Bank Regulations, Coronavirus “hotspots”: O2 Wealth Economic Update, June 26, 2020

U.S. and World News

  • 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

  • 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%.

Economic Data

  • 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)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

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