The Market Today

Senate Passes Phase Three Expansion as Oil Continues to Reflect Historic Uncertainty/Volatility

by Craig Dismuke, Dudley Carter



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


Senate Passes Larger Phase Three Stimulus Expansion Than Expected: The Senate passed a $484 billion expansion of coronavirus stimulus yesterday, the Paycheck Protections Program Increase Act.  The plan now moves to the House where the politico expect a vote by Thursday morning.  The plan increases PPP funding by $310 billion, bringing the total funding up to $660 billion.  According to reports, approximately $60 billion is set aside for smaller lending institutions with total assets less than $50 billion.  In addition to the PPP funding, the plan calls for $60 billion to be used through the Economic Injury Disaster Loan Fund.  Apart from the loans and grants for businesses, the plan calls for an additional $75 billion for hospitals (bringing the total to $175 billion) and $25 billion for increased testing and contact tracing.  Of the $25 billion, $11 billion is directed to state and local government.

But Lower Expectations for Phase Four Deal Anytime Soon: While the Senate plan is larger than expected, Senate Leader McConnell said yesterday afternoon that he wants to slow down going forward.  There has been speculation of a large, Phase Four stimulus package.  Senator McConnell indicated that he wants to wait until Congress is back in session to discuss any further stimulus, and wants to “see how things are working, see what needs to be corrected.”

Tracking the Headlines: There were few headlines away from the continued strains in the oil market and announcement of an interim relief deal reached in Congress. President Trump’s temporary suspension of immigration which he announced Monday evening will expire after 60 days. The debate about how and when states should re-open continued. California’s governor said the data doesn’t yet reflect the significant decline in cases that is needed to support restarting activity. He warned that moving too early could result in “a second wave that makes this pale in comparison.” Illinois’s governor said the state has likely not yet seen its peak but indicated his team is reviewing the statewide stay-at-home orders for possible changes, likely to loosen restrictions on less-affected areas. New York’s governor reported the state’s sixth daily decline in new cases and the fewest since March 20. He also announced that beginning next week some low-risk area hospitals could resume elective procedures. Outside of the U.S., new cases in Italy rose but remain low and recoveries almost outpaced new infections for the first time. Ireland banned mass gathering through at least the end of August but would look at relaxing some restrictions in two to three weeks. Spain said it would allow children under 14 years of age to move about outside. Tracking key signs of global consumer activity, IHS Markit said global light vehicle sales could fall 22% in 2020 while the International Air Transport Association (IATA) said a survey it performed indicated more than 40% of consumers would be reluctant to travel by air for at least six months. The IATA also said global air travel was down 80% in recent weeks, less severe than U.S. air travel stats from the TSA.


Purchase Applications Actually Increase, but Just 2% after 33% Decline: The 30-year mortgage rate held at the record-low 3.45% during the week ending April 17, according to the MBA report.  New purchase applications actually ticked up 2.1%.  New applications for home purchases rose 2.1% during the week after falling 33% over five consecutive weekly declines. Applications for refinance pulled back 0.8% during the week.

Home Prices and Corporate Earnings: The February FHFA Home Price index is scheduled for release at 8:00 a.m. CT.  Quarterly earnings reports continue, although there are no headline reports today.


Oil Collapse Continued with June Contract Plunging: Stocks fell Tuesday as the collapse in crude prices continued with the June contract for U.S. WTI dropping as much as 50% intraday to below $10 per barrel. After a historic plunge to -$40 per barrel on Monday, the May U.S. WTI contract expired in positive territory with a recovery to $10 per barrel. The June contract now becomes the current contract and next month for delivery. On Tuesday, agreements to take delivery of U.S. WTI in June closed down 43% at $11.57 per barrel. With demand severely damaged by the virus and related global lockdowns, supply has overwhelmed storage capacity which has exerted sharp downward pressure on near-term pricing. The weakness has weighed on broader market sentiment this week and applied especially acute pressure to a popular oil ETF. The United States Oil Fund, popularly known as USO, fell as much as 30% after announcing it was halting the issuance of new shares and altering its strategy to allow for investment in contracts farther out than the nearest-month. More broadly, the Dow dropped 2.7%, the S&P 500 slid 3.1%, and the Nasdaq lagged back with a 3.5% drop. All eleven sectors within the S&P weakened for a second day in a row.

