Category: Briefings

Summary and Price Action Rundown

Global risk assets are trading with an upbeat tone this morning as investors focus on incrementally more positive news on pandemic containment efforts while monitoring the ongoing impact of key stimulus programs. S&P 500 futures indicate a 3.7% gain at the open, which would more than recover last week’s 2.1% loss that brought year-to-date downside for the index to 23.0% and the decline from February’s record high to 26.5%. With the extreme market stress of the past few weeks easing amid a confluence of supportive monetary and fiscal policy measures, and the bounce in oil prices also helping improve the mood, market participants are shifting their focus to hopes for better pandemic containment and gradual economic recovery. EU and Asian equities also advanced overnight. Treasury yields are moving higher amid the improved risk appetite, with the 10-year yield at 0.65%, while EU sovereign bond yields are also edging higher. The dollar is steadying below its mid-March multi-year peak. Meanwhile, oil prices are fluctuating widely amid shifting signals on Saudi/Russia détente.

Some Encouraging Headlines Kindle Hopes for a Rebound

Optimistic market participants focus on peaking infections in some regions as pointing to an potential economic recovery, though significant uncertainty remains over the timeline. A decline in the fatality rate of Covid-19 in key hotspots of the pandemic, including Italy, Spain, France, New York, and New Jersey, are spurring efforts to plan for a gradual reopening of economy and society, all of which is supporting a rebound in risk appetite this morning. In accord with the more encouraging data, President Trump conveyed a more upbeat assessment of the situation in his briefing on Sunday, although on Saturday he had cautioned that the US was entering a “very deadly period” over the coming weeks, a warning echoed by the US Surgeon General. The President also tweeted his approval of a proposal for a new Coronavirus panel focused on economic recovery, which would mirror the committees established in France, Spain, and other EU countries to advise on restarting more normal business, educational, and social activities. There were other notable voices, including Bill Gates, who sounded a more positive note over the weekend regarding the infection and mortality data, and Morgan Stanley’s chief US equity strategist opined that the “worst is behind us” for stock market downside, calling current levels a “good entry point.” Meanwhile, St. Louis Fed President Bullard suggested that the $2.2 trillion pandemic relief bill could be sufficient to cushion the blow to the economy if executed properly.

Investors Attempt to Look Past Unprecedented Economic Damage

Friday’s jobs report surprised significantly to the downside but the relatively muted reaction in financial markets suggests that analysts are now focused primarily on the medium-term outlook rather than the depth of the current economic trough. The US economy lost 701K jobs in March, much worse than market expectations of 100K, while the unemployment rate rose to 4.4% from 3.5%, outpacing expectations of 3.8%. The rise was a direct result of the effects of the coronavirus and efforts to contain it. This is the first decline in payrolls since September of 2010 and about two-thirds of the drop occurred in leisure and hospitality, mainly in food services and drinking places. However, the fuller extent of the damage caused by the pandemic will be only seen in data from April, as the payrolls report excludes the last two weeks of March, when unemployment claims surged by nearly 10 million, which would indicate a jobless rate close to 10%. Nevertheless, the reaction in financial markets to the release of this grim data was muted, with Treasury yields edging higher and equities posting relatively moderate losses on Friday, indicating that investors are increasingly focused on the medium term outlook.

Additional Themes

Oil Prices Fluctuate After Sharp Rebound – After revisiting nearly two-decade lows early last week, international benchmark Brent crude and US benchmark WTI both soared more than 40% over Thursday and Friday of last week amid news that Saudi and Russia may be stepping back from their oil price war, with President Trump encouraging détente. Reports also indicated that OPEC is exploring the potential for a coordinated output cut among its members and other major producers, intended to support crude prices, of 10 million barrels per day. The cartel was set to meet today but a postponement to Thursday induced some volatility, and oil prices are retracing some of their recent upside this morning, despite headlines saying a deal is “close.”

Big Demand for Small Business Loan Program – Friday’s official launch of the $350 billion small business support program, which was established as part of the $2.2 trillion CARES Act, was met with a rush of applicants. With banks acting as intermediaries for the loans, only existing lending clients are being deemed eligible, which is being highlighted as a flaw in this system. Friday’s episode of our podcast (the HPS Macrocast) features insights on this vital program from our friend Adrian Stewart, an attorney at Dentons. https://marketspolicy.com/podcast-2/.

