Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary:

By: Ariel Segal

Speaker Pelosi’s Tuesday deadline came and went last week and talks continue, but most investors have lost hope for a deal to happen before the Nov. 3 election.

The U.S. Department of Justice opened an anti-trust case against Google on Tuesday, alleging that the search engine engaged in anticompetitive abuses of power. Exclusive agreements with Apple Inc. and Verizon help give Google a 90% share of the online search market.

According to economists surveyed by Bloomberg, Thursday’s upcoming GDP report is expected to break the previous record with +30% increase. The reopening of states’ economies and apt fiscal stimulus have helped the economy recover in this manner.

New single day covid-19 infections hit an all-time high in the US on Friday and Saturday, reaching above 80,000 on each day. NYC will be beginning a blended learning program of remote and in-person classes beginning Nov. 2.

Fixed Income Market:

By: Joseph Colleran

The “risk off” trade continued through last week and has accelerated this morning.  The result has been further softening in Corporate spreads with IG wider by 2-3bps and HY bonds out approx. 10bps WoW.   Like other markets, corporates are tightly focused on both the election and the fate of the second stimulus package that now looks to be pushed to post-election.  Overall investor activity (volumes) was somewhat lighter; however, new issuance continues at a steady pace.   Client demand in the Structured Note sector remains strong    as volatility remains high and supportive of attractive new deal term.  

   Lipper Fund flow data for the week showed:    

     Domestic Equity Funds    down    $4.7 BLN

     IG Bond Funds                     up       $6.7 BLN

     HY Bond Funds                     up      $0.16 BLN

     Municipal Bond Funds        up      $0.73 BLN

     MMKT Funds                      down   $9.1 BLN

Prior Week:

     Domestic Equity Funds    down    $8.6 BLN

     IG Bond Funds                     up       $6.8 BLN

     HY Bond Funds                     up      $1.8 BLN

     Municipal Bond Funds        up      $0.4 BLN

     MMKT Funds                      down   $18.9 BLN

U.S Equities:

By: James Zurovchak

Equity markets spent last week trading mostly sideways ending the week modestly lower with NASDAQ down 1.06%, and DJI and S&P lower by 0.91% and 0.51% respectively.   4 GICS sectors out of 11 were up, led by Utilities (1.17%) and Financials (1.04%).  The declines were modest again last week with Technology leading the underperformers lower (-1.33%).  Value outperformed Growth on the week 0.21% vs -1.14%. 

Major concerns continue to be Covid-19 (both Europe and the US are experiencing their greatest surge in cases since early summer) and the passing of a stimulus package (whose outlook seems to change daily if not hourly).  As we hit the last week of campaigning before the election, pundits seem to be getting more comfortable with the idea that there is not an outcome that the markets won’t like. 

Foreign Exchange:

By: Anthony Minardo

The hopes of a fiscal stimulus plan prior to next week’s presidential election looks bleak, as a result the week begins with a stronger U.S. dollar and “risk-off” sentiment.

The market continues to price in an eventual stimulus package, albeit, uncertain of the timing or the size.  The result of U.S. elections will most likely give us a better perspective on the magnitude of the financial relief.  A second way of COVID-19 continues to gain momentum in Europe, which is proving to be a road block in the recovery of the economies. The Euro along with other European currencies have weakened with

the potential of continued easing of policy in the near future.  We are also seeing a steady sell-off in oil as growing concerns of future lockdowns due to the COVID-19 virus. 

 Although COVID-19 cases have risen in the U.S. due to aggressive testing, the data this week should continue to show the recovery process with increases in new home sales (+4.0%) and durable goods (0.6%) and a decline in the initial jobless claims(765k).

Financial Planning:

By: Brian Stigliano

Joe Biden’s Proposed 401(k) Plan Changes

Should we see a “blue wave” in the upcoming elections, it is very likely that we will see changes to how long-term capital gains and qualified dividends are taxed for households earning $1 million or more.  Under current rules, that income is taxed at 23.8% (20% tax rate plus 3.8% Medicare surtax).  If Biden’s proposal were to go into effect, the new tax rate would be 39.6% which is the same as the highest proposed marginal ordinary income rate.  According to Bloomberg, this would represent the largest hike in capital gains tax rate history. 

