March 20, 2020 Headlines

Financial markets are starting the day on better footing again, but the question is whether it will hold for the full day. Fixed income markets started stronger yesterday morning, with Treasury yields falling and agency MBS outperforming rates after the Fed announced it would buy an additional $10 billion ($15 billion total) for expedited settlement (T+2). However, market liquidity couldn’t hold up, and MBS underperformed Treasuries again in the afternoon session. The Fed was paying close attention, and after the 4pm close, it announced it would be more than doubling MBS purchases for today at $32 billion. Additionally, the Fed will be buying $75 billion of Treasuries across the curve. We will see if this is enough to ease the liquidity pressures in these markets, and if not, the Fed will likely increase purchases again.

Realized volatility in Treasuries and MBS has been extreme this week for several reasons, including significant deleveraging and fund redemptions at a time when broker dealers are unwilling/unable to add risk to their balance sheets. In other words, investors have been forced to sell assets at the absolute worst time, and absent the broker-dealer bid, there’s not enough demand to cover this liquidity squeeze without central banks stepping in. Not to mention the operational challenges of many market participants being unable to work from their offices. The good news is that the Fed and other central banks are just sitting on the sidelines when market functionality is broken.

Jason Haley
Chief Investment Officer

Date Event Survey Actual Prior Revised
3/16/2020 Empire Manufacturing 3 -21.5 12.9
3/16/2020 Net Long-term TIC Flows $20.9b $85.6b
3/16/2020 Total Net TIC Flows $122.9b $78.2b $78.7b
3/17/2020 Retail Sales Advance MoM 0.20% -0.50% 0.30% 0.60%
3/17/2020 Retail Sales Ex Auto MoM 0.10% -0.40% 0.30% 0.60%
3/17/2020 Retail Sales Ex Auto and Gas 0.30% -0.20% 0.40% 0.70%
3/17/2020 Retail Sales Control Group 0.40% 0.00% 0.00% 0.40%
3/17/2020 Industrial Production MoM 0.40% 0.60% -0.30% -0.50%
3/17/2020 Capacity Utilization 77.10% 77.00% 76.80% 76.60%
3/17/2020 Manufacturing (SIC) Production 0.20% 0.10% -0.10% -0.20%
3/17/2020 Business Inventories -0.10% -0.10% 0.10% 0.00%
3/17/2020 JOLTS Job Openings 6400 6963 6423 6552
3/17/2020 NAHB Housing Market Index 73 72 74
3/18/2020 MBA Mortgage Applications -8.40% 55.40%
3/18/2020 Housing Starts 1500k 1599k 1567k 1624k
3/18/2020 Housing Starts MoM -4.30% -1.50% -3.60% 1.40%
3/18/2020 Building Permits 1500k 1464k 1551k 1550k
3/18/2020 Building Permits MoM -3.20% -5.50% 9.20%
3/19/2020 Current Account Balance -$108.6b -$109.8b -$124.1b -$125.4b
3/19/2020 Revisions: Jobless Claims
3/19/2020 Philadelphia Fed Business Outlook 8 -12.7 36.7
3/19/2020 Initial Jobless Claims 220k 281k 211k
3/19/2020 Continuing Claims 1738k 1701k 1722k 1699k
3/19/2020 Bloomberg Economic Expectations 46.5 57.5
3/19/2020 Bloomberg Consumer Comfort 63 62.7
3/19/2020 Leading Index 0.10% 0.10% 0.80% 0.70%
3/20/2020 Existing Home Sales 5.51m 5.46m
3/20/2020 Existing Home Sales MoM 0.90% -1.30%



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