The Daily Shot: 13-Apr-20
• The United States
• Canada
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. Let’s begin with the labor market.
• Over six million Americans filed for unemployment the week ending April 4th.
• About two-thirds of the jobs created since the last recession have been wiped out.
Source: CNBC Read full article
• Next, we have some data on unemployment filings by state.
– The week ending April 4th:
Source: CNBC Read full article
– March 21st – April 4th:
Source: Statista
• Google search activity suggests that initial claims have peaked.
Source: Pantheon Macroeconomics
• Oxford Economics estimates that 24 million jobs will be lost this month, with half of if coming from hotels, restaurants, and retail.
Source: Oxford Economics
• The claims report sent the Citi Economic Surprise Index deeper into negative territory.
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2. If the unemployment rate climbs to 15% (as recently projected by Goldman Sachs), we could be looking at 5.5 million past-due mortgages, according to Black Knight.
Source: Black Knight
The percentage of loans in forbearance (see definition) has been climbing rapidly.
Source: Mortgage Bankers Association Read full article
Here is the online search activity for the word “forbearance” (over time).
Source: Google Trends
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3. Sellers have been rapidly delisting homes.
Source: @markets Read full article
4. The U. Michigan Consumer Sentiment Index registered a record decline this month.
Here are the monthly changes.
• The “current conditions” index was hit particularly hard, but Americans are still relatively optimistic about the future (second chart).
• US consumer confidence has been more resilient than what we see globally (chart below). But analysts expect US sentiment to deteriorate further.
Source: @financialtimes Read full article
• Here is the U. Michigan index of buying conditions for large household durables.
Source: Piper Sandler
• This survey asked, “When do you think you will resume your normal daily routine?”
Source: Oxford Economics
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5. The March core CPI came in below expectations.
• Not surprisingly, the key drivers of the decline were apparel, hotel prices, and airline fares. The drop in gasoline prices put downward pressure on the headline CPI.
Source: Jocelyn Paquet, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
Below are the year-over-year price changes for shelter and airline fares.
• Consumer inflation expectations hit the lowest level since 2009.
• US producer price inflation is rapidly slowing as well.
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6. Here is a summary of what’s going on with the airline industry.
Source: Airlines for America
7. Below is the Evercore ISI business survey.
Source: Evercore ISI Read full article
8. The US Treasury’s cash balances are approaching $900 billion.
But payments are starting to flow.
Source: @WSJ Read full article
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9. The Fed unveiled a massive expansion of its stimulus program.
Source: The New York Times Read full article
• The central bank will extend its financing to include the following.
– Small and mid-size business loans (Main Street Lending Program, up to $600 billion).
– Municipal debt (Municipal Liquidity Facility, up to $500 billion).
– Corporate debt, including high-yield bonds that were recently downgraded from investment-grade (“fallen angels”).
The program will even include corporate bond ETFs that are “mostly” investment-grade, collateralized loan obligations (CLOs), and commercial mortgage-backed securities (CMBS).
The US Treasury is providing the first-loss (equity) tranche for the Fed’s financing facilities.
Source: Morgan Stanley Research
Credit markets rallied sharply last week in response to the Fed’s announcement. The largest high-yield ETF jumped on Thursday – the biggest one-day gain since 2008.
Other assets, such as mortgage REITs and BDCs also had quite a week.
Source: Further reading
Canada
1. The hit to Canada’s labor market has been unprecedented.
Source: Jocelyn Paquet, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
• The unemployment rate rose sharply.
• Labor force participation tumbled.
• Here are the job losses by sector.
Source: Oxford Economics
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2. The BoC’s balance sheet is expanding rapidly.
Source: Jocelyn Paquet, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
The Eurozone
1. The Eurozone’s small businesses are particularly vulnerable to the economic downturn.
Source: @financialtimes Read full article
2. Epidemic-related restrictions in the Eurozone have been tighter than in the US.
Source: @business Read full article
3. Speculative accounts are boosting their bets on the euro.
The euro has been consolidating.
Asia – Pacific
1. Japan’s machine tool orders are down over 40% from a year ago.
2. President Moon’s approval rating has improved substantially in recent weeks.
Source: Goldman Sachs
3. Singapore’s coronavirus cases have diverged from Hong Kong.
Source: @business Read full article
4. Australia’s ASX 200 index is at its 200-month moving average.
Source: @DantesOutlook
5. Here is New Zealand’s electricity usage.
Source: Goldman Sachs
China
1. Beijing is infusing the economy with credit as loan growth accelerates.
• Bank loans:
• Aggregate financing (includes bond issuance):
Source:
Source: Goldman Sachs
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2. The headline CPI moderated last month as meat prices stabilized.
