Boeing To Drawdown Full $13.8 Billion Revolver, Hinting At Bank Lending Freeze
For that generation of traders out there who were following the market back in 2007/2008, instead of their high school or college GPA, they will recall that one of the key inflection points in the global financial crisis 12 years ago was when banks started pulling revolvers to preserve liquidity.
Moments ago Boeing suggested that a similar moment is coming again: according to Bloomberg, the struggling aerospace giant which just a few weeks ago obtained an upsized revolver from various Wall Street sources to shore up its liquidity in the aftermath of the 737 MAX crisis, was planning to draw down the full amount of a $13.825 billion loan as early as Friday.
Why is Boeing taking this unprecedented step: after all, the cash is already committed and is far safer if held on bank balance sheets instead of Boeing’s?According to Bloomberg, the full drawdown takes place as Boeing grapples with worldwide travel disruptions from the coronavirus, and “plans to draw the rest of the loan as a precaution due to market turmoil.” That however doesn’t explain why Boeing needs the cash on its balance sheet instead of its lender banks’. The answer – especially for those who recall what happened in 2008 all too well – is simple: Boeing is worried that banks will pull their committed funding, which in turn means that Boeing is either now worried that a 2008-style financial crisis is imminent, or that the company’s own prospects are about to implode, forcing banks to breach their delayed draw credit facility document terms
As Bloomberg reminds us “Boeing obtained the loan from a group of banks last month to help it deal with cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest.” Ironically, while banks scrambled to lend to Boeing, they will now be ruing the day they expanded the revolver facility, because while Boeing may be worried about banks pulling funding, the banks will be just as worried about Boeing’s soaring default probability as the company’s CDS have exploded in recent days.
Another reason why the banks may soon kiss the $14BN goodbye: the loan was made the Covid-19 coronavirus became a global crisis. As such, in addition to its 737 Max woes, the company now faces lost revenue amid falling demand for planes as passengers cancel flights and airlines pull back orders on new jets.
Unfortuantely for the banks, they can’t just turn around and withdraw their commitment. Or rather they can, it would be a scandal, but they can certainly do it. And that’s precisely what Boeing is seeking to anticipate by transfering the cash from bank balance sheets to its own, even as it will be charged the full revolver usage fee (which thanks to the Fed is negligible).
In other words, now that Boeing – one of America’s most valuable companies – has shown which was the wind blows, expect thousands of less creditworthy companies to follow suit as they scramble to cash in on every dollar in available revolver funding before the banks pull it.
Liquidity Getting Worse By The Day: Fed Injects Record $132 Billion With Overnight Repo
Mot much new to report this morning regarding the daily Fed’ repo operations that we didn’t already cover extensively yesterday in “Funding Freeze Getting Worse: Dealers Demand Record $216BN In Liquidity From Fed Repo“, except to note that while we wait for tomorrow’s upsized term repo operation, today’s overnight repo, which as a reminder was recently upsized from $100BN to $150BN…
… saw the highest amount of both bids and accepted securities since the central bank resumed the offerings in September as the liquidity crisis is clearly getting worse by the day. Specifically, dealers submitted $132.375BN of bids at 1.10% vs a maximum of $150b, which was not only up from Tuesday’s total bids of $124BN, but also the highest in overnight repo history!
The growing funding panic also meant that general collateral has continued to rise, and after dropping to 1.10%, in line with last week’s Fed emergency rate cut, overnight GC has pushed higher, and last traded at 1.23%/1.18% as dealers are once again scrambling for liquidity anywhere they can.
As this latest data merely confirms that the liquidity crisis is getting worse, we have nothing new to add to our conclusion from yesterday so we will just repost it here:
As we pointed out last week, this continuing liquidity crunch is not only bizarre, but increasingly concerning, as it means that not only did the rate cut not unlock additional funding, it actually made the problem worse, and now banks and dealers are telegraphing that they need not only more repo buffer but likely an expansion of QE… which will come soon enough, once the Fed funds hits 0% in a few days and is forced to restart bond buying to prevent the next crash.
