Rates Rangebound Despite Weak Economic Data

 

Risk assets fall on negative retail data, tech earnings. Despite the drop, stocks still had one of their best months on record- the S&P 500 rising nearly 13% during the month of April. A bevy of weak economic data sent risk assets lower on the day though, consumer spending dropping 7.5% in March while weekly jobless claims hit 3.839M. The Dow Jones and S&P 500 fell 1.2% and 0.9% respectively while Treasury yields and swap rates ended a rangebound session marginally higher, the 10-year Treasury yield closing at 0.639%.

 

 

Fed expands Main Street Lending Program. Originally created for only smaller and mid-size businesses, the Main Street Lending Program will now also cater to larger businesses. To help challenged businesses, the Fed will now lend to companies with up to 15,000 employees and $5B in annual revenue. The Fed also dropped the lending minimum to $500k from $1M and increased optionality regarding loan choice. The lending facility was introduced earlier this month and will be operational in the near future

 

 

Eurozone faces record economic contraction. Eurozone GDP fell 3.8% in Q1- France’s economy contracting the most at 5.8%. Faced with an annualized decline of 14.4%, ECB President Christine Lagarde said, “the euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime. Measures to contain the spread of the coronavirus have largely halted economic activity.” With policy rates already negative, and the $813B Pandemic Emergency Purchase Program already under way, the ECB announced new measures to reduce costs for commercial banks in an attempt to support lending activity. As a result, the ECB will now fund banks at rates as low as -1.00% instead of -0.75%.

 

 

Day ahead. This morning, IHS Markit will release final manufacturing PMI figures for April, with preliminary numbers published last week revealing the sharpest contraction in factory inventory in over a decade to 36.9. The low reading is a cause of postponed or cancelled domestic and foreign orders due to the pandemic. Shortly after, ISM will publish manufacturing PMI figures for the US, which previously decline to 49.1 in March from 50.1 in February. Economists expect the index to remain in a contractionary zone for the April reading as low business confidence pushes forecasts down. US construction spending is expected to continue falling after dropping 1.3% in February. The Baker Hughes weekly rig count, which measures the number of active drilling rigs, will be released this afternoon, with economists forecasting a drop due to the current crude oversupply.