Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary: 

CPI month-over-month beat expectations last week on Friday, coming in at 0.4%. This larger than expected increase in prices was driven by the sharpest monthly gain in used-vehicle in five decades. This data reflects the steady increase of demand and recovery of the economy to pre-pandemic levels of inflation.

16,750 firefighters were fighting 29 different fires around California on Sunday. At least 35 people have died and 4.5 million acres have been burned in the West Coast fires across California, Oregon, and Washington. The massive amount of smoke has caused air quality concerns in the Pacific Northwest and made it even potentially deadly to venture outside in places like Portland, Oregon. PG&E may cut power to more than 450,000 people in California to prevent live wires from sparking fires.

Senate Democrats blocked a slimmed down stimulus relief plan from passing on Thursday, stating that it didn’t provide enough relief.

Fixed Income Market:

Last week saw a renewed surge in new issuance as corporations continued to take advantage of both strong demand and the “risk on” trade in the credit markets.  On the week, IG spreads were 2-3 bps tighter while HY spreads ratcheted in close to 20 bps.  The move in HY reflects investors’ continuing reach for riskier assets in their quest for yield.  With this most recent tightening, HY spreads are now at levels last seen in February and pre-COVIID.  In today’s environment, we are not surprised that the price action in the HY market remains very tightly correlated with the performance of US equity markets.

Specific to Leumi, retail activity remains muted. We see moderate interest in new issue Structured Notes but very light activity in secondary trading. With Rosh Hashanah beginning Friday evening, we anticipate a very quiet end to the week.  

 Lipper Fund flow data for the week showed:       

      Domestic Equity Funds   down   $6.0 BLN

      IG Bond Funds                     up     $6.5 BLN

      HY Bond Funds              down     $750 MLN

      Municipal Bond Funds      up      $750 MLN

      MMKT Funds                   down   $27.4 BLN

Prior Week: 

      Domestic Equity Funds   down $8.9 BLN

      IG Bond Funds                     up     $10.7 BLN

      HY Bond Funds                    up     $319 MLN  

      Municipal Bond Funds      up      $600 MLN

      MMKT Funds                     down   $4.1BLN

U.S Equities:

All three major indices were down for the second week in row.  Tech once again led the way lower with NASDAQ off 4.06%. S&P 500 and DJI followed being lower by 2.49% and 1.61% respectively.  The move was once again broad based with 10 out of 11 sectors finishing the week negative.  Materials were again modestly higher.  Energy was the big loser on the week finishing down 6.45%, with Technology and Communication Services down 3.12% and 3.04% respectively.  Value continued to outperform Growth as Russell 1000 Value index was down 1.48% vs Russell 1000 Growth index down 3.45%.   The CBOE Volatility Index, retreated last week from 30.7 back to 26.41.   On the brighter side both S&P and NASDAQ are holding major support levels.  This week should be telling as to whether we break support and continue lower or get a bounce with the possibility of a continued move higher.

Foreign Exchange:

Shanah Tovah!! This week starts a stretch of the Jewish holidays through the end of September.  This week’s main event will be the FOMC meeting (Wednesday).  The market will be focusing on the Fed’s language with regards to any new monetary policies in the upcoming months.  The USD continues to drift lower as geopolitical risks continue to rise, uncertainties with regards to the time frame of receiving the results in upcoming US presidential election, and the ongoing COVID-19 pandemic have all weighed on the dollar.

Financial Planning:

How Much Life Insurance Do I Need?

September is Life Insurance Awareness Month, and research from LIMRA finds that “46% of Americans are uninsured and many more do not have enough coverage.” For the most accurate assessment of one’s needs, it’s best to meet with a CFP®, wealth manager, or insurance professional.  Otherwise, here are a few rules of thumb that can be used:

  1. Multiply your gross income by 10 or 12 – this rule provides the most generic calculation and may provide too much or too little coverage depending on one’s stage in life, family size, spending habits, etc.  However, it’s better than not having any coverage.  
  2. Multiply your gross income by 10 and add $100k per child for college expenses – this rule is a bit more specific for one’s family situation, but it does not account for the costs associated with a particular school.  Again this rule could leave one with a coverage surplus or a coverage gap. 
  3. Use the DIME formula – this formula is most similar to the “Human Life Value” method that many insurance practitioners follow.  It will be the most customized to one’s specific situation of the three covered here.
    1. Debt and final expenses – Add up debts not including your mortgage (i.e. – credit cards, car loans, student loans, etc.), plus an estimate of funeral expenses
    2. Income – Decide how many years surviving family members would be reliant upon one’s income (i.e. – years remaining before retirement or other milestone)
    3. Mortgage – Calculate the amount needed to pay off one’s mortgage
    4. Education – Estimate the cost of sending one’s children to college

As with any rule of thumb, it may not apply to each person’s unique circumstances.  Additionally, one’s circumstances are likely to change as time goes on, thus making it more important to work with a professional who will periodically review the insurance coverage.

