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Coronavirus Watch:
April 9 – Wall Street Journal (Jon Hilsenrath): “The full impact of the coronavirus pandemic may take years to play out. But one outcome is already clear: Government, businesses and some households will be loaded with mountains of additional debt. The federal government budget deficit is on track to reach a record $3.6 trillion in the fiscal year ending Sept. 30, and $2.4 trillion the year after that, according to Goldman Sachs... Businesses are drawing down bank credit lines and tapping bond markets. Preliminary signs are emerging that some households are turning to credit for funds, too. The debt surge is set to shape how governments and the private sector function long after the virus is tamed. Among other things, it could be a weight on the expansion that follows.”
April 8 – CNBC (Catherine Clifford): “It might not be until fall 2021 that Americans ‘can be completely safe’ from COVID-19, Bill Gates said in a Tuesday interview with Judy Woodruff on PBS Newshour. That’s because it will take more than a year before a vaccine can be developed and deployed… ‘The vaccine is critical, because, until you have that, things aren’t really going to be normal,’ the billionaire philanthropist told Woodruff. ‘They can open up to some degree, but the risk of a rebound will be there until we have very broad vaccination.’”
April 10 – Reuters (Josh Smith and Sangmi Cha):
“South Korean officials on Friday reported 91 patients thought cleared of the new coronavirus had tested positive again. Jeong Eun-kyeong, director of the Korea Centers for Disease Control and Prevention (KCDC), told a briefing that the virus may have been ‘reactivated’ rather than the patients being re-infected. South Korean health officials said it remains unclear what is behind the trend, with epidemiological investigations still under way.”
“South Korean officials on Friday reported 91 patients thought cleared of the new coronavirus had tested positive again. Jeong Eun-kyeong, director of the Korea Centers for Disease Control and Prevention (KCDC), told a briefing that the virus may have been ‘reactivated’ rather than the patients being re-infected. South Korean health officials said it remains unclear what is behind the trend, with epidemiological investigations still under way.”
April 8 – Wall Street Journal (Rajesh Roy and Vibhuti Agarwal): “Two weeks into the world’s biggest lockdown, India’s food supply chain is struggling with a shortage of one of its crucial commodities: people. Essential industries—such as growing, harvesting and delivering food—are allowed to operate under the lockdown but the people who move the essentials from farm to fork aren’t showing up for work. Stores say some basics such as eggs, yogurt and cooking oil are increasingly hard to find, a development they say could point to bigger problems ahead if things don’t return to normal in the coming month.”
Market Instability Watch:
April 9 – Bloomberg (Natalie Harrison):
“U.S. junk bonds rallied the most since 1998 after the Federal Reserve’s historic move to begin buying some of the speculative-grade corporate debt. The extra yield investors demand to own the securities instead of Treasuries narrowed 86 bps Thursday to 785 bps, the lowest level since March 13… The Fed’s announcement that it would buy a limited amount of recently downgraded junk debt gave the market its biggest boost since spreads surged to distressed levels last month amid a pandemic that has shut down large parts of the economy. Average yields on the debt fell by almost a percentage point to 8.48%...”
“U.S. junk bonds rallied the most since 1998 after the Federal Reserve’s historic move to begin buying some of the speculative-grade corporate debt. The extra yield investors demand to own the securities instead of Treasuries narrowed 86 bps Thursday to 785 bps, the lowest level since March 13… The Fed’s announcement that it would buy a limited amount of recently downgraded junk debt gave the market its biggest boost since spreads surged to distressed levels last month amid a pandemic that has shut down large parts of the economy. Average yields on the debt fell by almost a percentage point to 8.48%...”
Global Bubble Watch:
April 9 – Reuters (Andrea Shalal and David Lawder): “The pandemic sweeping the world will turn global economic growth ‘sharply negative’ in 2020, triggering the worst fallout since the 1930s Great Depression, with only a partial recovery seen in 2021, the head of the International Monetary Fund said. IMF Managing Director Kristalina Georgieva painted a far bleaker picture of the social and economic impact of the new coronavirus than even a few weeks ago, noting governments had already undertaken fiscal stimulus measures of $8 trillion, but more would likely be needed. She said the crisis would hit emerging markets and developing countries hardest of all, which would then need hundreds of billions of dollars in foreign aid.”