Summary and Price Action Rundown

Global risk assets are trading with a cautious tone as investors await more dismal economic data and monitor the rollout of key US stimulus programs, though oil prices are a bright spot as they continue to climb from depressed levels. S&P 500 futures point to a 1.0% decline at the open, which would extend the moderate 0.6% loss so far this week that has put year-to-date downside for the index at 21.8% and the decline from February’s record high at 25.4%. The extreme market stress of the past few weeks had eased amid a confluence of supportive monetary and fiscal policy measures, and the bounce in oil prices that began yesterday has helped improve the market mood (more below). But dimming hopes of a swift economic rebound even as the infection curve flattens have dampened investor sentiment this week and stalled the late-March rebound. EU and Asian equities were mostly lower overnight. Treasury yields are little changed, with the 10-year yield at 0.59%, while price action in EU sovereign bonds remains mixed but moderate. Meanwhile, the dollar is continuing higher again but remains well below its mid-March multi-year peak.

Investors Set to Look Past Stale Nonfarm Payrolls

Today’s jobs report is expected to be downbeat but reflect only a hint of the true scope of the unprecedented degree of labor market disruption. This morning’s release of March nonfarm payroll data is expected show 100K job losses, which analysts realize would be a dramatic understatement. The weekly initial jobless claims figures have been providing a preview of the magnitude of deterioration that has yet to be captured in the monthly economic readings. Yesterday’s release showed that initial jobless claims surged to 6.65 million last week, a new record high, and well above consensus expectations of 3.7 million. The accommodation and food services sector was again the hardest hit by the Covid-19 crisis. This follows the previous week which saw 3.31 million claims filed. Roughly 1.5 million claims equates to a 1% rise in the unemployment rate. Thus, the 9.9 million claims filed in in last two weeks will raise the national unemployment rate to around 10%. The $2.2 trillion package approved by the White House and the Congress increased payments for the unemployed to up to $600 per week for up to four months while the Labor Department eased some filing restrictions.

Oil Price Rebound Extends Ahead of OPEC Meeting

Global oil producers are beginning to respond to the crude price crash, focusing on resolving the oil price war between Russia and Saudi which erupted last month, though even a renewed OPEC+ output cut agreement would not offset the massive pandemic-related demand collapse. After revisiting nearly two-decade lows earlier this week, international benchmark Brent crude and US benchmark WTI prices soared over 20% yesterday and are continuing to climb so far today ahead of an emergency OPEC meeting that is being scheduled for Monday. Overnight, reports indicated that the cartel is exploring the potential for a coordinated output cut among its members and other major producers, intended to support crude prices, of 10 million barrels per day. This corresponds to claims made by President Trump on Twitter yesterday morning, after which Saudi state media confirmed that the Kingdom had called for an urgent meeting of OPEC and its allies (primarily Russia, collectively known as OPEC+) in order to “restore needed balance” to crude markets. For context, President Trump had phoned Russian President Putin earlier this week regarding oil prices. US oil executives are meeting President Trump today to discuss plans for supporting their industry, with options on the table said to include tariffs on Saudi oil and facilitating domestic US crude shipments.

Additional Themes

Small Business Loan Program in the Spotlight – Ahead of today’s official launch of the small business support program, which was established as part of the $2.2 trillion CARES Act, reports indicated that Treasury Secretary Mnuchin met with large bank CEOs yesterday to urge participation. JPMorgan has indicated that it will work with the government but is not yet prepared to start making the loans. Today’s episode of our podcast (the HPS Macrocast, which we produce in conjunction with our friends at Hamilton Place Strategies) will feature insights on this vital program from our friend Adrian Stewart, an attorney at Dentons who focuses on venture capital and startup companies. You can access episodes through our website or directly on iTunes or Spotify. https://marketspolicy.com/podcast-2/

Looking Ahead – Next week’s Fed meeting is expected to yield no specific policy changes but offer a platform for Chair Powell to catalogue and discuss the lengthy list of intra-meeting emergency easing measures that he and his colleagues have enacted over the past month. Australia’s central bank is also set to meet, as analysts anticipate additional accommodation. On the data front, US jobless claims will again be in focus, as economists brace for another grim tally of unemployment filings. Lastly, a gauge of US consumer confidence is likely to crater.

