The stock market was choppy as investors bounced between hopes for a successful reopening of the economy and fears of a more prolonged slowdown. In his testimony to the Senate Banking Committee, Fed Chair Powell stuck to monetary policy (the economic impact of the pandemic and the central bank’s efforts to counter that). Surprisingly, he refrained from prodding Congress to provide more fiscal support (as he had done in a speech a week earlier). FOMC minutes from the April 28-29 policy meeting showed no discussion of negative interest rates, but officials are considering a program to purchase Treasury on an ongoing basis aimed at keeping long-term interest rates low.
No surprise, April building permits (-20.8%) and housing starts (-30.2%) fell sharply. Homebuilder sentiment improved but remained weak. Jobless claims fell to 2.438 million in the week ending May 16 – trending lower but extremely elevated. Continuing claims, totaling more than 25 million for the week ending May 9, are still trending higher.
Next week, jobless claims will remain the key indicator to watch. The second estimate of 1Q20 GDP growth is expected to be little changed from the advance estimate, but investors are more concerned with the expected sharp decline in 2Q20 and the prospects for a second half rebound. Personal income and spending figures for April will help to gauge the second quarter damage. Durable goods orders are quirky even in the best of times, but March was bizarre – aircraft order cancellations (which count as negative orders) pushed the headline figure lower, while other sectors held up surprisingly well. Fewer aircraft order cancellations may add to overall orders in April, while other sectors should weaken. Fed Chair Powell will discuss the economy on Friday.
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