Two numbers

100,000 and 6.6 million. These two figures represent the lower bound of estimates for U.S. COVID-19 fatalities and number of first-time unemployment filers last week, respectively.

Markets reacted sharply to the former with a steep decline on Wednesday after the announcement from the White House task force. As the Trump administration has modified their language around the global pandemic, this marked a significant tonal shift.

The latter number, the 6.6 first-time unemployment filers, was released on Thursday to little market fanfare. With the total newly out-of-work figure reaching 10 million, the number of just new applicants matches the total number of people receiving benefits at the height of the Great Recession.

The release of March payrolls, volatility in the energy market, and the potential for more psychologically damaging headlines, the market is a pretty unforgiving place to be right now. This is especially the case for small cap funds which are, as a rule, more sensitive to economic cycles, are generally more leveraged, and less financial firepower to withstand disruption.

In contrast, the risk-adjusted outperformance of emerging markets last week is less obvious. It would certainly serve as a stark reminder on how the ongoing policy response is shoring up markets in ways that go beyond headlines. Chiefly, the decision by the Fed to allow foreign central banks to place an amount of foreign currency on deposit with the Fed in exchange for dollars at current rates, using Treasury holdings as collateral. That’ll take some of the pressure of foreign holders of US Treasuries to sell those assets to obtain greenbacks in a bid to defend their own currencies.

On the horizon are a few events that will help market watchers get a sense of the ongoing impact of the coronavirus pandemic: The Fed balance sheet reveal, UoM’s Consumer sentiment analysis, and JOLTS to name a few.

Right now, this is a sentiment-driven market where two numbers can cause sweeping gains and losses. Over the course of the next few months, more data will become available and the regular sources of (in)stability should return to form.

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