Summary and Price Action Rundown

Global risk assets are attempting to rebound this morning, as investors continue to weigh unprecedented fiscal and monetary support against the prospects for the pandemic to induce a deeper and longer economic trough than previously anticipated. S&P 500 futures indicate a 1.5% gain at the open, which would partially retrace yesterday’s steep 4.4% loss that brought year-to-date downside for the index to 23.5% and the decline from February’s record high to 27.0%. The extreme market stress of the past month has eased somewhat due to supportive monetary and fiscal policy measures. But President Trump’s warning of a “painful two weeks” to come and dimming hopes of a swift economic rebound even as the infection curve flattens have led to a re-intensification of risk aversion. EU and Asian equities were mixed overnight. Treasury yields are steadying, with the 10-year yield at 0.60%, while price action in EU sovereign bonds is mixed but moderate. The dollar is pausing after rebounding earlier this week and remains well below its mid-March multi-year peak. Meanwhile, oil prices are bouncing above recent lows as official support efforts begin to intensify (more below).

Investors Ponder the Outlook for the Global Economy as Data Worsens

Growth and jobs figures in the US and EU are beginning to show severe deterioration, and market participants increasingly fear not only that the worst is yet to come but that some damage will be long-lasting. Analysts are bracing this morning for another exceptionally grim tally of US initial unemployment claims data, with a consensus estimate of 3.7 million new filings last week, which would outpace the 3.3 million the prior week. For context, this weekly figure is providing a preview of the magnitude of deterioration that has yet to be captured in the monthly economic readings. For instance, yesterday’s ADP Employment Report estimated that private businesses in the US laid off only 27K workers in March, which bettered expectations of 150K job losses. However, this report fails to capture the full extent of the layoffs since its survey period is the middle of the month, which was before the bulk of the state quarantines took effect. The data showed the service-providing sector shedding only 18K jobs when the layoffs are obviously much higher. Tomorrow, March nonfarm payroll data is expected reflect 100K job losses, which analysts realize is a dramatic understatement. Other data is similarly uneven. Yesterday’s March ISM manufacturing purchasing managers’ index (PMI) declined to 49.1 from 50.1 but beat market expectations of 45 (PMI readings above 50 denote expansion). Declines were seen in new orders, production, employment, inventories and new export orders. Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus and energy market volatility.

Oil Prices Stage a Rebound Amid Mounting Support Efforts

Global leaders are beginning to respond to the crude price crash, after the oil price war between Russia and Saudi which erupted last month deepened already intense pressure on energy markets from a pandemic-related demand collapse. After revisiting nearly two-decade lows earlier this week, international benchmark Brent crude and US benchmark WTI prices are rallying this morning as government officials and industry leaders ponder strategies to ease the supply glut. Traders are noting reports that China will boost its crude reserves, though no details have been officially disclosed. This follows yesterday’s headlines that Russia will refrain from increasing supply, raising hopes of détente with OPEC. President Putin made conciliatory remarks and media suggested that he had been in touch with Saudi leaders. The Kingdom, however, remains apparently undeterred in their efforts to maximize production in an attempt to bring Russia in line with the cartel’s objectives. President Trump phoned Russian President Putin earlier this week regarding oil prices, and energy officials on both sides are set to engage on the issue. Reports indicate that oil executives have been summoned to the White House to discuss plans for supporting their industry, with options on the table said to include tariffs on Saudi oil and facilitating domestic US crude shipments. Also, the Texas oil regulator has called a meeting on April 14 to discuss production cuts in the state in an effort to support prices.

Additional Themes

Stimulus Efforts Continue – Each day seems to bring news of more fiscal or monetary measures being deployed. After markets closed yesterday, the Fed announced a relaxation of its leverage limit on large banks, freeing up additional space on their balance sheets to support their customers’ financial activities. Analysts will monitor commercial paper and other essential short-term funding markets for an impact, as systemic risk gauges continue to show less stress.

China Criticized Over Coronavirus – Chinese officials are pushing back on a US intelligence report criticizing Beijing’s lack of transparency on the outbreak. Although China’s infection statistics and economic data have shown improvement in recent weeks, Chinese equities and the renminbi have not rebounded accordingly, with lackluster gains from recent lows.

