Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary:

By: Ariel Segal

Initial jobless claims increased unexpectedly on Thursday, surpassing estimates by 73k and hitting its highest level since August 21st. Increasing virus cases, colder weather reducing demand for outdoor dining, and recent airline job cuts are all possible contributors. However, continuing claims was reported to be lower than estimates, falling by 1.17 million.

On Friday, the retail sales report beat estimates with an increase in overall sales by 1.9%, the largest increase since June.

House Speaker Nancy Pelosi has set a deadline on Tuesday to reach an agreement with the White House to potentially push through legislation for additional stimulus before the election. The White House and Speaker Pelosi seem to be approaching a similar number in terms of the size of the stimulus at around $2.2 trillion, but Majority Leader McConnell says that most GOP senators will oppose any deal that large. Disagreement over language on a plan to control the virus remains. Issues included aid to states and republican demands for an employer liability shield.

Fixed Income Market:

By: Joseph Colleran

On the week, the corporate market saw spreads versus UST’s widen.  IG spreads were out 3-5 bps while HY names were wider by 10.   This was somewhat of a reversal from the prior week in which spreads tightened across all sectors. Overall, street activity was lighter.  Market focus is now locked on the Election (two weeks from tomorrow) and the congressional negotiations surrounding a second fiscal stimulus package.   Dems have indicated that an agreement must be completed by tomorrow or they will walk away until after the election.   Meanwhile, retail Structured Note demand remains consistent as the high volatility levels in the equity markets continue to provide a favorable landscape.  The recent steepening in the UST curve has led to a resurgence of interest in S/N’s tied to the yield curve –  we have seen good two-way interest in these “steepeners”.

 Lipper Fund flow data for the week showed:    

    Domestic Equity Funds    down    $8.6 BLN

    IG Bond Funds                     up       $6.8 BLN

    HY Bond Funds                     up      $1.8 BLN

    Municipal Bond Funds        up      $0.4 BLN

    MMKT Funds                      down   $18.9 BLN

Prior Week:

    Domestic Equity Funds   down   $ 3.5 BLN

    IG Bond Funds                      up       $7.1 BLN

    HY Bond Funds                     up       $4.1 BLN

    Municipal Bond Funds        up       $1.5 BLN

    MMKT Funds                      down    $20.4 BLN

U.S Equities:

By: James Zurovchak

After choppy trading (markets started off with a strong 1-day rally, followed by three down days and a mixed day to end the week) all three indices finished the week marginally higher with NASDAQ up 0.79% and S&P 500 and DJI finishing up 0.21% and 0.07% respectively.   Although only 3 GICS sectors out of 11 were up, the declines were modest save for Real Estate (-2.38%), Energy (-1.95%) and Financials (-0.95%).  Industrials was the top performer (1.10%).  Growth again slightly outgained Value 0.38% vs         -0.14%.  Economic indicators continue to be mixed, providing no direction for the markets.  Retail sales rose at the fastest pace in three months and consumer sentiment ticked up.  However, manufacturing showed an unexpected decline.  The waters are also muddied by Covid-19’s continued rise in the US and Europe and stimulus talks have been off again on again with time quickly running out to get a deal done before the election.   The campaign trail will also likely garner attention as we hit the two-week mark till the election. 

Foreign Exchange:

By: Anthony Minardo

The U.S. dollar continues to be mixed with U.S. elections two weeks away, increasing cases of the COVID-19 virus globally, and an impasse on US fiscal stimulus talks.  The final U.S. presidential debate will be held on Thursday and with the markets beginning to price in a sweep by the democrats, risk assets are supported to begin the week.   Global economic continues its slow recovery with an improvement in US employment, a sharp rebound in China’s economy, and progress on a COVID vaccine.

Financial Planning:

By: Brian Stigliano

Joe Biden’s Proposed 401(k) Plan Changes

Should we see a “blue wave” in the upcoming elections, it is very likely that we will see changes to how contributions to employer sponsored 401(k) plans are treated.  Under current rules, one who is under age 50 can contribute up to $19,500 of earned income per year, and those over age 50 can contribute an additional $6,500 for a total of $26,000 per year.  Those contributions are made on a pre-tax basis thus reducing one’s taxable income.  The balances in the plan then grow on a tax-deferred basis becoming taxable upon distribution, typically during one’s retirement years. 

