Financial and economic news for the week ending March 20.2020

Saturday, March 21, 2020
Weekly Commentary: 
Please Don’t Completely Destroy...
by Doug Noland

full column here:
http://creditbubblebulletin.blogspot.com/2020/03/weekly-commentary-please-dont.html


Portions that
interested me
are below:
Ye Editor



For the Week Ending
March 20, 2020:

IS&P500 sank 15.0% (down 28.7% y-t-d)

 Dow fell 17.3% (down 32.8%)

Utilities collapsed 17.2% (down 25.7%)

Transports slumped 13.9% (down 37.3%)

S&P 400 Midcaps sank 18.7% (down 39.0%)

Small cap Russell 2000 dropped 16.2% (down 39.2%). 

Nasdaq100 fell 12.5% (down 19.9%). The 

Biotechs declined 8.6% (down 21.6%). 

While bullion declined $31,
 the HUI gold stock index 
recovered 1.6% (down 31.3%).


U.K.'s FTSE declined 3.3% (down 31.2%).

Japan's Nikkei fell 5.0% (down 30% y-t-d).  

France's CAC40 declined 1.7% (down 32.3%). 

German DAX slumped 3.3% (down 32.6%). 

Spain's IBEX 35 declined 2.8% (down 32.5%). 

Italy's FTSE MIB slipped 1.4% (down 33.1%)

Brazil's Bovespa collapsed 18.9% (down 42%)

Mexico's Bolsa fell 10.0% (down 21.3%). 

South Korea's Kospi dropped 11.3% (down 28.7%). 

India's Sensex sank 12.3% (down 27.5%).

 China's Shanghai fell 4.9% (down 10.0%).

 Turkey's Istanbul National 100 lost 10.3% (down 25.0%)

Russia's MICEX increased 0.7% (down 23.5%).


 Ten-year US Treasury yields fell 12 bps to 0.85% (down 107bps). 

Long bond yields declined 12 bps to 1.42% (down 97bps).


Freddie Mac 30-year fixed mortgage rates
 surged 29 bps to 3.65%
   (down 63bps y-o-y).

Fifteen-year rates jumped 29 bps to 3.06%
   (down 65bps). 

Five-year hybrid ARM rates 
rose 10 bps to 3.11%
   (down 73bps)

Jumbo mortgage 30-year fixed rates
up 11 bps to 4.08% 
   (down 21bps).

Federal Reserve Credit last week surged $241bn to $4.463 TN.  Over the past year, Fed Credit expanded $535bn, or 13.6%.


M2 (narrow) "money" supply jumped $68bn last week to $15.691 TN. "Narrow money" surged 8.3%, over the past year.


Currency Watch:
For the week, the U.S. dollar index surged 4.1% to 102.817 (up 6.5% y-t-d). 


Commodities Watch:
Bloomberg Commodities Index sank 6.4% (down 24.5% y-t-d). 

Spot Gold declined 2.0% to $1,499 (down 1.3%). 

Silver sank 14.6% to $12.385 (down 31%). 

WTI crude collapsed $9.10 to $22.63 (down 63%). 

Gasoline collapsed 32.7% (down 64%)

Natural Gas fell 15.6% (down 28%). 

Copper sank 11.9% (down 22%). 

Wheat rallied 6.6% (down 4%). 

Corn dropped 6.0% (down 11%).




NEWS  FROM  LAST  WEEK:

March 17 – New York Post (Jackie Salo): 
“‘Stealth’ coronavirus cases are fueling the pandemic, with a staggering 86% of people infected walking around undetected, a new study says. Six of every seven cases – 86% — were not reported in China before travel restrictions were implemented, driving the spread of the virus, according to a study… in the journal Science. ‘It’s the undocumented infections which are driving the spread of the outbreak,’ said co-author Jeffrey Shaman of Columbia University Mailman School…”


March 16 – Financial Times (Tommy Stubbington): “Volatility in US government bonds has reached its highest level since the 2008 financial crisis as coronavirus ricochets through markets. The wild swings in Treasuries have fuelled concerns about the proper functioning of the world’s most liquid debt market. The Federal Reserve on Friday signalled it was accelerating its purchases of Treasuries in a bid to ease those strains, before announcing an additional $700bn of asset purchases on Sunday as part of a sweeping package of crisis-fighting.


