Rates Rangebound with Weak Economic Data and Reported Vaccine Failure

 

Stocks fail to hold gains amid weak economic data, vaccine failure. Equities rallied in the beginning of the yesterday’s trading session despite a series of soft data prints. The Labor Department reported that 4.4 million Americans applied for jobless claims last week, passing economist expectations but down from the weeks earlier. US PMI figures revealed a steep decline in April manufacturing activity, falling into the contractionary zone at 27.4 with the services industry taking a larger hit. Later into the afternoon, those earlier gains were erased when draft documents momentarily posted on the WHO website revealed a potential coronavirus vaccine developed by Gilead Sciences failed to help patients in the randomized clinical trial in China. Major indexes ended the day almost flat with the DJIA closing 0.2% higher and S&P 500 down 0.1%. Treasury yields remained rangebound with the 10-year note trading slightly higher this morning at 0.61%.

 

 

Oil prices continue to recover. Yesterday’s gains were driven mainly by OPEC+ accelerating production cuts, with Kuwait beginning their cut ahead of the May 1st date the deal was supposed to take effect. Reports indicate that Russia is looking for other options to cut its production and may go as far as burning its own oil. This coupled with the news that President Trump has instructed the US Navy to fire on an Iranian ships that harass it in the Gulf led US crude futures for June delivery to extend Wednesday’s gains, rising 20% to close at $16.50/barrel on Thursday. Late in the day, Treasury Secretary Steven Mnuchin announced he is weighing options to help domestic oil producers, adding, “One of the components we’re looking at is providing a lending facility for the industry.” Despite finishing in the black for the past two trading sessions, oil has lost over two-thirds of its value this year and has swung by at least 10% during the majority of trading sessions.

 

 

Reserve builds characterize bank earnings for second straight week. Of the 50 banks that have reported over the past two weeks, earnings have been typified by large reserve builds — banks like JPMorgan, Citigroup and Bank of America reporting their highest reserve builds since the financial crisis. That said, much of the reserve builds in large banks have come in products like credit cards and other consumer rather than in real estate and commercial loans. Credit stress, coupled with sharp declines in interest rates have unsurprisingly pulled future earnings estimates lower as well- bank earnings estimates declining by nearly 50% on average since December.

 

 

The House voted 388-5 to pass the coronavirus rescue package. Voted through late Thursday, the House passed the nearly $500B package set to deliver immediate funds to the PPP among other affected parties. The package was passed without added relief for local governments, a cause Democrats rallied behind. Deliberations lasted hours, delaying first votes. Despite the victory, House Speaker Nancy Pelosi added, “This is really a very, very, very sad day. We come to the floor with nearly 50,000 deaths, a huge number of people impacted and the uncertainty of it all.” The bill now sits with President Trump, who previously expressed support for the package and has indicated that he is ready to sign it into law immediately.

 

 

The Fed will begin to release information on loans made through their lending programs. There will be increased transparency regarding overall costs and revenues from each of their lending programs, including the $600B Main Street Lending program aimed at providing aid to small businesses. The majority of announcements will likely focus on the potential expansion of their lending programs and the extension of existing loans. Next week financial markets will look for further color from the Fed following their April 28-29 meeting, ahead of which most Fed leaders have indicated their comfort with their current policy, hinting that major rate changes are unlikely in the near term.

 

 

Day ahead. US durable-goods orders for March fell 14.4% from February’s level, with automakers taking the largest hit. The figure showed a drop in demand for long lasting goods, with the biggest drop in MoM new orders. The University of Michigan’s Consumer Sentiment survey results will be released later this morning, with economists forecasting a 3 point drop to 68 from the previous month. The index represents the financial conditions and attitudes about the economy of 600 surveyed households. Early this afternoon, the Baker Hughes rig count, which tracks weekly changes in active operating oil and gas rigs, will be released.