From a market stability perspective, the most important piece of last week’s fiscal bill was the $400B Treasury ESF that becomes ~$4T in liquidity with Fed leverage. From an economic perspective, the most important piece will be the $350B small business coronavirus loan program that
Reports citing progress in Seattle and New Rochelle helped sentiment yesterday. More reports today discuss relative success from early social distancing measures in California. NYC is still the main area of concern with higher infection rates, crowded hospitals, lack of adequate supplies and higher mortality
The ~13.5% bounce off last Monday’s closing low followed a narrowing in high yield credit spreads from ~885bps to last Friday’s closing level of ~620bps. Investment Grade corporate spreads also improved from ~158bps to ~112bps during the week. Both are a touch wider this morning
The Fed’s various liquidity facilities have eased some market stress, evidenced by the contraction in High Yield credit spreads. Monday was the widest at ~861bps and they’ve since narrowed to 590bps. As discussed last week, the narrowing of HY credit spreads would be the likely
The S&P 500 is bouncing off deeply oversold levels after a successful two-session reversal (Monday and Tuesday). At the moment, the SPX has rallied +15.5% from Monday’s low, which matches our expectations for a 10-25% oversold bounce. Technical resistance lies just ahead at ~2650 and
The most significant piece of the $2T US fiscal stimulus is the $400B Treasury Exchange Stabilization Fund, which the Fed can lever to ~$4T. Anticipation for the ESF compressed high yield credit spreads by 154 bps to 717bps. High yields spreads narrow further today by
The current environment includes two out of three preconditions to broadly re-entering risk markets: 1) markets are now priced for recession and; 2) equity positioning is extremely underweight. What’s missing is a decelerating US infection rate, which could be ~3-4 weeks away. But as noted
SPX: Two preconditions for a rally exist in that markets have now fully priced a US recession and investors are extremely underweight equities. But broadly reentering risk assets probably requires a decelerating infection rate in the US. Until that happens any rally should be considered
The impact of the outbreak will leave a massive pothole in the US economy and S&P 500 earnings. A steep uncertainty discount has been applied…it’s a moving target of a moving target around infection rates and the negative economic impact of containment efforts. But there’s
The ECB’s vastly expanded QE plan (additional €750B on top of €250B) has successfully addressed the credit issues that followed Lagarde’s comment that narrowing credit spreads weren’t part of the central bank’s function. Her comment was a 180 degree reversal of Draghi’s consistent message on
