U.S. Recovery Slows as New Infections Soar, and How Long Until Sluggish Bond Yields Pick Up?
July 10, 2020 | FIRESIDE CHARTS
While the economic recovery thus far hasn’t been insubstantial, it’s far from the V many were hoping for and appears to be losing momentum heading into Q3. Unemployment remains stubbornly high as initial claims top 1 million for the 16th straight week and continuing claims hit a new record. Secondary shutdowns due to surging infection counts in the South and West are a major contributor to the sluggish employment recovery, and are likely to make their presence known in Q2 and Q3 regional GDP figures—states in the Northeast saw significant contractions in Q1 during the worst of their initial outbreaks. Deaths just hit daily highs in Texas and Florida and U.S. daily cases just surpassed 60,000 for the first time, so the threat is far from over. Bond yields remain weak as the 10-year UST yield dips to 0.57% thanks to a record-low federal funds rate, massive waves of QE and high demand, but could they gain some ground as economic activity starts to pick up? The 10-year Treasury yield has tended to move in pretty close concert with ISM Manufacturing PMI… And could China be heading for trouble as their stock market posts trillion dollar gains at a breakneck pace and the Yuan strengthens? Much of their dominance in global trade has been thanks to the lower relative value of their currency…
1. The recovery in the U.S. appears to be stalling…
Source: Oxford Economics, as of 6/30/20
2. With another 1.4 million new unemployment claims last week, the jobs recovery has clearly stalled as well…
Source: Oxford Economics, as of 6/30/20
3. The stall is mostly due to states where the virus is surging and forcing new closures.
Source: WSJ Daily Shot, from 7/10/20
4. Continuing unemployment claims hit a new record…
Source: Economic Policy Institute, as of 6/30/20
5. First quarter GDP contracted more in the Northeast which makes sense as this is where Covid struck first. The second and third quarters should see a shift to the current outbreaks in the South and West…
Source: Bloomberg, as of 6/30/20
6. The US now has over 3 million confirmed cases and that is growing by ~60,000 cases a day. That’s about 6 times more daily cases then when we shut down.
Source: JHU CSSE, as of 7/9/20
7. With the UST 10-year yield now at 0.57%, the search for yield is driving corporate bond yields lower as well…
Source: WSJ Daily Shot, from 7/10/20
8. Will the recovery in U.S. manufacturing spark a bond yield recovery? Maybe, but “Don’t fight the Fed” who has unlimited QE and a stated desire to keep yields low through 2022…
Source: WSJ Daily Shot, from 7/9/20
9. A nice perspective on QE in Europe…
Source: WSJ Daily Shot, from 7/9/20
10. As Chinese bond yields rise to “normal” levels, it is giving a strong tailwind to the Yuan…
Source: WSJ Daily Shot, from 7/9/20
11. Too far, too fast? Markets are rarely rational or efficient in the short term…
Source: WSJ Daily Shot, from 7/10/20
12. So much for summer heat knocking down the virus! Perhaps recirculating air conditioning has something to do with it…
Source: WSJ Daily Shot, from 7/10/20
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