Prior week summary
After a slow start to the week, the major U.S. equity indices moved higher on the week as hopes for a strong reopening of the U.S. economy boosted investor sentiment and outweighed fears of a worsening COVID-19 outbreak. As of Sunday evening, the global infection count stands just above nine million confirmed cases with 2.35 million confirmed cases in the U.S. Across the country, states, namely Florida, Texas, and Arizona, have seen significant increases in infection counts and hospitalizations as they gradually reopen their economies to start the summer. Over the weekend, the U.S. saw daily infections rise above 30,000, a figure not seen since early May. While those in the U.S. worry about the rise in infections at home, the World Health Organization reported on Thursday that 150,000 infections were reported globally, the highest daily count on record. Speaking at a press conference on Thursday, WHO Director-General Dr. Tedros Adhanom Ghebreyesus said, “The world is in a new and dangerous phase. Many people are understandably fed up with being at home. Countries are understandably eager to open up their societies and economies, but the virus is still spreading fast. It is still deadly, and most people are still susceptible.” Many market participants were encouraged early in the week after reports that a recent study conducted by Oxford University found that the widely-available steroid, dexamethasone, could reduce the mortality rate of critically ill COVID-19 patients, and even reduce the deaths of patients on ventilators by one third. While encouraging, many have warned that the full study must be released before the effectiveness can be properly evaluated. Separately, the U.S. National Institutes of Health halted trials of the malaria drug, hydroxychloroquine, after the study found that the drug did neither harm nor benefit to patients treated with the drug.
On the economic data front, the results were largely mixed for the week. Retail sales saw a record-breaking 17.7% increase in May, but the rise comes after several months of dismal figures. On the manufacturing front, the Empire Manufacturing Index posted a -0.2 level for June, far better than the -48.5 level seen in May. The Philadelphia Manufacturing Business Outlook Survey also saw a notable pickup, posting a level of 27.5 in June, above the -43.1 level seen in May. Jobless claims remained elevated with 1.51 million individuals filing for unemployment in the last week. A host of Federal Reserve officials held speaking engagements throughout the week. Most notably, Federal Reserve Chair Jerome Powell testified before the House Financial Services Committee and the Senate Banking Committee midweek. Powell turned heads as he called on Congress to support the U.S. economy with more fiscal stimulus. Speaking before the Senate Banking Committee, Powell said, “There’s a reasonable probability that more will be needed both from you and from the Fed. There will be a significant number of people that don’t go back to work and those people are going to need help going forward to get back to work.” On Monday, the Federal Reserve announced that an emergency lending program, the Secondary Market Corporate Credit Facility, will, “begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.”
The look forward
Market participants are gearing up for a busy week of economic data releases as updated figures on new home sales, existing home sales, the third reading for first-quarter GDP, consumer spending, and jobless claims dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
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