Market Reports

Summary and Price Action Rundown

Global risk assets are moderately lower this morning following last week’s steep rally, as investors pause to digest the most recent Fed action and the OPEC deal, while awaiting corporate earnings reports. S&P 500 futures indicate a 0.7% lower open after rebounding 12.1% last week, which put year-to-date downside for the index at 13.7% and the decline from February’s record high at 17.6%. Last month’s acute volatility has subsided somewhat amid supportive monetary and fiscal policy measures, with stabilizing oil prices also lifting sentiment, although uncertainty over pandemic containment and economic recovery prospects persist. EU stock markets remain closed for a holiday and Asian equities were mixed overnight. Treasury yields are flat, with the 10-year yield at 0.72%. The dollar is continuing to slide below its mid-March multi-year peak. Meanwhile, oil prices are fluctuating moderately after their steep rally as traders parse the impact of the OPEC+ decision (more below).

Dramatic Fed Action Keeps Investors Focused on Support Measures

Last week, the Federal Reserve announced muscular new aid programs and augmentations to other facilities to support the US economy during the depression-level contraction of business activity mandated by pandemic containment. Ahead of a scheduled online webinar by Chair Powell last Thursday, the Fed unveiled a large array of new programs, which total up to $2.3 trillion. Specifically, they include liquidity support for the ongoing Payroll Protection Program, a new Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities, augmentation of three existing credit facilities aimed at increasing credit to households and businesses, and expansion of the type of collateral they will accept through the Term Asset-backed Loan Facility. Furthermore, the Secondary Market Corporate Credit Facility will lend, on a recourse basis, to a special purpose vehicle (SPV) that will purchase corporate debt issued by eligible issuers, including individual corporate bonds as well as High Yield ETFs. Also, the details of the Fed’s $600 billion Main Street Business Lending Program show that the loans will be targeted toward businesses with up to 10K employees and less than $2.5 billion in revenues for 2019, while principal and interest payments will be deferred for a year. The Main Street loans will be a minimum of $1 mil and a maximum of either $25 million or an amount that “when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization,” whichever is less. Rates will be equal to the Fed’s Secure Overnight Financing Rate, currently 0.01%, plus 250-400 basis points with a four-year maturity. A special-purpose vehicle that Fed created jointly with the Treasury Department will purchase 95% of the loan while the financing institution would hold the other 5%.

Oil Steadies as Price War Ends and Further Output Cuts Begin

Brent crude is hovering at its highest level in nearly a month after OPEC, Russia, and other major oil producers agreed to historic production curbs over the weekend, but some analysts still forecast continued oversupply. After revisiting nearly two-decade lows in late March, international benchmark Brent crude and US benchmark WTI prices have climbed $9 per barrel and $3 per barrel, respectively, to $31.48 and $22.76, in a choppy uptrend over the past week as traders have weighed production cuts versus crashing demand. After Thursday’s virtual meeting, OPEC, Russia, and other major producers (collectively known as OPEC+) cut a deal to reduce supply by 9.7 million barrels per day over the next two months, with Russia and Saudi agreeing to match each other’s reduced production levels. Mexico held out but eventually agreed to a more modest supply cut than their peers. Saudi also hosted talks with G-20 energy ministers over the weekend, which resulted in the US, Brazil, and Canada acknowledging output declines, though these are characterized as distinct from OPEC’s voluntary reductions. Still, analysts question whether even these large production cuts can balance the dramatically oversupplied oil market, which has seen demand collapse amid the coronavirus pandemic.

Additional Themes

Investors Brace for Earnings Reports – First quarter corporate earnings reporting season kicks off tomorrow in earnest with some major banks and corporate bellwethers reporting, including JPMorgan, Wells Fargo, Johnson & Johnson, and Fastenal. Analysts anticipate choppy figures and high uncertainty regarding managements’ outlook for coming quarters. As with economic data, the outlook for a rebound will likely be more impactful of stock prices than the depths of the second quarter trough.

Week Ahead – Initial jobless claims data for the week ending April 11 will be in the spotlight on Thursday after the prior week registered another grim tally of 6.6 million more filings, bringing the total reported in the last three weeks close to 17 million. US industrial production and retail sales data for March will also be in focus, along with first quarter Chinese GDP.

