Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary: 

By: Ariel Segal

January retail sales came in hot on Wednesday, beating all estimates with its largest advance since June. Overall sales value increased 5.3%, bolstered by stimulus checks and a curb in Covid-19 cases. Online shopping and food services saw increases in sales of 11% and 6.9% respectively. 

Chinese foreign minister Wang Yi gave a speech on Monday, imploring the Biden administration to try and reopen trade discussions and roll back tariffs and sanctions that were results of discussions with the previous administration. However, the Biden administration has made it clear that they have found some merits in Trump’s intense review of the U.S’ trade policies with China. Biden plans to keep the tariffs in place and is looking to get his $700 billion infrastructure bill passed quickly, in part due to his fears of falling behind Chinese automotive and rail technological investments.

Bad weather in the U.S. substantially slowed the distribution of vaccines last week. Over 205 million doses have been given worldwide with 63 million of those being given in the U.S.

Fixed Income Market:

By Joseph Colleran

Last week saw more of the same trend that we have been experiencing since mid-January with yields trending higher and spreads grinding tighter. The “reflation trade” continues to have legs as investors stretch for yield. The energy sector continues to be the best performer as oil prices pushed higher on the belief a global recovery is all but certain. West Texas Intermediate (WTI) broke through the $60/bbl barrier and is currently trading at $61.50. HY bond yields remain near at all-time low yields while IG spreads tightened another 3bps and are closing in on historic tight levels vs USTs.  

Our retail clients remain mostly on the sidelines regarding fixed income products.  The lone exception continues to be in new issue Structured Notes, where demand remains robust. 

Lipper Fund flow data for the week showed:    

      Domestic Equity Funds     down   $0.9BLN

      IG Bond Funds                     up       $4.5 BLN

      HY Bond Funds                  down    $1.3 BLN 

      Municipal Bond Funds       up       $1.6 BLN

 Prior Week:

     Domestic Equity Funds      down    $3.0 BLN

      IG Bond Funds                    up        $2.7 BLN

      HY Bond Funds                   down   $0.2 BLN 

      Municipal Bond Funds      up        $2.3 BLN

U.S Equities:

By: James Zurovchak

All three major indices again set new all-time highs before trimming gains.  DJI finished the week up 0.2%, while NASDAQ and S&P 500 were lower 1.5% and 0.7% respectively.  Last week’s optimism generated by an extremely robust retail sales number (5.3% vs consensus 1.1%) was tempered by the breakout to the upside in long term US Treasury rates* (US 10y now at 1.36% from 1.19% as week’s start).  Only 4 of 11 GICS sectors were up with Energy (+3.4%) and Financials (+2.8%) outperforming.  Communication Services (-3.0%) Health Care (-2.4%) and Utilities (-1.9%) lead the way down.  Value again outperformed Growth -1.0% vs -1.7%.  Small Caps were in line with the majors losing 1.0%.  Equity markets will continue to watch the three main headline grabbers:  stimulus, continued accommodating Fed Policy and vaccine rollout.  

*Note: A move in higher in US Treasury rates can negatively affect equity markets in two ways: 1) Higher bond yields mean risk averse investors do not need to move into equities to find a positive return. 2) Future earnings are now discounted at higher rates.

Foreign Exchange:

By Anthony Minardo

The US dollar continues to be pulled in both directions as we witnessed last week.  Higher US yields, and risk aversion due to lower equities, created a short-lived rally in the dollar before trading lower to end the week.  Looking ahead, the key event this week will be the voting result on President Biden’s stimulus plan.  The “reflation” theme will also be in the forefront as Fed Chair Powell will give his semi-annual monetary report to Congress.  The market will focus on any indications from Powell with regards to employment and inflation targets.  An abundance of economic data this week, which could provide a clearer direction of the dollar, include durable goods, second release of GDP, PCE, and personal income spending.

Financial Planning:

By Brian Stigliano 

Potential Estate Tax Changes 

I recently had a very informative conversation with a highly regarded estate planning attorney about potential changes to the current estate/gift tax exemption.  In short, the Biden administration is advocating for a drop in the exemption from $11.7 million per person ($23.4 million for a married couple) to as low as $3.5 million per person ($7 million for a married couple).  Due to the economic climate and stimulus spending, this change could happen as early as January 1, 2022 in order to generate additional tax revenue. 

