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Virus Fears Pull Rates Lower Across the Curve

Rates fall as virus cases continue to spike
 
Risk assets took a breather from the vaccine-propelled rally earlier this week, as rising infection rates have prompted further uncertainty about the US economy during the “dark winter”. In New York City officials threatened to close schools, while Chicago advised residents to avoid leaving their homes. Add to the mix that Congress is still unable to compromise on a stimulus package, equities declined broadly across most sectors — the S&P 500 and DJIA closed 1% and 1.1% lower.  Treasury yields and swap rates fell dramatically across the curve — the 10-year UST yield decreased 10 bps to 0.88%. 
Fed Chair Powell believes rising virus cases could slow the US economic recovery
 
During his speech on Thursday, Powell added, “We do see the economy continuing on a solid path of recovery, but the main risk we see to that is the further spread of disease here in the United States.”  He spoke alongside ECB President Christina Lagarde and BOE Governor Andrew Bailey.  Last week, the Fed officials unanimously voted to leave rates at their current near-zero levels.  Powell acknowledged Pfizer’s vaccine announcement on Monday is “certainly good and welcome news for the medium term, although significant uncertainties remain about the timing, production, distribution and efficacy.”
Core PPI levels rose 0.1% in October
 
This morning, the Bureau of Labor Statistics reported PPI growth in October slowed slightly after the rising 0.4% in September.  The report added, “In October, nearly 60 percent of the rise in the final demand index can be traced to a 0.5-percent increase in prices for final demand goods.”  The October reading came in lower than economists had expected, with Y/Y core PPI levels falling to 1.1% from 1.2%.
FX Friday
Heading into Friday, the greenback has been heading towards its best week against the yen since March, as the continued news related to successful vaccine trials had coaxed some investors out of the resilient Japanese safe haven earlier in the week.
 
Across the pond, the sterling weakened on Thursday after reports of the UK’s economy growing at a rate lower than the 1.1% that pundits were expecting between August and September. This report along with lingering news of shaky Brexit negotiations and continuing economic uncertainty relating to more troubling pandemic figures being released took some steam out of the pound’s short lived rally.

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