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 15^th 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.

Summary and Price Action Rundown

Global risk assets are mixed and price action is moderate this morning as investors remain focused on the prospective transition from pandemic containment to economic recovery, while monitoring the ongoing impact of key stimulus programs. S&P 500 futures indicate a 0.5% gain at the open after the index struggled yesterday to maintain Monday’s upward momentum, surrendering gains of around 3.5% to close slightly lower. This put year-to-date downside for the index at 17.7% and the decline from February’s record high at 21.5%. Though last month’s acute volatility has subsided somewhat amid supportive monetary and fiscal policy measures, persistent uncertainty over pandemic containment and doubts over economic recovery prospects continue to hold back investor sentiment. EU and Asian equities posted divergent performance overnight. Treasury yields are edging higher, with the 10-year yield at 0.74%, while EU sovereign bond yields are mixed. The dollar is fluctuating mildly below its mid-March multi-year peak. Meanwhile, oil prices are steadying after yesterday’s sharp downside reversal as traders position ahead of tomorrow’s pivotal OPEC meeting.

Policymakers Rush to Re-Up Small Business Loan Program

Small business owners are seeking support in droves as conditions worsen, while questions reverberate over the size of the program and issues regarding access. Only days after last Friday’s official launch of the $349 billion small business support program, 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 preparing to ask Congress to commit another $250 billion to replenish the PPP, with reports suggesting that the request could come as soon as today, not even a week into the program. Banks and the Small Business Administration have been overwhelmed by applications, which some analysts are estimating could need as much as $1 trillion to fulfil the demand. Senate Majority Leader McConnell stated that he would work with Treasury Secretary Mnuchin and Senate Minority Leader Schumer to “approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday.” Meanwhile, financial sector participation in the program is widening, as Secretary Mnuchin indicated that 3,000 banks and other lenders are accepting applications, up from 2,400 on Monday.

Economic Distress Intensifies as Containment Efforts Continue

The urgent need for support at the small business level and for workers suddenly out of a job could hardly be more obvious and is validated by incoming data. Yesterday’s reading of the NFIB Small Business Optimism gauge plummeted by an unprecedented degree in March. It is now at 96.4, almost a five-year low, while its collapse from 104.5 in February to 96.4 constituted the largest net change (8.1) on record. The small business outlook for six months from now fell 17 points from 22 to 5, the worst since November 2012. Sales expectations had the largest ever decrease, while uncertainty increased to three-year highs. In February, US job openings (JOLTS) fell 130k from 7.012m (4.4%) in January to 6.882m (4.3%). Expectations for job openings were as low as 6.50m, likely a forward projection as some participants over-anticipated early effects of the virus. Job openings contractions were focused in real estate and health services. Professional and business services constituted the largest contraction in hiring, followed by construction. Analysts agree that US job openings were elevated before the virus spurred layoffs. Given the rebound in January and general resiliency in February, the labor market was solid at the beginning of the year – before the coronavirus began to drag on the economy. President Trump and White House officials continue to reference ongoing plans to restart portions of the economy, although the data used to inform such decisions in various countries overseas, like symptom tracking and contact tracing, is not yet available in the US.

Additional Themes

EU Lacks Consensus on Broader Virus Response – A meeting of EU finance chiefs failed to settle on a unified €500 billion regional economic support package to offset the depression-like contraction induced by mass isolation and social distancing. The key sticking points were said to be aspects of the program that would force the various countries to accept a degree of fiscal burden sharing, including the potential issuance of pan-EU debt. Talks are continuing.

Fed Minutes Precede Chair Powell Tomorrow – Analysts are awaiting this afternoon’s release of the minutes from the emergency March 15 Fed meeting, at which the FOMC cut interest rates by 100 basis points to effectively zero and announced a $700 billion asset purchase program (quantitative easing), which was later upped to unlimited purchases, alongside an array of other facilities to support liquidity in domestic markets and dollar availability overseas. This will set the stage for Chair Powell’s webcast economic update at 10am tomorrow.

