The Weekly Briefing - November 16th, 2020

New Advancements in Vaccine Development as COVID-19 Cases Continue to Surge

Moderna’s and Pfizer’s coronavirus vaccines show strong preliminary Phase III data with efficacy rates over 90% in preventing infection. As these candidates and others progress toward deployment, this represents a potential turning points not only for efforts to rein in the pandemic but to restore business and consumer confidence as well. In addition, last week Eli Lilly secured approval for monoclonal treatments that can assist in the treatment of mild to moderate cases of the disease caused by COVID-19 and keep them from becoming more severe. Taken together, these medical advancements represent the most significant breakthroughs to date in combatting the coronavirus, and U.S. equities markets have jumped in response to the favorable news. It could take months, though, before the vaccines become widely available, and in the meantime spiking virus case counts appear to be weighing on business sentiment. The headline figure for the NFIB’s Small Business Optimism Index held steady last month at 104.0, well above May’s 94.4 figure. But the share of firms expecting to hire declined for the first time since April, and the share of business owners expecting the economy to improve decreased five percentage points to 27%. Consumer sentiment also dropped in the Univ. of Michigan’s preliminary November report by 4.8 index points to 77.0, which is primarily due to lower expectations for future economic conditions. Survey researchers attributed the lower sentiment in part to “the resurgence in [COVID-19] infections and deaths” in recent weeks. Consumer Sentiment Inflation Pressures Subdued in October

The Consumer Price Index (CPI) and core CPI both held steady in October as the economy continued to move past many of the business closures and subsequent reopenings that jolted the indices earlier this year. CPI and core CPI, which excludes volatile food and energy prices, are now up 1.2% YOY and 1.6% YOY respectively after dropping sharply during the spring and then rebounding during the summer. The year-on-year figures maintain inflation on a trendline below the Federal Reserve’s 2.0% inflation target, and slack demand in many sectors of the economy suggests inflation is likely to remain muted heading into 2021. The Fed’s new Average Inflation Targeting policy framework will likely have ample room to leave target interest rates near zero through 2022 as currently planned. Despite the stable headline numbers, subcomponents of the indices continued to exhibit volatility associated with ongoing coronavirus-related disruptions to consumer activity. For example, prices for apparel and hotel stays, which have both seen lower sales this year, fell 1.2% and 3.2% respectively during October. In contrast, grocery prices increased slightly last month and are now up 4.0% YOY. Consumer Price Index and Year-over-Year Change Stress in Residential & Commercial Mortgages Receding

Delinquency rates on both residential and commercial mortgages have taken a step back from the peaks reached earlier this year. The Mortgage Bankers Association (MBA) reports delinquencies on single-family homes fell 57 basis points to a seasonally adjusted rate of 7.7% of outstanding loans. Although the overall delinquency rate is still up 3.7 percentage points YOY, the MBA noted a sharp monthly decline in 30- and 60-day delinquencies, which suggests fewer homeowners are newly encountering distress. Trepp’s monthly report on CMBS delinquencies similarly improved last month by 64 basis points to 8.3%. Hospitality loans saw the largest gains, but the sector continues to experience the most distress with a delinquency rate of 19.4%, followed by retail at 14.3%. Delinquency rates for industrial, multifamily, and office continue to hover between 1.5% and 3.0%, slightly above pre-pandemic levels. CMBS Delinquency Rate by Property Type

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