Economic News for the week ending April 3, 2020

Source:

http://creditbubblebulletin.blogspot.com/2020/04/weekly-commentary-king-of-sovereign.html

Economic News from Last Week:

April 1 – Washington Post (Katie Shepherd): 

“As stores and offices closed throughout March, many people watched with anger as thousands of college students poured into tropical locales, crowding beaches and bars to party during their regularly scheduled spring breaks. Now, as the pandemic has spread further, many people’s fears have been realized as college students by the dozen have tested positive for covid-19, the disease caused by the novel coronavirus.”

April 1 – Bloomberg (Danielle Moran, Amanda Albright and Martin Z. Braun): 
“Municipal-bond prices tumbled sharply, retreating from the rally triggered last week by the federal government’s more than $2 trillion stimulus plan, as the growing economic shutdown to stem the coronavirus deals a deep financial hit to states, cities and other agencies that borrow in the $3.9 trillion market. The drop underscores the never-before-seen volatility that has whipsawed the state and local government debt market for the past three weeks…”

March 31 - New York Times (Kate Kelly and Peter Eavis): 

“In a single week in March, as financial markets convulsed and major parts of the economy began shutting down, banks made over $240 billion in new loans to companies — twice as much in new lending as they would ordinarily extend in a full year. Brian Foran, an analyst at Autonomous, a research firm that did the calculations, initially thought it was a typo. ‘That’s really an unprecedented figure,’ he said. ‘I’ve never seen anything like it.’”

March 30 – Financial Times (Robert Smith and Joe Rennison): 

“Big banks that help asset managers package risky loans into investment products are sitting on billions of dollars of debt linked to companies most exposed to an economic downturn. Lenders on both sides of the Atlantic have upwards of 100 open credit lines to vehicles known as collateralised loan obligations, which are among the biggest sources of funds for businesses that do not have top-quality credit ratings… Funds such as the debt-investing arms of private equity powerhouses Blackstone and Carlyle are the biggest managers of these CLOs, which have made great strides since the last financial crisis as traditional lenders retreated from making riskier loans. Investment banks still have exposure, however, as they provide so-called ‘warehouse lines’ to CLO managers that help them build portfolios of loans. Such assets have plummeted in value… The effects in the CLO market have been ‘a disaster,’ said Chris Acito, chief executive of Gapstow Capital Partners, which invests in these vehicles.”

March 31 - Financial Times (Tommy Stubbington and Laurence Fletcher): 
“Governments across the world are embarking on the biggest borrowing spree in history, as they look to tackle the coronavirus crisis. That should, in theory, be a happy hunting ground for ‘bond vigilantes’ — hedge funds and other investors that punish free-spending states by betting against their debt, in the expectation that higher issuance will push bond prices down and yields up. But investors trying the same trick today look set to get crushed. Faced with unprecedented levels of bond buying by central banks, even those investors who worry about sharp rises in government debt levels are reluctant to take them on. ‘In the short term, the idea of being a bond vigilante is dead,’ said Iain Stealey, international chief investment officer… at JPMorgan Asset Management. ‘There’s going to be massive support for bond markets from central banks for the foreseeable future. You don’t want to fight that, so we’re happy to own [long-dated government bonds].’”

April 1 - Bloomberg (Ben Sharples): 

“Oil is entering a period of unparalleled demand destruction this month that promises to transform the industry for years to come. Daily consumption will plummet by 15 million to 22 million barrels in April from a year earlier, according to estimates from some of the world’s most influential energy analysts. The crash has already led to refiners slashing processing, drillers halting output and storage tanks swelling across the world. ‘This will likely be a game-changer for the industry,’ Goldman Sachs… analysts including Jeffrey Currie and Damien Courvalin said… ‘It is impossible to shut down that much demand without large and persistent ramifications to supply.’”

