During this Thursday’s stress test of the banking industry, it was discovered that several banks could reach minimum capital requirement levels, prompting the Fed to take action. The Federal Reserve placed new restrictions on the banking industry that requires big banks to cease share repurchases and cap dividends at their current levels for the next quarter. Additionally, banks will need to prove a specified level of net income from the previous four quarters in order to qualify to pay a dividend going forward. Banks are expected to reveal their plans with regards to dividends on Monday, June 29th.
COVID-19 “hotspots” have begun to develop in the United States that include Arizona, Florida, Texas, and California, many of which reporting the largest one-day spike in new cases on record. As a result of the surge in new cases, Houston area hospitals have reached their ICU capacity, leading the state of Texas to roll back their reopening plans and order bars to close immediately. Harris country Texas, the third-largest in the United States by population, just declared a “top level emergency” regarding COVID-19. Shortly after, Florida, which reported a record 8,942 cases yesterday followed suit and ordered all bars to close. Also, the positivity rate in Florida has increased from 4.39% on June 13th to 15.84% this Tuesday, raising questions about the correlation between increased testing and increased cases. The White House coronavirus task force is holding a news briefing regarding the issue today for the first time in nearly two months.
Markets are lower after another volatile week. The S&P 500 fell -2.86% and closed at 3,009. The Dow Jones dropped -3.31% and closed at 25,016. Year-to-date, the S&P 500 is down -5.97% and the Dow Jones is down -11.23%.
Yields also fell lower this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.30% and 0.64%, respectively.
The spot price of WTI Crude oil fell this week. Prices fell -4.22% and closed at $38.15 per barrel. Year to date, Oil prices are down -37.52%.
The spot price of Gold rose 1.53% and closed at $1,770.55 per ounce. Year to date, Gold prices are up 16.69%.
Initial jobless claims fell by 60,000 to 1.5 million and the four-week moving average of claims fell by 161,000 to 1.6 million. Claims increased by 22,000 in California, 11,000 in Indiana, and by 10,000 in Florida. Claims fell by 36,000 in Oklahoma, 26,000 in Kentucky, and by 11,000 in Massachusetts.
New orders for durable goods rose by 15.8% versus expectations for an increase of 10.5%
Durable goods orders ex-transports rose 4.0% versus expectations for an increase of 2.1%
Core capital goods orders rose 2.3% versus expectations for an increase of 1.0%
Core capital goods shipments rose by 1.8% versus expectations for a decline of -1.0%
Personal consumption fell by -6.8%, in-line with expectations
Personal income fell by -4.2% versus expectations for a decline of -6.0%
Personal spending rose by 8.2% versus expectations for an increase of 9.3%
Wholesale inventories fell by -1.2% versus expectations for an increase of 0.4%
Existing home sales fell -9.7% to a seasonally-adjusted-annualized-rate of 3.91 million units versus expectations for a decline of -5.6%, led by the Northeast (-13.0%)
Sales of new single-family homes rose by 16.6% to a seasonally-adjusted-annualized-rate of 676k units versus expectations for a reading of 640k units
The PCE price index rose by 0.1% versus expectations for an unchanged reading and the year-over-year figure rose 0.6% versus expectations for a 0.5% increase
The core PCE price index rose by 0.1% versus expectations for an unchanged reading and the year-over-year rate rose 1.0% versus expectations for an increase of 0.9%
The University of Michigan’s index of consumer sentiment fell by 0.8 points to 78.1 versus expectations for a reading of 79.2
Fact of the Week
At the end of 2019, 61% of the world’s foreign exchange reserves (cash held by central banks around the world) was in US dollars. In total, the world’s central banks held $6.745 Trillion, with the second largest reserve position was the Euro at €2.275 Trillion. (Source: International Monetary Fund)
In January, the United States and China agreed to a “Phase One” trade deal where China would be responsible for buying $36.5 billion in U.S agriculture products, an increase from $24 billion in 2017. Year-to-date, China has only purchased $4.65 billion, which is almost half as much purchased during the same period in 2017. Yesterday, Secretary of State Mike Pompeo said China’s top foreign policy official is still committed to the $36.5 billion in purchases for the year, despite the current shortfall. Pompeo tweeted on Thursday “During my meeting with CCP Politburo Member Yang Jiechi, he recommitted to completing and honoring all of the obligations of Phase 1 of the trade deal between our two countries”.