Will that be enough to stabilize the market? We don’t know, but in light of the imminent corona-recession, on Tuesday Credit Suisse’s Zoltan Pozsar repo guru published a lengthy piece whose conclusion – at least on the liquidity front – is that the Fed should “combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary.“
Now a bipartisan group of Minnesota state lawmakers is following suit by introducing a package of a dozen bills that would pare back zoning regulations across the state, reform the way fees are charged to developers, and limit local governments’ ability to micromanage how new homes look.
Senate File (S.F.) 4064, authored by Sens. Richard Draheim (R–Madison Lake) and John A. Hoffman (D/FL–Champlin), would allow the construction of duplexes on all residential land currently zoned to only allow single-family homes.
Should that bill pass, Minnesota would become the second state to officially abolish single-family zoning.
Oregon was the first to do that in 2019, passing legislation that allows duplexes on all residential land in towns of 10,000 or more people, and four-unit homes on all residential land in communities of more than 25,000 people. California, by allowing homeowners to build up to two accessory dwelling units on their property, has also effectively eliminated single-family-only zoning.
Other bills authored or sponsored by Draheim—who chaired a select committee on housing affordability—would go further.
That includes a bill that would limit local governments to requiring only one garage per single-family home. Other legislation would address the fees localities can charge new developments, capping them in some instances and requiring more information to be reported on how fee money is spent.
Language in other bills in Minnesota’s housing package would also forbid local governments from conditioning the approval of new housing on the use of “specific materials, design, amenities, or other aesthetic conditions” not already required by state law.
Local governments’ use of planned unit developments—discretionary approval processes that can allow developers to bypass local zoning laws in exchange for them agreeing to pay additional fees or abide by specific design requirements—would also be restricted.
Budget-conscious localities have an incentive to attract residents who pay a lot of taxes and consume few city services, Salim Furth, a housing policy expert at George Mason University’s Mercatus Center, told Reason in December. Passing design requirements that only allow for high-end housing is one way to ensure you get high-income residents.
“There’s a level of micromanaging, even in places that allow growth, they’re more and more allowing it through a highly discretionary planned unit development process,” said Furth. “[Local governments] have certain priorities that never include affordability, that never include the diversity of housing typology. Its always about pushing quality, and therefore price, up.”
Minnesota’s Housing Affordability Institute, a developer-backed nonprofit, noted in a recent report that local design requirements intended to improve the aesthetic of homes can be quite detailed and add thousands to the costs of a new home.
That report gave the example of Corcoran, Minnesota, whose city code “outlines the design requirements for all new homes in the city, including materials used on the façade of homes, percentage of varying materials for the home, architectural styles, the percentage of the garage on the front elevation and garage door designs, just to name a few.”
The Housing Affordability Institute’s report surveyed homebuilders who said regulations in certain Minnesota communities add as much as 30 percent to the final costs of a home.
The National Association of Home Builders (NAHB) has found that government regulation pushes up the costs of single-family homes by 25 percent, and multi-family units by 30 percent.
“It is a question of affordability. Do we want people to have the American dream? Do we want a family to grow up in a home?” says Grace Keliher of the Builders Association of Minnesota.
With housing affordability becoming a nationwide concern, the last thing we need is local governments dictating how a new home should look or how big of a garage it needs.
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Now a bipartisan group of Minnesota state lawmakers is following suit by introducing a package of a dozen bills that would pare back zoning regulations across the state, reform the way fees are charged to developers, and limit local governments’ ability to micromanage how new homes look.
Senate File (S.F.) 4064, authored by Sens. Richard Draheim (R–Madison Lake) and John A. Hoffman (D/FL–Champlin), would allow the construction of duplexes on all residential land currently zoned to only allow single-family homes.
