Weekly Market Insight

Latest Economic & Market Update 17th July 2020

17th July 2020

Good afternoon, it is July 17th 2020 and here is your economic and market update from BlackBee.

Today’s focus:
Graph of the Week: Loan delinquencies decrease despite 11.1% unemployment rate
US 30-year fixed mortgages hit all time low as a result of stimulus
EU accelerating plans to borrow €100bn to fund hard-hit countries with bond issuance programme

Graph of the Week: Loan delinquencies decrease despite 11.1% unemployment rate
Click image to enlarge

Sources:
Federal Reserve Bank of St. Louis
Bloomberg

This week marked the start of earnings season and US Banks earnings reports revealed that $35 billion was set aside for bad loan provisions during Q2, eating into US Banks profits. The vast sum set aside by each bank, some of which set provisions above levels seen in 2008, highlight the high level of uncertainty ahead and provide an insight into US Banks expectations of the real economy. Charged-off debt is debt that is considered unlikely to be collected due to the borrower becoming substantially delinquent after a period of time. The data is collected from US banks by the FED. The rate slightly increased in Q1 2020. With the Q2 figure still to be released, if we consider data from credit bureau Equifax. which showed that the rate of serious delinquency on consumer debt fell by half between March and June to 0.7%, we may not see a significant rise in the charged-off debt rate. The decline in serious delinquencies from March to June shows that it is not a normal recession. Typically, the unemployment rate increases, loan delinquencies rise, and the level of savings fall as households need the funds. The unemployment rate now stands at 11.1% as millions of Americans have lost their jobs. However, due to stimulus from the US government in the form of emergency pandemic unemployment paycheck programme, where Americans are receiving $600 a week, the savings rate has gone up and income has increased for some. Agreed deferrals on loan payments have also been a contributing factor to the low delinquency rate but it has been reported that despite this, some borrowers have still sent in checks to pay down the loan. The paycheck programme is set to end at the end of the month, and if it is not replaced, it would be expected that the delinquency rate will start to climb as millions remain unemployed. So far due to stimulus, the effects of the crisis have been muted, having delayed delinquencies and has also provided spending power to consumers out of work. Therefore, the newfound spending power has also contributed to other data such as retail sales figures which many are analysing to measure the pace of economic recovery. When the paycheck stimulus comes to an end we will see a clearer picture of the effects of the crisis. 

At a glance:

  • Borrowing costs driven down as a result of stimulus has seen US 30-year fixed mortgage rates hit an all-time low of 2.98%.
  • New unemployment benefit claims in the US hit 1.3 million last week, down 10,000 from the previous week.
  • The EU is now accelerating plans to borrow €100 billion to provide funding for countries hit hard by the Covid-19 pandemic with bond issuance to begin in September.  

Best & Worst Performers of Large Cap US Stocks on Thursday
Click the image to enlarge

Global Market Update
(as at close of markets 16/07/2020)