March 18 – Wall Street Journal (Matt Wirz): 
“Short-term bonds typically act as a haven in turbulent times. But debt maturing in three years or less has been routed in recent days, punishing investors in markets ranging from corporate bonds to asset-backed debt
 The selloff is the latest example of stressed investors resorting to extreme behavior at a time when the economic outlook is unsettled at best and market liquidity, the capacity to buy and sell quickly without roiling prices, is uneven. Many traders say that high-grade, short-term corporate bonds are being sold en masse by investors who probably would like to sell other assets in their portfolios but can’t find anyone to buy them at prices that won’t cause heavy losses… But the yield that investors demand to own two-year Wells Fargo WFC -5.10% & Co. bonds shot up to 3.349% Tuesday from 2.267% Friday…”



March 15 – Bloomberg (Jennifer Surane, Paula Seligson, Alex Harris, and Liz McCormick):
“A corner of the financial system that provides corporate America with short-term IOUs to buy inventory or make payrolls is seizing up, triggering a scramble for cash elsewhere and fueling speculation that the Federal Reserve will intervene. In the $1.13 trillion commercial paper market, yields over risk-free rates have surged to levels last seen during the 2008 financial crisis. The strains are causing companies to draw down on backup credit lines, according to people with knowledge of the situation.”


March 19 – Reuters (Alwyn Scott and Kate Duguid): “From airlines and cruise lines to retailers and energy companies, investors are fleeing large pockets of the corporate credit market, worried that the coronavirus pandemic will lead to bankruptcies, defaults and credit rating downgrades. The premium investors demanded to hold riskier junk-rated credit rose to 904 bps over safer Treasury securities on Wednesday, its highest level since 2011… The premium for safer investment-grade credit rose to its highest since 2009, at 303 bps over Treasuries… The risk premium for both has roughly tripled since the start of the year.”


March 18 – Bloomberg (Danielle Moran): 
“Municipal bonds continued their more than week-long slide in early trading, extending the sell-off that’s driving state and local debt to its biggest loss since 1987. The drop came as global bonds plunged as markets braced for a deluge of debt by governments fighting the economic slowdown caused by the coronavrius pandemic. Ten-year benchmark municipal bond yields rose 7 bps to 1.86%, more than twice what it was on March 9. Those on 30-year securities rose 2 bps to 2.40%, marking a full percentage point jump since the rout began…”


March 16 – Bloomberg (Yakob Peterseil): 
“A measure of fear in U.S. stocks surged on Monday as an emergency move by the Federal Reserve to ease policy did little to calm markets over the spreading coronavirus. The CBOE Volatility Index jumped as high as 76.3 in early trading… That was just shy of its highest level since the 2008 financial crisis…”



March 16 – Bloomberg (Elena Popina):
“Historical precedents of the S&P 500’s move in the past three days are hard to find, but they can be found in two of the past’s most dramatic trading periods. The S&P 500 fell as much as 11% on Monday in its third day of intraday swings of more than 9%. The last time the index moved this much for three consecutive sessions was in October 1987: the S&P plunged 20% on Black Monday before rising more than 9% on an intraday basis in each of the next two days. If the S&P 500 holds on to its session lows and closes more than 9% lower, it will be the first time in a little less than a century when the index moved 9% or more on a closing basis for three consecutive days. The benchmark tumbled 13% during the depth of the Great Depression on Monday, Oct. 28, 1929, only to fall another 10% the following day and then gain 13% on Wednesday.”