For the first time in about 50 years, a border clash between India and China broke out after weeks of rising tensions along the disputed and undefined Line of Actual Control (LAC) that separates China and India in Ladakh and the Tibet region. The high altitude and sub-zero temperatures in the mountainous region led to the death of 20 wounded Indian troops. China has not confirmed the death of any of its troops and has accused the Indian army of provoking and attacking Chinese personnel. Both sides have held talks over the phone, agreeing to cool down tensions, expressing that they do not seek escalation to war. Despite the agreed de-escalation, China and India have sent additional military personnel to the region.
Markets rebounded higher this week. The S&P 500 spiked 1.28% and closed at 3,098. The Dow Jones rose 0.33% and closed at 25,871. Year-to-date, the S&P 500 is down -3.68% and the Dow Jones is down -8.98%.
Yields were relatively unchanged this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.34% and 0.71%, respectively.
The spot price of WTI Crude oil fell this week. Prices fell -1.42% and closed at $38.84 per barrel. Year to date, Oil prices are down -36.39%.
The spot price of Gold fell -0.34% and closed at $1,724.80 per ounce. Year to date, Gold prices are up 13.68%.
Initial jobless claims fell by 58,000 to 1.5 million and the four-week moving average of claims fell by 235,000 to 1.8 million. Claims increased by 22,000 in Georgia and by 16,000 in New York. Claims fell by 20,000 in Maryland, 16,000 in Massachusetts, and by 16,000 in Oklahoma.
Retail sales rose by 17.7% versus expectations for an increase of 8.4%
Core retail sales rose by 11.0% versus expectations for an increase of 5.2%
Industrial production rose by 1.4% versus expectations for an increase of 3.0%
Business inventories fell by 1.3% versus expectations for a decline of 1.0%
The level of housing starts rose by 4.3% to 974k units versus expectations for an increase of 23.5%
Building permits rose by 14.4% versus expectations for an increase of 16.8%
Fact of the Week
The nation’s 13.3% jobless rate as of 5/31/20 (released on Friday 6/05/20) would have been an estimated 16.3% if the workers who were being paid wages from funds obtained through a “Payroll Protection Program” (PPP) loan were counted as “temporarily laid off” instead of “actively employed” (source: Bureau of Labor Statistics).
On Thursday, the FOMC announced that it will leave the fed funds target rate range unchanged at 0-0.25%. The Fed expects no change in the rate through 2022. The statement’s characterization of the current economic situation was mostly unchanged from the April FOMC meeting, and continued to acknowledge the “tremendous human and economic hardship” caused by the virus outbreak. The statement once again noted “sharp” declines in economic activity, “a surge” in job losses, and that weaker demand and lower oil prices are “holding down” inflation. The FOMC outlined its economic projections for the next 3 years, expecting GDP growth of -6.5% for 2020, +5% for 2021, and +3.5% for 2022. They also noted that they will increae holdings of UST as well as residental and commercial MBS in order to “sustain smooth market functioning”.
The Wall Street Journal reported this week that the National Institute of Health will be funding and conducting studies for three potential COVID-19 vaccines beginning this summer. Trials for Moderna’s mRNA-1273 will begin next month, Oxford University and AstraZeneca’s AZD1222 will begin in August, and Johnson & Johnson’s As26.COV2-S will begin in Septerber. The NIH may include additional large-scale studies of other candidates as well, according to Dr. Larry Corey, a member of the committe advising the NIH.
The National Bureau of Economic Research (NBER) annouced Monday that the business cycle peaked in February, marking the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest expansion in the history of U.S buisness cycles, dating back to 1854. The previous longest was the 120 month expanison from March 1991 to March 2020.
