Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Things That Make You Go Hmmm…

By: George Boyan

Happy New Year!  Now that its 2021, the virus is miraculously behind us, Washington DC politics are completely settled, therefore no uncertainty in the financial markets.

Oops—I must have still been dreaming.  In fact, quite the opposite is true.  Vaccines are being administered at a snail’s pace in the United States and we still don’t know who will control the Senate in 2021.

Markets consolidated a small percentage of their 2020 gains on the first trading day of the New Year.  The momentum remains overwhelmingly positive as markets are optimistic for a return to normalcy is on the horizon. 

We are constantly looking for the market’s blind spot, also known as the “Pain Trade.”  The Pain Trade is the scenario that would take market participants by surprise and upend the consensus opinion, therefore causing the maximum pain.  The Pain Trade of 2021 is U.S. Dollar strength, which would end a yearlong weakening cycle, cause both stocks and bonds to sell-off.  We repeat, this is not our expectation, but we believe the probability is higher than zero, which is the market’s expectation.

Macro Commentary:

By: Ariel Segal

Wholesale inventories came in lower than expectations on Wednesday with a -0.1% decrease, while surveys were predicting a 0.6% increase.

Congress is scheduled to count the Electoral College votes on Wednesday and ratify the election results.

Polls in Georgia have the Democrats slightly ahead of the Republican candidates. Equity markets have taken poorly to this news, preferring a split government that is potentially more stable over a government congress and the executive branch under the control of Democrats. The Georgia elections will take place Tuesday.

With more than half of the vaccine shots received by hospitals in New York remain unused, Gov. Cuomo is seeking to fine public and private hospital as much as $100,000 and cutoff further shipments of vaccines if the ones they receive aren’t used within a week.

Fixed Income Market:

By Joseph Colleran

As expected, last week saw very light trading volumes in all fixed income markets.  The week saw a continuation of the tightening trend in corporates and muni’s, while the HY market traded in lock-step with equities, closing marginally higher on the week.  The New Year is seeing the credit markets trade off as concerns about tighter COVID related restrictions are forefront in investors’ minds this morning.  Additionally, the markets are focused on tomorrow’s GA Senate runoff elections which are expected to both be decided by thin margins.  The new issue markets were effectively closed last week, though we expect them to ramp up by mid-week.   Both IG and HY US Bond funds saw strong inflows as 2020 came to a close. (see below).

   Lipper Fund flow data for the week showed:    

     Domestic Equity Funds    down    $2.0 BLN

     IG Bond Funds                     up       $5.9 BLN

     HY Bond Funds                   up       $ 1.7BLN

     Municipal Bond Funds        up      $1.5 BLN

Prior Week:

     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

U.S Equities:

By: James Zurovchak

All three major indices ended the year in positive fashion with S&P up 1.5% on the week, DJI up 1.4% and NASDAQ up 0.7%.  In addition, all three major indices closed out the year with sizable gains:  NASDAQ +45.1%, S&P + 18.4% and DJI +9.7%.  9 of 11 GICS sectors finished the week in the green. Utilities (+2.4%), Consumer Discretionary (+1.8%) and Financials (+1.8%) were the leaders and Communications Services (-1.0%) and Energy (-0.6%) were the losers.  On the year, Information Technology (+55.5%) and Consumer Discretionary (+29.6%) were the big winners and Energy (-32.5%) and Real Estate (-5.2%) were the worst performers.  Last week Value outpaced Growth +1.3% vs +0.9%.  However, Growth significantly outpaced Value on the year +38.5% vs 2.8%.  Small Caps finished the week down 1.9% but were up a hefty 19.9% on the year.   As we move into the new year, the theme most prevalent will be the race between vaccine rollout and the continued increase of Covid cases with both the outbreak of new strains and heightened holiday travel and their respective effects on the economic recovery. 

Foreign Exchange:

By Anthony Minardo

Happy New Year to all.  We enter 2021 with the same old story in the markets, as the US dollar continues to struggle against the G10 and emerging market currencies.  Commodity currencies enter the week as the best performers with AUD and NZD trading to 2.5 year highs as gold has strengthened by 2% today.

The trend should continue for the 1H 2021 as interest rates in the US are expected to remain at current levels and the COVID-19 virus continues to strengthen even with the distribution of vaccines.  This week we will keep a close eye on the Georgia state senate run off (January 6th) along with US non-farm payrolls and unemployment on Friday. 

