France, Germany, and the UK announce lockdowns
Balance Sheet Risk Management
Financial Institutions | Kennett Square, PA
SummaryThe major U.S. equity indices moved lower last week, notching a second consecutive week of declines and marking the worst weekly performance since March, as rising COVID-19 cases in the U.S. and Europe coupled with news of renewed lockdowns in France, Germany, and the UK soured investor sentiment.
Prior week summary
The major U.S. equity indices moved sharply lower last week, notching a second consecutive week of declines and marking the worst weekly performance since March, as rising COVID-19 cases in the U.S. and Europe coupled with news of renewed lockdowns in France, Germany, and the UK soured investor sentiment despite largely positive economic data updates. As of Sunday evening, the global tally for COVID-19 cases sits just under 47 million, with the U.S. accounting for approximately 20% of the reported cases. The pace of new cases and hospitalizations has continued to quicken across the globe with the U.S. reporting over 100,000 cases on Friday, setting a new world record for the number of cases reported by any country in one day. Friday marked the highest number of daily cases for 16 states, with 13 states also reporting record hospitalization levels.
In Europe, rising COVID-19 cases prompted France, Germany, and the UK to institute national lockdowns. On Wednesday, French President Emmanuel Macron announced that the country would begin a one-month nationwide lockdown that would see the closure of restaurants, bars, and non-essential businesses. In a televised address of the announcement, Macron cited the speed at which the virus was spreading as the reason for re-instituting the lockdown measures saying, “The virus is circulating at a speed that not even the most pessimistic forecasts had anticipated. We are all in the same position: overrun by a second wave which we know will be harder, more deadly than the first. I’ve decided that we need to return to the lockdown which halted the virus.” On Saturday, Prime Minister Boris Johnson announced a second national lockdown that will last for four weeks beginning on November 5. Speaking at a news conference after the announcement, Johnson said, “We will get through this, but we must act now to contain this autumn surge. We’re not going back to the full-scale lockdown of March and April. The measures I’ve outlined are less prohibitive, less restrictive, but I’m afraid from Thursday the basic message is the same: stay at home, protect the NHS, and save lives.” On a positive note, AstraZeneca announced on Monday that early data suggested that its prospective vaccine produced a robust immune response in both young and old adults, boosting hopes that the potential vaccine could receive regulatory approval by year-end.
Market participants were the beneficiaries of a deluge of economic data updates last week. The Bureau of Economic Analysis announced on Thursday that the U.S. economy expanded at an annual rate of 33.1% in the third quarter, modestly beating analyst expectations. The historic rebound in GDP was mostly attributed to record pickups in consumer spending and business investment, as well as trillions of dollars in government aid. Analysts warn that the U.S. economy will face serious headwinds in the coming quarter as the COVID-19 pandemic gains steam across the globe. The Atlanta Fed’s GDPNow tool, which forecasts the current quarter’s GDP in real-time, expects the U.S. economy to expand at a modest annual rate of 2.2% in the fourth quarter. Initial jobless claims fell to a seven-month low as 751,000 individuals filed for unemployment in the last week. Continuing claims also fell from 8.47 million to 7.76 million. While last week’s jobless claims mark the lowest claims level seen during the pandemic, the level of claims remains far above the pre-pandemic record set in 1982. Consumer spending rose for the fifth straight month in September rising 1.4%, above both analyst expectations and the 1% increase seen in August.
The look forward
Market participants are gearing up for another busy week of economic data releases with updates on the ISM Manufacturing Index, construction spending, factory orders, the ISM Non-Manufacturing Index, jobless claims, and the October non-farm payroll report, dotting the economic calendar. All eyes will turn to the presidential election on Tuesday when the nation decides between Donald Trump and Joseph Biden.
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.20-0430
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...