Mnuchin/Powell Disagree On Fate of Emergency Lending Programs

Nov 20, 2020
Treasury Secretary Mnuchin and Fed Chair Powell

The market is being buffeted this morning by news of a split between Treasury Secretary Mnuchin and Fed Chair Powell on the future of several emergency lending programs. Fed Chair Powell wants the programs, namely the corporate credit facility, the muni liquidity program, and Main Street program carried over through year-end; whereas, Mnuchin says the credit markets are functioning normally and the monies could be better used as grants/bailouts. That public disagreement has unsettled markets a bit. Meanwhile, the housing market continues to be red-hot, perhaps due in part to the spike in virus cases as the rotation out of crowded urban centers to the suburbs increases as evidenced by the latest existing home sales numbers (see below for more). For the time being the sober news of increasing cases set against what’s likely to be yet another surge following Thanksgiving has the market in a risk-off mood. While an effective vaccine seems likely to be approved within weeks, getting vast populations vaccinated will take several months. In between stands a cold winter and holidays that tempt social gathering. It seems the risk-off mood could be around for awhile until the light at the end of the tunnel gets brighter.


newspaper icon  Economic News

 

We’ve often mentioned that the weekly Initial Jobless Claims Report is the best real-time, high frequency metric for gauging the direction of the economy. In that vain, the increase in claims for the week ending November 14, reported yesterday, was a bit unsettling. Jobless claims increased to 742 thousand versus a consensus that projected a drop to 700  thousand while the previous week was revised slightly higher to 711 thousand from 709 thousand. The claims increase could suggest the latest acceleration in virus cases and containment restrictions are starting to have an adverse impact on the labor market recovery. It’s too early to say for sure but it warrants watching over the next several weeks.   The data also implies a slower pace of job creation for November payrolls. Initial claims fell by only 55 thousand between the reference weeks for the November and October payroll reports compared to a steeper drop of 69 thousand in the prior month.

 Jobless Claims

One bit of good news: while overall layoffs widened across states, they haven’t  widened as much as the increase in net new virus infections as shown in the chart above. At least not yet.

 

 


line graph icon  October Existing Home Sales Rise to 15-Year High

 

It’s been no surprise for awhile that the housing market has weathered the pandemic better than just about every other sector, but the October existing home sales numbers reveal a housing market that is on fire at the moment, despite the increase in virus cases. Existing home sales in October unexpectedly surprised to the upside at 6.85 million annualized units sold versus 6.47 million anticipated and 6.57 million in September.  This represents the highest pace since November 2005 when the housing market was coming off its hottest period ever and heading towards a collapse that would lead to the Great Recession. 

 

Monthly Existing Home Sales

The month over month change of +4.3% came on top of September's whopping 9.9% gain (which was revised up from the +9.4% initial print). Properties were on the market for only  21 days on average versus 36 days in October 2019. The results come amid a gathering second wave of virus cases but it confirms that the rotation out of crowded urban centers to the suburb’s continues perhaps because of the rise in virus cases and not in spite of them. Continued record low mortgage rates and increasing job growth are also important ingredients to the success of the housing market. One has to ask, however, given the levels compared to 2005, are we headed for another bubble in housing? The rotation to surbabia will eventually be done which would most likely cause these sales numbers to dip, but exactly when that rotation is complete is impossible to tell at the moment.  The National Association of Realtors expects the rotation to continue through 2021.

 


bar graph icon Market Rates

Treasury Curve Today Chg Last Wk. LIBOR Rates Today Chg Last Wk. FF/Prime Rate Swap Rates Rate
3 Month 0.03% -0.03% 1 Mo LIBOR 0.15% +0.01% FF Target Rate 0.00%-0.25% 3 Year 0.295%
6 Month 0.08% -0.02% 3 Mo LIBOR 0.22% Unch Prime Rate 3.25% 5 Year 0.440%
2 Year 0.16% -0.01% 6 Mo LIBOR 0.26% +0.01% IOER 0.10% 10 Year 0.833%
10 Year 0.83% -0.05% 12 Mo LIBOR 0.34% +0.01% SOFR 0.07%    

 

 

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