Prior week summary
U.S. equities surged last week, sending the S&P 500 over 10% higher on the week, as aggressive changes to monetary policy and the passing of an unprecedented federal spending bill improved investor sentiment and overshadowed virus fears. The Federal Reserve continued to deploy aggressive and extensive measures to mitigate the economic impact of the COVID-19 outbreak. On Monday morning, the Federal Reserve announced that it would buy an unlimited amount of Treasury securities and agency mortgage-backed securities. In a statement released announcing the decision, the Federal Reserve said, “The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions, and will assess the appropriate pace of its securities purchases at future meetings.” On Capitol Hill, lawmakers sparred over the contents and provisions of an unprecedented $2.2T federal spending bill. After failed votes and intense negotiations, the Senate unanimously passed the economic relief bill 96-0 late Wednesday evening, which then easily passed through the House of Representatives and was signed by President Trump on Friday. The bill aims to support individuals and industries affected by the slowdown caused as a result of the virus, including up to $1,200 in direct payments to qualifying American citizens, $377B in small business aid, and $100B in hospital aid.
As of Sunday evening, the global infection count stands at over 725,000 with nearly 35,000 succumbing to the virus. Infections in the U.S. skyrocketed over the week increasing over 500% from the week prior and standing at 140,000 individuals. After initially suggesting that the social distancing guidelines could be relaxed by mid-April, President Trump announced that those guidelines will be in place until at least April 30. In a press conference on Sunday, President Trump announced the decision to extend the deadlines and suggested that the country would be in a better position by June saying, “We will be extending our guidelines to April 30 to slow the spread. On Tuesday, we will be finalizing these plans and providing a summary of our findings. We can expect that by June we will be well on our way to recovery.”
Economic data for the week was largely negative. On Thursday, unemployment claims surged to 3.28 million shattering the previous record of 695,000 set in October 1982. Additionally, the IHS Markit flash manufacturing and services PMI readings plummeted to 49.2 and 39.1 respectively, far lower than the February readings.
The look forward
Market participants will be monitoring virus-related developments as the outbreak continues to disrupt global economic activity. All eyes will be on Friday’s release of the non-farm payroll report, as well as, updated figures on the ISM Manufacturing Index, ISM Non-Manufacturing Index, construction spending, and factory orders.
Market implied policy path (Overnight indexed swap rates)
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