Should that bill pass, Minnesota would become the second state to officially abolish single-family zoning.
Oregon was the first to do that in 2019, passing legislation that allows duplexes on all residential land in towns of 10,000 or more people, and four-unit homes on all residential land in communities of more than 25,000 people. California, by allowing homeowners to build up to two accessory dwelling units on their property, has also effectively eliminated single-family-only zoning.
Other bills authored or sponsored by Draheim—who chaired a select committee on housing affordability—would go further.
That includes a bill that would limit local governments to requiring only one garage per single-family home. Other legislation would address the fees localities can charge new developments, capping them in some instances and requiring more information to be reported on how fee money is spent.
Language in other bills in Minnesota’s housing package would also forbid local governments from conditioning the approval of new housing on the use of “specific materials, design, amenities, or other aesthetic conditions” not already required by state law.
Local governments’ use of planned unit developments—discretionary approval processes that can allow developers to bypass local zoning laws in exchange for them agreeing to pay additional fees or abide by specific design requirements—would also be restricted.
Budget-conscious localities have an incentive to attract residents who pay a lot of taxes and consume few city services, Salim Furth, a housing policy expert at George Mason University’s Mercatus Center, told Reason in December. Passing design requirements that only allow for high-end housing is one way to ensure you get high-income residents.
“There’s a level of micromanaging, even in places that allow growth, they’re more and more allowing it through a highly discretionary planned unit development process,” said Furth. “[Local governments] have certain priorities that never include affordability, that never include the diversity of housing typology. Its always about pushing quality, and therefore price, up.”
Minnesota’s Housing Affordability Institute, a developer-backed nonprofit, noted in a recent report that local design requirements intended to improve the aesthetic of homes can be quite detailed and add thousands to the costs of a new home.
That report gave the example of Corcoran, Minnesota, whose city code “outlines the design requirements for all new homes in the city, including materials used on the façade of homes, percentage of varying materials for the home, architectural styles, the percentage of the garage on the front elevation and garage door designs, just to name a few.”
The Housing Affordability Institute’s report surveyed homebuilders who said regulations in certain Minnesota communities add as much as 30 percent to the final costs of a home.
The National Association of Home Builders (NAHB) has found that government regulation pushes up the costs of single-family homes by 25 percent, and multi-family units by 30 percent.
“It is a question of affordability. Do we want people to have the American dream? Do we want a family to grow up in a home?” says Grace Keliher of the Builders Association of Minnesota.
With housing affordability becoming a nationwide concern, the last thing we need is local governments dictating how a new home should look or how big of a garage it needs.
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Did Democratic voters hand Donald Trump the election yesterday? The mood on the left following former Vice President Joe Biden’s besting of Sen. Bernie Sanders (I–Vt.) in Tuesday’s primaries is one of defiance and scorn about the way the most establishment candidate pretty much always wins in Democratic Party politics. Many are rejecting the idea that it’s now their duty to vote for Biden and are pledging not to back Biden should he get the party’s nomination, which now seems very likely.
“We don’t want to be overly dramatic, but it does seem as if the writing is on the wall for Sanders’s campaign after tonight,” wrote Sarah Frostenson at FiveThirtyEight shortly after midnight. “And that’s because if he was going to mount a comeback, he needed to start tonight. Some of the most favorable states for Sanders left on the primary calendar voted tonight, which means things moving forward are only going to get harder, not easier.”
Biden won in Idaho, Michigan, Mississippi, and Missouri yesterday, while Sanders won in North Dakota. Washington state has still not been called.
With 1,991 Democratic Party delegates declared overall as of 9:30 a.m. this morning, Biden has 846 and Sanders 683, according to the Associated Press. (Going into Tuesday’s elections it was 664-573.) When all delegates from yesterday’s contests are awarded, 53 percent will still be in play. The math might not be strictly stacked against Sanders yet; the political consensus among journalists, pundits, and political representatives rapidly is. But Sanders supporters seem to be rejecting the idea that this means they must fall in line…
I will absolutely not vote for Biden. When they try to guilt you into it, by saying "you must be privileged not to be impacted by Trump's policies" remember: they are trying desperately to hang onto THEIR privileges, which they will never, ever extend to you.