April 7 – CNBC (Huileng Tan):
“The price of rice — a staple food in Asia — has hit 7-year highs due to the coronavirus outbreak as importers rush to stockpile the grain while exporters curb shipments. According to the Thai Rice Exporters Association, price of the 5% broken white rice — the industry benchmark — rose 12% from March 25 to April 1. Rice prices are now the highest since late April 2013…”
“The price of rice — a staple food in Asia — has hit 7-year highs due to the coronavirus outbreak as importers rush to stockpile the grain while exporters curb shipments. According to the Thai Rice Exporters Association, price of the 5% broken white rice — the industry benchmark — rose 12% from March 25 to April 1. Rice prices are now the highest since late April 2013…”
Trump Administration Watch:
April 9 – Reuters (David Lawder):
“The Trump administration’s top economic officials said on Thursday they believe the U.S. economy could start to reopen for normal business in May, despite health experts’ emphasis on prolonged social distancing measures to defeat the coronavirus.”
“The Trump administration’s top economic officials said on Thursday they believe the U.S. economy could start to reopen for normal business in May, despite health experts’ emphasis on prolonged social distancing measures to defeat the coronavirus.”
April 7 – Reuters (Diane Bartz):
“U.S. Treasury Secretary Steven Mnuchin said on Tuesday that he would seek an additional $250 billion to support small businesses hurt by the widespread economic slowdown.”
“U.S. Treasury Secretary Steven Mnuchin said on Tuesday that he would seek an additional $250 billion to support small businesses hurt by the widespread economic slowdown.”
Federal Reserve Watch:
April 9 – Reuters (Jonnelle Marte and Ann Saphir):
“The Federal Reserve’s balance sheet increased to a record $6.13 trillion this week as the central bank used its nearly unlimited buying power to soak up assets and keep markets functioning smoothly, even as efforts to contain the coronavirus pandemic cut deeply into employment and economic output. In the four weeks since the Fed slashed interest rates to zero, restarted bond purchases and rolled out an unprecedented range of programs to limit the economic damage from the outbreak, the central bank’s balance sheet has jumped by about $1.7 trillion. Bond holdings surpassed $5 trillion for the first time.”
“The Federal Reserve’s balance sheet increased to a record $6.13 trillion this week as the central bank used its nearly unlimited buying power to soak up assets and keep markets functioning smoothly, even as efforts to contain the coronavirus pandemic cut deeply into employment and economic output. In the four weeks since the Fed slashed interest rates to zero, restarted bond purchases and rolled out an unprecedented range of programs to limit the economic damage from the outbreak, the central bank’s balance sheet has jumped by about $1.7 trillion. Bond holdings surpassed $5 trillion for the first time.”
U.S. Bubble Watch:
April 9 – Associated Press (Christopher Rugaber):
“With a startling 6.6 million people seeking unemployment benefits last week, the United States has reached a grim landmark: More than one in 10 workers have lost their jobs in just the past three weeks to the coronavirus outbreak. The figures collectively constitute the largest and fastest string of job losses in records dating to 1948. By contrast, during the Great Recession it took 44 weeks — roughly 10 months — for unemployment claims to go as high as they now have in less than a month.”
“With a startling 6.6 million people seeking unemployment benefits last week, the United States has reached a grim landmark: More than one in 10 workers have lost their jobs in just the past three weeks to the coronavirus outbreak. The figures collectively constitute the largest and fastest string of job losses in records dating to 1948. By contrast, during the Great Recession it took 44 weeks — roughly 10 months — for unemployment claims to go as high as they now have in less than a month.”
April 9 – CNBC (Patti Domm):
“JPMorgan economists issued an even more dire forecast, now foreseeing a 40% decline in the nation’s gross domestic product for the second quarter and a surge in April’s unemployment rate to 20% with 25 million jobs lost. In an earlier forecast, they said second-quarter GDP would be down 25%. The economists, however, continue to see a second-half recovery, based on the assumption that disruptions from the pandemic fade by June.”
“JPMorgan economists issued an even more dire forecast, now foreseeing a 40% decline in the nation’s gross domestic product for the second quarter and a surge in April’s unemployment rate to 20% with 25 million jobs lost. In an earlier forecast, they said second-quarter GDP would be down 25%. The economists, however, continue to see a second-half recovery, based on the assumption that disruptions from the pandemic fade by June.”
April 8 – Reuters (Kate Duguid):
“The forced closure of businesses across the United States and surge in unemployment due to the coronavirus pandemic will force U.S. growth to contract by 30% in the second quarter and 5% overall in 2020, Pacific Investment Management Co (PIMCO) wrote…”
“The forced closure of businesses across the United States and surge in unemployment due to the coronavirus pandemic will force U.S. growth to contract by 30% in the second quarter and 5% overall in 2020, Pacific Investment Management Co (PIMCO) wrote…”
April 8 – Dow Jones (Will Parker):
“Nearly a third of U.S. apartment renters didn’t pay any of their April rent during the first week of the month, according to… the National Multifamily Housing Council and a consortium of real-estate data providers… The data come in the first of weekly reports on unpaid rent from NMHC, a landlord trade group. Only 69% of tenants paid any of their rent between April 1 and 5, compared with 81% in the first week of March and 82% in April 2019… The count includes renters who only made partial payments.”
