Rising Case Counts Unsettles Markets

Jun 15, 2020

Rising Virus Case Counts Unsettles Markets

After a week where the Fed took some of the spotlight away from reopening developments it returns as the number one driver of market direction this week, with the added bonus of renewed fears that virus case counts are headed higher. Equities took a header last week, and look to open down this morning, as a somewhat somber Fed and spikes in virus cases had investors worried that reopening activity may slow, or stop altogether, if the surge in case counts continues. The spike in cases coincides with Memorial Day weekend where pictures abounded of large crowds at beaches and other venues. Also, if you think about the large crowds at the protest events across the country in the past two weeks it’s entirely reasonable to think we’ll see further spikes very soon. Watch this space as it will dictate the trading in what will otherwise be a fairly slow data week. And while data is limited this week one first-tier release is the Advance Retail Sales Report for May which is expected to deliver better numbers than the dreadful April report. This will continue a theme where May numbers, while not great in many cases, are at least better than April signaling a bottom during the month. The Leading Index for May (Thursday) and Housing Starts and Permits (Thursday) are also expected to post better results versus April.

Derivative Market Rates

Brokered Deposit Rates

Treasuries
Treasury Curve	Today	Week Change
3 Month	0.15%	UNCH
6 Month	0.18%	+0.02%
1 Year	0.17%	UNCH
2 Year	0.18%	-0.03%
3 Year	0.21%	-0.08%
5 Year	0.31%	-0.16%
10 Year	0.67%	-0.24%
30 Year	1.41%	-0.28%

Short-Term Rates
Fed Funds	0.25%
Prime Rate	3.25%
3 Mo LIBOR	0.32%
6 Mo LIBOR	0.43%
12 Mo LIBOR	0.59%
Swap Rates
3 Year	0.262%
5 Year	0.362%
10 Year	0.662%

Economic Calendar
Date	Statistic	For	Briefing Forecast	Market Expects	Prior
Jun 15	Empire Manufacturing	Jun	-30.0	-28.8	-48.5
Jun 16	Advance Retail Sales MoM	May	7.9%	8.1%	-16.4%
Jun 16	Retail Sales Ex-Auto & Gas	May	4.5%	5.4%	16.2%
Jun 16	Retail Sales Control Group	May	5.8%	5.4%	-15.3%
Jun 16	Industrial Production MoM	May	3.0%	3.0%	-11.2%
Jun 17	Housing Starts MoM	May	23.5%	23.5%	-30.2%
Jun 17	Building Permits MoM	May	14.9%	17.3%	-21.4%
Jun 18	Philly Fed Business Optimism	Jun	-25.0	-25.0	-43.1
Jun 18	Leading Index	May	2.4%	2.4%	-4.4%

Top 5 Events for the Week

June 15— 19, 2020

1. Reopening/Virus Count Developments — All Week
2. May Advance Retail Sales — Tuesday
3. May Leading Index — Thursday
4. June Philly Fed Business Optimism — Thursday
5. May Housing Starts & Permits — Wednesday

1. Reopening/Virus Case Trends — All Week

After a week where the Fed took some of the spotlight away from reopening developments, it returns as the number one driver of market direction this week, with the added bonus of virus case count trends. Equities took a header last week as a somewhat somber Fed and spikes in virus cases had investors worried that reopenings may slow, or stop altogether, if the surge in case counts in some states continues. The spike in cases coincides with Memorial Day weekend where pictures abounded of large crowds at beaches and other venues. Also, if you think about the large crowds at the protest events across the country in the past two weeks it’s entirely reasonable to think we’ll see another spike given the typical two-week incubation period. Watch this space as it will direct the trading in what will otherwise be a fairly slow data week.

2. May Advance Retail Sales — Tuesday

While data is limited this week the one first-tier release is the Advance Retail Sales Report for May which is expected to deliver better numbers than the dreadful April report. This will continue a theme where May numbers, while not great in many cases, are at least better than April signaling a bottom during the month. Overall sales are expected to bounce by 8.1% versus –16.4% in April. Sales ex-auto and gas are expected up 5.0% versus –16.2% in April. The retail sales Control Group—a direct feed into GDP—is expected to be up 5.4% versus –15.3% in April. Thus, if expectations are met it is another strong signal that activity in May reflects a clear rebound over a dreadful April. The worry now is that if virus case counts continue to climb will the bounce in May be a short-lived event?

3. May Leading Index — Thursday

The Leading Index has been plumbing new depths in recent months, as one would expect, but the stock rally in May and some reopening activity is expected to provide a bounce for May. The index is expected to print 2.4% for May versus –4.4% in April as equity gains held up the index versus a record low of –7.4% in March. The prior low record was –3.4% set in October 2008. If the expectation is met it will be first positive print since January.

4. June Philly Fed Business Optimism — Thursday

Sentiment readings have become almost as important as actual hard-data reports as investors look to upticks in sentiment to signal possible growth from the depths of the recession. While the consumer takes center stage in the sentiment sector, business sentiment is an important element as well. For June, the Philly Fed Business Optimism Report is expected to still be negative but improved at –25.0 versus –43.1 in May. This would be yet anther report that signals improvement over the depths of April.

5. May Housing Starts & Permits — Wednesday

Weekly jobless claims continue to provide the most immediate read on the impact of the economic shutdown. The expectation f

Add housing starts and permits to the list of metrics that are expected to post positive growth versus April. Housing starts are expected to be rebound by 23.5% for the month to 1.1 million annualized starts which is quite the rebound off April which had the lowest starts since 2015. Permits are expected to rebound by 17.3% to 1.25 million versus a 1.07 million annualized total in April. That was the lowest since January 2015.

Housing Starts and Permits