Summary and Price Action Rundown

Global risk assets extended yesterday’s declines overnight, as investors brace for a deeper and longer economic trough amid the pandemic despite massive fiscal and monetary stimulus being deployed around the world. S&P 500 futures point to a 3.5% decline at the open, which would deepen yesterday’s loss of 1.6% that brought year-to-date downside for the index to 20.0% and its decline from February’s record high to 23.7%. The extreme market volatility of the past few weeks has eased somewhat amid a confluence of supportive monetary and fiscal policy measures. But President Trump’s warning of a “painful two weeks” to come and dimming hopes of a swift economic rebound even as the infection curve flattens are weighing on investor sentiment. EU and Asian equities posted meaningful losses overnight. Treasury yields are continuing lower, with the 10-year yield at 0.61%, while price action in EU sovereign bonds is mixed but moderate. Worryingly, the dollar is turning higher again after Fed action had appeared to reverse the appreciation trend last week. Meanwhile, oil prices are holding above recent lows amid reports that Russia may be blinking in its ongoing oil price war with Saudi.

Optimism for a Swift Rebound Wanes as the Pandemic Batters the Global Economy

As growth and jobs figures in the US, EU, and elsewhere begin to show severe deterioration, investors expect worse to come and ponder the risk of lingering economic effects. Overseas, the Bank of Japan’s Tankan Index for large manufacturers’ sentiment fell to a 7-year low of -8 in the first quarter (1Q) from 0 in 4Q19. However, this beat consensus expectations of -10. Large companies plan to raise their capital spending by 1.8%, down from 6.8%, but above the 1.1% forecast. Amongst large non-manufacturing firms, sentiment also fell sharply, to 8 from 20 in Q4, but also topped estimates of 6. Similarly, yesterday’s US data came in better than the dour consensus expectations, but economists warn that worse is yet to come. In March, the Chicago Business Barometer decreased by 1.2 points from February to 47.8 but outpaced market expectations of 40.0. However, the survey ran from March 2nd to 16^th, so it did not capture the full extent of the US social distancing measures. The Conference Board Consumer Confidence Index declined sharply in March but remained well above consensus expectations. Still, the accompanying statement noted that “March’s decline in confidence is more in line with a severe contraction, rather than a temporary shock, and further declines are sure to follow.” Today, a privately-compiled US jobs figure and the ISM manufacturing purchasing managers’ index (PMI) are both projected to show significant deterioration last month. On Friday, March nonfarm payroll data is expected to mirror the dramatic job cuts previewed by last Thursday’s stunning rise in weekly unemployment claims to 3.28 million.

Policymakers Ready More Stimulus but Executing on Existing Measures is Key

Each day brings news of more fiscal or monetary measures being deployed, providing some support to investor sentiment and easing systemic strains in global financial markets, but uncertainty continues as economies remain paralyzed and solvency pressures mount. House Democrats are already preparing a fourth round of stimulus, just days after finalization of the US $2.2 trillion phase three relief bill (CARES Act), which is said to total roughly $600 billion and encompass additional aid for states and municipalities, support for the housing and leisure industries, and augmented payments to individuals. For its part, the White House has been discussing additional tax breaks and further support for healthcare workers. President Trump yesterday also advocated a $2 trillion spending package to upgrade the country’s aging infrastructure and provide much needed jobs as the pandemic batters the labor market. Analysts note that execution and disbursement of the mammoth funds made available by the CARES Act still needs to be the primary focus, which the White House has acknowledged.

Additional Themes

Oil Prices Fluctuate as Russia Softens Stance – After revisiting nearly two-decade lows earlier this week, international benchmark Brent crude and US benchmark WTI prices are attempting to steady this morning amid reports that Russia will refrain from increasing supply, raising hopes of détente with OPEC. For context, the oil price war between Russia and Saudi which erupted last month deepened already intense pressure on energy markets from a pandemic-related demand collapse. President Trump phoned Russian President Putin earlier this week regarding oil prices, and energy officials on both sides are set to engage on the issue.

Dollar Turns Higher Despite Fed Action – While the extensive accommodation measures that it unveiled last week continue to have encouraging effects in dampening systemic pressures, the Fed announced yesterday new dollar liquidity facilities for foreign central banks to mitigate the need to sell Treasuries for cash. These combined with the augmented and expanded overseas dollar swap lines that the Fed activated last month. Despite indications that overseas dollar liquidity is much improved, the greenback is again turning higher as safe haven demand rises.