Financial Planning:

By Brian Stigliano

Coronavirus Stimulus 2.0

After months of debate, the Consolidated Appropriations Act of 2021 was signed into law in late December 2020.  Given that the bill came in at over 5,000 pages, below is a summary of some of the key components and benefits:

  • Stimulus checks up to $600 per adult and $600 per child age 16 and younger to those who qualify based on AGI
  • $300 per week in additional federal unemployment benefits for 11 weeks (now 10 due to the delay in signing the bill into law)
  • Provides the Paycheck Protection Program with an additional $284 billion in funds available for forgivable loans to small businesses impacted by the virus
  • Extends the federal eviction moratorium through January 31, 2021; also provides $25 billion to state and local governments for qualified renter household assistance with rent and utilities
  • $16 billion for vaccine development and distribution

While there was a last-ditch effort for $2,000 that ultimately failed, President-elect Biden has indicated that his administration will push for a third round of stimulus checks. 

Last Week's Economic Data for 1/5

Last Week's Economic DataActualSurvey
Wholesale Inventories MoM-0.1%0.6%
Initial Jobless Claims787k835k

This Week's Economic Data for 1/5

This Week's Economic DataRelease DateSurvey
ADP Employment Change1/6/2150k
Factory Orders1/6/210.7%
Durable Goods Orders1/6/210.9%
Initial Jobless Claims1/7/21803k
Trade Balance1/7/21-$67.2b
Change in Nonfarm Payrolls1/8/2162k
Unemployment Rate1/8/216.8%
Wholesale Inventories MoM1/8/21-0.1%

Market Data for 1/5

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.13%(1.6 bp)(2.1 bp)(158.3 bp)
3 Month Libor0.24%(1.7 bp)+1.1 bp(163.7 bp)
6 Month Libor0.25%(0.3 bp)(0.2 bp)(163.9 bp)
12 Month Libor0.33%(1.2 bp)(0.7 bp)(163.4 bp)
Fed Funds Effective0.09%(146.0 bp)
SOFR0.10%+0.0 bp+1.0 bp(145.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.10%+0.3 bp(0.3 bp)(142.8 bp)
2-Year0.11%(1.2 bp)(3.8 bp)(141.1 bp)
3-Year0.16%(1.0 bp)(5.0 bp)(138.1 bp)
5-Year0.36%(1.9 bp)(5.7 bp)(123.0 bp)
7-Year0.65%+0.7 bp(4.8 bp)(105.5 bp)
10-Year0.94%(1.2 bp)(3.8 bp)(141.1 bp)
30-Year1.69%(1.2 bp)(3.8 bp)(141.1 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.18%(1.4 bp)(2.5 bp)(153.6 bp)
2-Year0.19%(2.1 bp)(3.9 bp)(142.4 bp)
3-Year0.23%(2.0 bp)(3.7 bp)(135.1 bp)
5-Year0.43%(2.3 bp)(2.4 bp)(117.5 bp)
7-Year0.66%(1.7 bp)(0.7 bp)(99.6 bp)
10-Year0.94%(1.5 bp)+0.8 bp(81.2 bp)
30-Year1.43%(0.1 bp)+3.5 bp(50.9 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+9 bp(1.7 bp)(2.2 bp)(10.9 bp)
2-Year+7 bp(1.0 bp)(0.1 bp)(1.3 bp)
3-Year+7 bp(0.9 bp)+1.4 bp+3.0 bp
5-Year+7 bp(0.4 bp)+3.3 bp+5.5 bp
7-Year+1 bp(2.4 bp)+4.1 bp+5.8 bp
10-Year(0 bp)(0.3 bp)+4.6 bp+59.9 bp
30-Year(26 bp)+1.1 bp+7.2 bp+90.3 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 30,230 +0.0%+0.0%+5.6%
S&P 500 3,709 +0.2%+0.3%+14.7%
NASDAQ 12,766 +0.5%+2.4%+41.5%

CurrenciesCurrentWoWMoMYoY
Euro1.2271+0.2%+1.3%+9.6%
Japanese Yen102.8100+0.7%+1.2%+5.4%
British Pound1.3590+0.6%+1.6%+3.2%
Canadian Dollar1.2740+0.6%+0.5%+1.8%
Australian Dollar0.7721+1.5%+4.0%+11.3%
Swiss Franc0.8799+0.5%+1.2%+10.1%
Israeli Shekel3.2042+0.4%+1.6%+8.5%
Bitcoin 32,085 +19.3%+68.1%+323.5%

CommoditiesCurrentWoWMoMYoY
Gold 1,947 +3.9%+5.9%+25.4%
Silver27+4.3%+13.1%+51.5%
Copper360+0.9%+2.5%+29.3%
Crude Oil50+4.3%+7.4%(21.2 %)

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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