April 1 – MarketWatch (Jeffry Bartash): 

“The trillions of dollars Washington is spending to combat the COVID-19 epidemic are likely to push annual fiscal deficits relative to the size of the U.S. economy close to levels last seen during World War II. President Donald Trump last weekend signed a $2.2 trillion bipartisan financial-rescue package, but he and congressional leaders are already talking about another huge spending bill to keep the economy on life support. Even before the coronavirus crisis exploded, the U.S. was on track in fiscal 2020 to post a deficit of slightly over $1 trillion… Now there’s no telling just how high the deficit will go. A new study by Morgan Stanley estimates the deficit will total at least $3.7 trillion in calender year 2020 and an additional $3 trillion in calendar year 2021. That suggests nearly $5 trillion in extra deficit spending in the next two years, financed by the sale of Treasurys, largely to the Federal Reserve.”

March 31 - Reuters (David Lawder): 

“The United States’ new $350 billion small-business coronavirus rescue loan program could see millions of applications when it launches on Friday, senior Trump administration officials said… Officials from the U.S. Treasury and Small Business Administration, which are jointly administering the so-called Paycheck Protection Program, said they were working to ensure that processing capabilities, both in person at SBA lenders and online, would be able to handle high volumes of applications on Friday. Funds will be allocated on a first-come, first-serve basis, the officials told reporters… Banks and other SBA lenders have ‘delegated authority’ to approve loans starting on Friday without a review from the agency.”

April 1 - Bloomberg (Ari Natter, Jennifer A Dlouhy, and Stephen Cunningham): 
“The U.S. Energy Department is considering renting space in the nation’s emergency oil reserve to domestic producers awash in crude… The move would help drillers running out of space to stash their product amid cheap prices and low demand. With storage space and pipelines filling up with crude, domestic producers could begin to curtail drilling. Pipeline operators have begun asking producers to scale back output as tanks fill.”

April 2 – Reuters (Dan Burns and Jonnelle Marte): 

“The Federal Reserve’s balance sheet increased to a record $5.86 trillion this week and the central bank reported greater use of some of its newly launched liquidity facilities, all part of its efforts to keep markets functioning smoothly amid heightened volatility related to the coronavirus pandemic. In the three weeks since the Fed’s effort to limit the economic damage from the outbreak kicked into overdrive, the central bank’s balance sheet has mushroomed by roughly $1.5 trillion.”

March 30 – CNBC (Jeff Cox): 

“Millions of Americans already have lost their jobs due to the coronavirus crisis and the worst of the damage is yet to come, according to a Federal Reserve estimate. Economists at the Fed’s St. Louis district project total employment reductions of 47 million, which would translate to a 32.1% unemployment rate, according to a recent analysis of how bad things could get. 
The projections are even worse than St. Louis Fed President James Bullard’s much-publicized estimate of 30%.”

April 3 – CNBC (Jeff Cox): 

“Nonfarm payrolls dropped by 701,000 in March… It was the first decline in payrolls since September 2010 and came close to the May 2009 financial crisis peak of 800,000. Some two-thirds of the drop came in the hospitality industry, particularly bars and restaurants forced to close during the economic shutdown. The unemployment rate rose to 4.4% — from 3.5% — its highest level since August 2017… An alternative measure that captures discouraged workers and those holding jobs part time for economic reasons jumped from 7% to 8.7%, its highest since March 2017.”

March 29 – Financial Times (Gavyn Davies): 

“The fiscal and monetary stimulus announced by the world’s major economies over the past month is a global policy event without precedent in peacetime. The increase in fiscal spending and loans in the US this year alone will reach more than 10% of gross domestic product, larger than the rise in the federal deficit through 2008 and 2009. Although this is probably not as big as the financial stimulus implemented by China after the financial crash 12 years ago, most big economies could see government debt to GDP ratios rising by 10-20 percentage points. The impact of central bank injections will be equally enormous. For example, the US Federal Reserve may finance part of the country’s fiscal stimulus by buying Treasuries. On top of that, its balance sheet will grow from purchases of mortgage bonds and packages of private loan assets. It would not be surprising if the Fed’s balance sheet increased by $2tn-$3tn this year, up from $4.2tn at the end of 2019.”

