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Market Update

COVID-19 cases and restrictions weigh on economic data

Date:
November 23, 2020
  • sabra hess headshot

    Authors

    Sabra Hess

    Director
    Client Relationship Management

    Corporates | Kennett Square, PA

Summary

The market’s focus last week continued to laser in on all things coronavirus related. While investors applauded positive vaccine news out of Moderna and Pfizer early in the week, the continued surge in cases and increasing levels of restrictions weighed down on economic data as the week progressed.

It was a grim week as U.S. fatalities topped 250,000, with many states counting record-high infection rates. Weekly unemployment claims continued to trend higher as well, although other data released showed a better than expected rate of housing starts in October, suggesting the housing market continues to be buttressed by historically low mortgage rates.

Falling treasury yields

Ten-year treasury yields also fell after less than stellar retail sales data. They continued to hover around 10 basis points lower than the highs of a week earlier when Pfizer initially announced positive vaccine trial news. Similar struggles with COVID-19 related impacts overseas also appeared to jeopardize the prospects of a near-term recovery, and the IMF said in a statement on Thursday, “There are signs that the recovery may be losing momentum.” However, on a longer time horizon, the positive information coming from vaccine manufacturers seems to have investors looking ahead with a little more hope for a brighter future; approximately $4 billion USD has left U.S government bonds recently and about 10x that amount has made its way into global equity funds.

(Related insight: Read “How to use blend and extend interest rate swaps to optimize your hedging program”)

Abroad, post-Brexit negotiations planned for Thursday were partially put on hold when the EU President tested positive for COVID-19. Both sides seek an agreement to govern their trading relationship once the post-Brexit transition ends. Areas of contention continue to be fishing rights, competition rules and enforcement.

Dollar weakening

On the FX front, the U.S. dollar (USD) seemed caught between two opposing forces as tighter economic restrictions and potential further monetary easing competed with vaccine optimism. However, when looking more broadly at the global pandemic’s impact on the dollar, the USD has weakened meaningfully against several currencies since March 31st.

With the ongoing uncertainty in dollar strength, many USD functional corporates continue to fine tune their FX hedging programs to ensure the maximum levels of flexibility can be employed while still mitigating the desired levels of economic risk.

(Related insight: Read “How to increase FX hedging capacity while maintaining hedge accounting”)

The week ahead

This week many U.S. market participants and corporates will look forward to a shortened week, while consumer spending and new home sales stats are set to be released on Wednesday, prior to the start of the holiday.

Wishing all our readers a very happy Thanksgiving!

About the author

  • Sabra Hess

    Director
    Client Relationship Management

    Corporates | Kennett Square, PA


Disclaimers

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