Treasuries

July 6, 2020

Short-Term Rates

Economic Calendar

JULY 6—10, 2020

1. Reopening vs. Virus Counts—All Week 2. June ISM Non-Manufacturing Index—Monday 3. May JOLTS Job Openings-Tuesday 4. Initial Jobless Claims—Thursday 5. June PPI Report—Friday

Top 5 Events for the Week

Fed Funds 0.25%

Prime Rate 3.25%

3 Mo LIBOR 0.28%

6 Mo LIBOR 0.37%

12 Mo LIBOR 0.51%

Swap Rates

3 Year 0.240%

5 Year 0.342%

10 Year 0.667%

Tug-of-War Between Case Counts and Reopening Continues Perhaps there’s no better way to illustrate the tug-of-war between hopes for better economic results from reopenings and concern over increasing case counts

than the reaction last Thursday to the June jobs report. While almost every metric in that report beat expectations, topped by a record 4.8 million new jobs,

equities gave back much of their gains as the trading day wore on. Perhaps it was the knowledge that as good as the jobs report appeared to be, the surveys

were taken during the second week of the month, just before increasing case counts took hold in the second-half of June. It’s a good a example that until those

case counts start to decline, and we’re definitely not there yet, equities will struggle while Treasuries will continue to trade in the well-worn 0.54%-0.78%

range for the 10-year note. Today’s ISM Non-Manufacturing Index will give us another tell on June activity focused on the services side which accounts for

about 90% of the economy. The index is expected to print a 50.2 versus 45.4 in May. If that happens it will mark the return of a sector that sunk to 41.8 in

April, firmly in recession territory. The caveat here, however, like the jobs report, is whether case count spikes will slow the momentum of early to mid-June.

That will be the key factor the market wrestles with as we work through the month.

Date Statistic For Briefing Forecast Market Expects Prior

Jul 6 Markit US Services PMI Jun F 47.0 46.9 46.7

Jul 6 ISM Non-Manufacturing Index Jun 50.0 50.2 45.4

Jul 7 JOLTS Job Openings May 4.800mm 4.500mm 5.046mm

Jul 9 Initial Jobless Claims Jul 4 1.375mm 1.375mm 1.427mm

Jul 9 Wholesale Trade Inventories May F -1.2% -1.2% -1.2%

Jul 10 PPI Final Demand MoM Jun 0.4% 0.4% 0.4%

Jul 10 PPI Ex Food & Energy MoM Jun 0.1% 0.1% -0.1%

Jul 10 PPI Final Demand YoY Jun -0.2% -0.2% -0.8%

Jul 10 PPI Ex Food & Energy YoY Jun 0.5% 0.4% 0.3%

Treasury Curve Today Week Change

3 Month 0.14% +0.02%

6 Month 0.16% UNCH

1 Year 0.15% UNCH

2 Year 0.16% UNCH

3 Year 0.19% +0.01%

5 Year 0.31% +0.01%

10 Year 0.69% +0.04%

30 Year 1.45% +-0.07%

1. Reopening/Virus Case Trends-All Week

Perhaps there’s no better way to illustrate the tug-of-war between hopes for better economic results from reopenings and concern

over increasing case counts than the reaction last Thursday to the June jobs report. While almost every metric in that report beat ex-

pectations, topped by a record 4.8 million new jobs, equities gave back much of their gains as the trading day wore on. Perhaps it was

the knowledge that as good as the jobs report appeared to be, the surveys were taken during the second week of the month, just be-

fore increasing case counts took hold in the second-half of June. It’s a good a example that until case counts start to decline, and we’re

definitely not there yet, equities will struggle while Treasuries will trade in the well-worn 0.54%-0.78% range for the 10-year note.

2. June ISM Non-Manufacturing Index-Monday

The June Employment Report gave us an early indication of the bounce, at least the first two weeks of the month, before case counts

spiked higher. Wednesday’s ISM Non-Manufacturing Index for June will give us another tell on activity focused on the services side

which accounts for about 90% of the economy. The index is expected to print a 50.2 versus 45.4 in May. If that comes to pass it will

mark the return of a sector that sunk to 41.8 in April, firmly in recession territory, but is now on the verge of returning to an expansion-

ary state. The caveat here, however, like the jobs report is whether, after the spike in case counts, the momentum in June will carry

over to July. That will be the key factor the market wrestles with as we work through the month.

3. May JOLTS Job Openings Report—Tuesday

The JOLTS report will show activity throughout the whole month of May. Payrolls capture the data through the 12th of the month. In

May, the economy added 2.5 million jobs and the unemployment rate ticked down to 13.3% from 14.7% prior. The number of unem-

ployed (approx. 21mm in May) will easily exceed job openings which are expected to be 4.500 million, highlighting the severe slack in

the labor market. The report may also offer clues on the continuing high level of layoffs seen in jobless claims. Businesses are rehiring as

the economy reopens, but a second wave of layoffs could be hidden in the net payroll numbers.

4. Initial Jobless Claims—Thursday

Spiking virus cases present several downside risks to the tentative economic recovery. Workers in services jobs, such as leisure and

hospitality, may see renewed job losses as those establishments close or delay reopening plans. The Bloomberg consensus expects

jobless claims for the week ended July 4 to come in at 1.375 mm down slightly from 1.427 mm the previous week. Bloomberg’s pre-

liminary forecast for the July employment report is a reversal of the positive trend in May and especially in June. Bloomberg expects a

drop in nonfarm payrolls of 1 million and slower improvement in the unemployment rate, in line with persistently elevated levels of

continuing claims.

5. June PPI Report—Friday

Although the more consequential CPI report will be released next week, producer prices for June, particularly the core measure, are

likely to reinforce the notion that getting to the Fed’s 2% target will be a long process. Plenty of spare capacity combined with a strong

dollar will override isolated supply shortages that apply upward price pressure in a few areas. At 0.3% year-over-year in May, the ex-

food-and-energy PPI overstates the degree of resilience. A narrower core measure that excludes trade services contracted -0.4% from

a year prior in May. The monthly changes in price are expected to be at or very near the May results indicating very little movement in

the year-over-year change which is expected be –0.2% for final demand and 0.4% for core PPI.

ISM Non-Manufacturing Index

Expectation for June is 50

Yield Universe

Thomas R. Fitzgerald

Director, Strategy & Research 400 Interstate North Parkway

Suite 1200

Atlanta, GA 30339

Tfitzgerald@centerstatebank.com

www.csbcorrespondent.com