Congress set to Wrestle with next Stimulus Bill this Week

Apr 13, 2020
US Capitol Building in the Spring

Fed Stole Spotlight Last Week, will Congress This Week?

The Fed unveiled its bigger tool box last Thursday and the reverberations around the lengthy menu of new programs will continue to garner headlines this week. The breadth and scope of the programs encompasses practically all financial areas from junk bonds to assisting states and municipalities. For those wanting a more detailed description you can find it here.  Meanwhile, the Congressional tug-of-war between the House and Senate will continue this week. The Senate unveiled a bill to add $250 billion to the SBA PPP loan program but Speaker Pelosi and Senator Schumer want to add $100 billion for hospitals, and $150 billion for states. You can expect a bill this week that most likely addresses those concerns. COVID-19 case count direction continues to drive the market with a familiar risk-on/risk-off tone depending on the day’s numbers. Last week was characterized by more risk-on as New York cases started to show a plateauing and that was enough for New York-based traders to rally stocks strongly. The hotspots for the virus will now move away from the New York area to other regions, whether that attracts the attention of those New York-based traders is another matter altogether. But even if stocks continue to rally, with the Fed’s big announcement last week Treasury yields are not likely headed materially higher anytime soon.


Treasuries
Treasury Curve Today Week Change
3 Month 0.20% +0.12%
6 Month 0.21% +0.07%
1 Year 0.18% +0.05%
2 Year 0.22% -0.03%
3 Year 0.30% -0.02%
5 Year 0.41% -0.01%
10 Year 0.72% +0.07%
30 Year 1.34% +0.08%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 1.22%
6 Mo LIBOR 1.22%
12 Mo LIBOR 1.05%
Swap Rates
3 Year 0.457%
5 Year 0.567%
10 Year 0.800%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Apr 14 Import Price Index YoY Mar -5.0% -4.9% -1.2%
Apr 15 Advance Retail Sales MoM Mar -8.0% -8.0% -0.5%
Apr 15 Retail Sales Ex Auto and Gas MoM Mar -5.0% -5.0% -0.2%
Apr 15 Retail Sales Control Group MoM Mar -1.9% -2.0% 0.0%
Apr 15 Empire Manufacturing Apr -35.0 -35.0 -21.5
Apr 15 Industrial Production MoM Mar -4.2% -4.3% 0.6%
Apr 16 Housing Starts MoM Mar -17.5% -18.3% -1.5%
Apr 16 Initial Jobless Claims Apr 11 5.000m 5.200m 6.606m
Apr 17 Leading Index Mar -7.0% -7.0% 0.1%

calendar icon Top 5 Events for the Week

April 13 - 17, 2020

1. Coronavirus Developments – All Week
2. Congressional/Fed Actions – All Week    
3. March Retail Sales – Wednesday
4. March Leading Index – Friday
5. Weekly Jobless Claims – Thursday

 

1.  COVID-19 Developments – All Week

COVID-19 case count trends continues to drive market direction with a familiar risk-on/risk-off tone depending on the day’s numbers. Last week was characterized by more risk-on as case numbers in New York started to show a definite plateauing and that was enough for New York-based traders to rally stocks strongly. Treasuries, meanwhile,  held together pretty will in the face of the equity rally and supply on the long-end. The 10-year note started the week at 0.60% peaked at 0.78% on Wednesday and settled at 0.72%. The hotspots for the virus will now move away from the New York area to other regions with the south looking vulnerable. Whether that attracts the attention of those New York-based traders is another matter altogether. But with the Fed’s announcements last Thursday, Treasury yields are not likely headed materially higher anytime soon.

 

2.  Fed and Congressional Actions – All Week

The Fed unveiled its bigger tool box last Thursday and the reverberations around the lengthy menu of new programs will continue to garner headlines this week. The breadth and scope of the programs encompasses practically all financial areas from junk bonds to assisting states and municipalities. For those wanting a more detailed description you can find it here.  Meanwhile, the Congressional tug-of-war between the House and Senate will continue this week. The Senate unveiled a quickly cobbled together bill to add $250 billion to the SBA PPP loan program but Speaker Pelosi and Senator Schumer want to add $100 billion for overwhelmed hospitals, and $150 billion for beleaguered states. You can expect a bill this week that most likely addresses all those concerns as speed is still very much of the essence.

 

3.  March Retail Sales – Wednesday

So far the weekly jobless claims numbers have been the only economic data series that have fully reflected the horrific impact of the deep-freeze put on the economy through social distancing measures. That will change with this week’s March Retail Sales Report. Overall sales for the month are expected to be down –8.0% versus –0.5% in February. If that comes to pass, and really these estimates are mostly shots-in-the-dark, it will be by far the worst monthly decline in the history of the series which dates back to 1990. The previous low print was –3.9% in November 2008, during the depths of the financial crisis. In summary, this report will be one of the first to tell the story of an economy suddenly put into an induced coma.

 

Monthly Change in Retail Sales

 

4.  March Leading Index – Friday

We’ve been tracking the Leading Index for the last year or so as it has shown a remarkable ability to call past recessions. When the index drops below 0 and stays there for several months it is signaling a coming recession. For the past year, while the index flirted with a dip below 0 it never did so for an extended time, a month here a month there but never two consecutive months together. The fact, however, that it never rose much above 0 gave us lingering concern that any little hick-up could send it lower. Well, we got a lot more than a hick-up with the coronavirus and the March index reading is expected to plunge from  0.1% in February to –7.0% in March.  Much like the upcoming retail sales numbers if the Leading Index does print around a –7.0% it will be lowest on record, easily surpassing the –3.4% reading on October 31, 2008.

 

5.  Weekly Jobless Claims – Thursday

Weekly jobless claims are the most immediate read on the impact of the economic shutdown. Three weeks ago claims rose to 3.3 million after years of being under 300 thousand and most recently in the low 200 thousand range. The 3.3 million bounce for the week ending March 20 was followed by a 6.6 million spike on March 27 and 6.9 million on April 4. Those are, by far, the largest ever recorded for this series dating back to its mid-60’s beginnings.  The expectation this week is for claims to settle down to around 5.2 million. That would put claims over 22 million for the last four weeks. With 150 million people in the labor force, the exploding claims numbers buttress forecasts of unemployment reaching 15%, or higher.

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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