Week in Review 6/5/2020

Stock markets continue to rally globally as coordinated expansionary monetary and fiscal policy continue to prove effective in combating the pandemic’s demand collapse.

In the US, the S&P 500 closed Friday at 3,193 (down just 1.14% YTD) and the Nasdaq hit an intraday record high, shaking off nationwide civil rights protests that have occurred in over 700 cities. Likely driven by the big surprise in employment- the BLS reported that the US added 2.5 million jobs in the month of May.

However, initial jobless claims at 1.87 million on the week. Bankruptcies up 48% in May, per WSJ. Apparent misclassification error in jobs report may lead to revisions on a later day [1,2,3].

From BLS Jobs Report News Release:

“However, there was also a large number of workers who were classified as employed but absent from work…

…If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis).”

https://www.bls.gov/news.release/empsit.nr0.htm

US benchmark rate up on Friday as well as investors may be shifting towards risk on.

Dollar index shows a weakening, prompting questions of whether the FED will continue to be so accommodating. M2 Supply levels seem to be plateauing.

US ISM sentiment improving as early talks of reopening plans inspire hope for some.

We do see another uptick in in Fed Repo purchases, suggesting there may have been some turbulence in the overnight credit markets in recent days.

US yield curve seems to imply that recovery is based on the long term exceptions for the US, as most of the risk on yields are past the 2 year bill. Junk bond spreads tighten a bit more as well.

Internationally, we see that German benchmark rates continue their ride of optimism. EU CBs and BOJ continues to expand balance sheets in May as well.

Inflation expectations continue to ramp up in the UK.

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