Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Things That Make You Go Hmmm…

By: George Boyan

This will be the final edition of the Capital Markets Weekly Update for 2020.  We wanted to take a moment and thank you for subscribing and reading our commentary.  We wish our readers a happy, healthy and prosperous New Year!

2020 was extraordinary due to the pandemic and the unprecedented fiscal and monetary response (which continues to this day, as the Congress is slated to vote on a $900bln round of stimulus later today).  As we enter the final stretch of the year with holiday shortened trading days and light volumes, all indications point to U.S. equity markets posting positive returns for the year with the most significant contribution from Technology, Communication Services and Consumer Discretionary, and the largest drag being from the energy sector.

Macro Commentary:

By: Ariel Segal

Retail sales decreased by 1.1% in November, a significantly greater decrease than forecasted. The October and November contractions in retail sales mark the first drops since March and April.

The House and Senate will vote on government spending bill today, which includes a $900 billion deal for an aid package that was agreed upon yesterday. The plan includes a direct payment of $600 to Americans under a certain income level that is yet to be announced, and $300 per week in enhanced unemployment benefits through March. Both parties gave up demands to reach this deal including aid for states and cities as well as liability protections for employers. $284 billion of the package is for the Paycheck Protection Program.

Covid-19 vaccines are in full rollout mode with 2.84 million shots delivered and 556k administered after the first week. According to Mayor Bill de Blasio, more than 18k doses were administered in NYC as of Sunday.

Preliminary analysis in the U.K. suggests that a new variant strain of the coronavirus could be 70% more transmissible than other circulating strains. Concerns have led to an emergency lockdown in London and caused Canada, France, and Germany to halt flights to the U.K. According to Europe’s health regulator, Pfizer’s vaccine will still be effective against the variant.

Fixed Income Market:

By Joseph Colleran

Despite a moderate sell off today, investment Grade Corporate bonds continue to trend tighter and Hi Yield bonds are just off their record high levels.   IG spreads are close to 3yr “tights” versus UST’s and HY bonds reached historic low yields last week.  However, concerning news out of England today on a new strain of COVID has caused all risk assets to trade lower.

The selloff has been tempered to a degree by news out of Washington regarding bipartisan agreement on a $900 MM relief package.  Overall trade volumes are light which is to be expected during the last two weeks of the year and the New Issue market has, for the most part, closed shop until first week of January.

The municipal market is also relatively quiet with prices mostly unchanged from last week. 

   Lipper Fund flow data for the week showed:

    Domestic Equity Funds    down    $9.7 BLN

    IG Bond Funds                     up       $1.7 BLN

    HY Bond Funds              down       $1.0 BLN

    Municipal Bond Funds        up      $0.40 BLN

Prior Week:

    Domestic Equity Funds    down    $3.2 BLN

    IG Bond Funds                     up       $5.9 BLN

    HY Bond Funds                    up       $1.2 BLN

    Municipal Bond Funds        up      $0.32 BLN

    MMKT Funds                        up      $0.27 BLN

U.S Equities:

By: James Zurovchak

Once again, last week, all three major indices made all-time highs but retreated on Friday.  NASDAQ led the way gaining 3.1%.  S&P finished up 1.3%, and DJI gained a modest .5%.  Energy (-4.1%) finally retreated as it was the only GICS sector down on the week.  Communication services (+3.5%), Consumer Discretionary (+2.4%) and Technology (+2.2%) were the leaders.   Growth outpaced Value +3.2% vs +0.2%.    Small Caps kept pace gaining 3% on the week.  Expect a volatile week ahead as the markets weigh the effects of the same three drivers: news that a morphed Covid-19 virus with 70% greater transmission rate could be the driving force of this latest resurgence, offset by the continued vaccine rollout and the newly approved stimulus package.

Foreign Exchange:

By Anthony Minardo

As we approach the final trading days of 2020 we remain optimistic of a full global recovery heading into the new year.  Vaccinations are rapidly being produced and distributed as well as central banks providing economic stimulus. The markets have shifted their near-term concerns of the COVID pandemic towards the medium term outlook.  A 900-billion-dollar stimulus plan was approved by congress over the weekend which has brought some disappointment to the equity markets and a temporary rally in the US dollar in a classic case of “buy the rumor sell the fact.”  Liquidity and volatility will be a challenge the last two weeks of the year due to the holidays and year-end re balancing which historically point to a USD weakness.

