Morning Markets Brief 4-9-2020

Summary and Price Action Rundown

Global risk assets are mixed this morning ahead of tomorrow’s US holiday, as investors await additional fiscal support from Congress, key jobs data, an OPEC decision, and statements from Fed Chair Powell. S&P 500 futures point to a slightly lower open after the index reaccelerated to the upside yesterday, putting week-to-date gains at 10.5%, which reduced year-to-date downside for the index to 14.9% and the decline from February’s record high to 18.8%. Last month’s acute volatility has subsided somewhat amid supportive monetary and fiscal policy measures, with bouncing oil prices also lifting sentiment, although uncertainty over pandemic containment and economic recovery prospects persist. Yesterday, traders also seized upon Dr. Fauci’s statement that the coming week could mark “the beginning of a turnaround” in the US outbreak, though he added that suppression measures should not be relaxed, while some analysts attributed a degree of yesterday’s market upside to Senator Sanders’ suspension of his presidential campaign. EU and Asian equities were mixed overnight. Treasury yields are edging lower, with the 10-year yield at 0.73%, while EU sovereign bond yields similarly dip. The dollar is continuing to fluctuate mildly below its mid-March multi-year peak. Meanwhile, oil prices are extending their steep rally ahead of today’s pivotal OPEC+ decision.

Economic Support Efforts Help Underpin Optimism on Recovery

Investors continue to pin hopes on the significant and swift deployment of US fiscal firepower to offset the economic impact of the pandemic. Only days after last Friday’s official launch of the $349 billion small business support facility, the Paycheck Protection Plan (PPP), which was established as part of the $2.2 trillion CARES Act, the Trump administration is working to augment the program with additional funds amid a flood of applications. Specifically, the Treasury Department is asking Congress to commit another $250 billion to replenish the PPP. Senate Majority Leader McConnell stated that he would work to “approve further funding for the Paycheck Protection Program by unanimous consent or voice vote” today given that most lawmakers are in home districts. However, Senate Minority Leader Schumer and House Speaker Pelosi are proposing inclusion of funds to provide additional relief to hospitals and state & local governments, potentially complicating an expedited top-up of the small business loan program.

Expectations of Deep and Coordinated Supply Curbs Extend Oil Rebound

Brent crude is at its highest level in nearly a month on signs that consensus on measures to support oil prices will be reached between OPEC, Russia, and other major oil producers at today’s virtual meeting. Reports yesterday eased concerns that the cartel may fail to secure cooperation from Russia and other key producers in a unified attempt to restrict oil production and rebalance the oversupplied market. Oil ministers from Kuwait and Algeria both cited the potential for output curbs of 10 million barrels per day or more, and Russia conveyed favorable signals as well. Saudi is also hosting a G-20 energy ministers’ conference call tomorrow. Although the US will not directly cooperate with OPEC production cuts, the US Energy Information Administration estimated that US shale oil production would fall by 1 million barrels per day as a consequence of pressures on the industry, which some analysts view as signaling de facto US participation. For context, Brent crude prices have rebounded more than 50% since last week, after revisiting a nearly two-decade low, amid signs that Saudi and Russia may be stepping back from their oil price war, with President Trump encouraging détente. Still, analysts question whether even significant production cuts can balance the dramatically oversupplied oil market, which has seen demand collapse amid the coronavirus pandemic.

Additional Themes

Fed Minutes Set the Table for Chair Powell – Yesterday, the Minutes of the Federal Reserve’s March 15th meeting showed that the Fed expects the economic activity to decline in the coming quarter due to the coronavirus outbreak. They noted that the timing of the recovery will depend on the containment measures put in place, the success of those measures, and on the responses of fiscal policy. Policymakers also see an extremely large degree of uncertainty regarding how long and severe such a decline in activity would be. Fed Chair Powell will give an update on the economy today at 10am in a webcast sponsored by the Brookings Institution. He is also expected to detail Fed support programs, including the Main Street lending facility.

Jobless Claims in Focus – Initial jobless claims data for the week ending April 4 is due this morning and analysts are expecting another grim tally, with consensus at 5.5 million, though many estimates are closer to 7 million. Even if this morning’s reading registers a modest decline from the 6.6 million filings the prior week, it would put the total of new jobless claims since mid-March over 15 million and send the unemployment rate toward 15%. Markets, however, appear priced to receive this dire data, with only modest responses to the prior releases.