Focus Remains on Reopening Activity vs. Viral Case Counts

Jun 22, 2020
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Expect a Range-Bound Market This Week

Last week we mentioned the market was torn between wanting to believe the rebounding May economic numbers would continue, setting the stage for a robust recovery, versus news of increasing viral case counts and the implication that has on a recovery. This tug-of-war has played out in both equities and bonds and it’s likely to continue this week as well. This headline-driven market is especially susceptible in the summer as trading volumes and activity slow allowing small price moves to morph into larger ones. Thus, we think these two forces will work to keep both stocks and bonds range-bound until one of the competing story lines becomes dominant. That won’t happen this week so expect a churning market to be the result.  As far as economic releases, the theme of rebounding May numbers is expected to continue with this week’s reports. June Markit PMI’s —both manufacturing and services— are expected to post nice bounces along with May durable goods orders. Personal income is expected to be down—after the one-time stimulus checks in April— but spending is expected to bounce higher as those stimulus checks are quickly spent. Existing Home Sales for May is expected to post a –7.9% decline versus April but New Home Sales are expected to be up 1.9% compared to April.


Treasuries
Treasury Curve Today Week Change
3 Month 0.15% UNCH
6 Month 0.16% -0.02%
1 Year 0.17% UNCH
2 Year 0.19% +0.01%
3 Year 0.22% +0.01%
5 Year 0.32% +0.01%
10 Year 0.69% +0.02%
30 Year 1.45% +0.04%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.31%
6 Mo LIBOR 0.41%
12 Mo LIBOR 0.58%
Swap Rates
3 Year 0.262%
5 Year 0.362%
10 Year 0.669%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jun 22 Existing Home Sales (MoM) May -5.0% -7.9% -17.8%
Jun 23 New Home Sales (MoM) May 1.1% 1.9% 0.6%
Jun 23 Markit US Manufacturing PMI Jun P 50.0 51.5 39.8
Jun 23 Markit US Services PMI Jun P 46.9 48.0 37.5
Jun 25 Advance Goods Trade Balance May -$68.0b -$68.0b -$69.7b
Jun 25 Durable Goods Orders May P 10.5% 11.4% -17.7%
Jun 26 Personal Spending May 8.9% 8.8% -13.6%
Jun 26 PCE Core Deflator (YoY) May 1.0% 0.9% 1.0%
Jun 26 U. of Mich. Sentiment Jun F 79.0 79.0 78.9

calendar icon Top 5 Events for the Week

June 22— 26, 2020

1. Reopening/Virus Count Developments — All Week
2. June Markit PMI’s — Tuesday    
3. May Durable Goods Orders — Thursday
4. May Personal Income & Spending — Friday
5. May Existing and New Home Sales — Monday/Tuesday

 

1.  Reopening/Virus Case Trends — All Week

Last week we mentioned the market was torn between wanting to believe the rebounding May economic numbers would continue, setting the stage for a robust recovery, versus news of increasing virus case counts and the implication that has on a recovery. This tug-of-war has played out in both equities and bonds of late and it’s likely to continue this week as well. This headline-driven market is especially susceptible in the summer as trading volumes and activity slow allowing small price moves to morph into larger ones. Thus, we think these competing forces will work to keep both stocks and bonds range-bound until one of them becomes dominant. That won’t happen this week so expect a churning market to be the result.

 

2.  June Markit PMI’s — Tuesday

The June Markit PMIs will be released tomorrow and will provide an early tell on whether the May economic rebound is continuing into June. The Manufacturing PMI is expected to move decidedly higher from 39.8 to 51.5, flipping from a contractionary sector to a slightly expanding one. The Services Sector PMI is expected to have a more modest gain moving from 37.5 to 48.0, still in contractionary territory but decidedly better than May. If expectations come to pass it’s another sign the recovery is becoming a trend, but it remains fragile, especially with the increasing viral cases.

 

Markit PMI

 

3.  May Durable Goods Orders — Thursday

The May Durable Goods Report is expected to mirror other recent reports with solid gains over the horrible month of April. Overall orders are expected to be up 11.4% versus –17.7% in April. Orders ex-transportation are to be up 2.3% versus –7.7% the prior month. Shipments of nondefense  ex-air goods—a proxy for business equipment— is expected to be down –0.5% versus –5.7% in April.

 

4.  May Personal Income & Spending — Friday

While economic releases from May have shown material improvement over April, with the economy two-thirds consumption-based the personal income and spending numbers are always a key metric.  Personal income is expected to plummet by –6.0% month-over-month as the one-time stimulus checks in April provided a one-off boost that sent incomes up 10.5%. A –6.0% print would be a record low for the series, edging out the –4.7% decline in January 2013. Personal spending, meanwhile, is expected to bounce 8.8% versus a –13.6% decline in April as the prior month’s income gain is quickly spent.  Meanwhile, the core PCE, the Fed’s favorite inflation indicator, is expected to dip to 0.9% year-over-year, the lowest since December 2010, and another indication that disinflation remains more a concern than inflation.

 

5.  May Existing and New Home Sales — Monday/Tuesday

Later this morning we’ll get May existing home sales—accounting for 90% of the residential market—are expected to be down –7.6% to 4.00 million houses sold on an annualized basis. That would be the lowest monthly sales since 2010 when the housing market was climbing out of the last recession. On Tuesday we get New Home Sales—accounting for 10% of the residential market— and sales are expected to increase 1.9% to 635,000 units on an annualized basis.

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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