Financial Planning:

By Brian Stigliano

2020 Gift Tax Rules

The year-end holidays are not the only reasons for an increase in gift giving.  Many individuals use the end of the year to reduce the size of their potentially taxable estates through gifting.  Here are some items to keep in mind when developing a plan:

  • The 2020 annual exclusion is $15,000 per recipient; an individual can gift this amount to as many people/trusts as he or she wants without triggering a gift tax; gifting more than this amount will require a gift tax form (but may still not be taxable)
  • The 2020 lifetime gift tax exclusion is $11.58 million; a gift tax will not be triggered in 2020 unless more than this amount has been cumulatively gifted during the individual’s lifetime; the 2021 exclusion will increase to $11.7 million
  • The gift tax rate has a range between 18% and 40%
  • Some exceptions to the gift tax include paying tuition or medical bills by sending payment directly to the provider (school or medical facility); one can pay an unlimited amount of these expenses without incurring gift taxes
  • 529 plans allow for the ability to spread five years’ worth of the annual exclusion in a one-time gift (i.e. – $75,000 for 2020)

These are just a few of the items to keep in mind when developing a gifting strategy.  Therefore, it’s best to include one’s tax advisor when deciding what to do.

Last Week's Economic Data For 12/21

Last Week's Economic DataActualSurvey
Retail Sales Advance MoM-1.1%-0.3%
FOMC Rate Decision (Upper Bound)0.25%0.25%
Housing Starts1547k1535k
Initial Jobless Claims885k815k

This Week's Economic Data For 12/21

This Week's Economic DataRelease DateSurvey
GDP Annualized QoQ12/22/2033.1%
Existng Home Sales12/22/206.70m
Durable Goods Orders12/23/200.6%
Initial Jobless Claims12/23/20880k
Personal Income12/23/20-0.3%
New Home Sales12/23/20995k

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.15%(0.8 bp)(0.5 bp)(163.5 bp)
3 Month Libor0.24%+2.6 bp+4.0 bp(169.0 bp)
6 Month Libor0.26%+1.3 bp+1.2 bp(166.0 bp)
12 Month Libor0.33%(0.2 bp)(0.4 bp)(166.7 bp)
Fed Funds Effective0.09%(146.0 bp)
SOFR0.09%+0.0 bp+2.0 bp(144.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.09%+0.5 bp(1.0 bp)(142.4 bp)
2-Year0.12%+0.6 bp(3.6 bp)(150.8 bp)
3-Year0.18%+0.8 bp(3.0 bp)(148.0 bp)
5-Year0.38%+2.2 bp+0.8 bp(135.1 bp)
7-Year0.66%+3.2 bp+5.1 bp(118.9 bp)
10-Year0.94%+0.6 bp(3.6 bp)(150.8 bp)
30-Year1.68%+0.6 bp(3.6 bp)(150.8 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.20%+1.2 bp(1.5 bp)(160.7 bp)
2-Year0.21%+1.1 bp(4.4 bp)(151.9 bp)
3-Year0.25%+1.2 bp(4.7 bp)(146.4 bp)
5-Year0.45%+3.0 bp(0.1 bp)(129.8 bp)
7-Year0.67%+3.5 bp+4.1 bp(113.0 bp)
10-Year0.94%+4.2 bp+8.7 bp(94.7 bp)
30-Year1.41%+5.4 bp+17.1 bp(65.3 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+11 bp+0.7 bp(0.5 bp)(18.3 bp)
2-Year+9 bp+0.5 bp(0.8 bp)(1.1 bp)
3-Year+7 bp+0.4 bp(1.6 bp)+1.6 bp
5-Year+7 bp+0.8 bp(0.9 bp)+5.3 bp
7-Year+2 bp+0.3 bp(1.1 bp)+5.9 bp
10-Year+0 bp+3.6 bp+12.4 bp+56.1 bp
30-Year(27 bp)+4.8 bp+20.7 bp+85.5 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 30,246 +0.2%+3.4%+6.3%
S&P 500 3,695 (0.4 %)+3.9%+14.7%
NASDAQ 12,731 (0.2 %)+7.4%+42.6%
CurrenciesCurrentWoWMoMYoY
Euro1.2247+0.8%+3.4%+10.4%
Japanese Yen103.3200+0.7%+1.2%+5.9%
British Pound1.3445+0.9%+0.9%+3.9%
Canadian Dollar1.2825(0.5 %)+2.0%+2.5%
Australian Dollar0.7588+0.7%+4.1%+9.6%
Swiss Franc0.8848+0.2%+3.2%+11.0%
Israeli Shekel3.2450+0.4%+3.1%+7.1%
Bitcoin 22,918 +19.4%+24.4%+213.1%

CommoditiesCurrentWoWMoMYoY
Gold 1,878 +2.8%+0.4%+27.1%
Silver26+9.8%+8.3%+52.2%
Copper357+1.4%+8.6%+27.1%
Crude Oil48+1.6%+13.3%(21.0 %)

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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