The Market Today
The Re-Opening Balance
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:30 a.m. CT
Economic Reopening Trends: Overall, newly confirmed cases globally have plateaued while cases in the U.S. have shown a bit of evidence of slowing, albeit at a slower pace than in some smaller countries. In both the global and the U.S. cases, the original areas hit by large outbreaks have seen their case growth slow but new areas of growth have emerged. As more and more states re-open, it will be important to watch for any setbacks in containment which force areas to backtrack. On a positive note, the decisions to shut down, in many cases, are being moved out to more locally-situated authorities. This will help reduce the breadth of the impact of an entire state shutting down if one city or county sees an increase in cases.
There are no economic reports on the calendar today. The focus this week will be Fed Chair Powell’s speech Wednesday and April’s retail sales report released on Friday.
New Cases in South Korea Weigh on Reopening Optimism: With much of the market’s ability to look past historically bad economic data in recent weeks premised on a successful reopening of the economy, reports of new infections in South Korea over the weekend have weighed on sentiment to start the week. The unexpected spike in cases led officials there to re-impose restrictions on bars and nightclubs just as other countries across Europe and states in the U.S. begin to loosen some restrictions. The U.K. became the latest country in Europe to announce the planned easing of some restrictions as France opens up some activity on Monday.
Yields Inch Lower as Stocks Slip: Investors hope the loosening of lockdowns paired with social distancing would allow some activity to resume and help mitigate historic economic destruction. South Korea’s KOSPI declined 0.5% in a generally positive day across Asia. Stocks in China slipped as well despite the PBOC saying it will “work to offset the virus impact with more powerful policies.” However, Europe’s Stoxx 600 and U.S. futures were both down more than 0.7% earlier. European sovereign yields had ticked higher while Treasury yields had inched lower. The 10-year yield was down 0.8 bps to 0.67%. Elsewhere, oil was up on the day after Saudi Arabia announced it would unilaterally cut 1 million barrels of production per day starting in June, in addition to the record 9.7-million-barrel cut OPEC+ implemented in May
ICYMI – May 8, 2020 Weekly Market Recap: The S&P 500 rose 3.5% last week as investors continued to lean on economies opening up and stimulus efforts as they looked through more dreadful data, including one of the worst U.S. jobs reports in history. The week started with a record drop in U.S. factory orders for March and ended with the record 20.5 million contraction of U.S. payrolls for April. Between the two events, tensions between the U.S. and China returned, Fedspeakers sounded notably cautious about the outlook, global data remained incredibly weak, and 3.2 million new jobless claims raised the seven-week total to 33.5 million. The yield curve steepened with short yields declining as Fed officials made it clear they expect the recovery to be gradual and monetary policy to remain accommodative for the foreseeable future. On Thursday, Fed Funds Futures priced in a negative Fed Funds rate for the first time, starting in January 2021. In addition to the optimism that lifted stocks, Treasury’s announcement that it would sell a record amount of Treasury bonds this quarter added to upward pressure on longer yields. The 2-year yield fell 2.9 bps to 0.16% after setting a new record low of 0.139% on Thursday. The 10-year yield added 7.3 bps to 0.68%. Click here to view the full recap.