Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary: 

By: Ariel Segal

Inflation indicators, CPI and PPI, were both reported to be in line with expectations last week. As investors keep a close eye on inflation, Treasury Secretary Janet Yellen said on Sunday that the risk of inflation is small and manageable. 

Funding for President Biden’s next major economic plan is reportedly going to come from a tax increase for corporations and high earners. Potential proposals include raising the corporate tax rate from 21% to 28% and increasing the tax rate for individuals that earn $400k+ per year.

Germany and France have halted use of AstraZeneca’s Covid-19 vaccine after reports of serious blood clotting, another roadblock in an increasingly slowing vaccination campaign.

As reported by the New York Times, Friday had the highest number of people pass through U.S. airports (1.35 million) on any day since March of last year. An increase in non-essential travel has health officials worried about a potential surge in cases. There have been over 112 million vaccine doses given in the U.S. and over 359 million doses given world-wide.

Fixed Income Market:

By Joseph Colleran

Volatility remains the theme for credit in March. We are beginning a third week of erratic spikes and retracements in credit spreads; all amidst an overarching trend to higher yields. While the UST 10yr has breached the 1.60% YTM barrier for the first time in over a year, both IG and HY corporate bond spreads are wider by another 2-3 basis points. We are now well off the historically tight spreads we touched in corporate bonds just a month ago and now must question if this is merely a temporary widening in spreads or a more fundamental change in the market’s view of credit.  Until recently, the seemingly unending waves of corporate new issuance have been met with strong investor demand, but after three weeks of widening it appears that the market is beginning to rethink the effect of this record level of issuance.  From our view the market will continue to widen along with the rise in UST rates. Economic releases continue to show that the US economy is rebounding strongly, and while last week’s inflation numbers were benign, the markets are anticipating a strong uptick on the back of the $1.9 TRILLION relief/stimulus package that was green lighted last week. 

Most recent corporate bond activity is being driven by institutional buyers as retail demand for traditional corporates remains low. Most of our retail client activity continues to be focused on Structured Note sector as we saw another strong week in this sector. 

Lipper Fund flow data for the week showed:    

      Domestic Equity Funds     down    $0.6 BLN

      IG Bond Funds                     up        $3.3 BLN

      HY Bond Funds                  down    $5.3 BLN 

      Municipal Bond Funds        up      $0.9 BLN

Prior Week

     Domestic Equity Funds      down    $2.5BLN

     IG Bond Funds                      up       $5.2 BLN

     HY Bond Funds                     up       $0.6 BLN 

     Municipal Bond Funds      down   $0.8 BLN

U.S Equities:

By: James Zurovchak

While both DJI (+4.2%) and S&P 500(+2.7%) set new all-time closing highs to end the week and NASDAQ (+3.1%) began a recovery from its recent pullback, Small Caps (+7.4%) quietly outperformed and posted their new all-time closing high. The move in equities was broad based and came despite continued rising US Treasury yields on the long end, which reached a new 1yr high.  All 11 GICS sectors were up on the week led by Communication Services (+7.4%), Consumer Discretionary (+6.3%) and Real Estate (+5.2%) which had all been underperforming sectors, indicating the rotation out of growth continues to look for the best home.  Energy (+1.2%), Health Care (+1.4%) and Technology (+1.9%) were the laggards. Not surprisingly, Value again outperformed Growth +3.3% vs +2.5%. The long awaited $1.9T stimulus is now here and some checks should be arriving shortly, if not already. The market will focus on where/how that money is spent as well as the continued reopening of the economy as many states are lifting bans and increasing capacity for public gatherings. TSA reported last week that their monthly screenings were the highest in over a year. Stay tuned in for the continued inflation fears vs healthy growth argument.

Foreign Exchange:

By Anthony Minardo

The US dollar remains steady to begin the week, as the US 10-year yield continues its journey higher. The main event of the week will take place Wednesday, when the FOMC will hold their monthly policy meeting. The market will be very keen on Chairman Powell’s view on the current timeline of raising rates. The outlook on growth and inflation will be the main topics discussed at the meeting and the markets interpretation will clearly define the next move for the US dollar. There are growing concerns of a third wave of the COVID virus in Europe, Italy will have a lock down from March 15 until April 6th, which could potentially impact the US dollar as well.

