Macro Commentary: 

Moderna Inc.’s Covid-19 vaccine has become the first to be tested in a large scale study in the U.S. The vaccine will be tested at 89 U.S. sites and have 30,000 test participants. Dr. Anthony Fauci says early results could be available by November or December.

Senate Republicans unveiled their next stimulus package proposal on Monday that includes cutting supplemental unemployment benefits to $200 weekly from $600. This would remain in effect until states are able to create a system that would provide 70% wage replacement for laid off workers. 

GDP reports come out on Wednesday this week with surveys predicting a fall of -35% annualized quarter over quarter.

Fixed Income Market:

For the third consecutive week corporate bond spreads remained in a very tight range.  The only notable change was in in the Bank/Financial sector, which saw spreads continue to tighten following strong Q2 earnings by most major banks.  The primary drivers of the better than expected results were strong trading revenues as desks were well positioned to take advantage of the run up in equities and the tightening of credit spreads. 

Earnings releases continue this week with Facebook, Alphabet, Amazon, Apple, ExxonMobil, Chevron, Starbucks, and Boeing all reporting.   Investment grade new issuance is expected to pick up after 2 slow weeks. The markets expect between $10-$15bn this week, according to a Bloomberg survey of market participants. Meanwhile, IG bond funds continued to see strong inflows with $7.75bn of new money coming in last week, according to Lipper data.

U.S Equities:

The Dow Jones fell 202 points, or 0.8%, the S&P -0.3% and the Nasdaq fell 1.3% in sympathy with the stark decline in the USD versus most other major currencies.  The U.S. dollar index, or DXY, fell 1.7% this past week to 94.36, the lowest level since 2018.  Weaker dollars make foreign-made electronics more expensive for the domestic consumer, which weighed heavily on the shares of those consumer related companies.  

Sector outperformance came from the beleaguered oil and gas sector, returning 2.21% on the week.

FX Commentary:

The USD weakness remains the key theme to start the last trading week in July.  Increased new COVID-19 cases across the country, tensions with China, and the growing risks ahead of the US election have all contributed to the overall retreat of the US dollar. Month-end fixings point to dollar selling against the majority of G-10 currencies.

 The USD continues to remain weak against the ILS. We are quickly approaching the next level of major support in USD/ILS at 3.4000.

The implementation of the Pandemic Recovery Fund in the EU has been the main catalyst for the recent move higher in the Euro. Overall dollar weakness has also contributed to the recent Euro strength which has gained momentum to make new two year highs.

Financial Planning:

Behavioral Biases to Avoid: Gambler’s Fallacy

The last in the series of behavioral biases to review is Gambler’s Fallacy.  Gambler’s Fallacy occurs when an investor believes that a previous series of events will make a certain event more or less likely.  One can think of a roulette wheel that turned up black five times in a row; a gambler might increase a bet on red thinking that “red is due.”  This logic is flawed considering that the previous five spins of the wheel have absolutely no effect on the next spin.

Similarly, an investor may decide to liquidate a security after a series of gains because “it is now more likely to go down.”  However, as we have seen time and time again (think Amazon or Tesla, recently), a security can continue to rise despite “being due for a selloff.”

To counter the effects of Gambler’s Fallacy, it is best to invest for the long term in a well-diversified portfolio, ignoring the day to day movements of a security.  It can also be helpful to hire a professional money manager to remove one’s emotions from the equation.  This can help prevent a negative outcome from a spur of the moment decision to buy or sell a security based on its recent trading activity. 

Last Week's Economic Data July 27th

Last Week's Economic DataActualSurvey
Existing Home Salses MoM20.7%21.5%
Initial Jobless Claims1416k1288k
New Home Sales776k700k
Durable Goods Orders7.3%6.5%
This Week's Economic DataRelease DateSurvey
Wholesale Inventories7/29/20-0.9%
FOMC Rate Decision (Upper Bound)7/29/200.25%
GDP Annualized QoQ7/30/20-35.0%
Initial Jobless Claims7/30/201450k
Personal Income7/31/20-0.6%

This Week's Economic Data July 27th

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.17%(0.9 bp)(1.1 bp)(207.0 bp)12-Month+11 bp+0.5 bp(0.4 bp)+2.2 bp
3 Month Libor0.27%+1.3 bp(4.0 bp)(199.8 bp)2-Year+7 bp+0.3 bp+1.3 bp+4.3 bp
6 Month Libor0.32%(2.2 bp)(4.4 bp)(188.7 bp)3-Year+6 bp+0.3 bp+1.3 bp+5.7 bp
12 Month Libor0.46%(0.4 bp)(10.6 bp)(173.6 bp)5-Year+4 bp(0.2 bp)+2.6 bp+7.0 bp
Fed Funds Effective0.10%+2.0 bp(230.0 bp)7-Year(1 bp)+0.9 bp+3.4 bp+6.3 bp
SOFR0.10%(0.0 bp)+2.0 bp(231.0 bp)10-Year(0 bp)(0.2 bp)+0.1 bp+31.3 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(41 bp)(1.5 bp)(2.3 bp)+32.4 bp
12-Month0.13%(0.3 bp)(1.8 bp)(185.1 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.14%+0.2 bp(2.4 bp)(170.9 bp)Dow Jones 26,510 (0.3 %)+6.0%(2.5 %)
3-Year0.16%+0.0 bp(1.9 bp)(165.3 bp)S&P 500 3,239 +0.7%+7.7%+7.1%
5-Year0.27%+0.5 bp(3.3 bp)(157.8 bp)NASDAQ 10,487 (0.5 %)+7.5%+25.9%
7-Year0.44%(0.7 bp)(4.8 bp)(150.7 bp)CurrenciesCurrentWoWMoMYoY
10-Year0.59%+0.2 bp(2.4 bp)(170.9 bp)Euro1.1729+1.8%+4.3%+5.2%
30-Year1.24%+0.2 bp(2.4 bp)(170.9 bp)Japanese Yen105.1900+1.5%+2.3%+3.4%
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.2892+1.3%+4.8%+5.5%
12-Month0.24%+0.3 bp(2.2 bp)(182.9 bp)Canadian Dollar1.3374+0.6%+2.1%(1.6 %)
2-Year0.22%+0.4 bp(1.1 bp)(166.7 bp)Australian Dollar0.7152+0.3%+4.2%+3.6%
3-Year0.22%+0.3 bp(0.6 bp)(159.6 bp)Swiss Franc0.9165+1.8%+3.8%+8.2%
5-Year0.31%+0.3 bp(0.8 bp)(150.8 bp)Israeli Shekel3.4140+0.1%+1.1%+3.1%
7-Year0.43%+0.2 bp(1.5 bp)(144.3 bp)Bitcoin 10,960 +16.9%+19.4%+15.2%
10-Year0.59%(0.1 bp)(2.3 bp)(139.7 bp)CommoditiesCurrentWoWMoMYoY
30-Year0.83%(1.4 bp)(4.6 bp)(138.6 bp)Gold 1,934 +5.0%+9.2%+36.3%
Copper289(1.8 %)+8.1%+7.9%
Crude Oil41(1.9 %)+7.0%(26.7 %)
Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 |  


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