March 28 – CNBC (Natasha Turak): 

“Wednesday’s Chapter 11 bankruptcy filing for Colorado-based Whiting Petroleum is a grim omen of things to come… The company is the first U.S. shale producer to go under since the start of the year, when oil prices began to fall. ‘I don’t want to be a doomsayer, but I think Whiting is just simply the first domino that’s going to fall,’ John Driscoll, chief strategist at JTD Energy Services, told CNBC… ‘It’s a fairly substantial company, but the smaller producers, if they don’t have the hedging in place, it’s going to be a tough route — Chapter 11 might be the only way to go.’”

March 30 – Reuters (Ann Saphir): 

“Business conditions in Texas, the second-biggest U.S. state by economic output, deteriorated precipitously this month as the coronavirus pandemic slowed both supply and demand for a wide range of industries, surveys conducted by the Dallas Federal Reserve Bank show. The Dallas Fed's general business activity index… fell to a record low, as did an index tracking their outlook for the sector.”

March 30 – Reuters (Nick Carey): 

“U.S. new vehicle sales likely drove off a cliff in March as the coronavirus pandemic pounded consumer confidence and shuttered dealerships across much of the country, and sales are likely to take a further beating in April as social distancing guidelines remain in place… TrueCar has forecast a sales drop for March of 37% and Lyman said sales in April could also be off between 50% to 60%.”

April 1 - CNBC (Diana Olick): 

“The coronavirus appears to be splitting the mortgage market: More borrowers are refinancing to save money on monthly payments, while potential homebuyers are backing away fast… Mortgage applications to purchase a home fell 11% last week and were 24% lower than a year ago. Real estate agents and homebuilders have reported a sharp drop in buyer interest, and open houses and model homes are shuttering.”

April 1 – Bloomberg (Amanda Albright, Shruti Date Singh and Danielle Moran): 

“The coronavirus is threatening to blow a massive hole in U.S. state and city budgets as millions of people stay home, workers are idled and the stock market flounders. New York… is projected to lose between $10 billion and $15 billion of revenue in the fiscal year that starts Wednesday.”

April 2 – Reuters (Kate Duguid):

 “Highly rated U.S. corporate bond issuers raised a record $110.502 billion this week, according to Refinitiv IFR data, as fears that the coronavirus pandemic may limit access to capital markets stoked borrowing.”

April 1 – Bloomberg (Christine Buurma): 

“Oil producer Whiting Petroleum Corp. filed for bankruptcy, the first big casualty of a global collapse in crude prices that’s leaving debt-laden shale explorers struggling to survive… The company listed debt of $3.6 billion and assets worth $7.6 billion in its Chapter 11 petition… As many as 40% of U.S. oil and gas companies could crater into bankruptcy or distress over the next two years as they grapple with a market crash and the coronavirus outbreak, according to asset manager Pickering Energy Partners LP.”

March 29 – Reuters (Winni Zhou, Lusha Zhang and Andrew Galbraith): 
“China’s central bank unexpectedly cut the rate on reverse repurchase agreements by 20 bps on Monday, the largest in nearly five years, as authorities ramped up steps to relieve pressure on an economy ravaged by the coronavirus pandemic.”

April 3 – Reuters (Yawen Chen and Ryan Woo): 

“China’s services sector struggled to get back on its feet in March after a brutal month of unprecedented shop closures and public lockdowns amid the coronavirus outbreak, a private survey showed… Services companies cut jobs at the fastest pace on record as orders plunged for the second straight month and businesses scrambled to reduce their operating costs. Export orders also slumped again…”

April 1 - Bloomberg (Nick Wadhams and Jennifer Jacobs): 

“China has concealed the extent of the coronavirus outbreak in its country, under-reporting both total cases and deaths it’s suffered from the disease, the U.S. intelligence community concluded in a classified report to the White House, according to three U.S. officials…. But the thrust, they said, is that China’s public reporting on cases and deaths is intentionally incomplete. Two of the officials said the report concludes that China’s numbers are fake.”