Now, what will happen if Bernie loses, instead of actually earning vote of the left & younger voters,
the Dem establishment will try to pressure, guilt, & shame progressive voters into voting Biden, using Trump, a symptom as excuse,
meanwhile they benefit from root cause
— Anthony Clark for Congress (@anthonyvclark20) March 11, 2020
I will not be voting for Joe Biden if he is the Democratic nominee & I suspect there are lots of other people for whom that is true. If you are a Democrat, prioritize beating Trump, & believe our support matters, I recommend voting for Bernie Sanders in your upcoming primary.
Make no mistake, if Biden — who is totally demented, excites no one, and has zero good policies to offer — is the Democratic Party candidate, Trump will win re-election. Even in an economic crisis
But there’s a (relatively) new twist to this old story: allegations that the drama is all just a product of Russian bots!
WARNING: All of these are GOP and Russian hashtags. Don’t buy into it. They are trying to prevent Bernie Supporters from supporting Joe Biden, so that Trump wins an election he has no chance in. #ByeByeBernie#ByeByeBiden#WriteinBernie#BidenLosesToTrump
People have also been casting blame on Sen. Elizabeth Warren (D–Mass.) for Sanders’ loss…
The numbers in MI make it clear that Warren endorsing and campaigning for Bernie might well have made a huge difference. She bears some responsibility for the catastrophic harm to the planet that is going to come from the dems running an ailing Biden only to have him be trounced. https://t.co/SkbVTcXNmp
Pocahontas, working in conjunction with the Democrat Party, totally destroyed the campaign of Bernie Sanders. If she would have quit 3 days earlier, Sanders would have beaten Biden in a route, it wouldn’t even have been close. They also got two other losers to support Sleepy Joe!
Did Democratic voters hand Donald Trump the election yesterday? The mood on the left following former Vice President Joe Biden’s besting of Sen. Bernie Sanders (I–Vt.) in Tuesday’s primaries is one of defiance and scorn about the way the most establishment candidate pretty much always wins in Democratic Party politics. Many are rejecting the idea that it’s now their duty to vote for Biden and are pledging not to back Biden should he get the party’s nomination, which now seems very likely.
“We don’t want to be overly dramatic, but it does seem as if the writing is on the wall for Sanders’s campaign after tonight,” wrote Sarah Frostenson at FiveThirtyEight shortly after midnight. “And that’s because if he was going to mount a comeback, he needed to start tonight. Some of the most favorable states for Sanders left on the primary calendar voted tonight, which means things moving forward are only going to get harder, not easier.”
Biden won in Idaho, Michigan, Mississippi, and Missouri yesterday, while Sanders won in North Dakota. Washington state has still not been called.
With 1,991 Democratic Party delegates declared overall as of 9:30 a.m. this morning, Biden has 846 and Sanders 683, according to the Associated Press. (Going into Tuesday’s elections it was 664-573.) When all delegates from yesterday’s contests are awarded, 53 percent will still be in play. The math might not be strictly stacked against Sanders yet; the political consensus among journalists, pundits, and political representatives rapidly is. But Sanders supporters seem to be rejecting the idea that this means they must fall in line…
I will absolutely not vote for Biden. When they try to guilt you into it, by saying "you must be privileged not to be impacted by Trump's policies" remember: they are trying desperately to hang onto THEIR privileges, which they will never, ever extend to you.
