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)
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