Equities tumble ahead of election
- November 2, 2020
SummaryAmid uncertainty around the election and an increase in daily COVID-19 cases, the three major equity indices all fell considerably this past week. The Dow Jones took the biggest hit, dropping 6.47%, while the S&P 500 dropped 5.64% and the Nasdaq dropped 5.51%.
In other major U.S. economic news, Q3 GDP increased by an annualized 33.1%. The record quarterly growth followed a record plunge in Q2, in which GDP fell 31.4%. Overall, U.S. GDP is down 8.69% over the last two quarters.
GDP growth helps interest rates rebound
Treasury yields rose on Thursday following the Q3 GDP growth announcement. Friday saw weekly highs for both the 10- and 30-year treasury notes after most of the week saw decreasing yields due to pessimism around stalled fiscal stimulus negotiations, as well as increasing COVID-19 cases. The 10-year swap rate followed a similar path, falling for most of the week, but increasing on Thursday and Friday after the positive GDP news. Over the last three months, swap rates have increased and are now approaching early-to-mid-April levels.
Labor market trending upward
Despite the recent spike in COVID-19 cases, initial jobless claims for the week ending October 24 came in at 751,000, beating expectations of 778,000. The 751,000 initial jobless claims were the lowest total since the week of March 14, when claims came in at 282,000. Initial jobless claims fell for the second straight week and have been below 800,000 in three of the last four weeks. October nonfarm payroll numbers will be released on November 6.
U.S. Dollar strengthens
The U.S. Dollar Index (DXY) reached its highest point since early October. Backed by risk-off sentiment and better-than-expected U.S. GDP numbers, investors rushed to the “safe haven” U.S. Dollar. With the COVID-19 pandemic currently triggering national lockdowns in Europe, the U.S. Dollar could potentially strengthen further in the coming weeks. Conflicting tensions between recent strengthening and the weakening trend since March continue to illustrate the volatility in the market as well as the directional uncertainty that is driving many companies to examine the effectiveness of operational hedging programs.
(Related insight: Watch the on-demand webinar, “Conducting a Holistic Diagnosis of Your FX Hedging Program.")
Related Insight: “How to increase FX hedging while maintain hedge accounting” https://www.chathamfinancial.com/insights/how-to-increase-fx-hedging-capacity-while-maintaining-hedge-accounting
Crude Oil prices fall
For most of October, WTI Crude Oil had been range-bound between $39 and $41 per barrel. However, over the past week, WTI has fallen as low as $36.17 per barrel, its lowest total since late May. Precious metals decreased across the board throughout the week, consistent with an inverse correlation to a strengthening dollar.
While COVID-19 cases continue to increase in both the United States and Europe, all eyes will be on the Presidential election on November 3. Investors will be keeping a close eye on the results and the implications to market volatility and fiscal stimulus activity.
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.
Our featured insights
U.S. equity markets thaw out as interest rates and inflation heat up
As most of the U.S. was digging themselves out of the snow, investors dug through a multitude of economic data, creating a volatile week for equity indices. Indices started the week higher as investors weighed positive data regarding the country’s...
Interest rates quietly rise as the Texas energy crisis dominates headlines
Long-term interest rates continued their upward march last week, with the 10- and 30-year Treasuries hitting highs not seen since February 2020. Dovish FOMC minutes combined with lower infection and hospitalization rates, supporting overall...
A tale of two economies and bitcoin
In a week marked by the impeachment trial and stimulus talk, a few trends emerged among the large public companies reporting earnings, and Tesla’s foray into bitcoin will create more challenges for companies in managing forecast risk.
$1.9 trillion Coronavirus relief bill plows forward and crude continues to surge
The biggest news from last week came Friday as the $1.9 trillion COVID-19 relief package, including $1,400 direct payments to millions of Americans, passed an updated budget resolution in the House. This paves the way for passage prior to the...
5 treasury trends to watch in 2021
To succeed in the 2021 marketplace, corporate treasurers must rethink their financial risk management objectives, strategies, and policies while addressing their team’s changing role within the organization. Recognizing these five trends can help...
Pre-issuance hedging in today's market
Jumping almost 20 basis points in the first week of the new year, higher 10-year Treasury yields and a general steepening of the yield curve have galvanized the pre-issuance hedging discussion for many corporates.
Ready for some fun and not-so-fun games? Stock mischief, strain variations, and doves flying with the Fed
Investors played games with all major asset classes this week, causing ripples in equity markets and creating a weeklong seesaw for stock prices.
Interest rate caps vs. swaps: corporates weigh the alternatives
Evolving market conditions over the past year have led many companies to revisit the caps vs. swaps debate. While caps initially gained traction for their upside potential, swaps remain the preferred instrument for corporates seeking to mitigate...