“Nearly a third of U.S. apartment renters didn’t pay any of their April rent during the first week of the month, according to… the National Multifamily Housing Council and a consortium of real-estate data providers… The data come in the first of weekly reports on unpaid rent from NMHC, a landlord trade group. Only 69% of tenants paid any of their rent between April 1 and 5, compared with 81% in the first week of March and 82% in April 2019… The count includes renters who only made partial payments.”
April 7 – Bloomberg (Rachel Adams-Heard and Catarina Saraiva): “Almost 40% of oil and natural gas producers face insolvency within the year if crude prices remain near $30 a barrel, according to a new survey by the Federal Reserve Bank of Kansas City.”
April 10 – Bloomberg (Anita Sharpe):
“Bankruptcies related to Covid-19 shutdowns will set records in the next 12 months, according to Edward Altman, the professor emeritus at New York University’s Stern School of Business who developed a widely used method called the Z-score for predicting business failures. ‘Whether it’s corporate bankruptcies or personal, this is unprecedented,’ Altman said… ‘We will break the record in dollar amounts because there are much greater amounts of debt outstanding now than in any prior downturn.’”
“Bankruptcies related to Covid-19 shutdowns will set records in the next 12 months, according to Edward Altman, the professor emeritus at New York University’s Stern School of Business who developed a widely used method called the Z-score for predicting business failures. ‘Whether it’s corporate bankruptcies or personal, this is unprecedented,’ Altman said… ‘We will break the record in dollar amounts because there are much greater amounts of debt outstanding now than in any prior downturn.’”
April 7 – Financial Times (Richard Henderson):
“Big US companies will spend half as much buying back their own stock this year compared with 2019, Goldman Sachs analysts predict, weakening a vital prop for the market as companies shore up their balance sheets. Share repurchases for companies in the benchmark S&P 500 index will hit $371bn by the end of the year, 50% lower than the $730bn spent last year, according to Goldman estimates…”
“Big US companies will spend half as much buying back their own stock this year compared with 2019, Goldman Sachs analysts predict, weakening a vital prop for the market as companies shore up their balance sheets. Share repurchases for companies in the benchmark S&P 500 index will hit $371bn by the end of the year, 50% lower than the $730bn spent last year, according to Goldman estimates…”
April 9 – Reuters (David French and Imani Moise):
“Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters. JPMorgan…, Wells Fargo…, Bank of America Corp and Citigroup Inc are each in the process of setting up independent companies to own oil and gas assets… The banks are also looking to hire executives with relevant expertise to manage them, the sources said.”
“Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters. JPMorgan…, Wells Fargo…, Bank of America Corp and Citigroup Inc are each in the process of setting up independent companies to own oil and gas assets… The banks are also looking to hire executives with relevant expertise to manage them, the sources said.”
Fixed-Income Bubble Watch:
April 6 – Financial Times (Joe Rennison):
“Downgrades by S&P and Moody’s this month stripped Ford of its investment-grade status once again, sending $36bn of debt back into junk territory. At the same time, the cuts have fed fears over the effects of a series of fallen angels — the moniker given to companies that lose their investment-grade title… A record $90bn of debt fell to junk status in March, according to Deutsche Bank… BofA warns that the total for the year could reach $200bn. Investors appear to be set for even higher tallies. At the end of last week, $360bn of triple B rated bonds, the lowest rung of investment grade, were trading with yields comparable to that of double B rated debt.”
“Downgrades by S&P and Moody’s this month stripped Ford of its investment-grade status once again, sending $36bn of debt back into junk territory. At the same time, the cuts have fed fears over the effects of a series of fallen angels — the moniker given to companies that lose their investment-grade title… A record $90bn of debt fell to junk status in March, according to Deutsche Bank… BofA warns that the total for the year could reach $200bn. Investors appear to be set for even higher tallies. At the end of last week, $360bn of triple B rated bonds, the lowest rung of investment grade, were trading with yields comparable to that of double B rated debt.”
China Watch:
April 8 – Bloomberg (Sofia Horta e Costa):
“China’s second accounting scandal in less than a week is underscoring concern over lax corporate governance at some of the country’s fastest-growing companies.
TAL Education Group, a tutoring business whose success turned founder Zhang Bangxin into one of China’s richest people, delivered the latest bombshell on Tuesday after saying a routine internal audit found an employee had inflated sales by forging contracts. The company’s American depositary receipts sank as much as 18%... The sell-off follows the 83% slump in Nasdaq-listed Luckin Coffee Inc. since the company announced that its chief operating officer and some underlings may have fabricated billions of yuan in sales for 2019.”