The current rules provide a greater benefit for those in the highest tax brackets.  For example, a contribution of $26,000 for someone in the 37% tax bracket provides a tax savings of $9,620 while the same contribution for someone in the 24% tax bracket provides a benefit of $6,240

Mr. Biden’s proposal introduces a benefit based on the amount contributed with a flat deduction of approximately 26%.  Under this proposal, the example above provides a tax savings of $6,760 to both plan participants regardless of their individual tax brackets.  Since there is less of a benefit for those in the highest tax brackets, many financial planners anticipate the increased use of Roth 401(k) contributions in which there is no tax savings on the contribution.  However, the balances inside the Roth 401(k) will grow tax free and will not be taxable upon distribution.      

Last Week's Economic Data for 10/19

Last Week's Economic DataActualSurvey
PPI Final Demand MoM0.4%0.2%
Initial Jobless Claims898k825k
Retail Sales Advance MoM1.9%0.8%

Last Week's Economic Data for 10/19

Last Week's Economic DataActualSurvey
PPI Final Demand MoM0.4%0.2%
Initial Jobless Claims898k825k
Retail Sales Advance MoM1.9%0.8%

Market Data for 10/19

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.14%(0.1 bp)(1.2 bp)(170.7 bp)
3 Month Libor0.21%(2.0 bp)(1.7 bp)(174.5 bp)
6 Month Libor0.25%+1.1 bp(2.1 bp)(169.8 bp)
12 Month Libor0.34%(0.8 bp)(3.4 bp)(164.8 bp)
Fed Funds Effective0.09%(181.0 bp)
SOFR0.09%(1.0 bp)(196.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.12%(0.3 bp)+0.8 bp(144.1 bp)
2-Year0.15%(0.8 bp)+0.6 bp(142.9 bp)
3-Year0.18%(1.6 bp)+2.1 bp(137.3 bp)
5-Year0.33%(1.1 bp)+4.5 bp(124.1 bp)
7-Year0.54%(1.1 bp)+6.3 bp(111.8 bp)
10-Year0.76%(0.8 bp)+0.6 bp(142.9 bp)
30-Year1.55%(0.8 bp)+0.6 bp(142.9 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.21%(1.3 bp)(2.2 bp)(155.6 bp)
2-Year0.23%(0.8 bp)+1.2 bp(141.7 bp)
3-Year0.27%(0.7 bp)+3.8 bp(134.1 bp)
5-Year0.41%(0.7 bp)+7.8 bp(119.8 bp)
7-Year0.57%(1.2 bp)+9.8 bp(107.7 bp)
10-Year0.79%(0.4 bp)+11.7 bp(94.5 bp)
30-Year1.20%(2.8 bp)+14.9 bp(72.9 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+8 bp(1.1 bp)(3.0 bp)(11.5 bp)
2-Year+9 bp+0.6 bp+1.2 bp
3-Year+9 bp+0.9 bp+1.7 bp+3.2 bp
5-Year+8 bp+0.4 bp+3.4 bp+4.3 bp
7-Year+3 bp(0.1 bp)+3.5 bp+4.2 bp
10-Year+3 bp+0.4 bp+11.1 bp+48.3 bp
30-Year(35 bp)(2.0 bp)+14.3 bp+70.0 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 28,536 (0.2 %)+3.2%+6.6%
S&P 500 3,474 (0.3 %)+4.7%+16.4%
NASDAQ 11,640 (0.3 %)+7.8%+43.9%

CurrenciesCurrentWoWMoMYoY
Euro1.1789(0.2 %)+0.2%+5.7%
Japanese Yen105.4200(0.1 %)(0.7 %)+3.0%
British Pound1.2996(0.5 %)+1.4%+0.3%
Canadian Dollar1.3156(0.3 %)+1.2%(0.5 %)
Australian Dollar0.7090(1.7 %)(1.9 %)+3.2%
Swiss Franc0.9092(0.0 %)+0.6%+8.4%
Israeli Shekel3.3809+0.3%+2.1%+4.8%
Bitcoin 11,808 +2.1%+12.7%+43.9%

CommoditiesCurrentWoWMoMYoY
Gold 1,908 (0.8 %)(2.2 %)+28.1%
Silver25(2.1 %)(8.2 %)+40.1%
Copper309+0.8%(0.8 %)+17.2%
Crude Oil41+4.4%+0.1%(23.4 %)

Source: Bloomberg L.P.

IMPORTANT DISCLOSURES
The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA.  Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

•             Not insured by the FDIC or any other federal or government entity

•             Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

•             Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 | ariel.segal@leumiusa.com  

IMPORTANT DISCLOSURES

The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA. Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

• Not insured by the FDIC or any other federal or government entity

• Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

• Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

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