Reopening News Rekindles Risk-On Sentiment

May 26, 2020
Crowded Beaches on Memorial Day Weekend

Fiscal Stimulus For States Gets Another Look

With the holiday weekend behind us, and summer beckoning in front, trading will take its cues from the relative success, or not, of the partial reopenings in various states and localities. While Kevin Costner built it in Field of Dreams and they came, if shops and restaurants reopen will the people come? That is the question the market will be assessing as we move squarely into the summer season. The early answer is yes they did come as the market has a decided risk-on tone this morning.  Meanwhile, the Senate testimony of Messrs. Mnuchin and Powell last Tuesday gave both Democrats and Republicans talking points to buttress their positions vis a vis additional stimulus. Later in the week, however, Secretary Mnuchin came out more unequivocally for additional fiscal stimulus matching Fed Chair Powell’s putting renewed momentum behind a state/city stimulus bill passing in the Senate. Speaking of Fed Chair Powell, he’ll be taking part in a moderated discussion on Friday so we’ll get one more take on his views. While he was more reserved, some would say diplomatic, in his preference for more fiscal stimulus to the Senate Banking Committee, he’s likely to express that preference a little more forcefully in this less politically-charged venue. April Personal Income & Spending and Consumer Confidence will be the latest reports detailing the economic carnage in the month.


Treasuries
Treasury Curve Today Week Change
3 Month 0.11% +0.03%
6 Month 0.13% -0.01%
1 Year 0.16% +0.04%
2 Year 0.18% +0.03%
3 Year 0.23% +0.04%
5 Year 0.36% +0.05%
10 Year 0.69% +0.03%
30 Year 1.40% +0.04%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.37%
6 Mo LIBOR 0.57%
12 Mo LIBOR 0.68%
Swap Rates
3 Year 0.287%
5 Year 0.397%
10 Year 0.689%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
May 26 S&P CoreLogic CS 20-City HPA May 3.40% 3.40% 3.47%
May 26 Conf. Board Consumer Confidence May 87.3 87.0 86.9
May 26 New Home Sales Apr -21.5% -23.4% -15.4%
May 27 Fed Reserve Beige Book May NA NA NA
May 28 Durable Goods Orders Apr P -18.0% -19.8% -14.7%
May 28 Initial Jobless Claims May 23 2.000mm 2.100mm 2.438mm
May 28 Pending Home Sales MoM Apr -15.0% -15.0% -20.8%
May 29 Personal Income Apr -6.5% -6.5% -2.0%
May 29 Personal Spending Apr -12.8% -12.8% -7.5%

calendar icon Top 5 Events for the Week

May 26— 29, 2020

1. Coronavirus/Reopening Developments — All Week    
2. Congressional Actions — All Week
3. Fed Speak and Beige Book — All Week
4. April Personal Income & Spending — Thursday
5. May Consumer Confidence — Tuesday

 

1.  Coronavirus/Reopening Developments — All Week

With the holiday weekend behind us, and summer beckoning in front, trading will take its cues from the relative success, or not, of the partial reopenings in various states and localities. While Kevin Costner built it and they came in Field of Dreams, if shops and restaurants reopen will the people come? That is the question the market will be assessing as we move squarely into the summer season. The early signs point to continued apprehensiveness on the part of many but will that wane as the summer days get longer and the restlessness increases? Then again, will a spike in cases from relaxed distancing measures send people scurrying back to the safety of their homes? The early answer this morning is risk-on as the positive news of reopening outweighs concerns over spiking case counts, at least for now.

 

2.  Congressional Actions – All Week

The testimony of Messrs. Mnuchin and Powell to the Senate Banking Committee last Tuesday gave both Democrats and Republicans talking points to buttress their positions vis a vis additional stimulus. Later in the week, however, Treasury Secretary Mnuchin came out more unequivocally for additional fiscal stimulus matching Fed Chair Powell’s take, and with that Senate Majority Leader Mitch McConnell changed his tune that another stimulus bill directed to states and cities may be necessary after all. In his earlier Senate testimony Mnuchin was leaning towards the position that argued to wait and see how the reopenings progressed before moving another stimulus bill. Speculation has it that $1 trillion allocated to states and cities will garner enough Republican support in the Senate to pass.  With Mnuchin and Powell now in agreement that another stimulus package is necessary, and with McConnell’s seeming relent, it looks like the states and cities will see some fiscal relief heading their way.

 

3.  Fed Speak and Beige Book — All Week

Speaking of Fed Chair Powell, he’ll be taking part in a moderated discussion on Friday so we’ll get one more take on his views but they’re not likely to change from what we heard last week to the Senate Banking Committee. While he was more reserved, some would say diplomatic, in his preference for more fiscal stimulus he’s likely to express that preference a little more forcefully in this less politically-charged venue. The other big Fed news this week is the release tomorrow  of the Fed’s usually staid and boring Beige Book of economic views and anecdotes. This time it’s likely to garner more attention as the details by district of the economic fallout and outlook will get more than passing attention.

 

4.  April Personal Income & Spending — Thursday

While economic releases from April are getting only glancing looks from the market, and they have been uniformly wretched, this week brings us a biggie for the month and that’s the personal income and spending numbers. The results will, hopefully, establish a bottom and provide a launching point for improvement in May. Personal income is expected to plummet by –6.5% month-over-month and that compares to a –2.0% decline in March. 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 crater –12.8% month-over-month versus a –7.5% decline in March.  A –12.8% print would set a new low for the series outpacing the previous low which is the –7.5% decline in March. Prior to the last two months, the previous low was a –2.1% drop in January 1987. The degree to which the March and April results are exponentially worse speaks to the degree of damage that has been done.

 

5.  May Consumer Confidence — Tuesday

With the two-thirds of the economy comprised of consumer consumption, measuring the confidence of the consumer gives us an early tell on their future spending habits. It’s no surprise that confidence has taken a serious hit but to date the drop has held above the lows set in the Great Financial Crisis of 12 years ago. The chart below details the decline in confidence but as you see the low is holding well above the prior recession and the expectation is that the May result will hold near the level in April (87.0 vs. 86.9). We’ve speculated before that confidence is being held up due to the high level of furloughs this time versus outright terminations. If those furloughed are called back their confidence will be justified but if companies delay or don’t bring back furloughed workers these confidence readings could take another leg lower.

Conference Board Consumer Confidence

 

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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