Summary and Price Action Rundown

Global risk assets are mixed this morning, amid relatively calmer price action, as investors ponder the degree to which even the massive fiscal and monetary stimulus deployed around the world over the past month can cushion the impact of the pandemic. S&P 500 futures are fluctuating moderately after last week’s rally of 10.3% brought year-to-date downside for the index to 21.3% and its decline from February’s record high to 25.0%. The extreme market volatility of the past few weeks has eased somewhat amid a confluence of supportive policy measures, including more aggressive Fed/global central bank accommodation and massive US fiscal stimulus. Nevertheless, grim infection and mortality totals and an extending timeline for social distancing measures is continuing to weigh on investor sentiment. EU and Asian equities were mostly lower overnight. EU sovereign bonds are choppy after last week’s rally, while Treasury yields continue to head lower, with the 10-year yield at 0.65%. The dollar is pausing its retreat from multi-year highs, while oil prices remain under severe pressure (more below).

Stimulus Efforts Continue as the Covid-19 Pandemic Batters the Global Economy

The US and China deployed high-profile support for their respective economies over the past few days, with President Trump signing the phase three coronavirus relief bill on Friday and the People’s Bank of China (PBoC) adding liquidity on Sunday night, but uncertainty continues over the efficacy and sufficiency of the ongoing measures. The PBoC injected 50 billion renminbi into the banking system overnight at a rate of 2.2% versus the prior level of 2.4%, a larger reduction than the typical increment. The impact, however, was modest, with Chinese equities performing roughly in line with regional peers and the renminbi closing flat. This comes amid varied reports about secondary infection clusters in Asia weeks after the initial peak of contagion rates in some countries. The PBoC’s move followed last week’s finalization of the US $2.2 trillion phase three relief bill (CARES Act), which President Trump signed on Friday afternoon. The bill includes direct support for both households and companies, but the timeline for disbursement varies widely across the many segments and analysts are pondering the ability of different levels of government to translate the budget allocations into actual expenditures. Congressional leadership on both sides have informed their members that up to two more fiscal packages may be needed during the coming weeks of this pandemic. Speaker Pelosi said that she and her fellow members “know that we must do more.”

Systemic and Liquidity Strains Have Eased but Some Pockets of Stress Remain

Amid an interlocking liquidity crunch and a slower-moving but intensifying solvency crisis brought on by the pandemic, the Fed announced extensive new measures last week to provide both unprecedented liquidity and direct monetary support for the economy, with encouraging initial effects. The Fed is now buying Treasury securities and agency mortgage-backed securities in unlimited amounts in order to support smooth market functioning along with increasing purchases of agency commercial mortgage-backed securities. However, Friday’s late session announcement that the Fed’s current $75 billion per day pace of Treasury purchases would be pared to $60 billion by the end of next week coincided with a selloff in risk assets. Also last week, the Fed created two facilities to support credit to large employers and established a third facility to provide a flow of funds to consumers and businesses, along with offering credit for municipalities, and will provide up to $300 billion in new financing for employers, consumers, and businesses. Investment grade credit rallied steadily throughout the week, and traders have noted some signs of better market functioning, and high yield debt improved after Monday, although both remain at stressed levels. Meanwhile, analysts are citing diminished evidence of strains in offshore dollar funding markets, while short-term funding (repo) and interbank markets similarly appear more orderly. Commercial paper markets, however, have remained under pressure as the Fed readies its support program.

Additional Themes

Oil Prices Sink Further – Even as US equities attempt to steady, Brent crude is extending last week’s steep losses to trade below $23 per barrel. Provisions for funding to top up the Strategic Petroleum Reserve never made it into the final pandemic relief bill, while the International Energy Agency described global oil demand as in “free fall” amid the pandemic. Reports show no end in sight for the Saudi versus Russia price war and suggest that President Trump is more focused on exceptionally low prices at the pump than the damage to the US shale patch.

EU Banks Hit by ECB Dividend Request – An index of EU bank stocks is down 5.0% this morning, dramatically underperforming the broader index, after the European Central Bank (ECB) asked the industry to withhold dividend payments and share buybacks until at least October. Meanwhile, market-based gauges of credit stress at EU banks are elevated but remain significantly below the crisis levels of 2011/12 amid aggressive ECB support.