With federal estate tax rates as high as 40%, the attorney I spoke to is advising his clients with a net worth greater than $5 million ($10 million if married) to begin their planning now.  The risk to waiting until “we are sure the change is happening” is that good estate planners may be too busy to help at that point.  Additionally, the appropriate solutions including the creation of trusts and potential life insurance strategies take time to develop and implement.

Last Week's Economic Data 2/22

Last Week's Economic DataActualSurvey
PPI Final Demand Mom1.3%0.4%
Retail Sales Advance MoM5.3%1%
Housing Starts1580k1660k
Initial Jobless Claims861k773k
Existing Home Sales6.69m6.60m

This Week's Economic Data 2/22

This Week's Economic DataRelease DateSurvey
New Homes Sales2/24/21855k
Durable Goods Orders2/25/211.1%
Initial Jobless Claims2/25/21825k
GDP Annualized QoQ2/25/214.2%
Wholesale Inventories MoM2/25/210.3%
Personal Income2/26/219.5%
Source: Bloomberg L.P.

Market Data Values 2/22

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.11%+0.9 bp(1.0 bp)(151.2 bp)12-Month+13 bp+0.5 bp+2.5 bp+11.4 bp
3 Month Libor0.18%(1.6 bp)(4.0 bp)(150.4 bp)2-Year+10 bp(0.4 bp)+1.5 bp+18.4 bp
6 Month Libor0.20%(0.1 bp)(3.2 bp)(147.1 bp)3-Year+11 bp+0.3 bp+3.1 bp+22.2 bp
12 Month Libor0.29%(1.5 bp)(2.7 bp)(144.3 bp)5-Year+13 bp(1.2 bp)+3.8 bp+26.0 bp
Fed Funds Effective0.07%(1.0 bp)(2.0 bp)(152.0 bp)7-Year+9 bp+0.5 bp+5.0 bp+26.8 bp
SOFR0.02%(0.0 bp)(5.0 bp)(157.0 bp)10-Year+9 bp+13.1 bp+35.3 bp+139.7 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(23 bp)+14.3 bp+35.8 bp+173.6 bp
12-Month0.05%(1.0 bp)(4.1 bp)(136.9 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.11%+0.4 bp(0.8 bp)(124.1 bp)Dow Jones 31,609 +0.4%+2.0%+9.0%
3-Year0.22%+2.9 bp+3.7 bp(109.6 bp)S&P 500 3,895 (0.3 %)+1.4%+16.7%
5-Year0.60%+10.4 bp+16.4 bp(72.7 bp)NASDAQ 13,613 (1.9 %)+0.5%+42.1%
7-Year1.00%+15.0 bp+23.4 bp(40.7 bp)CurrenciesCurrentWoWMoMYoY
10-Year1.37%+0.4 bp(0.8 bp)(124.1 bp)Euro1.2162+0.3%(0.1 %)+12.1%
30-Year2.19%+0.4 bp(0.8 bp)(124.1 bp)Japanese Yen105.0600+0.3%(1.2 %)+5.4%
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.4067+1.2%+2.8%+8.8%
12-Month0.18%(0.6 bp)(1.6 bp)(125.5 bp)Canadian Dollar1.2609+0.2%+1.0%+5.4%
2-Year0.21%+0.0 bp+0.7 bp(105.8 bp)Australian Dollar0.7917+1.7%+2.6%+19.9%
3-Year0.33%+3.2 bp+6.8 bp(87.4 bp)Swiss Franc0.8959(0.6 %)(1.1 %)+9.3%
5-Year0.73%+9.2 bp+20.2 bp(46.7 bp)Israeli Shekel3.2631(0.6 %)+0.3%+5.0%
7-Year1.09%+15.6 bp+28.4 bp(14.0 bp)Bitcoin 54,306 +12.7%+63.0%+465.3%
10-Year1.46%+13.5 bp+34.5 bp+15.5 bpCommoditiesCurrentWoWMoMYoY
30-Year1.96%+14.7 bp+35.0 bp+49.5 bpGold 1,807 (0.6 %)(2.6 %)+10.0%
Silver28+1.5%+10.0%+51.7%
Copper414+9.3%+14.2%+58.8%
Source: Bloomberg L.P.Crude Oil61+3.4%+17.6%+15.2%

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

© 2021 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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