The Federal Reserve’s policy response time to the COVID-19 crisis has been swift and aggressive. As shown in the chart, the Fed expanded its balance sheet by 84% within six months following February’s market peak, posting its highest balance of $7 trillion. In comparison, the Fed introduced asset purchases 11 months after the market peak during the 2008 global financial crisis, only expanding its balance sheet to a peak balance of $2 trillion.
US equities moved lower last week, following heightened tensions in US-China relations, disappointing Q2 technology earnings, and an increase in jobless claims. The market continued to anticipate a ‘Phase 4’ fiscal stimulus in the US, though unemployment benefits and payroll tax cuts reflect sticking points. Meanwhile, in a historic demonstration of European debt integration, the EU reached a new recovery plan and a 2021-2027 budget sized at €1.8tr, with €750bn dedicated to joint COVID-19 relief. Both the S&P 500 and Euro Stoxx 600 closed -0.27% and -1.43% lower, respectively. Read More
WTI and Brent oil prices increased 1.72% and 0.46%, respectively. Hopes for a demand recovery boosted market sentiment, but it was offset by a rise in US crude inventories of 4.9 mn barrels. Additionally, gold soared 4.99% on a weakened dollar to an all-time high of $1834 per troy oz. Read More
The flight to safe-haven assets continued this week following heightened US-China geopolitical tensions coupled with concerns surrounding delayed state reopenings. The US 10-year Treasury yield reached a 3-month low, declining to 0.59% on the back of a less favorable jobless claims print. Similarly, the UK 10-year Gilt yield dipped to an all-time low before rebounding slightly and ending at 0.14% as investors continue to fear the dual effects of Brexit and the COVID-19 pandemic. The drop in UK rates comes amid investor speculation around the possibility of sub-zero interest rates in the coming months. Read More
The euro rallied this week, with the EUR/USD exchange rate surging to highs unseen since 2018. The euro appreciated 1.75% against the US dollar, as investors looked for safety in the euro while USD outlook remained plagued by geopolitical and coronavirus-related uncertainties. Read More
Initial jobless claims for the week rose for the first time in four months, jumping to 1.42 mn as some states hit pause on reopening. The sudden rise reversed the steady decline in claims since March, signaling a bumpy road ahead toward labor market recovery. However, shrinking insured unemployment suggests that those previously laid off are slowly being rehired. Read More
July’s German GfK Consumer Climate Index surpassed consensus expectation, climbing for the third consecutive month to -0.3 points. Tailwinds from stimulus measures boosted economic activity toward pre-lockdown levels. Read More
In the Euro area, the Composite PMI improved by 6.3 points to 54.8 in July reaching a 25-month high, notably above market expectations of 51.1. This first reading above 50 since February reflects easing lockdown policies across the Euro area, as businesses return to more normal conditions. At a component level, the recovery was broad-based, and slightly stronger in services. In the UK, the composite PMI also came in stronger than market expectations, printing at 57.1 in July from 47.7 a month ago. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
Eurozone M3 Supply (Cons: 9.3%, Prior: 8.9%)
Germany Ifo Business (Cons: 89.2, Prior: 86.2%)
US Cons. Conf. (Cons: 94.8, Prior: 98.1)
US Jobless Claims (Cons: 1450k, Prior: 1416k)
US Pers. Income (Cons: -0.5%, Prior: -4.2%)
US Pers. Spend. (Cons: 5.5%, Prior: 8.2%)
UMich Cons. Sent. (Cons: 72.7, Prior: 73.2)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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