Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Things That Make You Go Hmmm…

By: George Boyan

U.S. Nonfarm Payrolls recorded a gain of 661 thousand jobs for the month of September, missing expectations of 859 thousand.  Also, the unemployment rate ticked down from 8.4% to 7.9%. 

Cumulatively, the U.S. economy has recovered 11.4 million of the 22.2 million jobs lost during the unprecedented coronavirus-induced economic shutdown, representing 51% of those jobs lost.  In fact, over the past 20 years, the average number of jobs gained per month is just 39 thousand, and September’s release was approximately 17 times average.

This should be a cause for celebration.  And yet the equity market was initially disappointed, marked by the S&P 500 selling off approximately 1% on the release. Even during the Vice Presidential debate, in asking a question to Mr. Pence, the moderator stated “the job growth has stalled.” 

We view the labor market as a tailwind for further economic recovery propelling sustained growth into mid-2021.

Macro Commentary:

By: Ariel Segal

Continuing unemployment claims decreased last week to 10.976mm. Though the pace of recovery has slowed since August, it is nonetheless an improvement. California has stopped processing claims as it is reviewing internal controls and possible instances of fraud.

Stimulus talks continue between Speaker Pelosi and Secretary Mnuchin trying to reach a compromise between the Democrat’s $2.2 trillion proposal and the White House’s $1.8 trillion offer. President Trump is now in full favor of a deal to occur before the election, but most say there is little chance of getting legislation written and passed by Congress before Nov. 3rd.

Judge Amy Coney Barrett began the first of two days of questioning by the Senate Judiciary Committee today. She is expected to be confirmed before the election.

Fixed Income Market:

By: Joseph Colleran

Last week saw the credit markets embrace the “reflation trade” as spreads on corporates tightened significantly.   This was particularly acute in the HY market as the riskier credits tightened an average of 25 basis points. This was driven by strong cash inflows that reversed the trend of recent weeks (see table below).  Retail corporate bond activity remained light as few seem enticed by the relatively low yields available and many participants remain on the sidelines leading up to the Presidential election just three weeks from today.  We continue to see good demand for Structured Notes as high volatility and rising equity markets create attractive opportunities for our clients.   Despite a slight widening in municipal bonds we saw little client interest in the sector.

   Lipper Fund flow data for the week showed:    

    Domestic Equity Funds   down   $ 3.5BLN

    IG Bond Funds                     up      $7.1 BLN

    HY Bond Funds                     up     $4.1 BLN

    Municipal Bond Funds        up      $1.5 BLN

    MMKT Funds                      down   $20.4 BLN

Prior Week:

    Domestic Equity Funds   down   $ 3.3BLN

    IG Bond Funds                     up      $2.1 BLN

    HY Bond Funds                  down   $3.6 BLN

    Municipal Bond Funds      down    $660 MLN

    MMKT Funds                  down $13.9BLN

U.S Equities:

By: James Zurovchak

At the beginning of last week, the question was whether we get the “20-50 cross” lower or a bounce off the 50 day SMA with a move higher.  The market answered with the bounce and a move higher.  NASDAQ led the way with a 2.19% move up followed by S&P 500 and DJI gaining 2.05% and 1.58% respectively.  The move was broad based with all 11 GIC sectors positive on the week.  Technology and Communication Services lead the charge with Real Estate lagging, but still positive.  Growth slightly outgained Value 2.24% vs 2.16%. Equity markets were opened on Columbus Day yesterday and put in a strong day.   Market sentiment seems to be that a Biden victory coupled with a congressional blue wave would mean a substantial stimulus plan would be passed and this would outweigh any negatives from corporate taxes being raised.  With Biden’s lead in polls in key swing states increasing, the market seems to be responding in kind.  President Trump has now had multiple negative Covid tests and is back on the campaign trail.  It remains to be seen whether he gains any momentum in the polls and whether the markets respond.  Meanwhile, the resurgence of Covid globally continues to creep higher, but the markets don’t seem to be overly concerned.   

Foreign Exchange:

By: Anthony Minardo

The USD remains steady and widespread risk sentiment has been driven on the assumption that a phase 4 stimulus deal will be agreed upon in the upcoming weeks.

Global economic recoveries have stalled as a second wave of COVID-19 have spread throughout Europe, and increasing concerns of a reoccurrence in the U.S.   The upcoming U.S.

Presidential elections will add volatility to the markets as we approach election day. An abundance of economic data this week, CPI (Tuesday), PPI (Wednesday), and industrial production and retail sales (Friday) could move the dollar out of its recent range.