Summary and Price Action Rundown

Global risk assets are retracing a portion of their three-day rally this morning as investors continue to await passage of the pandemic relief bill through the House of Representatives, while pondering the efficacy of even this forceful fiscal support amid a continued rise in Covid-19 infection rates. S&P 500 futures indicate a 1.9% loss at the open, which would partly retrace its three-day rally of 17.6%, which brought year-to-date downside to 18.6% and its decline from mid-February’s record high to 22.3%. The acute market volatility of the past few weeks has eased amid a confluence of supportive factors, including more aggressive Fed/global central bank accommodation, expectations of massive US fiscal stimulus, and hopes for decelerating contagion figures in Italy and New York (though recent new infection figures are less encouraging). Traders are also citing quarter-end rebalancing by large institutional investors as underpinning demand for US stocks over the past three days. EU and Asian equities were mixed overnight. EU sovereign bonds are choppy after yesterday’s rally, while Treasury yields continue to head lower, with the 10-year yield at 0.76%. The dollar is pausing its retreat from multi-year highs. Oil prices remain under pressure, with Brent crude around $26.

Congress Readies Massive US Fiscal Support as Investors Shift Their Focus to Execution

With the House set to pass the phase three coronavirus relief bill today or tomorrow, analysts continue to debate the degree to which this major US fiscal firepower can cushion the impact of the pandemic. Earlier this week, the Senate managed to pass the phase three relief bill (CARES Act) with unanimous consent and the House is poised to approve it over the coming day or two. The bill totals $2.2 trillion and includes direct support for households ($301 billion), expanded unemployment insurance ($250 billion), credit support to companies to backstop lending facilities by the Federal Reserve ($500 billion), concessionary loans to small businesses ($367 billion), money for hospitals and healthcare providers ($130 billion), emergency education and infrastructure finance ($55 billion), and agriculture assistance ($48 billion). The bill grants greater flexibility to banks in lending to small businesses as well as forbearance for holders of federally-backed mortgages through year-end in cases of pandemic-related financial hardship. The timeline for disbursement of the relief assistance varies widely across the many segments and analysts are pondering the ability of different levels of government to translate the budget allocations into actual expenditures. On one hand, Secretary Mnuchin indicated that direct deposits can be implemented for many individuals within weeks, whereas some businesses will not receive relief for months until they adjust for reduced payroll taxes. Congressional leadership on both sides have informed their members that up to two more fiscal packages may be needed during the coming weeks of this pandemic.
Investors Digest an Unprecedented Rise in US Unemployment Claims

Early data for March is revealing a dramatic economic deterioration around the globe, and yesterday morning’s release of last week’s new US unemployment filings showed a stunning increase. A record 3.28 million people registered for unemployment benefits in the week of March 15^th, surging from the 282,000 registering the week prior. This figure was not only a new historical peak but a multiple of previous highs in weekly seasonally adjusted unemployment surges such as in 1982 (695,000) and 2009 (665,000). This ends a decade of sustained job growth that saw US employers having added jobs for a consecutive 113 months. Due to the scope of the coronavirus impact, Congress is considering expanding unemployment benefits to contract workers and self-employed persons. It remains to be seen whether this spike in unemployment and subsequent response will resemble the 1980s surge and relatively quick recovery or the more drawn out jobless trends of 2008-09 and the 1930’s. Not all sectors are evenly hit; retail is seeking at least 500,000 new workers as demand exceeds production capacities. Next week’s data will provide more insight on the economic fallout (more below).

Additional Themes

Powell Reassures on Stimulus – Federal Reserve Chair Powell alluded to additional measures available to the Fed in providing targeted credit “where it should be offered but is not” in his remarks yesterday morning on the Today Show, stating that “we’re not going to run out of ammunition.” He noted the US economy “may well be in a recession” but suggested that there should be “a good rebound on the other side of that.”

Looking Ahead – Next week brings some additional key datapoints on how the pandemic and the accompanying public health responses are impacting the economy. March nonfarm payroll data, due next Friday, is forecast to be one of the worst readings on record, while more global purchasing managers’ indexes (PMIs) for March are expected to reflect deepening contractions. Meanwhile, analysts await a decision from President Trump regarding his administration’s position on restarting portions of the economy amid questions about his authority to do so.