Financial Planning:

By Brian Stigliano 

2021 Gift Tax Rules

With the anticipation that the Biden administration will aim to lower the estate/gift tax exemption to as low as $3.5 million per person ($7 million for a married couple), here are some items to keep in mind when developing a plan to take advantage of the more favorable current rules:

  • The 2021 annual exclusion is $15,000 per recipient; an individual can gift this amount to as many people/trusts as he or she wants without triggering a gift tax; gifting more than this amount will require a gift tax form (but may still not be taxable)
  • The 2021 lifetime gift tax exclusion is $11.70 million; a gift tax will not be triggered in 2021 unless more than this amount has been cumulatively gifted during the individual’s lifetime.
  • The gift tax rate has a range between 18% and 40%
  • Some exceptions to the gift tax include paying tuition or medical bills by sending payment directly to the provider (school or medical facility); one can pay an unlimited amount of these expenses without incurring gift taxes.
  • 529 plans allow for the ability to spread five years’ worth of the annual exclusion in a one-time gift (i.e. – $75,000 for 2021)

These are just a few of the items to keep in mind when developing a gifting strategy. Therefore, it is best to include one’s tax and/or estate planning advisor when deciding what to do.  

Last Week's Economic Data 3/15

Last Week's Economic DataActualSurvey
Wholesale Inventories MoM1.3%1.3%
CPI MoM0.4%0.4%
Initial Jobless Claims712k725k
PPI Final Demand MoM0.5%0.5%

This Week's Economic Data 3/15

This Week's Economic DataRelease DateSurvey
Retail Sales Advance MoM3/16/21-0.5%
Housing Starts3/17/211564k
FOMC Rate Decision (Upper Bound)3/17/210.25%
Initial Jobless Claims3/18/21700k
Source: Bloomberg L.P.

Market Data Values 3/15

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.11%+0.2 bp+0.2 bp(69.3 bp)12-Month+13 bp+1.1 bp+0.9 bp(4.6 bp)
3 Month Libor0.18%(0.1 bp)(1.0 bp)(66.1 bp)2-Year+10 bp+1.3 bp+0.6 bp+15.3 bp
6 Month Libor0.20%+0.1 bp(0.7 bp)(62.4 bp)3-Year+11 bp(0.8 bp)(0.3 bp)+22.4 bp
12 Month Libor0.28%+0.1 bp(2.0 bp)(54.1 bp)5-Year+9 bp+0.4 bp(5.8 bp)+20.3 bp
Fed Funds Effective0.07%(1.0 bp)(103.0 bp)7-Year+1 bp(0.7 bp)(7.8 bp)+23.7 bp
SOFR0.01%(0.0 bp)(4.0 bp)(119.0 bp)10-Year+2 bp+0.9 bp+25.8 bp+121.0 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(30 bp)+3.5 bp+21.8 bp+164.4 bp
12-Month0.07%(0.5 bp)+1.0 bp(24.7 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.15%(1.2 bp)+4.2 bp(33.9 bp)Dow Jones 32,839 +0.2%+4.4%+41.6%
3-Year0.34%(0.2 bp)+14.4 bp(26.4 bp)S&P 500 3,946 +0.1%+0.3%+45.6%
5-Year0.83%(2.3 bp)+33.9 bp+11.4 bpNASDAQ 13,376 +0.4%(5.1 %)+69.9%
7-Year1.27%(0.7 bp)+42.8 bp+36.9 bpCurrenciesCurrentWoWMoMYoY
10-Year1.61%(1.2 bp)+4.2 bp(33.9 bp)Euro1.1930+0.7%(1.6 %)+6.7%
30-Year2.37%(1.2 bp)+4.2 bp(33.9 bp)Japanese Yen109.1500(0.2 %)(3.5 %)(3.0 %)
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.3892+0.5%(0.1 %)+13.2%
12-Month0.20%+0.6 bp+1.9 bp(29.4 bp)Canadian Dollar1.2476+1.5%+1.3%+12.3%
2-Year0.26%+0.1 bp+4.8 bp(18.6 bp)Australian Dollar0.7749+1.3%(0.4 %)+26.7%
3-Year0.44%(1.0 bp)+14.0 bp(3.9 bp)Swiss Franc0.9281+0.9%(4.1 %)+2.0%
5-Year0.92%(1.9 bp)+28.1 bp+31.6 bpIsraeli Shekel3.3083+1.1%(1.9 %)+13.9%
7-Year1.29%(1.3 bp)+35.1 bp+60.6 bpBitcoin 55,989 +7.9%+16.2%+1041.6%
10-Year1.62%(0.3 bp)+30.0 bp+87.1 bpCommoditiesCurrentWoWMoMYoY
30-Year2.07%+2.3 bp+26.0 bp+130.5 bpGold 1,730 +2.8%(4.9 %)+13.1%
Silver26+4.4%(5.0 %)+78.2%
Copper414+1.0%+9.4%+67.5%
Source: Bloomberg L.P.Crude Oil65+0.4%+9.9%+105.9%

IMPORTANT DISCLOSURES
The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA.  Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

•             Not insured by the FDIC or any other federal or government entity

•             Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

•             Subject to investment risks, including possible loss of the principal amount invested

© 2021 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 | ariel.segal@leumiusa.com  

IMPORTANT DISCLOSURES

The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA. Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

• Not insured by the FDIC or any other federal or government entity

• Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

• Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

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