Prior week summary
The major U.S. equity indices fell last week, snapping a two-week streak of gains, as fears of a prolonged global slowdown, heightened by turmoil in the global oil market, soured investor sentiment despite the passing of a $484B federal spending bill and reports of several states easing lockdown restrictions. As of Sunday evening, the global infection count sits just under three million confirmed cases with nearly one million cases reported in the U.S. While the infection count continues to rise in the U.S., increasing nearly 25% in the last week, many have been encouraged by the declining hospitalization rate in several of the hardest-hit areas, including in the epicenter of the U.S. outbreak, New York City. Giving a boost to sentiment, several states in the U.S., namely Georgia, Oklahoma, and Alaska, began “reopening” for business over the weekend, allowing select non-essential businesses to operate with social distancing practices in place, and New York Governor Andrew Cuomo indicated that a phased reopening of New York could begin as early as May 15. On Capitol Hill, lawmakers passed the fourth virus-related spending package, a $484B bill that focuses on providing relief for small businesses and hospitals. The deal plans to provide $310B to the Paycheck Protection Program and $75B to hospitals and healthcare providers, as well as, $25B toward improving COVID-19 testing capabilities and availability. Speaker of the House Nancy Pelosi suggested that a fifth spending package is on the horizon saying, “There will be a bill, and it will be expensive. And we look forward to doing it as soon as possible because jobs are at stake, protection of our people, the health and well-being of the American people are at stake.”
The economic data releases for the week highlighted the significant impact the COVID-19 outbreak has had on economic activity in the U.S. The IHS Markit flash manufacturing PMI fell to 36.9 in April, well below the 48.5 reading in March, and the IHS Markit flash services PMI fell to 27.0 in April, the lowest level ever recorded. The latest updated data on the housing sector, new and existing home sales, pointed to a sharp decline in March recording a 15% and 8.5% month over month decline, respectively. All eyes were on the crude oil market on Monday as the expiring May WTI futures contract fell below zero, falling to nearly -$40/barrel intraday, as supply imbalances caused a shortage of storage capacity. The slide in oil prices continued throughout the week with the June WTI futures contract trading just under $13/barrel as of this morning.
The look forward
Market participants are gearing up for a busy week of economic data releases as updated figures on first-quarter GDP, ISM Manufacturing Index, jobless claims, construction spending, and consumer spending, among others, dot the economic calendar. The FOMC will hold its two-day policy meeting on Tuesday and Wednesday.
Market implied policy path (Overnight indexed swap rates)
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