Financial Planning:

By: Brian Stigliano

Estate Planning Strategies

With the elections less than a month away, there is a distinct possibility that we will see a “blue wave” which could lead to significant tax changes for high-net-worth and ultra-high-net-worth families.  Therefore, it may be a great time to take advantage of low interest rates, volatile markets, and a high federal estate tax exemption to more efficiently transfer wealth to future generations.

Use of irrevocable trusts:

  • Grantor Retained Annuity Trust – used to gift an asset to the trust but maintain an income stream from it
  • Intentionally Defective Grantor Trust – used to freeze the value of certain assets to potentially reduce the size of an estate
  • Qualified Personal Residence Trust – used to remove the value of a residence from an estate while maintaining use of the residence
  • Charitable Remainder Trust – used to gift an asset to a charity but maintain an income stream from it
  • Irrevocable Life Insurance Trust – used to remove the death benefit proceeds from the value of an estate

You can create a Family Limited Partnership (FLP) to maintain control of the business interests.

You can gift $15,000 per year to as many people as you like without paying a gift tax or using your lifetime exclusion.

You can pay an unlimited amount of one’s education or medical expense in any given year as long as the institution is paid directly.

Last Week's Economic Data for 10/13

Last Week's Economic DataActualSurvey
Trade Balance-$67.1b-$66.2b
Initial Jobless Claims840k820k
Wholesale Inventories0.40%0.50%
CPI MoM0.20%0.20%

This Week's Economic Data for 10/13

This Week's Economic DataRelease DateSurvey
PPI Final Demand MoM10/14/20200.20%
Initial Jobless Claims10/15/2020825k
Retail Sales Advance MoM10/16/20200.80%
Source: Bloomberg L.P.

Market Data for 10/13

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.15%+0.9 bp(0.4 bp)(176.5 bp)
3 Month Libor0.24%+0.7 bp(1.4 bp)(176.4 bp)
6 Month Libor0.25%+1.5 bp(2.7 bp)(172.1 bp)
12 Month Libor0.35%+0.2 bp(6.8 bp)(161.0 bp)
Fed Funds Effective0.09%(173.0 bp)
SOFR0.09%(0.0 bp)(176.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.12%+0.5 bp(0.5 bp)(151.2 bp)
2-Year0.14%(0.6 bp)+1.4 bp(145.0 bp)
3-Year0.18%(0.1 bp)+2.6 bp(138.8 bp)
5-Year0.31%(0.6 bp)+5.4 bp(124.9 bp)
7-Year0.51%(0.4 bp)+6.3 bp(113.4 bp)
10-Year0.73%(0.6 bp)+1.4 bp(145.0 bp)
30-Year1.52%(0.6 bp)+1.4 bp(145.0 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.22%(0.5 bp)(1.5 bp)(156.7 bp)
2-Year0.23%(0.4 bp)+1.3 bp(141.2 bp)
3-Year0.26%(0.2 bp)+3.5 bp(131.4 bp)
5-Year0.38%(0.1 bp)+5.9 bp(116.6 bp)
7-Year0.55%+0.2 bp+7.2 bp(103.1 bp)
10-Year0.77%+0.5 bp+8.7 bp(88.7 bp)
30-Year1.18%+1.0 bp+13.1 bp(63.6 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+9 bp(1.0 bp)(1.0 bp)(5.5 bp)
2-Year+9 bp+0.1 bp(0.1 bp)+3.9 bp
3-Year+9 bp(0.1 bp)+0.9 bp+7.4 bp
5-Year+8 bp+0.6 bp+0.5 bp+8.2 bp
7-Year+4 bp+0.6 bp+1.0 bp+10.3 bp
10-Year+4 bp+1.0 bp+7.3 bp+56.4 bp
30-Year(33 bp)+1.6 bp+11.7 bp+81.4 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 28,756 (0.3 %)+3.9%+7.2%
S&P 500 3,517 (0.5 %)+5.3%+18.4%
NASDAQ 11,922 +0.4%+9.8%+48.0%

CurrenciesCurrentWoWMoMYoY
Euro1.1748+0.1%(1.0 %)+6.5%
Japanese Yen105.4900+0.1%+0.2%+2.8%
British Pound1.2940+0.5%+0.7%+2.6%
Canadian Dollar1.3141+1.3%+0.3%+0.7%
Australian Dollar0.7158+0.8%(1.8 %)+5.7%
Swiss Franc0.9146+0.4%(0.7 %)+9.0%
Israeli Shekel3.3921+0.8%+1.4%+3.4%
Bitcoin 11,421 +8.3%+6.8%+36.9%

CommoditiesCurrentWoWMoMYoY
Gold 1,894 +0.8%(2.4 %)+27.2%
Silver24+4.9%(9.5 %)+38.0%
Copper305+2.9%+0.5%+16.0%
Crude Oil40(1.0 %)+7.8%(26.4 %)

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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