Another Fiscal Stimulus Bill in the Works?

Mar 30, 2020
New York City Tent Hospital Beds

More Fiscal Bills to Come?

Now that the U.S. has surpassed China in the number of reported COVID-19 cases, and the trajectory still scarily upwards, calm talk from the administration won’t be sufficient to keep markets from starting to price in more dire scenarios for both the death toll and the economic hit. That is likely to keep a solid bid in Treasuries and make a retest of the equity lows a possibility. Talk of reopening the economy by Easter (April 12)  has gone by the board and now April 30th is the new goal.  Meanwhile, the $2 trillion CARES Act was signed into law last Friday and attention now turns to the details of the massive spending bill, and also whether another bill is coming down the pike. It’s reported that last week as Fed Chair Powell was making his appearance on the Today Show he also met with Speaker Pelosi and was rumored to have told her, “go big, rates are low.” That implies  there well could be another spending bill in the works. Look for some of those plans to surface this week.

 


Treasuries
Treasury Curve Today Week Change
3 Month -0.03% UNCH
6 Month 0.02% +0.05%
1 Year 0.12% +0.06%
2 Year 0.26% -0.05%
3 Year 0.32% -0.02%
5 Year 0.39% -0.01%
10 Year 0.65% -0.11%
30 Year 1.24% -0.13%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 1.45%
6 Mo LIBOR 1.07%
12 Mo LIBOR 0.97%
Swap Rates
3 Year 0.471%
5 Year 0.507%
10 Year 0.637%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Mar 30 Pending Home Sales MoM Feb -1.8% -2.0% 5.2%
Mar 31 S&P CoreLogic CS 20-City Home Pr Jan 3.40% 3.25% 2.85%
Mar 31 Conf. Board Consumer Confidence Mar 114.0 110.0 130.7
Apr 1 ISM Manufacturing Mar 46.0 45.0 50.1
Apr 2 Trade Balance Feb -$43.8b -$40.0b -$45.3b
Apr 3 Change in Nonfarm Payrolls Mar -81k -100k 273k
Apr 3 Unemployment Rate Mar 3.8% 3.8% 3.5%
Apr 3 Avg. Hourly Earnings YoY Mar 3.0% 3.0% 3.0%
Apr 3 ISM Non-Manufacturing Mar 48.0 44.0 57.3

calendar icon Top 5 Events for the Week

March 30 - April 3, 2020

1. Coronavirus Developments – All Week
2. Congressional/Fed Actions – All Week    
3. March Employment Report – Friday
4. March ISM Surveys – Wed/Fri.
5. February Trade Balance – Thursday

 

1.  COVID-19 Developments – All Week

Now that the U.S. has surpassed China in the number of reported COVID-19 cases, and the trajectory still scarily upwards, calm talk from the administration won’t be sufficient to keep markets from starting to run more dire scenarios for both the death toll and the economic hit. That is likely to keep a solid bid in Treasuries and make a retest of the equity lows a real possibility. Talk of reopening the economy by Easter (April 12)  has gone by the board and now April 30th is the new goal.

 

2.  Fed and Congressional Actions – All Week

Phase Three of Congressional action, the $2 trillion CARES Act, was signed into law on Friday afternoon and attention will turn to the details of the massive spending bill and to whether another, Phase Four, bill is coming down the pike. It’s reported that last week as Fed Chair Powell was making his appearance on the Today Show he also met with Speaker Pelosi and was rumored to tell her, “go big, rates are low.” That implies  there well could be another spending bill in the works, and if so likely more focused on workers and less on corporate interests. The graph below lays out the spending priorities in the $2 trillion CARES Act.

 

Where the $2Trillion will go

 

3.  March Employment Report – Friday

The March jobs report is expected to reflect the first signs of job loss as a result of the coronavirus but the survey week being on March 12 means the report won’t nearly reflect the job losses that arrived in last week’s historic weekly jobless claims figure. That will come in the April report. The headline number is expected to show 100,000 lost jobs versus 273,000 gained in February.  Private sector jobs are expected to decrease 111,000 versus 228,000 gained in the prior month.  The unemployment rate is expected to rise 3/10ths to 3.8% but that will look good compared to the number in a couple more months. Meanwhile, wage gains are expected to slow to 0.2% from February’s 0.3%. YoY wage gains, however, are expected to remain at 3.0%.  In summary, the report will show the first job losses in nearly ten years, but unfortunately there’s much more to come and thus this report won’t really move the market one way or the other.

 

4.  March ISM Surveys – Wednesday/Friday

Along with this week’s jobs report, the pair of ISM reports will give us another early tell on March activity with the services sector expected to move into contractionary territory, joining the long-suffering manufacturing sector.    The ISM Manufacturing Survey is due on Wednesday and is expected to print at 45.0 versus 50.1 in February.  The ISM Non-Manufacturing Index follows on Friday and as the services sector constitutes nearly 90% of the economy it’s been stronger than the manufacturing side for awhile but expectations are that it succumbs to the virus this month. The services index is expected to drop to 44.0 versus 57.3 the prior month.  That would be the lowest reading for that series since April 2009.

 

5.  February Trade Balance – Thursday

The February trade balance is expected to materially narrow to -$40.0 billion versus -$45.3 billion in January. The trade deficit has ranged from a  twelve-month wide of -$54.8 billion last May to a narrow -$43.7 billion in November. The deficit was -$49.3 billion a year ago, so with the virus-related shutdowns just starting in the month, the deficit is expected to have narrowed by $9.3 billion over the last year. In normal times this might be factored into the market, but in reality, the report will most likely come and go without much reaction.

 

 


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CenterState Disclosure

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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