As social-distancing measures are relaxed across the U.S., Wall Street is searching in some unconventional places for clues about where interest-rate markets are headed.
The rally in U.S. Treasuries buckled to risk-on sentiment earlier this month on signs of progress in the reopening of businesses around the country and a turnaround in economic data. But interspersed with those announcements have been worrying reports of spikes in Covid-19 cases in first-mover states. That’s pulled yields back into the tight ranges they had briefly escaped.
The journey back to life as usual is what the investment community is fixated on right now, which means alternative data are rivaling upcoming surveys on manufacturing and service industries for importance. Next week, analysts will pore over measurements of the flow of people, indicators that are getting even more critical as the country plans travel and celebrations for the Independence Day holiday.
“We are all watching other measures of social distancing -- are people just going to parks or are they going to restaurants -- and hospitalization rates,” said Priya Misra, global head of rates strategy at TD Securities in New York.
TD’s dashboard includes data on online dinner reservations and the use of public transport versus walking and bikes. It suggests the economic recovery remains intact, “but with a long way to go before the collapse in activity is reversed,” according to the firm’s macro strategists.
Misra expects yields to retest their lows again at some point, but says rates are most likely to shuffle sideways in the next few days.
The benchmark 10-year yield finished Friday around 0.7%, near the midpoint of its 13-basis-point range over the week. It rose to just below 1% early in the month on a stunning jump in payrolls, which raised some conviction among investors that the economy was already through the worst of the pandemic and shutdown.
Federal Reserve Chairman Jerome Powell said this week in his testimony to Congress that the economy appears to be at the beginning of a recovery phase, while also acknowledging that the central bank’s visions of improving growth in the second half of the year don’t assume a renewed series of shutdowns.
Investors are keeping tabs on the biggest threat to recovery. Apple Inc. highlighted the pitfalls the economy faces on Friday, announcing that it is temporarily shutting 11 stores across Florida, Arizona, North Carolina and South Carolina after cases of Covid-19 spiked in some areas.
Some believe the most-dependable traditional indicators are likely to be hard data such as jobless claims, which this week rose by another 1.5 million, rather than surveys such as the payrolls report or the IHS Markit purchasing manager indexes due Tuesday.
“Who’s answering their surveys right now? Not the companies going out of business, not the companies that are in deep financial distress,” said Julia Coronado, founder and president of MacroPolicy Perspectives LLC and a former Fed economist. “We know this is a pattern in downturns. In a downturn like this I can only imagine it’s more pronounced.”
What to Watch
Economic calender:June 22: Chicago Fed national activity index; existing home salesJune 23: Markit U.S. PMIs; new home sales; Richmond Fed manufacturing indexJune 24: MBA mortgage applications; FHFA house price indexJune 25: Advance trade goods balance; wholesale/retail inventories; durable goods; GDP; jobless claims; Bloomberg consumer comfort; Kansas City Fed manufacturing activityJune 26: Personal income/spending; PCE deflator; University of Michigan sentimentFed calendar:June 24: Chicago Fed’s Charles Evans; St. Louis Fed’s James BullardJune 25: Dallas Fed’s Robert Kaplan; Atlanta Fed’s Raphael BosticAuction calendar:June 22: 13-, 26-week billsJune 23: 2-year notesJune 24: 2-year floating-rate notes; 5-year notesJune 25: 4-, 8-week bills; 7-year notes
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