Morning Markets Brief 4/3/2020

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.

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.