March 20 – Reuters (Shawn Donnan, Christoph Rauwald, Joe Deaux, and Ian King): 
“The world’s supply chains are facing a root-to-branch shutdown unlike any seen in modern peacetime as efforts to contain the coronavirus outbreak hit everything from copper mines in Peru to ball bearing makers in Germany’s industrial heartland. In the last few days, a supply chain crisis that began earlier this year with Chinese factories has spread into key industries elsewhere that had weathered the impact until now. The shutdowns are contributing to the growing conviction that the world has slipped into its first recession since the financial crisis more than a decade ago.”


March 16 – Wall Street Journal (Serena Ng):
“Companies around the world are drawing down their credit lines at the same time, forcing banks to cough up large sums of money on short notice and further straining a financial industry already hammered by sinking interest rates. The pressure on banks was highlighted by a rare and dramatic Sunday evening move by the Federal Reserve, which cut its benchmark interest rate by a full percentage point to almost zero and took a range of actions to support bank lending, including flooding markets with liquidity by ratcheting up its purchases of Treasurys and mortgage bonds.”



March 17 – Bloomberg (Justin Sink, Josh Wingrove, Saleha Mohsin, and Jennifer Jacobs):
“Steven Mnuchin had an ominous message for Senate Republicans gathered Tuesday…: we need to pass a virus stimulus bill, or the U.S. could be looking at a 20% unemployment rate. The message was a far cry from little more than a week ago, when Trump and his aides had declared the economy was resilient enough to withstand the coronavirus outbreak. That line had changed, and it fell to Mnuchin to brief the Republicans… Mnuchin said the fallout actually could be worse than the 2008 financial crisis…, and called for a package of more than $1 trillion that would include direct payments to everyday Americans. His tone echoed the sudden urgency of his boss, President Donald Trump, who on Monday asked Americans to essentially shut down public life in the country -- stay away from restaurants, bars and gatherings of more than 10 people; educate your children at home, if practical.”



March 18 – Wall Street Journal (Jon Hilsenrath): 
“The coronavirus pandemic is about to test the bounds of how much debt the U.S. government can bear. 
Even before the crisis hit, the U.S. was on track to increase its budget deficit to nearly $1 trillion in the fiscal year that ends Sept. 30. It was already up to $625 billion in the five months since the current fiscal year began Oct. 1. Now analysts say the deficit will soar well past the record $1.5 trillion hit in 2009… Moody’s Analytics estimates the budget gap will hit $2.1 trillion this year and $1.8 trillion the next. J.P. Morgan economists project deficits of $1.7 trillion this year and $1.5 trillion next. Decision Economics Inc. projects $1.9 trillion this year and $2.5 trillion next.”


March 19 – Wall Street Journal (AnnaMaria Andriotis and Ben Eisen): 
“U.S. consumers are facing what could become the biggest credit crunch since the Great Depression. Lenders and credit-reporting firms aren’t sure what to do about it. As coronavirus spreads, thousands of wait staff, bartenders and airline employees are out of work and could be on the brink of missing payments on mortgages, credit cards and other loans. Lenders have yet to report a spike in missed payments, but the impact could be considerable. If borrowers start defaulting, they could lose homes and cars. In the longer term, those delinquencies could get factored into their credit reports, hurting their ability to borrow for many years.”


March 19 – Associated Press (Tom Krisher): 
“Concerns about the spreading coronavirus forced most of North America’s auto plants to close, at least temporarily. Ford, General Motors, Fiat Chrysler, Honda, and Toyota said they would shut down all factories in the region… Nissan will close U.S. factories. Hyundai shut down its Alabama plant after a worker tested positive for the virus. Detroit’s three automakers said their closures would begin this week, while Honda and Toyota will start next week. Nissan will close U.S. plants starting Friday.”



March 14 – Bloomberg: 
“Price swings in the US equity market this week were more extreme than they’ve been since Herbert Hoover was president. The S&P 500 Index moved at least 4% in each of the five days, falling three times and rising twice. The last such stretch of moves of that magnitude occurred in 1929… The last time a 9% rout gave way to rally of at least that much the next day was in 1931 during the height of the Great Depression.


