Equities rise as stimulus bill negotiations falter
SummaryDespite faltering stimulus bill negotiations on Capitol Hill, the major U.S. equity indices marched higher for the week as COVID-19 vaccine developments and positive economic data releases boosted investor sentiment.
Prior week summary
Despite faltering stimulus bill negotiations on Capitol Hill, the major U.S. equity indices marched higher for the week as COVID-19 vaccine developments and positive economic data releases boosted investor sentiment. As of Sunday evening, the global COVID-19 tally stands at 21.8 million confirmed cases with just over 773,000 individuals succumbing to the virus. While the surge in cases across the southern U.S. and California has continued relative to the rest of the country, the total number of confirmed cases in the U.S. has decreased in aggregate and is well below the record-setting daily figures seen last month. After seeing a peak daily figure of just under 79,000 confirmed cases in late July, the U.S. reported approximately 61,500 cases on Friday. In Europe, the COVID-19 situation is beginning to deteriorate after experiencing declining infection rates after the initial spikes in March and April. Several European countries have reported a rise in infection counts in the last two weeks as travel has increased after the EU lifted some restrictions to travelers on July 1. On the vaccine development front, Russia announced that it has produced its first batch of the “Sputnik V” vaccine and is the first COVID-19 vaccine to go into production. Many scientists, including those within Russia, have expressed concern about the vaccine as Russian officials bypassed standard procedures that would require the prospective vaccine to conduct a “Phase III” trial, one which would see the vaccine tested on thousands of individuals. Russian President Vladimir Putin has hailed the development and production of the vaccine, promising its safety and suggesting a timeline that would see the virus ready for use by the end of this month. Asked about the new vaccine, President Trump said, “We don’t know much about it. We hope it works, we do, we hope it works,” but noted, “They’ve cut off certain trials and we feel it’s just important to go through the process.”
After President Trump signed a series of executive orders last weekend that extended the enhanced employment insurance and cut payroll taxes for individuals making under $100,000 per year, among others, Congress and White House officials continued to negotiate the terms of a COVID-19 relief bill attempting to find a middle ground between the $1T bill passed by the Senate and the $3.4T bill passed by the House of Representatives. While many issues have created roadblocks to the negotiations, unemployment insurance benefits, and financial aid to state and local governments remain the chief areas of disagreement between the two sides. After failing to reach an agreement last week, Speaker of the House Nancy Pelosi suggested that a $2T price tag would be acceptable but Treasury Secretary Steven Mnuchin called the $2T price tag a “non-starter” and suggested that a smaller bill packed with the items that they do agree on should be passed saying, “My view on negotiations is you agree on the things that you can agree on, have legislation that’s good for the American public, and then come back for another bill.”
On the economic data front, market participants digested several high-profile data updates that again suggested that the U.S. economy is beginning to recover. The Producer Price Index and Consumer Price Index both reported a 0.6% increase in prices in July. While prices have risen over the past few months, analysts warn that the steep drops in prices at the onset of the pandemic have tamed inflation expectations for the coming years. While the Consumer Price Index (CPI) is not the Federal Reserve’s preferred measure of inflation, the CPI has risen only 1% year over year compared to the 2.5% year-over-year increase seen in January, well below the Fed’s 2% target. Market participants were encouraged by the week over week drop in new unemployment claims as 963,000 individuals filed for unemployment in the last week. Although the levels remain far above records set before the pandemic, the jobless claims figure reported last week is the first time new claims have been under one million individuals in 21 weeks.
The look forward
Market participants are gearing up for another busy week of economic data releases as updated figures on the Empire Manufacturing Index, housing starts, building permits, jobless claims, the Philadelphia Fed’s Manufacturing Business Outlook Survey, existing home sales, among others, dot the economic calendar. The minutes for the FOMC’s latest policy meeting are released on Wednesday.
Market implied policy path (Overnight indexed swap rates)
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.20-0321
Our featured insights
Back-to-Back Swap Program Benchmark Statistics Report
Our back-to-back swap benchmark report compares customer swap transactions across years, regions, and bank asset size. While your financial institution may not yet be using swaps to win more commercial loan business, you can still find value in reviewing this report.
GDP, PCE take steps in the right direction ahead of Fed meeting, China’s reopening leads to commodities shift
December metrics for GDP and inflation came in at promising levels, keeping market expectations consistent ahead of this week’s FOMC meeting. China’s reopening leads to increased economic activity, including increased demand for metals and oil, while natural gas struggles due to unexpectedly warm...
Q4 GDP slows, funding pressures intensify
After falling for much of January, Treasury yields rebounded modestly last week as investors digested weak economic data and a slew of corporate earnings reports and awaited the early February FOMC monetary policy meeting.
Answers to five key questions as you prepare for LIBOR cessation and the fall back to SOFR
With 2023 and the cessation of LIBOR officially upon us, some companies are opting to let their debt and interest rate hedges “fall back” through the adoption of standard language. While it might appear that this is the most straightforward way to manage the transition, there are five main...
Weak retail sales report sours sentiment and sends yields lower
In a holiday-shortened week, Treasury yields notched their third-consecutive week of declines as investors digested weaker-than-expected economic data coupled with the Bank of Japan’s continued commitment to yield curve control.
Retail sales, producer price data suggest cooling economic activity
Markets responded positively to declining PPI and retail sales figures, suggesting that U.S. economic activity, and notably inflation, is slowing. Investors are pointing to the data as another piece of evidence that the Federal Reserve will be able to soften its hawkish stance on rate tightening...
Cool CPI report drives rates lower
In the first full trading week of the year, Treasuries and the major U.S. equity indices advanced as market participants welcomed signs of easing price pressures and a less aggressive Federal Reserve.
Q4 2022 Business Plan Assumptions
Chatham’s social housing team set out below its Q4 2022 business plan assumptions for housing associations and an accompanying economic commentary. Following a tumultuous third quarter in the Sterling markets, a new government and reverse of the “mini” budget induced a much-needed calm after the...