The anticipated effect is that some households may choose to take advantage of the lower current rates and take gains sooner rather than later.  On the opposite end of the spectrum, some households may choose to hold positions for an even longer period of time than planned. 

Last Week's Economic Data for 10/26

Last Week's Economic DataActualSurvey
Housing Starts1415k1460k
Initial Jobless Claims787k870k
Existing Home Sales6.54m6.30m

This Week's Economic Data for 10/26

This Week's Economic DataRelease DateSurvey
Durable Goods Orders10/27/200.5%
Wholesale Inventories MoM10/28/200.4%
Initial Jobless Claims10/29/20775k
GDP Annualized QoQ10/29/2031.9%
Personal Income10/30/200.3%

Market Data for 10/26

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.15%+0.8 bp+0.5 bp(165.3 bp)
3 Month Libor0.22%+1.4 bp+0.4 bp(170.6 bp)
6 Month Libor0.25%(0.8 bp)(2.5 bp)(168.7 bp)
12 Month Libor0.33%(0.8 bp)(3.7 bp)(162.4 bp)
Fed Funds Effective0.09%(176.0 bp)
SOFR0.08%(0.0 bp)+2.0 bp(179.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.12%(0.3 bp)+0.5 bp(146.9 bp)
2-Year0.15%+0.4 bp+2.1 bp(146.8 bp)
3-Year0.19%+0.0 bp+4.2 bp(142.2 bp)
5-Year0.35%+1.6 bp+8.4 bp(126.8 bp)
7-Year0.57%+2.6 bp+11.9 bp(113.3 bp)
10-Year0.80%+0.4 bp+2.1 bp(146.8 bp)
30-Year1.59%+0.4 bp+2.1 bp(146.8 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.21%+0.6 bp(1.1 bp)(156.1 bp)
2-Year0.23%+0.2 bp+1.1 bp(143.8 bp)
3-Year0.27%+0.1 bp+3.2 bp(136.6 bp)
5-Year0.42%+0.8 bp+8.5 bp(121.2 bp)
7-Year0.60%+2.2 bp+11.6 bp(107.3 bp)
10-Year0.83%+3.1 bp+14.1 bp(92.9 bp)
30-Year1.26%+4.5 bp+16.7 bp(69.7 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+10 bp+0.9 bp(1.6 bp)(9.2 bp)
2-Year+8 bp(0.2 bp)(1.0 bp)+3.0 bp
3-Year+8 bp+0.0 bp(1.0 bp)+5.7 bp
5-Year+7 bp(0.9 bp)+0.1 bp+5.7 bp
7-Year+3 bp(0.4 bp)(0.3 bp)+6.0 bp
10-Year+3 bp+2.6 bp+12.0 bp+53.9 bp
30-Year(34 bp)+4.0 bp+14.7 bp+77.2 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 27,685 (2.3 %)+1.9%+2.7%
S&P 500 3,388 (2.2 %)+2.7%+12.1%
NASDAQ 11,359 (1.6 %)+4.1%+37.8%

CurrenciesCurrentWoWMoMYoY
Euro1.1809+0.3%+1.2%+6.4%
Japanese Yen104.8500+0.6%+0.6%+3.9%
British Pound1.3021+0.6%+1.5%+1.2%
Canadian Dollar1.3196(0.0 %)+1.3%(1.1 %)
Australian Dollar0.7127+0.7%+0.8%+4.2%
Swiss Franc0.9078+0.2%+1.9%+9.6%
Israeli Shekel3.3938(0.2 %)+2.3%+4.1%
Bitcoin 13,031 +11.0%+19.9%+37.8%

CommoditiesCurrentWoWMoMYoY
Gold 1,903 (0.1 %)+2.2%+26.5%
Silver24(0.2 %)+6.3%+34.9%
Copper309+0.1%+4.0%+15.5%
Crude Oil39(5.6 %)(4.2 %)(32.0 %)

Source: Bloomberg L.P.

IMPORTANT DISCLOSURES
The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA.  Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

•             Not insured by the FDIC or any other federal or government entity

•             Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

•             Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

  

Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 | ariel.segal@leumiusa.com  

IMPORTANT DISCLOSURES

The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA. Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

• Not insured by the FDIC or any other federal or government entity

• Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

• Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

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