With the Pacific G10 Macro Rates Team
Last week financial markets traded in a clear risk-off fashion with risk assets (equities, credit, commodities) underperforming and safe havens performing strongly (government bonds, JPY and CHF).
As fears about the second wave in the US and China escalated over the week, risk assets repriced sharply lower, with the S&P 500 experiencing the worst 1-day performance since March on Thursday. On the week, the S&P 500 was down 5%, WTI down almost 8% and 10y yields in the US 0.2% lower at 0.7%.
As was expected, the Federal Reserve did not make any changes to the policy at their meeting. Updated forecasts did not deliver big surprises either, with FOMC officials forecasting no rate hikes for the next 2 years. On a slightly optimistic note, longer run forecasts of economic growth, unemployment and interest rates were left unchanged suggesting no long-term damage to the economy from the current pandemic.
Chair Powell followed up with a very dovish message during the press conference, whether he was trying to cool down risk assets or put pressure on the US Congress to provide more fiscal support, will not be known. He put a floor under the QE operations to support easy financial conditions, rather than market functioning, and completely dismissed the strong employment report from the week earlier that had led to a strong rally in risk assets.
US: Data has been positive. NFIB small business optimism index rebounded to 94.4 (92.5 exp., 90.9 prev.). University of Michigan Consumer Sentiment index was significantly above expectations as well at 78.9 (75 exp., 72.3 prev.) as both current conditions and expectations components came in better than expected. CPI report for May was slightly under the expectations with headline and core measures -0.1% MoM. Continuing Jobless claims stayed around 21 million.
Canada: Housing starts were better than expected at 193.5k (160k exp., 166.5k prev.).
Eurozone: Industrial Production numbers for April were released in Germany, France and Italy declining around 20% as was largely expected. No more major data releases.
Sweden: Household consumption dropped 10% YoY in April, while unemployment stayed largely unchanged in May at 5.1% vs. 4.8% in May. CPI report came much stronger than expected with 0.6% increase in headline number in May (0.3% exp., -0.3% prev.)
Q1 GDP was revised slightly lower to -0.6% QoQ primarily due to lower private consumption -0.8% QoQ. Machine tool orders declined to 53% YoY in May while Core machine orders dropped 17.7% YoY in April.
GDP report for April showed 20% MoM drop as the economy entered the lockdown, with double-digit declines across Services, Manufacturing, Industrial Production and Construction.
Australia: NAB business conditions and confidence indices both rebounded from all-time low levels in September to -24 and -20 respectively. Westpac consumer confidence index continued recovering from 30y lows, improving 6.3% MoM (16.4% prev.).
New Zealand: ANZ business confidence improved from -41.8 to -33 in May. Retail Card spending in May jumped 79% MoM (60% exp., -47.5% prev.) as restrictions were eased. Manufacturing PMI recovered slightly to 39.7 from 25.9 previously.
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