July 6, 2020 - Market Update

Stocks – Stocks climbed following the holiday weekend as a rally in Chinese shares pushed a global equity benchmark toward a one month high. The front-page  editorial in state-owned China’s Securities Times on Monday explaining the importance of fostering a healthy bull market after a pandemic pushed the Shanghai Composite index up 5.7%, the largest single-day increase since 2015. The sharp rally in global stocks is another sign of rebounding economic activity from coronavirus related lockdowns though experts still maintain that the US economy is still a long way from attaining pre-pandemic levels.  Goldman Sachs cut its estimates for US gross domestic product this quarter as consumer spending appears likely to stall in the next few months.

Treasury – Intermediate and long-maturity Treasuries opened moderately lower, as stocks are getting a boost from strong overseas sessions. The 10-Year Treasury is yielding 0.70%. The ISM non- manufacturing number jumped to a four-month high in June and showed the resumption of growth as the economy reopened more broadly from pandemic induced lockdowns. The gauge soared a record 11.7 points to 57.1 last month. Readings above 50 indicate growth. The rebound at service providers follows a similar jump in the group’s manufacturing gauge and indicates the economy is recovering from its pandemic-related recession. At the same time, recent spike in Covid-19 cases threatens to restrain the pace of improvement in services, which make up nearly 90% of the economy.

MBS – MBS mostly outperformed Treasuries in Thursday’s holiday-shortened trading session that included a large menu of economic releases. While the entire 30-year Fannie coupon stack closed within a tick of its hedge ratios, Ginnies had a fairly strong session, with GNII 2.5s and 3s outperforming their 10-year hedge ratios by 3 and 1 tick, respectively. 15-year Fannie performance was mixed; Dwarf 2s tracked the 5-year note, while 2.5s outpaced the 5-year by 3/32s. Trading volumes were solid given the early close; FINRA reported $185 billion in total activity including $11.4 billion in spec pools.