The markets faded after a strong week last week. The S&P 500 fell -4.73% and closed at 3,041. The Dow Jones was down -5.51% and closed at 25,605. Year-to-date, the S&P 500 is down -4.98% and the Dow Jones is down -9.20%.
Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.33% and 0.71%, respectively.
The spot price of WTI Crude fell as well this week. Prices fell -7.91% and closed at $36.42 per barrel. Year to date, Oil prices are down -40.35%.
The spot price of Gold gained 2.79% and closed at $1,732.14 per ounce. Year to date, Gold prices are up 14.16%.
Job openings declined 965,000 in April and the outright decline in layoffs was consistent with the stronger than expected May jobs report.
The May core CPI price index fell by 0.06% month-over-month, lowering the year-on-year rate by two tenths to 1.2%, both below consensus.
The producer price index (PPI) increased by 0.4% in May, three tenths above consensus expectations, led by an increase in food prices (+6%) and energy prices (+4.5%).
Initial jobless claims declined to 1.5 million in the week ended June 6, in line with consensus expectations. Continuing claims fell by 339,000 to 20.9 million.
The University of Michigan’s index of consumer sentiment rose by 6.6 points to 78.9 in the June preliminary report, above expectations.
Fact of the Week
From 1927 to 1981, dividend’s accounted for about 60% of stocks total return, while price movement accounted for 40%. Since 1982, dividends only make up about 25% of annualized return (Source: Strategas).
On Memorial Day in Minneapolis, George Floyd, an unarmed black man died while being restrained by a police officer with three officers nearby, all of which have been charged with his death. The tragedy was captured in a cell phone video that went viral and sparked nationwide demonstrations last weekend, some of which escalated to violence and looting. The demonstrations have continued throughout the week and are expected to continue during the weekend resulting in curfews being put in place by major U.S. cities. The National Guard has been called in by nearly half of the country to help police protect communities in the event of violence. A memorial was held yesterday in Minneapolis for George Floyd that was broadcast on networks nationwide.
Nearly a decade after the United States shelved the space shuttle program, a private U.S. company has launched astronauts into orbit for the first time ever. Private company SpaceX, founded by Elon Musk, launched its Falcon 9 rocket with two American astronauts on board last Saturday to travel to the International Space Station. An estimated 10.3 million people viewed the broadcast of the launch, the most-watched event that NASA has ever tracked. SpaceX currently holds a $2.6 billion contract with NASA to conduct five more of the crewed flights to the International Space Station.
The markets extended their rally this week. The S&P 500 spiked 4.96% and closed at 3,194. The Dow Jones jumped 6.85% and closed at 27,111. Year-to-date, the S&P 500 is down -0.26% and the Dow Jones is down -3.90%.
Yields spiked this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.46% and 0.88%, respectively.
The spot price of WTI Crude climbed higher this week. Prices rose 10.74% and closed at $39.30 per barrel. Year to date, Oil prices are down -35.64%.
The spot price of Gold fell -2.77% and closed at $1,682.26 per ounce. Year to date, Gold prices are up 10.87%.
Initial jobless claims fell by 246,000 to 1.9 million and the four-week moving average of claims fell by 325,000 to 2.3 million. Claims increased by 57,000 in California, 47,000 in Florida. Claims fell by 134,000 in New York, 21,000 in Georgia, and by 21,000 in Pennsylvania.
The ISM manufacturing index rose by 1.6 points to 43.1 versus expectations for a reading of 43.8
The ISM non-manufacturing index rose by 3.6 points to 45.4 versus expectations for a reading of 44.4
Private sector employment in the ADP fell by 2.8 million versus expectations for a decline of 9 million
Factory orders fell by 13.0% versus expectations for a decline of 13.4%
Nonfarm payrolls rose 2.5 million versus expectations for a decline of 7.5 million
The unemployment rate came in at 13.3% versus expectations for a reading of 19.0%
Average hourly earnings fell 1.0% versus expectations for an increase of 1.0% and the year-over-year rate rose 6.7%
Fact of the Week
The S&P 500 has returned 37.7% over the last 50 trading days, making it the benchmark index’s largest 50-day rally in history. (Source: LPL Financial)