“China’s second accounting scandal in less than a week is underscoring concern over lax corporate governance at some of the country’s fastest-growing companies.
TAL Education Group, a tutoring business whose success turned founder Zhang Bangxin into one of China’s richest people, delivered the latest bombshell on Tuesday after saying a routine internal audit found an employee had inflated sales by forging contracts. The company’s American depositary receipts sank as much as 18%... The sell-off follows the 83% slump in Nasdaq-listed Luckin Coffee Inc. since the company announced that its chief operating officer and some underlings may have fabricated billions of yuan in sales for 2019.”
April 7 – Bloomberg (Nisha Gopalan):
“Investors have been scalded by Luckin Coffee Inc.’s news this month that it inflated revenue numbers, a revelation that came less than a year after the chain went public on the Nasdaq exchange. Shares in the company — whose $645 million IPO was the second largest in the U.S. by a Chinese firm in the last 12 months — have swooned 74%. Suddenly, Chinese companies’ opaque numbers are dinner-table conversation again, with the scandal sending other listings from the nation into a tailspin and threatening to close off the overseas market for new issuers.”
“Investors have been scalded by Luckin Coffee Inc.’s news this month that it inflated revenue numbers, a revelation that came less than a year after the chain went public on the Nasdaq exchange. Shares in the company — whose $645 million IPO was the second largest in the U.S. by a Chinese firm in the last 12 months — have swooned 74%. Suddenly, Chinese companies’ opaque numbers are dinner-table conversation again, with the scandal sending other listings from the nation into a tailspin and threatening to close off the overseas market for new issuers.”
April 6 – Reuters (Stephanie Nebehay):
“China was the biggest source of applications for international patents in the world last year, pushing the United States out of the top spot it has held since the global system was set up more than 40 years ago, the U.N. patent agency said…”
“China was the biggest source of applications for international patents in the world last year, pushing the United States out of the top spot it has held since the global system was set up more than 40 years ago, the U.N. patent agency said…”
Europe Watch:
April 8 – Financial Times (Darren Todd):
“Negotiations between eurozone leaders to end an impasse over emergency lending procedures ended without agreement this morning, further delaying a broader report for EU27 leaders on measures to fight the crisis. The talks… are crucial for the survival of the eurozone and the entire post-1945 project of European unity, writes the FT editorial board…. Tensions are not confined to finance. The FT revealed today that the bloc’s science chief had quit — although Brussels disputes the reasons for his departure — lamenting ‘the complete absence of co-ordination of healthcare policies among member states, the recurrent opposition to cohesive financial support initiatives, the pervasive one-sided border closures’. Santander chief Ana Botín… says the failure to agree a common response is fuelling dissatisfaction in countries such as Italy over the perceived lack of solidarity from Brussels. The EU, she says, faces ‘a moment of truth’. ‘The test is very simple: do all member states believe that we are in this together?’”
“Negotiations between eurozone leaders to end an impasse over emergency lending procedures ended without agreement this morning, further delaying a broader report for EU27 leaders on measures to fight the crisis. The talks… are crucial for the survival of the eurozone and the entire post-1945 project of European unity, writes the FT editorial board…. Tensions are not confined to finance. The FT revealed today that the bloc’s science chief had quit — although Brussels disputes the reasons for his departure — lamenting ‘the complete absence of co-ordination of healthcare policies among member states, the recurrent opposition to cohesive financial support initiatives, the pervasive one-sided border closures’. Santander chief Ana Botín… says the failure to agree a common response is fuelling dissatisfaction in countries such as Italy over the perceived lack of solidarity from Brussels. The EU, she says, faces ‘a moment of truth’. ‘The test is very simple: do all member states believe that we are in this together?’”
April 8 – Financial Times (Martin Arnold and David Keohane): “The German and French economies are in the grip of historic recessions which are set to wipe out many years of growth in only a few months… Germany’s economy will shrink by almost 10% in the three months to June, according to the country’s top economic research institutes — the sharpest decline since quarterly national accounts began in 1970 and double the size of the biggest drop in the 2008 financial crisis.”
Japan Watch:
April 7 – Bloomberg (Paul Jackson):
“Even with a record stimulus package, Japan’s economy is heading toward a record contraction of 25% this quarter following Prime Minister Shinzo Abe’s declaration of a state of emergency in Tokyo, Osaka and some other parts of the country, according to Goldman Sachs.”
“Even with a record stimulus package, Japan’s economy is heading toward a record contraction of 25% this quarter following Prime Minister Shinzo Abe’s declaration of a state of emergency in Tokyo, Osaka and some other parts of the country, according to Goldman Sachs.”
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