Now, what will happen if Bernie loses, instead of actually earning vote of the left & younger voters,
the Dem establishment will try to pressure, guilt, & shame progressive voters into voting Biden, using Trump, a symptom as excuse,
meanwhile they benefit from root cause
— Anthony Clark for Congress (@anthonyvclark20) March 11, 2020
I will not be voting for Joe Biden if he is the Democratic nominee & I suspect there are lots of other people for whom that is true. If you are a Democrat, prioritize beating Trump, & believe our support matters, I recommend voting for Bernie Sanders in your upcoming primary.
Make no mistake, if Biden — who is totally demented, excites no one, and has zero good policies to offer — is the Democratic Party candidate, Trump will win re-election. Even in an economic crisis
But there’s a (relatively) new twist to this old story: allegations that the drama is all just a product of Russian bots!
WARNING: All of these are GOP and Russian hashtags. Don’t buy into it. They are trying to prevent Bernie Supporters from supporting Joe Biden, so that Trump wins an election he has no chance in. #ByeByeBernie#ByeByeBiden#WriteinBernie#BidenLosesToTrump
People have also been casting blame on Sen. Elizabeth Warren (D–Mass.) for Sanders’ loss…
The numbers in MI make it clear that Warren endorsing and campaigning for Bernie might well have made a huge difference. She bears some responsibility for the catastrophic harm to the planet that is going to come from the dems running an ailing Biden only to have him be trounced. https://t.co/SkbVTcXNmp
Pocahontas, working in conjunction with the Democrat Party, totally destroyed the campaign of Bernie Sanders. If she would have quit 3 days earlier, Sanders would have beaten Biden in a route, it wouldn’t even have been close. They also got two other losers to support Sleepy Joe!
“In terms of unconvincing rallies, yesterday takes the Tunnock’s Caramel Wafer – Scotland’s National Biscuit.”
During the last crisis we reassured ourselves there was a firm hand on the tiller, that the great ship of the global economy was being steered away from the rocks and the lee shore on which it so nearly beached itself. Experts from the central banks, governments, finance and regulators pulled together with common purpose and steered us through – not without significant consequences, which we still suffer from today in terms of market distortions.
So…. does an emergency 50 bp rate cut by the Bank of England to “support business and consumer confidence” fill you with confidence all is well with the World and we are going to miss the sharp pointy rocks? Are you going to put your buying boots on because the BoE has made stocks look relatively better return value than Gilts… or are you going to critically consider the risks, shake your head and sell?
I shall watch today’s UK budget with interest…
Surprisingly, I’m still getting emails and being sent “news” articles explaining why the Coronavirus is not a threat, how it’s been hyped and vastly over-exaggerated, and is only mildly dangerous to a very few elderly patients with pre-existing conditions. Its, apparently, Fake News.
Your call.
You’d have to be completely blind to the very real economic effects now making themselves increasingly apparent across the global economy. The Italians are not only struggling with a massive medical crisis, but are juggling their options on how to put their economy on hold for however long the crisis lasts by declaring some kind of moratorium on all domestic mortgage and debt repayments.
That’s pretty fundamental in terms of how money works, circulates and flows within an economy. But what else can they do to avoid a massive escalating financial implosion cascading through the economy except pull out the control rods to stop circulation?
Problem is Italy is not a sovereign borrower and can’t just print money to pay for it. It uses someone else’s currency – and even worse, the Euro is a committee currency. Anyone buying Italian bonds is taking a big gamble on the ECB and Europe agreeing to step up with an essentially unlimited ticket for an Italy bailout. Based on our previous experience why would you think that’s going to happen?
There might not be any choice but to bail them out – that’s the bet!
And its not just Italy in trouble. This is where globalisation and the complexity of modern financial markets comes back to bite us with a vengeance…
Suddenly, the virus has coalesced into crisis. Now we find ourselves at the epicentre of a massive and expanding economic conflaguration. Any firm or individual relying on income to service debt is unquestionably going to face crisis as cashflow dries up. We are likely to see cascading consequences as one missed payment becomes many, and one defaults sets the dominos tumbling.
