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

3/16/2020Empire Manufacturing3-21.512.9
3/16/2020Net Long-term TIC Flows$20.9b$85.6b
3/16/2020Total Net TIC Flows$122.9b$78.2b$78.7b
3/17/2020Retail Sales Advance MoM0.20%-0.50%0.30%0.60%
3/17/2020Retail Sales Ex Auto MoM0.10%-0.40%0.30%0.60%
3/17/2020Retail Sales Ex Auto and Gas0.30%-0.20%0.40%0.70%
3/17/2020Retail Sales Control Group0.40%0.00%0.00%0.40%
3/17/2020Industrial Production MoM0.40%0.60%-0.30%-0.50%
3/17/2020Capacity Utilization77.10%77.00%76.80%76.60%
3/17/2020Manufacturing (SIC) Production0.20%0.10%-0.10%-0.20%
3/17/2020Business Inventories-0.10%-0.10%0.10%0.00%
3/17/2020JOLTS Job Openings6400696364236552
3/17/2020NAHB Housing Market Index737274
3/18/2020MBA Mortgage Applications-8.40%55.40%
3/18/2020Housing Starts1500k1599k1567k1624k
3/18/2020Housing Starts MoM-4.30%-1.50%-3.60%1.40%
3/18/2020Building Permits1500k1464k1551k1550k
3/18/2020Building Permits MoM-3.20%-5.50%9.20%
3/19/2020Current Account Balance-$108.6b-$109.8b-$124.1b-$125.4b
3/19/2020Revisions: Jobless Claims
3/19/2020Philadelphia Fed Business Outlook8-12.736.7
3/19/2020Initial Jobless Claims220k281k211k
3/19/2020Continuing Claims1738k1701k1722k1699k
3/19/2020Bloomberg Economic Expectations46.557.5
3/19/2020Bloomberg Consumer Comfort6362.7
3/19/2020Leading Index0.10%0.10%0.80%0.70%
3/20/2020Existing Home Sales5.51m5.46m
3/20/2020Existing Home Sales MoM0.90%-1.30%



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