How Much Will U.S. GDP Decline in the Second Quarter?

The Daily Shot: 23-Mar-20
The United States
The Eurozone
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Last month’s existing-home sales topped economists’ forecasts. This report will probably be the last piece of good economic news for some time to come.
 

 
Housing inventories are at multi-year lows.
 

 
Home price appreciation climbed further.
 
Source: Oxford Economics  
 
Besides the fact that very few Americans are shopping for homes in March, we also had an increase in mortgage rates.
 

Source: Piper Sandler   

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2. Next, we have some updates on the labor market.
 
Small and medium-sized businesses (SMEs) employ far more Americans than the S&P 500 companies.
 
Source: Deutsche Bank Research  
 
Here is what happened to employment in the last two recessions.
 
Source: Moody’s Investors Service  
 
How bad will it get? Based on media reports, this is what Capital Economics sees for some states this week.
 
Source: Capital Economics  
 
Below is a forecast for jobless claims from ING.
 
Source: ING  
 
Here is what hourly and salaried employees are reporting about their employer staus.
 
Source: Branch Messenger  

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3. How big of a GDP decline should we expect in the second quarter? Projections vary. Below is the distribution of forecasts tracked by Bloomberg (some haven’t been updated yet).
 
Source: @TheTerminal  
 
Here is JP Morgan’s forecast.
 
Source: @markets   Read full article  
 
And then there is Morgan Stanley.
 
Source: @markets   Read full article  
 
There is no doubt that the contraction will be severe, as financial conditions continue to tighten.
 

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4. Retail sales are expected to be down sharply.
 
Source: TS Lombard  
 
5. Service-sector activity is crashing.
 
Restaurants:
 
Source: Pantheon Macroeconomics  
 
The NY Fed’s regional service-sector report:
 


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The Eurozone

1. How much will Germany’s GDP contract next quarter?
 
Consensus forecast:
 
Source: @business   Read full article  
 
Commerzbank:
 
Source: Commerzbank Research  

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2. With the new fiscal stimulus plan, Germany will supply plenty of bonds for the ECB to purchase.
 
Source: Frederik Ducrozet, Banque Pictet  
 
4. Here are a couple of GDP scenarios for the Eurozone from Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  
 
5. Germany seems to be following Italy’s coronavirus trajectory.
 
Source: Commerzbank Research  


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Asia – Pacific

1. Online search activity suggests that Asia’s businesses are getting back to work.
 
Source: Arbor Research & Trading  
 
2. New Zealand’s central bank announced a sizeable QE program.
 
Source: @markets   Read full article  
 
Bonds rebounded, and the kiwi dollar fell to multi-year lows.
 


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China

1. China’s stock market is lower but has been outperforming global peers.
 

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2. The Citi Economic Surprise Index has collapsed.
 
Source: @jsblokland, @TheTerminal  
 
3. This chart shows the recent hit to China’s property markets.
 
Source: Gavekal   
 
4. China is registering modest capital inflows.
 
Source: Goldman Sachs  


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Emerging Markets

1. The selling in many EM currencies has been relentless.
 
The Indonesian rupiah:
 

 
The Malaysian ringgit:
 

 
The South African rand:
 

 
The Mexican peso:
 

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2. India’s assets remain under pressure.
 
The rupee:
 

 
The stock market:
 

 
Sovereign credit default swap spread:
 

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3. Banxico announced an emergency rate cut (see story).
 

 
4. This chart shows the number of coronavirus cases in Latin America (per million people).
 
Source: Goldman Sachs  
 
5. Global investors are rapidly exiting EM bond markets.
 
Source: Deutsche Bank Research  


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Commodities

1. Hedge funds sharply reduced their bets on gold last week.
 
h/t @helloimjustina  
 
2. Copper continues to plummet.
 

 
3. US cotton prices hit the lowest level since 2009 amid demand concerns.
 


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Energy

1. The Brent curve is moving deeper into contango.
 

 
2. US gasoline futures are at the lowest level since their launch in 2005.
 

 
3. US natural gas futures are at the lowest level since 1995.
 

 
4. Energy-sector investment is expected to plummet.
 
Source: Capital Economics  


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Equities

1. With the latest stimulus package stalled in the Senate, US stock futures hit limit-down again.
 
Source: Politico   Read full article  

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2. The S&P 500 declined 15% last week.
 

 
3. The AAII investor sentiment measure is still not exhibiting capitulation.
 

 
However, Deutsche Bank’s equity positioning indicator shows extreme bearishness.
 
