Virus surges across the globe
Balance Sheet Risk Management
Financial Institutions | Kennett Square, PA
SummaryThe major U.S. equity indices snapped a three-week stretch of gains, moving lower for the week, as investor sentiment soured amid stalling stimulus package negotiations on Capitol Hill and surging COVID-19 cases in the U.S. and Europe.
Prior week summary
The major U.S. equity indices snapped a three-week stretch of gains, moving lower for the week, as investor sentiment soured amid stalling stimulus package negotiations on Capitol Hill and surging COVID-19 cases in the U.S. and Europe. White House negotiators, led by Treasury Secretary Mnuchin, and senior Democrats, led by House Speaker Pelosi, continued to spar over the terms of a stimulus deal last week as the two sides attempt to reach an agreement before the presidential election. The House of Representatives passed a $2.2T bill earlier in the month while White House negotiators have most-recently tabled a $1.8T bill, but a deal that both sides can agree upon has proved elusive for months. Negotiations appeared to make progress this week as both sides expressed optimism over the prospects of a deal prior to the election. House Speaker Pelosi indicated to reporters on Sunday that she sent a “list of concerns” to Treasury Secretary Mnuchin on Friday with the hope that the White House would give her the “final yes” early in the week and set the stage for votes in both houses of Congress. Speaking on the timeline for a vote, Pelosi said, “It could happen this week in the House. But that’s up to Mitch as to whether it would happen in the Senate and go to the President’s desk, which is our hope and prayer.” While the two sides appear to be nearer to reaching an agreement, the prospect of Senate Republicans backing a stimulus bill in the neighborhood of $2T remains unknown. Speaking to reporters on Sunday, White House Chief of Staff Mark Meadows was hopeful that the hypothetical deal would be backed by Senate Republicans saying, “We’re up to 1.9 trillion. I do have a commitment from Leader McConnell that if we get an agreement, he is willing to bring it to the floor and get it passed.”
A surge in COVID-19 cases has been reported across the globe with the World Health Organization reporting record-setting daily increases in new cases for three consecutive days last week. As of Sunday evening, the global infection count sits just above 43.4 million with 1.16 million individuals succumbing to the virus. After experiencing modest and stable infection rates for much of the summer, increased rates of infection and hospitalizations have swept across Europe placing the continent in the firing line of another surge in cases and forcing some governments to re-impose restrictions. France, Italy, and Spain have joined the U.K. in ordering new restrictions on businesses in the last week as the COVID-19 situation continues to deteriorate this month. In the U.S., the virus continues to spread at an increased pace with the U.S. reporting over 90,000 new cases on Friday, a new daily case count record and a 25% increase over the highest figure seen the week prior. Like Europe, the rapid rise in cases has seen restrictions on business activity re-imposed in some areas of the country. Chicago Mayor Lori Lightfoot announced two weeks of restrictions on Thursday saying, “We are taking these measures to avoid potential catastrophic impacts. The rapid rise in cases that we’re experiencing here in Chicago is consistent with what we’re seeing, not only across the state, but across the nation, and in many other countries around the world.” Despite the new wave of cases, investor sentiment improved on Thursday when Gilead Sciences’ antiviral drug, Remdesivir, became the first COVID-19 drug to receive full approval from the Food and Drug Administration. While the drug has not been proven to improve survival, Remdesivir has become the “standard-of-care” for severe COVID-19 cases in the U.S. and has been deemed effective in reducing the number of days patients are hospitalized.
The look forward
Market participants are gearing up for a busy week of economic data releases with updated figures on new home sales, durable goods orders, Q3 GDP, jobless claims, and consumer spending, among others, dotting the calendar.
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.20-0416
Our featured insights
FOMC raises Target Range 75 basis points
After moving significantly higher on the back of a hotter-than-expected inflation reading the week prior, Treasury yields remained very volatile throughout the week and ended the week moderately higher across the curve as investors grappled with the FOMC’s decision to raise the Target Range 75...
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...
Chatham Financial acts as the sole financial risk management and hedging advisor for the New Terminal One at JFK Airport
Chatham Financial acted as the sole financial risk management and hedging advisor for sponsors redeveloping terminals 1, 2, and 3 of New York’s JFK Airport. On June 10, New Terminal One at JFK Airport, a consortium of labor, operating, and financial partners building this terminal, announced the financial close of the first phase of the project and will move forward with construction.
Bank of England base rate hiked for fifth consecutive meeting
On 16 June, the Bank of England (BoE) voted six to three to raise the U.K. base rate by 0.25% to 1.25%, with all three dissenters voting in favour of a 0.50% hike. The hike represents the fifth straight hike by the BoE since they became the first major central bank to begin monetary tightening....
FOMC frontloading rate hikes to battle inflation
On Wednesday, June 15, the Federal Open Market Committee (FOMC) voted 10 to 1 to raise the federal funds target range by 75 basis points to 1.50%-1.75%. This is the biggest rate hike by the Federal Reserve since 1994. They are also currently projecting seven more interest rate hikes in 2022 for a...
“Springing” interest rate cap requirements for European borrowers
“Springing” interest rate caps are a type of loan requirement that requires a borrower to purchase an interest rate cap post loan closing if (and only if) the floating reference rate (EURIBOR, SONIA) or a fixed reference rate (swap rate) crosses a certain threshold (often called the “trigger”)....
Thought leadership for housing associations: Derivatives
In our first and second note on liability management, we focused on borrowers who have issued bonds in the last two years and explored the advantages and disadvantages of buying back bond issues trading below par. Our third note of liability management will focus on derivatives. Against a...