Congress Reached Interim Relief Funding Deal: The widespread weakness preceded a couple of anomalously upbeat corporate earnings announcements and occurred even as Republicans and Democrats struck an interim relief deal. Reflecting shifting consumer habits amid the pandemic, Netflix shares surged early in after-hours trading after the Company’s subscriber count showed a huge boost from consumers being forced to stay at home. The company announced that it added 15.8 million paid subscribers during the first quarter compared to the 8.5 million analysts had expected. While the restaurant industry has been hit hard by the virus, shares of Chipotle gained Tuesday in post-market trading after the company’s earnings topped expectations and data showed digital sales, which were up 81% for the first quarter, more than doubled in March. While some companies offer services that allow them to prosper during the economic shutdown, most do not. As a result, there continues to be focus on Washington as Main Street awaits additional relief funding. Congress announced early Tuesday morning it had reached an interim deal to provide nearly half of a trillion dollars in new relief funds, a deal which passed in the Senate shortly after trading ended. With risk appetite suppressed Tuesday, Treasury yields posted modest declines. While the 2-year yield was essentially unchanged at 0.20%, the 5-year yield dipped 0.6 bp to 0.34% to a new record low and the 10-year yield dropped 3.6 bps to 0.57%.


Equities Improve as Oil Stabilizes: Another sloppy start to global trading on Wednesday has steadied as U.S. oil stabilized somewhat and Brent crude recovered after initially selling off sharply early in Asian trading. U.S. WTI for June settlement continued to edge lower overnight but the 4.3% decline at 6:50 a.m. CT to $11.07 per barrel pales in comparison to tumbles of 18% and 43% to start the week. Brent crude for June quickly plunged more than 17% to as low as $15.98 per barrel but had completely recovered earlier to up 1% at $19.57. The relatively calmer waters in crude markets brought relief to equity markets that have pulled back this week after two weeks of solid gains. The MSCI Asia Pacific Index inched up 0.2% while the Stoxx Europe 600 and U.S. futures were earlier up more than 1%.

Corporate Earnings Remain in Focus: Corporate earnings continue to be in focus. In the U.S., Netflix had erased its pre-market gains as the company cautioned record-breaking subscriber growth could ebb as social restrictions are lifted. Thermo Fisher and Quest Diagnostics, two names which have become better known because of their role in the fight against COVID, were both up in pre-market trading after posting better-than-expected earnings. Shares of Delta rose after its quarterly loss proved less steep than expected. The company said it had grounded 650 planes, cut its flight capacity by 85%, and as a result was burning $100 million in cash each day at the end of March.

Global Yields Rise, Rapidly on Europe’s Periphery: The effects of the virus were also visible in the rise in yield across sovereign bond markets on Wednesday, particularly on debts of peripheral European countries. With the EU easing limits on national deficits, European countries have taken to the markets to raise funds to support fiscal relief amid the pandemic. Spain’s 10-year yield was up more than 16 bps to 1.17% and approaching its highest level since early 2019 after the country sold a record 15 billion euros in a syndicated bond offer. It received orders for more than six times that amount. Longer yields in Portugal saw similar moves after a sale of more than 1 billion euros in 7- and 10-year debt. On Tuesday, Italy sold 16 billion euros worth in a mix of 5- and 30-year bonds that received record order interest but also saw yields move higher. After surging more than 25 bps on Tuesday, Italy’s 30-year yield has added another 7.1 bps to 3.07%. At 7:40 a.m. CT, the 2-year Treasury Yield was 0.2 bps higher at 0.21% and the 10-year yield had risen 3.1 bps to 0.60%.

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