Reopening Developments To Overshadow April Jobs Report

May 04, 2020

Reopening Developments Vie With April Jobs Report

This week the focus on trading will be mostly about assessing the status of the tentative economic reopenings happening in various states and localities, and a secondary eye on the wreckage that will be the April jobs report. Equity markets had been trading almost exclusively on optimistic—perhaps too optimistic—outlooks stemming from coronavirus case trends, but that changed when some heavy-hitters (Amazon, Apple, etc.) provided a more somber earnings outlook, and the threat of tariffs reappeared. Treasury markets, however, have been more circumspect on the economic outlook, and with the Fed all-in, Treasuries have found solid bids and that is likely to continue. The muni market will be fixated on any news from DC in regards to a stimulus bill focused on states and municipalities. House Speaker Pelosi raised eyebrows when she said the expected state shortfall could be $500 billion and another $500 billion from cities. Just as we surmised after the fourth stimulus bill was passed, this latest one will be bit more contentious and time-consuming. The April Jobs Report will deliver numbers we’ve never experienced in a lifetime, and the even more sobering news is the May report will be worse. Expectations are for a drop of nearly 22 million workers and the unemployment rate to rise to 16.0%.

Derivative Market Rates

Brokered Deposit Rates

Treasuries
Treasury Curve	Today	Week Change
3 Month	0.10%	+0.01%
6 Month	0.11%	-0.03%
1 Year	0.15%	-0.01%
2 Year	0.18%	-0.05%
3 Year	0.23%	-0.05%
5 Year	0.34%	-0.04%
10 Year	0.61%	-0.01%
30 Year	1.24%	+0.04%

Short-Term Rates
Fed Funds	0.25%
Prime Rate	3.25%
3 Mo LIBOR	0.54%
6 Mo LIBOR	0.71%
12 Mo LIBOR	0.84%
Swap Rates
3 Year	0.317%
5 Year	0.390%
10 Year	0.612%

Economic Calendar
Date	Statistic	For	Briefing Forecast	Market Expects	Prior
May 4	Factory Orders	Mar	-9.2%	-9.5%	0.0%
May 5	Trade Balance	Mar	-$44.2b	-$44.2b	-$39.9b
May 5	ISM Non-Manufacturing Index	Apr	37.2	37.8	52.5
May 7	Nonfarm Productivity	1Q P	-5.5%	-5.5%	1.2%
May 7	Initial Jobless Claims	May 2	3.000mm	3.000mm	3.839mm
May 8	Change in Nonfarm Payrolls	Apr	-22.00mm	-21.60mm	-701k
May 8	Unemployment Rate	Apr	16.0%	16.0%	4.4%
May 8	Avg. Hourly Earnings MoM	Apr	0.4%	0.4%	0.4%
May 8	Underemployment Rate	Apr	NA	NA	8.7%

Top 5 Events for the Week

May 4 — 8, 2020

1. Coronavirus/Reopening Developments – All Week
2. Congressional/Fed Actions – All Week
3. April Employment Report – Friday
4. April ISM Non-Manufacturing Index – Tuesday
5. Weekly Jobless Claims – Thursday

1. Coronavirus/Reopening Developments – All Week

This week the focus on trading will mostly be about assessing the status of the tentative economic reopenings happening in various states and localities, and a secondary eye on the wreckage that will be the April jobs report. Equity markets had been trading almost exclusively on optimistic—perhaps too optimistic—outlooks stemming from coronavirus case trends, but that changed when some heavy-hitters (Amazon, Apple, etc.) provided a more somber earnings outlook and the threat of additional Chinese tariffs reappeared. Treasury markets, however, have always been more circumspect on the economic outlook, and with the Fed all-in with support for markets, Treasuries have found solid bids and that is likely to continue. But for this week anyway, if equities are to find their mojo again the news on reopenings had better be positive. If it is, the rally may resume. If, on the other hand, it’s looks to be a case of too much too soon, the selling from late last week is likely to continue.

2. Congressional/Fed Actions – All Week

The muni market will be fixated on any news from DC in regards to a stimulus bill focused on states and municipalities. House Speaker Pelosi raised some eyebrows when she said the initial canvassing of states amounted to an expected shortfall of $500 billion and another $500 billion from cities. That drew immediate rebuke from Republican legislators as perhaps a tad too much. So, just as we surmised after the fourth stimulus bill was passed leaving the state/local funding the main unresolved issue, this bill will be bit more contentious and time-consuming. We think, however, a bill will get passed and the present weakness in the muni market will reverse providing a solid buying opportunity at current levels. The Fed, meanwhile, is expected to continue with more tweaks—generally expanding access and/or easing conditions— to their new programs.

3. April Employment Report – Friday

The April Employment Report will deliver some numbers that we’ve never experienced in a lifetime, and the even more sobering news is that the May report is likely to be even worse. That’s because surveys for the jobs numbers are taken during the second week of the month so the jobless numbers, etc., won’t identify the true extent of the damage. Be that as it may, for the month expectations are for a drop of nearly 22 million workers and the unemployment rate to rise to 16.0%. With jobless claims continuing in the multi-millions since the survey week, the May unemployment number is likely to breach 20%. As we mentioned above, markets will likely only look on with bemusement, much like one rubbernecks a car wreck, but the trading focus will remain on the virus outlook and early reports from the tentative reopenings that are occurring.

4. April ISM Non-Manufacturing Index – Tuesday

Remember when the ISM Non-Manufacturing Index weathered all manner of onslaughts and continued to print +50 numbers, indicating continued expansion in the services sector while the manufacturing sector was suffering for most of 2019? With the nationwide lockdowns, the services sector has finally succumbed and is posting numbers worse than the manufacturing sector. For the month of April, the index is expected print 37.8 versus 52.5 in March. If the expectation is met it will be the lowest reading since a 37.8 during the depths of the Great Recession, and also lower than the ISM Manufacturing Index’s latest reading of 41.5.

ISM Non-Manufacturing Index

5. Weekly Jobless Claims — Thursday

Weekly jobless claims continue to provide the most immediate read on the impact of the economic shutdown. The expectation for this week is for 3.00 million additional jobless claims. The high for claims was 6.9 million on April 4. Cumulative claims have now reached 30 million over the last six weeks while continuing claims are just short of 18 million, indicating either double filing of claims, and/or a fair amount of rejected claims. In any event, with continuing claims likely to push over 20 million, the official unemployment figure is likely to approach 20% in May. Finally, for the curious, the Atlanta Fed has developed an excellent interactive tool to drill-down on claims by state and demographics to further inform on the claims numbers. You can find it here.