But the core inflation measure ticked higher.
Producer price inflation is back in negative territory.
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3. Economic activity has been rebounding.
Source: Alpine Macro
Emerging Markets
1. Russia’s exports were slowing in February.
Separately, the ruble is rebounding with crude oil.
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2. South Africa’s budget deficit continues to widen. The government will be forced to issue more domestic debt to finance the gap.
Source: Oxford Economics
3. Gulf states rely on expat workers.
Source: @bpolitics Read full article
4. India’s industrial production was recovering in February.
The rupee hit another low vs. the dollar.
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5. Mexico’s and Chile’s equity markets are at depressed valuation levels, according to Alpine Macro.
Source: Alpine Macro
6. Capital outflows have been unprecedented.
Source: @markets Read full article
Is there more to come?
Source: BofA Merrill Lynch Global Research
Commodities
1. It was a good week for precious metals as the Fed unveiled another round of unprecedented stimulus.
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2. Industrial metals are rebounding.
• Steel rebar (Shanghai):
• Copper (New York):
The Shanghai Futures Exchange copper inventories appear to have peaked.
Source: Phoebe Sedgman, @TheTerminal
Energy
1. Global oil producers reached an agreement to cut output by 9.7 million barrels per day.
Source: @WSJ Read full article
Brent crude rose.
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2. The US oil rig count continues to sink.
3. Global refined fuels demand is in freefall, according to Fitch.
Source: Fitch Solutions Macro Research
4. US natural gas output is expected to decline sharply.
Source: @markets Read full article
Equities
1. The S&P 500 had its best week since 1974.
Source: @markets Read full article
2. Given the expected massive economic contraction, the latest stock market selloff wasn’t extreme.
Source: @WSJ Read full article
3. It took up to 2.5 years for the stock market to bottom during recent recessions, and almost five years to recover the losses.
Source: @rayshan Read full article
4. While the bottom-up 12-month target price for the S&P 500 has declined, …
Source: FactSet Research Systems
… analysts still expect substantial stock gains ahead. According to FactSet, “industry analysts in aggregate predict the S&P 500 will see an 17.8% increase in price over the next twelve months.”
Source: FactSet Research Systems
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5. Developed-markets equities saw two consecutive weeks of fund inflows.
Source: Goldman Sachs
6. The valuation gap between US and non-US shares persists.
Source: @markets Read full article
7. Here’s how equity factors performed during past economic cycles.
Source: SPDR Americas Research, @mattbartolini Read full article
The “quality” factor delivered strong excess returns in the US last month.
Source: SPDR Americas Research, @mattbartolini Read full article
Credit
1. Corporate America has tapped nearly half a trillion of revolving debt.
2. High-yield is outperforming leveraged loans again as the Fed moves into corporate bonds.
3. In contrast to the post-Lehman environment, investment-grade corporate debt markets have been open for business.
Source: @WSJ Read full article
4. CCC spreads have not tightened much, even as better-rated credit rallied.
Source: @markets Read full article
5. The average index spread for agency collateralized mortgage-backed securities (CMBS) widened well above historical levels last month. It’s worth noting that lending conditions and loan demand have been relatively stable over the past few years.
Source: BCA Research
Rates
1. Let’s begin with some updates on the Fed.
• Total balance sheet and Treasury securities holdings:
• Longer-dated Treasury debt holdings:
• MBS holdings:
Source: Jocelyn Paquet, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
• Excess reserves (held back by the US Treasury’s massive cash balances at the Fed):
• Repo financing demand (moderating as reserves rise):
• Dollar swaps with other central banks:
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2. The Fed’s rapid balance sheet expansion is boosting the money supply (see illustration in #3 here).
3. Money market fund balances hit a new record.
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Food for Thought
1. Change in median age by county:
Source: @WSJ Read full article
2. Who is comfortable sharing personal data?
Source: Statista
3. Foreign-born voters in the US:
Source: Deutsche Bank Research
4. Healthcare as the top issue:
Source: @eyokley Read full article
5. Going to work while feeling sick:
Source: @YouGovUS Read full article
6. Coronavirus-related deaths among African Americans:
Source: The Washington Post Read full article
7. Coronavirus stats for New York City:
Source: City of New York. Read full article
8. Deaths in the US vs. Italy:
Source: @financialtimes Read full article
9. Continuing with changed behaviors:
Source: Gallup Read full article
10. Dogs vs. cats:
Source: @YouGovUS Read full article
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