Risk Assets Rise as States Begin Reopening

 

Risk assets continue to rise as some southern states reopen, others begin discussing reopening process. The Dow Jones Industrial Average and the S&P 500 rose 1.51% and 1.47% respectively – both indices now ~30% off their March lows. The rally has now brought the S&P 500 within 15% of its all-time high- the market pricing in seemingly little risk of a “second wave” of COVID-19 infections once the US economy reopens. Rates in turn climbed across a steepening curve, the 10-year Treasury yield rising 6 basis points to 0.66%. US equity futures are higher once again this morning while swap rates and Treasury yields are modestly lower.

 

 

Fed extends support to local governments. Monday evening, the Fed announced that it will lend to a larger number of local governments through highly-rated debt purchases up to three years maturity till the end of 2020. Previously, the Fed had limited participation in the municipal lending program to only 76 issuers but has now expanded to 261 states, cities, and counties as the need for funding has risen. The Fed decision came as a result of letter written by Senate Democrats stating that the initial program reached only 15 counties and 10 cities, leaving the hardest-hit communities out. Officials added that they “will continue to closely monitor conditions” and is considering expanding the facility further through purchases of revenue-backed bonds issues by governmental agencies.

 

 

SBA resumes PPP. After running out of funds on April 16th, the program received $310B on Sunday from the economic rescue package signed into law by President Trump last Friday. The SBA has placed restrictions like capping loans processed by banks to $60B and allowing batches of only 5,000 submissions at a time in order to curb delays and refrain from running out of funds too quickly once again. Despite these measures, the SBA system was overwhelmed and inaccessible throughout the majority of Monday due to the flood of applications. President Trump will address some of these issues in a briefing later today.

 

 

Oil extended its losses in Monday’s trading session. June WTI futures fell 23% to close at $13.02/barrel amid concerns global storage capacity will fill up. Kuwait and Azerbaijan have coordinated output cuts ahead of the OPEC+ date on May 1st. US producers have not cut production as the regulators in Texas, North Dakota, and Oklahoma have postponed voting, which has driven many domestic producers to resort to leasing storage space from the Strategic Petroleum Reserve. Oil prices fell further ahead of market open as the United States Oil Fund LP began to limit its exposure to shorter-term contracts by reinvesting funds in contracts expiring in 2021, pushing crude for June delivery down to almost $10/barrel.

 

 

Day ahead. This morning, international trade in goods for March narrowed by $64.2B from $59.9B last month. Exports and imports fell by 6.7% and 2.4% respectively. The Conference Board’s measure of consumer confidence consensus for April will be released shortly after, forecasts calling for a 25 point fall to 85 from 120 last month (a reading below 90 reflects a contraction in the economy). The index measures consumer’s attitudes on the economy based on current business conditions and their expectations for the future. The FOMC will begin their two day meeting today.