Summary and Price Action Rundown

Global risk assets are retracing a portion of their two-day rally even as Congress is set to pass forceful fiscal measures and the European Central Bank announced an upgrade to its forceful easing program, as investors brace for historically dire US economic data this morning. S&P 500 futures point to a 0.9% decline at the open, which would partly retrace its rally of 10.6% over the past two sessions that reduced year-to-date downside to 23.4% and the decline from mid-February’s record high to 26.9%. The acute market volatility of the past few weeks has eased somewhat amid a confluence of supportive factors, including more aggressive Fed accommodation, glimmers of hope from slightly decelerating contagion figures in Italy and New York, and expectations of massive US fiscal stimulus. EU and Asian equities were mostly lower overnight. In sympathy with EU sovereign bonds, which are rallying after the European Central Bank’s announcement overnight (more below), Treasury yields continue head lower, with the 10-year yield at 0.80%. Importantly, the dollar is extending it retreat from multi-year highs. Oil prices are fluctuating above last week’s nearly multi-decade lows, with Brent crude around $27.

Questions Turn to Efficacy and Sufficiency as Congress Lines Up Massive US Fiscal Support

Market sentiment remains cautious, even with bipartisan agreement in the Senate over the phase three coronavirus relief bill setting up passage in the House, as analysts ponder the degree to which even this major fiscal firepower can cushion the impact of the pandemic. Overnight, the Senate managed to pass the phase three relief bill (CARES Act) with unanimous consent. The bill totals $2.2 trillion and includes direct support for households ($301 billion), expanded unemployment insurance ($250 billion), credit support to companies to backstop lending facilities by the Federal Reserve ($500 billion), concessionary loans to small businesses ($367 billion), money for hospitals and healthcare providers ($130 billion), emergency education and infrastructure finance ($55 billion), and agriculture assistance ($48 billion). House Democrats are expected to approve the bill Friday, though Democrat leaders indicate they do not expect the vote to pass with unanimous consent and encourage debate. The bill grants greater flexibility to banks in lending to small businesses as well as forbearance for holders of federally-backed mortgages through year-end in cases of pandemic-related financial hardship. The timeline of the relief assistance varies. On one hand, Secretary Mnuchin indicated that immediate direct deposits can be implemented for most individuals, whereas some businesses will not receive relief for months until they adjust for reduced payroll taxes. Congressional leadership on both sides have informed their members that up to two more fiscal packages may be needed during the coming weeks of this pandemic.

Investors Brace for an Unprecedented Rise in US Unemployment Claims

Early data for March is revealing a dramatic economic deterioration around the globe, with this morning’s release of last week’s new filings for unemployment in the US expected to shatter the previous record high. Today’s initial jobless claims report for the week ending March 21 is projected to show a massive spike in filings to 1.64 million, following the 281k reported last week, though some estimates run as high as 3 million. California alone indicated that unemployment claims have risen by 1 million in recent days. For context, the previous peak was 695k in 1982. Analysts are concerned that the second quarter will feature a depression-level contraction, even with fiscal support. This comes after preliminary March readings of US manufacturing and service sector Purchasing Managers’ Indexes (PMIs) illustrated a moderate retrenchment in the former and a severe contraction of the latter.

Additional Themes

The European Central Bank (ECB) Greatly Enhances Its Monetary Support – Late yesterday, the ECB issued a document indicating that limitations on sovereign bond purchases that threatened to hamper efforts to steady regional markets would not apply to the €750 billion Pandemic Emergency Purchase Program. For context, the ECB’s previous and ongoing quantitative easing (QE) programs restricted sovereign bond purchases by the central bank to no more than one-third of a single country’s debt. When announcing the program last week, ECB President Lagarde pledged that there was “no limit” to her institution’s commitment to preserving the euro, and yesterday’s release indicated that this move was intended to facilitate “smooth transmission of its monetary policy in all jurisdictions of the euro area.” Sovereign bonds across the EU are rallying this morning, with more stressed peripheral countries like Italy and Greece outperforming, and encouragingly, the euro is rallying versus the dollar.

Daily Dose of Credit Rating Downgrades – Each day brings another set of high-profile cuts to the credit ratings of major companies. Earlier this week, Fitch downgraded Boeing, while S&P relegated Delta Airlines to speculative grade, or “junk,” and cut Ford’s credit rating to junk yesterday. Reports today suggested that Moody’s might cut General Motors to junk as well.