Source: Deutsche Bank Research  

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4. US mutual funds registered their biggest AUM decline since 2008.
 
Source: Macrobond  
 
5. Defensives relative to cyclicals have peaked five times in the past 25 years – and have signaled market lows, according to Stifel.
 
Source: Stifel  
 
6. The charts below show the largest S&P 500 drawdowns.
 
Source: Longview Economics  
Source: @WSJ   Read full article  

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7. Stocks appear to be cheap relative to bonds.
 
Source: LPL Research   Read full article  
 
8. Is recession risk fully priced in? According to Variant Perception, markets have often waited for tangible improvement to the underlying event that caused a sell-off before a tradable bottom occurs.
 
Source: Variant Perception  
 
9. Stock futures liquidity has collapsed.
 
Source: Deutsche Bank Research  
 
10. Growth in free cash flow (FCF) has declined significantly over the past few years.
 
Source: Pavilion Global Markets  


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Credit

1. The rout in credit markets has been relentless. The charts below show bond spreads for US investment-grade and high-yield markets.
 

 
And here is the largest high-yield bond ETF (HYG).
 

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2. The leveraged loan market was vulnerable going into this crisis.
 
Source: @WSJ   Read full article  
 
3. This chart shows the sector exposure of US CLOs.
 
Source: @WSJ   Read full article  
 
4. Fund outflows across different asset classes have been massive.
 
Source: Deutsche Bank Research  
 
5. Forced sales in MBS are putting upward pressure on spreads (and mortgage rates).
 
Source: @markets   Read full article  
 
6. The Fed’s dollar swaps with other central banks have eased dollar funding pressure for foreign institutions.
 


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Rates

1. Treasury bill yields are moving deeper into negative territory as investors flood into government money market funds.
 

 
2. Real rates rose sharply last week.
 
Source: FHN Financial  
 
3. Bond ETFs have decoupled from the indices they are supposed to be tracking (chart below), amid massive outflows (second chart).
 
Source: Gavekal   
Source: Deutsche Bank Research  

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4. Treasury liquidity has deteriorated.
 
Source: @technology   Read full article  
 
The chart below shows the 10-year Treasury futures trading volume.
 
Source: FHN Financial  
 
Forced selling has created gaps between long-term bonds of similar maturities.
 
Source: @StephenSpratt  

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5. The iShares TIPS Bond ETF (TIP) spiked last week back to its 200-day moving average.
 
Source: @DantesOutlook  
 
6. While the demand for the Fed’s repo financing has increased, the utilization remains modest relative to the amount the central bank has made available.
 


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Global Developments

1. Let’s start with the latest coronavirus figures.
 
The world ex-China vs. China:
 
Source: JHU CSSE  
 
Trajectories by country:
 
Source: @financialtimes   Read full article  
 
Peak European coronavirus (new cases)?
 
Source: Pantheon Macroeconomics  

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2. Hedge funds missed the US dollar rally (positioned net short last week).
 
Source: Goldman Sachs  
 
3. Cross-asset volatility spikes.
 
Source: Deutsche Bank Research  
 
4. This map shows central banks’ rate cuts last week (Denmark’s central bank hiked to stem the declines in its currency).
 
Source: @markets   Read full article  
 
5. Massive fiscal deficits are coming.
 
Source: @WSJ   Read full article  


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Food for Thought

1. Surgical face-mask manufacturing registrations:
 
Source: @WSJ   Read full article  
 
2. US film releases:
 
Source: @financialtimes   Read full article  
 
3. Food delivery:
 
Source: Yelp  
 
4. Pantry items sales:
 
Source: The New York Times, {ht} The Intersection/Echelon Insights   Read full article  
 
5. Access to medical benefits:
 
Source: Moody’s Investors Service  
 
6. Hospital bed availability scenarios:
 
Source: Pro Publica, {ht} The Intersection/Echelon Insights   Read full article  
 
7. Who is avoiding public places?
 
Source: Gallup   Read full article  
 
8. Daily time spent alone among those 60 and older:
 
Source: Pew Research Center   Read full article  
 
9. LA traffic and pollution levels:
 
Source: The New York Times   Read full article  
 
Traffic in other cities:
 
Source: Capital Economics  

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10. Cannabis sales, by product type:
 
Source: @PotResearch, @JulieKJohnson, @SamanthaMDoonan   Read full article  

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