Equities tumble ahead of election
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
Markets price in latest Federal Reserve news as inflation, energy prices continue to rise
Global stock indices fell last week amid persisting inflation fears and subsequent expectations for more aggressive rate hikes. Domestically, fears that the Fed’s attempts to curb inflation will push the U.S. economy into a recession exacerbated investor concerns. Markets temporarily rebounded in...
No peak in sight as CPI hits fresh 40-year highs
A dark dose of reality greeted markets Friday morning as May CPI data topped expectations yet again. U.S. inflation reached its highest level since December 1981 as the consumer price index surpassed 8.6%. Investors and consumers alike are now looking squarely at the Federal Reserve and Chairman...
The Wall Street Journal asks Amol Dhargalkar why companies are keeping LIBOR debt on their books
The Wall Street Journal spoke to Amol Dhargalkar to understand why companies are keeping LIBOR debt on their books rather than replace it with SOFR when they refinance their loans.
Corporations are stuck between increasing interest rates, an appreciating dollar, and declining revenue
Unlike in typical expansions, a strong labor market and consumer spending are leading to market volatility and turmoil. Stuck between either rising interest rates or falling consumer demand, many companies are being forced to lower earnings estimates and make difficult decisions.
A hawkish Fed, volatile U.S. economy, and strong U.S. dollar
Across interest rate, equity, and commodity asset classes, the U.S. continued its rollercoaster of volatility. Despite this, the Fed attempted to soothe market participants with prospects of tightened monetary policy. Globally, the U.S. retained its position as the haven currency.
Amol Dhargalkar and Kevin Jones speak in Global Treasurer about corporate treasury's transition to SOFR
Despite some operational issues, global corporate treasurers have embraced SOFR and are working to transition their debt to the new benchmark. Speaking to Global Treasurer, Amol Dhargalkar and Kevin Jones discuss the progress of corporate borrowers making this transition.
Rates uncertainty continues as investors interpret consumer data
Interest rates continued their choppy trajectory last week as market data offered mixed narratives; retail sales data suggested continued strength in the U.S. consumer sector while manufacturing data portended future weakness in the economy. Meanwhile, dollar strength continues unabated.
Inflation continues to rise as crypto plunges
Inflation numbers are hot off the press and exceeding expectations as reports that the price of goods and services rose by 8.3% since last April. Although there is hope that we are falling from the peak numbers seen in March, consumer fears of a recession are growing and permeating the market —...