Summary and Price Action Rundown

Global risk assets are extending yesterday’s rally this morning as investors continue to focus on the prospective transition from pandemic containment to economic recovery, while monitoring the ongoing impact of key stimulus programs. S&P 500 futures point to a 3.3% gain at the open, which would build on yesterday’s 7.0% surge that brought year-to-date downside for the index to 17.6% and the decline from February’s record high to 21.3%. 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 of pandemic containment and gradual economic recovery. EU and Asian equities also advanced overnight. Treasury yields are moving upward amid the improved risk appetite, with the 10-year yield at 0.75%, while EU sovereign bond yields are also edging higher. The dollar is retreating further from its mid-March multi-year peak. Meanwhile, oil prices are resuming their sharp rally ahead of Thursday’s OPEC meeting.

 

Upbeat Tone Continues as Investors Pin Their Hopes on Containment and Stimulus

The ongoing rally in equities is being underpinned by optimism that pandemic containment efforts will facilitate a progressive reopening of the economy amid ever more muscular fiscal support. House Speaker Pelosi reportedly told fellow Democrats yesterday that another pandemic relief spending bill is in the works, worth at least $1 trillion, to top up existing programs from the $2.2 trillion CARES Act. Specifically, Speaker Pelosi said the funds would go to more direct payments to individuals and households, augmented unemployment benefits, and the small business loan program (more below). Speaker Pelosi’s priorities for this next round of spending represent a pivot from a prior blueprint, which featured infrastructure spending components rather than fully concentrating on direct pandemic relief. President Trump reiterated his support for additional fiscal spending to cushion the blow of the pandemic yesterday, though he continues to want “real infrastructure” spending to be featured. This comes as investors increasingly focus on the prospects for economic recovery following the seemingly impending peak of the infection curve, as the recent decline in fatality rates of Covid-19 in key hotspots, including Italy, Spain, France, New York, and New Jersey, spur hopes for a gradual resumption of more normal economic and societal activity by later April or early May.

Small Business Loan Program in Demand

Small business owners seek support as conditions worsen but questions reverberate over the size of the program and issues regarding access. Friday’s official launch of the $349 billion small business support program, the Paycheck Protection Plan (PPP), which was established as part of the $2.2 trillion CARES Act, has been met with a rush of applicants. National Economic Council Director Kudlow yesterday morning stated that $38 billion in loans had been made to 130,000 small businesses already. For context, banks are acting as intermediaries for the loans and existing lending clients are being given priority, which is being highlighted as a flaw in this system. Bank of America stated that it has received applications from 177K of its small business clients, totaling $33 billion in financing, pending approval by the Small Business Administration. Meanwhile, Wells Fargo announced that they are not accepting any new loan applications, as they have already reached their $10 billion target. Many banks have yet to begin taking applications due to uncertainty around the Treasury Department’s rules, though reports note that 2,400 lenders are currently involved. Also, the Federal Reserve announced yesterday that it will create a facility to purchase loans offered under the PPP with the intention to help banks continue lending to cash-strapped firms from their own balance sheets. Meanwhile, a gauge of US small business confidence registered the largest drop on record in March.

Additional Themes

Oil Prices Rise Ahead of OPEC – After revisiting nearly two-decade lows early last week, international benchmark Brent crude and US benchmark WTI are extending their rally amid favorable indications for a supportive deal at Thursdays meeting between OPEC, Russia, and other major producing nations. For context, oil prices have rebounded nearly 50% over the past week following signs that Saudi and Russia may be stepping back from their oil price war, with President Trump encouraging détente. The cartel is exploring the potential for a coordinated output cut of 10 million barrels per day among its members and other major producers.

Emerging Markets (EM) Rebound Amid IMF Action – Reports indicate that the IMF is set to launch a short-term dollar lending program to further address the issue of dollar liquidity scarcity that is particularly acute in some EM countries. This would be similar to the repo facility opened by the Federal Reserve last week through which a broad swath of foreign central banks can post their Treasury holdings as collateral against short-term dollar loans. A broad index of EM currencies is up 0.7% today after hitting a cycle low on Friday.

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 16th, 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.