The Range is Strong in This One
The focus of trading this week has once again been on the trend in case counts and drug trial results for COVID-19. While the net of that has been a range-bound market, both in equities and fixed income, the data that did arrive continues to paint a grim picture. Jobless claims were down from last week but still in the 4+ million range, with 26.5 million people having filed claims since the onset of the pandemic. April PMI readings posted equally doleful readings but this morning the March Durable Goods Orders were less horrible than expected and that sets the stage for next week’s FOMC meeting. While the Fed is not expected to announce any new programs, or changes to policy, they may formalize some expected tweaks to some of the programs announced in the last couple weeks. Expansion of the Municipal Liquidity Facility beyond the states and approximately 24 cities initially eligible is expected, as are more lenient terms to the Main Street Lending Program that kicks off in just a few days.
Once again the weekly Jobless Claims Series is proving to be the best real-time indicator of the economic devastation being doled out by shelter-in-place orders. In the week ending April 18, 4.427 million people filed jobless claims, down from 5.237 million the prior week, and below the consensus estimate of 4.5 million. The five week total of jobless claims spanning the pandemic has reached 26.5 million. The report also showed that the seasonally-adjusted insured unemployment rate increased from 8.2% to 11.0% for the week ended April 11, a new high for the series. Comparing that insured unemployment rate to the more famous unemployment rate in the monthly jobs report implies a 19% to 20% unemployment rate.
It’s not clear to what extent the latest claims number reflects millions of people still losing their jobs in the past week, or whether it’s more a reflection of jobless workers who were only now able to get through backlogged claims offices. California reported the most initial claims last week, at an unadjusted 533,600, down from 655,500 the prior week. Florida was next at 505,000, more than double the prior week as that system was overwhelmed early. Texas followed at 280,400, up slightly from the prior week, while Georgia and New York also reported more than 200,000 filings, though both were down from the previous week.
US Treasury Adds the Shake Shack Rule for the SBA PPP Program
You can call it the Shake Shack rule, but with the SBA Paycheck Protection Program set for Round 2 some new rules are being put in place to see that funds are indeed going to small businesses in dire need of said funding. The new guidance was issued after small businesses complained that large, publicly traded companies and big chains such as Shake Shack and Ruth’s Chris Steakhouse were getting loans while they were shutout in the initial $349 billion in funding for loans.
The Treasury Department released new guidance yesterday ahead of the next round of funding for the PPP relief program that emphasizes companies must certify the request is necessary, in an effort to limit large firms with other funding options from applying. Treasury Secretary Mnuchin has said the fund is intended for small businesses, and the guidance emphasizes that companies must assess their economic need for a loan under the program, and “certify in good faith that their PPP loan request is necessary.” Companies that want to return money they’ve already accepted can do so by May 7without penalty, the guidance said..
Congress approved the additional $320 billion in PPP funding yesterday and once the President signs it into law banks can once again accept applications on the wildly popular loan program. The initial $349 billion was allocated in 13 days but it was found that many of the largest banks focused their loan application efforts on their largest commercial customers that often included publicly traded firms with a host of other funding options available to them rather than the traditional small business client that can’t access the public debt or equity markets.
McConnell and the Muni Market
Senate Majority Leader Mitch McConnell made news on Wednesday when he said that he would prefer states file for bankruptcy before being allowed to use federal funds that might be used to repair pension fund problems. Considering state bankruptcy was brought up for consideration during the Great Recession and was shot down then, it’s likely to get similar treatment this time too. Just the mere mention of it, however, sent some shivers through the muni market as you can see in the increase in yields across the AAA-rated curve yesterday (red line) versus Tuesday (blue line). While allowing states to file for bankruptcy isn’t likely to become reality, it does signal that negotiations over the next stimulus bill, which is to focus on state and municipal aid, will be contentious.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.10%||-0.02%||1 Mo LIBOR||0.57%||-0.18%||FF Target Rate||0.00%-0.25%||3 Year||0.374%|
|6 Month||0.13%||-0.03%||2 Mo LIBOR||1.02%||-0.33%||Prime Rate||3.25%||5 Year||0.449%|
|2 Year||0.22%||+0.02%||6 Mo LIBOR||0.99%||-0.16%||IOER||0.10%||10 Year||0.647%|
|10 Year||0.61%||-0.02%||12 Mo LIBOR||0.97%||-0.04%||SOFR||0.01%|