Prior week summary
Global equities surged last week with the three major U.S. equity indices gaining over 10% on the week as a perceived easing of the COVID-19 outbreak in global hotspots and new stimulus measures from the Federal Reserve buoyed investor sentiment and outweighed worsening economic data. The week got off to a strong start for global equities as hospitalizations across the E.U., particularly in Italy, Germany, and the U.K., as well as in New York City, the epicenter of the U.S. outbreak, appeared to slow. As of Sunday evening, the global infection count sits just above 1.8 million with over 550,000 infections in the U.S. The Federal Reserve continued to provide new means of support to the U.S. economy this week pledging to provide up to $2.3T in loans, “to assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.” In a statement announcing the decision, Federal Reserve Chairman Jerome Powell said, “Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” and noted, “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure the eventual recovery is as vigorous as possible.” The Federal Reserve has also indicated that up to $600B in loans will be provided through the Main Street Lending Program, designed to provide emergency funding to businesses with as many as 10,000 employees and up to $2.5B in 2019 revenue. On Capitol Hill, a “phase four” stimulus bill has yet to take shape, but support for another round seems promising on both sides of the aisle with President Trump saying that further stimulus was “absolutely under serious consideration.”
On Sunday, several leading oil producers, including Saudi Arabia and Russia, reached an unprecedented agreement to cut approximately 9.7 million barrels per day of oil output collectively, over 10% of global production, in an attempt to provide support to oil prices which have fallen sharply as the COVID-19 outbreak caused a precipitous drop in oil demand. In a tweet following the agreement, President Donald Trump touted the forecasted benefits for U.S. energy producers and thanked Russia and Saudi Arabia saying, “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia.” As of Monday morning, news of the agreement failed to substantially raise oil prices with West Texas Intermediate crude oil trading at just over $23/barrel.
The look forward
Market participants are gearing up for a busy week of economic data releases as updated figures on retail sales, the Empire Manufacturing Index, industrial production, jobless claims, housing starts, and building permits, among others, dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
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