April 28, 2020 - Market Update

The Federal Housing Finance Agency announced yesterday that borrowers will not be required to make lump-sum repayments at the end of the forbearance period for loans purchased by Fannie Mae and Freddie Mac. FHFA Director Mark Calabria stated, “During this national health emergency, no one should be worried about losing their home… while today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”

Treasury yields edged higher on Monday, fueled by news that European policy makers will provide additional capital relief to the banking system while the Bank of Japan announced plans to buy triple the amount of corporate debt to aid companies affected by COVID-19. BOJ also got rid of their targeted purchase amount of government bonds, and instead pledged to buy unlimited quantities as part of the stimulus plan. The sell-off led to a bear steepening of the yield curve, and the 10yr yield experienced its largest 1-day increase in 3 weeks. The 2yr yield ended the day unchanged at 0.22% and the 10yr yield rose (+0.06) to 0.66%.

Stock markets had a positive start to the week with equities in US, Europe, and Asia advancing higher throughout the day. Meanwhile, the ongoing oil surplus prevented WTI crude futures from holding onto Friday’s gains, inciting a 25% tumble to a price of $12.78 per barrel to end the day. Even so, the oil glut was unable to pull focus this Monday. Investors took an optimistic tone in response to news that many countries are starting to see an end in sight to the stay-at-home restrictions imposed by the Coronavirus pandemic. Headlines also focused on relief measures implemented in Europe and Japan, which provided additional support to drive stocks higher.

In the next few days, investors will mainly be focused on corporate earnings and the upcoming policy announcements by the Federal Reserve and European Central Bank. Earnings reports will provide key insights into some of the world’s largest companies’ expectations about what the aftermath of economic lockdowns will look like in the second half of this year. Still, the outlook remains very uncertain so the extent to which earnings forecasts can be relied on is hard to say. At the close the DJIA improved +358.51 to 24,133.78, the Nasdaq was up +95.64 to 8,730.16, and the S&P 500 rose +41.74 to its highest close since March 10^th at 2,878.48.

For the week ending 4/17/20, US petroleum demand averaged 14.1 million bbl/day, down 31% from the 2020 average through 3/13/20 before travel restrictions began. The 14.1 million bbl/day level is up slightly from 13.8 million bbl/day the previous week; the lowest weekly average level since the early 1990s. Demand for motor fuel has fallen 40%, jet fuel dropped 62%, and diesel fuel demand, dominated by trucking, has slipped just 20%.

Market Levels (May):