Daily Market Color

Spooked Equity Markets Head Into Halloween Weekend

Positive economic data pushed equities and rates higher
Markets reversed a portion of Wednesday’s risk-off move as strong GDP and employment data offset virus concerns.  Q3 GDP shot up by 33.1% while initial jobless claims fell to a pandemic low of 751,000.  US COVID-19 cases remained elevated on Thursday after the mid-west hit a new daily record high with Kansas and South Dakota leading the pack.  Despite the stronger-than-expected data, global equities fell victim to some Halloween scares this week and are on track for their worst weekly decline since March.  The S&P 500 and DJIA closed 1.2% and 0.5% higher.  Treasury yields and swap rates rose dramatically across the curve — the 10-year closed 5 bps higher.  UST yields are trading within a 1 bp range this morning.
Personal income and spending rose 0.9% and 1.4% in September
After expired unemployment benefits pulled down the monthly personal income figure by 2.7% in April, the level rebounded in September.  The move was driven by increases in proprietors’ income and compensations in addition to rental income.  Consumer spending stayed on track in September and rose for a fifth consecutive month as spending on food and electronics climbed higher.  Though overall outlays remain well below pre-pandemic levels, September’s inflation levels were largely in-line with expectations, avoiding any Halloween terror this month after the core PCE index rose 0.2% from 0.3%, the yearly rate sitting at 1.5%.
FX Friday
The dollar yesterday was buoyed by positive US GDP data, which reflected a record 33.1% annualized rise for Q3 and a continued gradual decline in reported unemployment claims, with 751,000 new cases for the week ending October 24. While many investors acknowledge a degree of health to these numbers, there is still concern tied to the upcoming election and the continued lack of progress with the US stimulus bill.
In the Eurozone, the EUR dropped to a 4 week low against the US dollar, touching 1.1652 during Thursday’s US mid-morning trading sessions. The ECB has indicated it would be open to more monetary easing in December to combat the increased number of fresh COVID-19 reports. France, Germany and regionally in Spain have implemented lockdowns once again to curtail the spread of this latest reported wave of coronavirus cases.
Over in China, major state-owned banks have begun purchasing US dollars to try and curb the Yuan’s strength. Despite those efforts, the Yuan had strengthened to a low of 6.6895 (the PBOC had set the previous fixing rate at 6.7232). Higher yielding bank and equity assets continue to draw foreign capital. China continues to recover faster than all other major countries from the pandemic, remaining on track to be the only major country to exhibit growth in 2020.

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