Rates Fall After Data Fails to Show an Economic Rebound

 

Rates fall as economic data fails to show a significant economic rebound.  Initial jobless claims failed to decline significantly, and came in roughly in line with the week before- igniting fears that the new wave of infections could deter an economic rebound.  Though retail sales jumped over 7% in June, threats of additional lockdown measures pulled risk assets lower – the S&P 500 and DJIA falling 0.3% and 0.5% respectively .  Treasury yields and swap rates fell across the curve and are modestly lower this morning once more- the 10-year yield falling to 0.612%.

 

 

Bank earnings season continues with a number of regional banks reporting this morning. Regions, Citizens and First Horizon reported second quarter results this morning- all three banks seeing the same reserve builds and declining loan growth that has been typical this earnings season. Despite the increase in reserve builds, losses so far have not ramped higher the way some analysts feared- though much of that may hinge on the continuation of fiscal stimulus/ government assistance. Earnings season will continue into next week with over 100 banks reporting second quarter results.

 

 

FX Friday.  The USD dollar strengthened during Thursday’s evening session, as continued flare-ups in reported Covid-19 cases in the country renewed pessimistic sentiment of the economic recovery.  

ECB officials ended yesterday’s meeting with varying opinions among its members on how they expect to utilize thus far a 1.35 trillion Euro stimulus (PEPP).  Lagarde has made it known they plan to use the entire amount and do not plan to be constrained by monetary policy in order to continue the region’s fight in economic recovery post-Covid. The lack of ECB consensus on the future use of the PEPP (in whole, in part, or if more funds are needed) likely contributed to a small mid-day sell off of EUR/USD, dropping from Thursday’s session high of 1.1440, touching down to 1.1372 during the Friday morning Asia session.