Congress passes stimulus bill

March 30, 2020 Chatham Financial

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.

Rates snapshot

 

Market implied policy path (Overnight indexed swap rates)

Source: Chatham Financial

 


Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal/notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 20-0093

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