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Real-Time Capital Markets Perspectives

  • U.S consumer spending continued to accelerate in June, rising 5.6% for the month following May’s record increase of 8.5%
    • Consumer spending represents more than 2/3 of GDP and its recovery is prudent to the nation’s economic revival; however, its expansion is at risk as coronavirus cases continue to surge and unemployment benefits remain on hold
    • The Institute of Supply Management’s Index for National Factory Activity increased to 54.2 in July after rising to 52.6 in June, which represents the strongest gain since March 2019 and marks two straight months of expansion
    • Personal income fell 1.1% for the month after declining 4.4% in May, as the labor market struggles to recover and coronavirus cases spike across regions of the U.S.
  • As Republicans and Democrats continue to negotiate the coronavirus relief bill, Senate Minority Leader, Chuck Schumer, told reporters that progress on the stimulus bill has been made
    • President Trump stated that if Democrats and Republicans do not reach an agreement soon he will enact executive action, extending the federal eviction moratorium, suspending payroll taxes and reinstituting federal unemployment benefits
  • New orders for U.S. made goods rose by 6.2% in the month of June, which is higher than economists’ expectations of a 5.0% increase
    • After May’s strong rebound of 7.7%, the manufacturing sector continued to show its resilience despite the economic uncertainty caused by the pandemic
  • Private payrolls rose by 167,000 in July, below economists’ estimates of 1 million and June’s massive increase of 4.3 million
  • The Federal Reserve is completing its yearlong policy review and is expected to commit to low interest rates for several years as it pursues its inflation targets
  • Coronavirus cases have totaled ~5 million in the U.S. as the virus continues its resurgence, prompting New York to impose new restrictions to deter visitors from 30 states
  • Weekly unemployment claims totaled ~1.1 million last week which is substantially lower than economists’ estimates of ~1.4 million, representing the lowest level weekly unemployment claims have reached since the start of the pandemic

Debt Capital Markets

  • Issuance in the investment grade market began to recover this week, as corporate blackouts concluded and all-time low coupon rates are being taken advantage of by issuers
    • On Monday, 10 deals were brought to market, which equated to $10 billion in issuance, while 9 deals closed on both Tuesday and Wednesday, demonstrating the markets recovery
  • The high yield market has continued to be an attractive issuance option for companies
    • The high yield market saw 17 deals price for a total of $11.7 billion this week, as companies continue to refinance existing debt
  • The investment grade crossover pro rata loan markets remained volatile this week; however, a number of covenant-relief requests and extensions were finalized
    • Focus has remained on earnings announcements and Q2 financial data, as covenant relief needs are determined for select issuers
    • 11 new institutional deals were announced this week for a total of $3.7 billion, which is double what was seen in the prior week
  • The secondary market experienced another volatile week, as focus remains on OC tests; however, cautious optimism has emerged due to a rally in CCC loan prices
    • New CLO deals continued to price under the revised trend of smaller deals, shorter reinvestment periods and lower leverage

Equity Capital Markets

  • August is off to a busier start following a sluggish July, as companies continue to report Q2’20 earnings and reveal forward outlooks on future performance
    • Forward guidance has been more qualitative in nature as companies are hesitant to set misleading expectations amidst the uncertainty caused by the COVID-19 pandemic
  • The first week of August has included a robust quantum of equity issuance specifically across the Technology and Healthcare sectors
  • Several IPOs priced this week, including two high profile IPOs for Rackspace Technology raising $704 million and Rocket Companies raising $1.8 billion

Sources: Bloomberg, CNBC, Reuters, WSJ, KeyBanc Capital Markets

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity