May 11, 2020 - Market Update

The Fed buying schedule saw a reduction in the maximum MBS purchases to $5B a day where they will be focusing purchases in 2.0%-3.0% coupons in 30yr conventionals going forward.  Origination supply was on the lighter side to end the week, reported at ~$8B versus Thursday’s ~$8.5-$10B. 

In fixed income markets, U.S. Treasuries sold off as investors were more optimistic over the pace of the economic recovery.  The benchmark 10yr closed 4bps higher at 0.68%. 

Equities finished decisively higher last week, with energy and technology sectors leading the charge.  Oil recorded its first back-to-back weekly gain since February, as oil companies are cutting production faster than anticipated, paired with signs of increasing demands emerging.  On the economic front, the Department of Labor reported employers cut 20.5 million jobs in April, pushing the unemployment rate to 14.7%.  The silver lining was that 80% of the job losses were reported as temporary layoffs.  Investors were also encouraged Friday on signs of an easing in trade tensions between Washington and Beijing.  A report that top trade negotiators for U.S. and China spoke on the phone, pledging to create favorable conditions for their phase-one trade deal settled nerves. 

There are no significant releases scheduled for today. This week’s economic calendar consists of updates on wholesale and retail inflation, import prices, retail sales, industrial production, business inventories, and consumer sentiment. 

Fed speakers consist of several regional Fed presidents slated to speak at events on Tuesday along with Chair Powell who will give remarks on the economy and participate in a discussion at the Peterson Institute for International Economics on Wednesday morning.  

While sales of paper products and comfort foods spiked in March and early April, they’re returning to normal. Not so for alcohol! For the five weeks ending 4/18, retail sales are up an average of 24%, with spirits up the most at 33% (with ready-to-drink cocktails, tequila, and gin up the most). Total drinking probably isn’t up as 20%-25% of alcohol is normally consumed outside the home.