Last Week's Economic Data 9/14

Last Week's Economic DataActualSurvey
Initial Jobless Claims884k850k
CPI MoM0.4%0.3%
This Week's Economic DataRelease DateSurvey
Retail Sales Advance MoM9/16/201.0%
FOMC Rate Decision (Upper Bound)9/16/200.25%
Initial Jobless Claims9/17/20850k
Housing Starts9/17/201483k

This Week's Economic Data 9/14

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.15%(0.4 bp)+0.1 bp(187.3 bp)12-Month+10 bp(1.5 bp)(1.2 bp)+3.8 bp
3 Month Libor0.24%(0.5 bp)(3.3 bp)(190.2 bp)2-Year+8 bp(0.2 bp)(0.7 bp)+14.5 bp
6 Month Libor0.27%(1.9 bp)(5.8 bp)(179.6 bp)3-Year+7 bp(0.6 bp)+0.1 bp+16.8 bp
12 Month Libor0.40%(1.8 bp)(5.8 bp)(164.7 bp)5-Year+6 bp+1.4 bp+0.6 bp+18.3 bp
Fed Funds Effective0.09%(1.0 bp)(204.0 bp)7-Year+2 bp+1.2 bp+1.1 bp+19.5 bp
SOFR0.09%(1.0 bp)(206.0 bp)10-Year+1 bp(3.5 bp)(2.5 bp)+61.0 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(36 bp)(3.9 bp)+0.7 bp+81.4 bp
12-Month0.13%+0.8 bp(0.3 bp)(173.9 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.13%(1.0 bp)(1.2 bp)(166.7 bp)Dow Jones 27,987 +1.2%+0.2%+2.8%
3-Year0.15%(1.9 bp)(2.6 bp)(160.4 bp)S&P 500 3,394 +1.6%+0.6%+12.8%
5-Year0.25%(4.4 bp)(4.0 bp)(149.6 bp)NASDAQ 11,016 +1.5%(0.0 %)+34.7%
7-Year0.45%(5.7 bp)(5.3 bp)(138.6 bp)CurrenciesCurrentWoWMoMYoY
10-Year0.66%(1.0 bp)(1.2 bp)(166.7 bp)Euro1.1863+0.4%+0.2%+7.8%
30-Year1.41%(1.0 bp)(1.2 bp)(166.7 bp)Japanese Yen105.6800+0.6%+0.9%+2.3%
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.2865(2.3 %)(1.7 %)+3.5%
12-Month0.23%(0.8 bp)(1.4 bp)(170.0 bp)Canadian Dollar1.3182(0.6 %)+0.6%+0.4%
2-Year0.22%(1.2 bp)(1.9 bp)(152.2 bp)Australian Dollar0.7285+0.1%+1.6%+6.1%
3-Year0.22%(2.5 bp)(2.5 bp)(143.7 bp)Swiss Franc0.9077+0.9%+0.2%+9.4%
5-Year0.32%(3.0 bp)(3.4 bp)(131.3 bp)Israeli Shekel3.4395(1.7 %)(1.0 %)+3.1%
7-Year0.47%(4.5 bp)(4.3 bp)(119.2 bp)Bitcoin 10,689 +5.3%(9.2 %)+4.6%
10-Year0.67%(4.5 bp)(3.7 bp)(105.7 bp)CommoditiesCurrentWoWMoMYoY
30-Year1.05%(4.8 bp)(0.5 bp)(85.3 bp)Gold 1,955 +1.1%+0.5%+31.3%
Silver27+1.1%+2.5%+55.4%
Copper307+0.7%+7.3%+14.4%
Crude Oil37(6.2 %)(11.2 %)(32.0 %)
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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