President Extends Social Distancing Through April, Oil Drops Below $20
by Craig Dismuke, Dudley Carter
PowerPoint: Coronavirus Chartbook (PWPT)
PDF/Mobile: Coronavirus Chartbook (PDF/Mobile)
Pending Home Sales and Dallas Fed Index: This week calendar starts slowly with the February pending home sales report at 9:00 a.m. CT, followed by the Dallas Fed Manufacturing Activity Index at 9:30 a.m.
ISM Reports, Auto Sales, and March Jobs Data Later This Week: However, some key data will be released in the second half of the week. On Wednesday we will see the March ADP Employment report, March’s ISM Manufacturing Index, and March’s vehicle sales data. Friday will bring the March payrolls and unemployment data and the ISM Non-Manufacturing Index. All of these reports are expected to be affected by the virus situation. However, the March labor reports will cover the reporting period through the week of March 13, one week before initial jobless claims spiked to a record-high level. Nonetheless, we do expect to see a weak March job tally, but expect the full brunt of the containment measures to be seen in next month’s jobs report.
Investors Wrestle with Question of COVID Containment: Volatility has persisted Monday as markets wrestle with the uncertainty of when COVID-19 will be contained here in the U.S. and elsewhere around the globe. With monetary and fiscal policymakers launching what is conceivably a significant portion of their firepower in recent weeks, investors reverted to fretting about exponential virus spread outside of China, a longer lockdown of the global economy to contain it, and the detrimental economic effects and uncertainty of it all. The Fed launched new emergency lending programs last week and the President signed a bipartisan stimulus bill worth more than $2T (more below). Those actions are aimed to mitigate certain economic contraction portended by last week’s disastrous PMIs, and provide a lifeline to American workers who will lose their jobs; 3.3 million had already filed for unemployment insurance by March 21.
U.S. Extends Social Distancing Through April: While deemed medically necessary by most, President Trump’s Sunday announcement that the CDC’s extreme social distancing guidelines will be extended by a month to April 30 will only enhance the economic fallout. U.S. equity futures opened more than 3% lower. China’s official virus-related statistics, the propriety of which is questioned by many, show drastic containment measures can help slow the virus but also cause significant economic damage. With many key data points signaling record economic pain in China, the PBOC cut its key 7-day repo lending rate by 0.20% to 2.20%, the largest reduction since 2015 to a record low level. Economic confidence in the Eurozone has been decimated by the deadly virus, reinforced by the latest sentiment indicator from the European Commission. The index held up better than economists expected, but still plunged 8.9 points, the most in a month on record, to 94.5, its lowest level since 2013.
Markets Mixed as Short Treasury Yields Test Negative-Yield Territory: The Stoxx Europe 600 was back to unchanged after falling as much as 2.4% in a sharp opening slide. After the dreary start, U.S. equity futures managed to climb back into positive territory and were up just under 1% around 7:45 a.m. CT. U.S. Treasury yields were also off their lows with shorter yields pushing higher on the day while longer yields remained below Friday’s closing levels. The 2-year yield was up 2.2 bps at 0.26% while the 10-year yield edged 2.1 bps lower to 0.65%, both roughly 11 bps above their respective all-time lows. The short-end of the Treasury curve made headlines overnight as yields out to the 12-month T-bill all briefly traded with a negative yield. Oil prices also remain in focus and pressured by both the demand and supply forces. Both Brent ($22.70) and U.S. WTI ($20.16) were down more than 6% and at their lowest levels since 2002.
ICYMI – March 27, 2020 Weekly Market Recap: A brisk bull-run for U.S. equities last week was bookended by daily declines on Monday and Friday, reminding investors of the bear market that began in the middle of February as COVID-19 began to spread around the world. The S&P 500 slipped 2.9% to start the week despite the Fed doubling down on its massive monetary easing measures, including the removal of a $700B limit on new asset purchases which essentially make its recently re-launched quantitative easing program unlimited. The Fed also announced several new crisis-era lending programs. However, momentum turned quickly and sharply starting Tuesday as an unprecedented $2T fiscal stimulus package began to work its way through the legislative process and onto the President’s desk for signing by Friday. The package includes checks for consumers, loans for businesses, assistance for several specific industries, health care investment, and capital to support more lending from the Fed. Evidence of why unprecedented stimulus is needed continued to pile up as global PMIs plunged to record lows and new jobless claims in the U.S. surged to 3.3MM, 4.7x the prior record. With fiscal and monetary policymakers now in full on easing mode, the path forward for the economy will likely be driven by the path of the virus. Global cases neared 600k by Friday and the U.S. became the country with the highest rate of reported cases. Despite ending on a sour note, the S&P 500 finished up 10.3% for the week thanks to the sharpest three-day rally since 1933. The 2-year yield fell 7.2 bps to 0.24% and the 10-year yield settled down 17.1 bps at 0.67%. Click here to view the full recap.