July 8, 2020 - Market Update

Stocks – Stocks opened higher as large tech companies continued to experience gains and Chinese shares extended their winning streak for a seventh day. The Shanghai Composite Index is up 1.7%, adding to an 8% overall increase during the week. Investors are considering signs that the rebound in economic growth has lost speed such as an increase in Coronavirus cases in several areas of the country and rising tension between China and the U.S. Some advisors from the White House have reportedly proposed a move to destabilize Hong Kong’s currency peg in a response to China’s recently imposed national security law on Hong Kong. The U.S. saw a new single-day record as 60,000 new Coronavirus cases were reported on Tuesday. The U.S. weekly jobless claims report on Thursday will be in focus amid concerns that unemployment rates may start to rise again after dropping in June.


Treasury – Intermediate and long Treasury prices opened lower, as equities regained some ground after Tuesday’s selloff. The 10-Year Treasury is yielding 0.67%. The nation’s economic recovery is losing momentum, as a new wave of coronavirus infections causes businesses to scale back in several big states and consumers exercise more caution. Restaurant seating rates have fallen in Florida, California, Arizona and Texas. Foot traffic to businesses has ebbed in some states since late June. Google searches for “file for unemployment” in Arizona and Florida are rising. The new economic disruptions are concentrated in the three most populous states—California, Texas and Florida—and Arizona, all of which have seen a rise in infections in recent weeks. Together, those states make up about 30% of all U.S. economic output, according to Moody’s Analytics. State and city leaders have imposed new restrictions on businesses to prevent further spread, though many consumers had already voluntarily stopped going out, according to foot-traffic data.

MBS – MBS exhibited a strong down-in-coupon bias on Tuesday, as lower (and more liquid) coupons had a strong session marked by heavy volumes. 30-year Fannie 2s through 3s outperformed the 10-year note by 3-6 ticks, duration-neutral, while 3.5s and higher lagged 10s by 1-3 ticks. Ginnies had a similar session, with GNII 2s through 3s outpacing the 10-year by 3-5 ticks while 3.5s and higher underperformed by as much as 5/32s. 15-year Fannies also joined the DIC move, with Dwarf 2s and 2.5s outperforming the 5-year by 4 and 2 ticks, respectively, while 3s and higher lagged 5. (The outperformance shown by Dwarf 3.5s was the reversal of the prior day’s bad mark.) Trading activity picked up sharply, with $478 billion in total volumes including over $33 billion in specified pool trades. The MBA reported that the seasonally-adjusted purchase application index rose 5% for the week ending 7/3, while the refi index was little changed; the 30-year conventional survey rate dropped to a new all-time low of 3.26%.

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