Virus surges across the globe
- October 26, 2020
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
Yields fall, ARRC launches “SOFR first” initiative
The major U.S. equity indices ended the week mixed with the tech-heavy Nasdaq Composite Index faring the best as updates to the Consumer Price Index and infrastructure bill negotiations in Washington dominated headlines in a week with few economic data updates and a speaking engagement blackout for Federal Reserve officials.
Increase lending capacity
Many financial institutions have excess liquidity due to the global pandemic and resulting economic stimulus. Management can deploy this liquidity into new loan originations or the investment portfolio. Although bond returns are better than cash, a more attractive return may be provided from mortgage loans.
May employment report falls short of expectations
In a holiday-shortened week, the major U.S. equity indices moved higher as the scheduled release of several high-profile economic indicators, continued negotiation of the proposed infrastructure bill, and wild trading in retail-trader-favored equities dominated headlines and captivated the attention of market participants.
Receive-fixed interest rate swaps: what corporates need to know
Corporate treasurers assessing their debt capital structure perceive tension in today’s environment: on one hand exists the potential for low short-term rates to last for years; on the other hand, is the specter of Fed rate hikes and likely inflation. Many companies are evaluating receive-fixed...
Senate Republicans unveil $928 billion infrastructure counterproposal
The major U.S. equity indices pushed higher for the week with the S&P 500 notching a modest month-over-month gain amid mixed economic data, continued negotiation of the American Jobs Plan, and an improved COVID-19 outlook in the U.S.
Fed minutes turn heads
The major U.S. equity indices ended the week mixed with the S&P 500 suffering its second consecutive weekly decline as weaker-than-expected economic data and fears of an earlier-than-expected end to the Federal Reserve’s asset purchase program dampened investor sentiment and outweighed optimism about the coming end of the COVID-19 pandemic and a resurgent U.S. economy.
All eyes turn to inflation data
Swap markets continue to be influenced by the significant amount of excess liquidity in the system, as this week saw the continued decline in spot LIBOR settings to record lows. The benchmark three-month LIBOR setting fell below 16 basis points, while the one-month fixing fell to 0.098%.