March 18 – Bloomberg (Reade Pickert):
 “U.S. new-home construction exceeded forecasts in February… Residential starts decreased 1.5% to a 1.599 million annualized rate, from an upwardly revised 1.624 million pace in January… The median forecast in a Bloomberg survey was 1.5 million. Applications to build, a proxy for future construction, declined 5.5% to a 1.46 million rate on fewer permits for multifamily units.”



March 19 – Bloomberg (Olivia Raimonde):
 “In less than two weeks, the amount of distressed debt in the U.S. alone has doubled to a half-trillion dollars as the collapse of oil prices and the fallout from the coronavirus shutters entire industries. In all, U.S. corporate bonds that yield at least 10 percentage points above Treasuries, as well as loans that trade for less than 80 cents on the dollar, have swelled to $533 billion… On March 6, the total was $214 billion. If you count all company debt globally, including loans to small- and mid-sized companies that rarely if ever trade, the distressed pile could top $1 trillion, estimates from UBS Group show.”


March 13 – Wall Street Journal (Ben Eisen): 
“Investors have been dumping mortgage bonds at a rapid clip, as interest rates plunge on concerns about the coronavirus pandemic and spur a flurry of refinancings that is creating bottlenecks through the mortgage system. Mortgage-backed securities… trade in one of the most liquid bond markets in the world, and investors typically deem the securities to be nearly as safe as government bonds. The Federal Reserve holds large portfolios of both on its balance sheet… The differential between the yield on a mortgage-backed securities index tracked by Tradeweb and the 10-year Treasury yield jumped to about 1.5 percentage points from less than 0.5 points a week earlier, hitting its largest point in years.”



March 15 – Financial Times (Don Weinland and Xinning Liu): “China’s industrial output contracted at the fastest pace on record in the first two months of this year and urban unemployment hit its highest rate ever in February, as the coronavirus brought the world’s second-largest economy to a standstill. The official data — some of the worst official figures ever reported by China — suggest President Xi Jinping’s attempts to expedite an economic recovery in late February have not had the desired effect. Industrial output tumbled 13.5% in the first two months of this year…”



March 16 – Reuters (Ryan Woo, Se Young Lee, David Stanway and Andrew Galbraith): 
“Goldman Sachs said… China’s economy will likely shrink 9% in the first quarter, underscoring how the coronavirus has disrupted normal business activities… Goldman cut its estimate for China’s first-quarter gross domestic product growth to a 9% contraction, from a previous forecast of 2.5% growth, citing ‘strikingly weak’ economic data in January and February… It also lowered its full-year GDP forecast to 3% growth from an earlier estimate of 5.5%.”




March 17 – Bloomberg (William Horobin and Ania Nussbaum):
“France is ready to use the ultimate weapon to protect its biggest companies from the market turmoil set in motion by the coronavirus: nationalization. With European Union leaders pulling out all the stops to try to get control of the situation and France tearing up its budget plans to promise billions of euros in support for the economy, Finance Minister Bruno Le Maire said the state will intervene in any way necessary to protect the country’s economic assets. ‘I will not hesitate to use all the means available to me,’ Le Maire said. ‘That can be capitalization, that can be by taking stakes, I can even use the term nationalization if necessary.’”



March 17 – Reuters (Daniel Leussink): 
“Japan’s exports slipped for a 15th straight month in February as U.S. and China-bound shipments declined… Imports from China fell at their fastest pace since 1986 after the virus, which has killed more than 7,000 people worldwide, led to a widespread shutdown of production in the region’s largest economy.”



March 17 – Bloomberg: 
“China took the unprecedented step of expelling more than a dozen U.S. journalists from three American newspapers, escalating a wider battle with the Trump administration as the coronavirus pandemic threatens to drag the global economy into a recession. China’s foreign ministry… said U.S. reporters at the New York Times, Wall Street Journal and Washington Post must hand in their media cards within 10 days, calling the move a response to U.S. caps on Chinese media imposed early this month… The journalists are prohibited from relocating to work in Hong Kong and Macau, semi-autonomous regions that in theory enjoy greater press freedoms and control over immigration policy. China also asked five U.S. media outlets to submit detailed personnel and asset information to the government…”