Summary and Price Action Rundown

Global financial markets are struggling to extend their rebound into a second day even as Congress and the White House are set to agree on forceful fiscal measures to cushion the unprecedented economic impact from the pandemic and systemic stresses show signs of easing following aggressive Fed policy action. S&P 500 futures indicate a 0.7% loss at the open, which would partly retrace yesterday’s historic 9.4% rally that reduced the index’s year-to-date downside to 24.3% and its decline from mid-February’s record high to 27.7%. Traders suggest that investor sentiment is finding support from passage of the $2 trillion US fiscal stimulus, more aggressive Fed accommodation, and glimmers of hope from slightly decelerating Italian contagion figures. EU and Asian equities were mixed overnight. Amid continuing investor caution, Treasuries are bid again, with the 10-year yield at 0.82%, while EU sovereign bonds remain steady. Importantly, the dollar is continuing to retreat from multi-year highs. Oil prices are fluctuating above last week’s nearly multi-decade lows, with Brent crude around $26.

Major US Fiscal Support Bolsters Nascent Investor Optimism

Market sentiment remains fragile but incrementally more upbeat today after Congress and the White House agreed overnight on a third-phase $2 trillion US spending bill aimed at supporting households and businesses during the pandemic, though analysts fret that even this massive package may prove to be too little, too late. Overnight, the Senate and the White House reached agreement on the composition of the latest fiscal support bill, which totals around $2 trillion, as expected, and features direct support for households ($1,200 per adult/$500 per child, plus augmented unemployment insurance), credit support to companies ($500 billion), concessionary loans to small businesses ($350 billion), and money for hospitals and healthcare providers ($150 billion). House Democrats are expected to approve the bill, though they had crafted their own version featuring $2.5 trillion in government support for workers and businesses, featuring moratoriums for mortgage, car, and credit card payments, breaks for public housing rent, $10k in student loan forgiveness, and a freeze on foreclosures and evictions. Democrat House leaders have reportedly told their members that up to two more fiscal packages may be needed during the coming weeks of this pandemic. Meanwhile, President Trump’s latest remarks convey anxiousness to restart more normal economic activity, though most of the restrictions and lockdowns are mandated at the state level.

Data Reflects Unprecedented Economic Fallout from the Outbreak

Early readings of activity data for March reveal a dramatic deterioration of business conditions around the globe, with service industries understandably taking the brunt of the pandemic impact. Yesterday’s preliminary March readings of the IHS Markit Manufacturing and Services Purchasing Managers’ Indexes (PMIs) illustrated how the response to Covid-19 is having divergent effects on US business. For context, PMI readings below 50 denote contraction of activity in the sector. The Manufacturing PMI only declined slightly to 49.2 in March from 50.7 in February, which indicated moderate retrenchment but came in well above estimates of 42.8. However, steep rates of contraction were seen in production and new orders, both of which fell to the greatest extent since 2009. This likely foreshadows further declines in the overall index in April, as business confidence was at a record low level. The relative strength in manufacturing comes in stark contrast to the Services PMI, which plummeted to 39.1 from 49.4, and even undershot the pessimistic market consensus of 42. This is the most rapid contraction in business activity ever recorded and looking ahead, companies do not expect to see any improvement in business over the next 12 months due to Covid-19 uncertainty, representing the most pessimistic outlook ever recorded.

Additional Themes

Signs of Easing Liquidity Strains Following Fed Firepower – The Fed’s aggressive policy measures over recent days and weeks to provide both unprecedented liquidity and direct monetary support for the economy have been yielding some encouraging results. Investment grade credit rallied for the second straight day yesterday, and traders have noted some signs of better market functioning, although high yield debt remains under extreme duress despite a degree of stabilization. Meanwhile, analysts are citing diminished evidence of stress in offshore dollar funding markets, while short-term funding (repo) and interbank markets similarly appear more orderly. Commercial paper spreads have narrowed to some degree as well.

Battle Begins Over Boeing Bailout – Boeing was downgraded yesterday by rating agency Fitch, while President Trump indicated that the White House was preparing to assist the troubled aerospace giant. Boeing CEO Calhoun, however, has indicated that a government equity stake would be unwelcome, preferring credit and liquidity support. Meanwhile, the latest fiscal bill has $50 billion earmarked for loans and loan guarantees to the airline industry.