As cash deteriorates on the balance sheet, you are nailed-on to see dozens if not hundreds of firms downgraded to junk triggering a massive enforced corporate sell-off. If you are still long corporate debt.. good luck with that one. I was emailing with an ETF dealer y’day on Fixed Income EFTs and he neatly turned round the liquidity promise.. “It’s unfair to say its Junk and Crossover ETF’s that are illiquid.. their liquidity is simply a function of underlying liquidity”.. which is why you can’t get a meaningful bid on any position. Try explaining that one to your investment committee.
If that’s not a problem.. then go buy the market.
And, that would be a mistake – because I’m pretty sure the market is not as cheap as its going to get…
Even as money stops, we’re going to see sentiment and hope driven lower as economic expectations on future earnings, default rates, and particularly the efficacy of support mechanisms come under increasing downwards pressure. Yesterday’s rally – such as it was – will stumble even more as it becomes clear… THERE JUST ISN’T A PLAN.
We all know that cutting interest rates is unlikely to persuade anyone to get on a plane, or help a corporate struggling to make this month’s payroll and rent. Yet the market buys the expectation central banks and the authorities are going to sort this, and will do whatever it takes.
What if there isn’t much that can be done?
At some point in the future, someone is going to pull all the data together. They will closely examine the hospital logs, analyse the transmission number and the infection rate, and do a cost-benefit analysis of the efforts to contain the virus. They may well conclude Governments over-reacted and the damage to the global economy exceeded the economic costs in terms of the virus mortality. That’s a nasty, inhumane calculation to make – but it’s one that is repeatedly made in emergency triage and wartime.
It’s not a calculation any politician in a democracy is going to admit making. The virus controls the headlines and the political options. Politicians have to be seen to be reacting.
We naturally assume our Governments know what they are doing, and our financial leadership is fully informed. They are advised by the brightest, smartest and most informed scientists, technocrats, economists and industrial leaders. They will have analysed the way in which the virus is spreading, understood the transmission rate, the likelihood of mass infection, plotted where health resources are likely to be most efficiently targeted, figured out the areas of likely economic weakness, examined the policy options and concluded the right way to address crisis with well-timed fiscal policies, supported by accommodation across the market.
BUT…
It’s as clear as a bell that Trump had no plan to address the Coronavirus before he was finally forced to say something Monday. Until then it was a “fake-news” distraction. He made a political gamble: that the virus would recede before it became a crisis, making him look smart and a market genius for calling it.
As the market went into freefall he was forced to play to it off-the-cuff. He spouted out what he thought the market wanted to hear in terms of measures, not because of concern about the virus, infection and mortality, but because a tumbling stock market will crucify him at the polls.
He promised us a full package – which he singularly failed to expand upon at his no-show press conference last night. On Monday he was flolloping around, throwing out crazy ideas like a payroll tax cut (effectively helicopter money) to trigger a demand side economic boost, talked about direct support for shale oil producers and airlines, and further threats about the Fed playing its part. He caught the market and his staff – such as they are, his trusted family members and carefully chosen anodyne yes-men unlikely to trigger a twitter storm – by surprise.
The market took it at face value. It heard what it wanted to hear. The most powerful man on the planet has a plan. Yippee! Marvellous! It’s bound to be a good one, because he is the US president. Yep, but he is also Donald Trump. There isn’t a plan. There are tweets.
In the past Donald has proved lucky. Napoleon said he didn’t care about how good a general was, only that he was lucky. Donald was lucky in his roll of the dice against Iran, and despite the dangers, his ham-fisted approach to trade, tax and the economy, his gambles haven’t resulted in complete disaster. I suppose that’s his “art of the deal”: gamble big and bluff it out.
But now it’s increasingly clear there is no real plan for the consequences of the virus on America. He’s barely speaking to the Fed and the other economic and financial advisors. Still he’s got economic geniuses like Mike Pence, Larry Kudlow, Steve Mnunchin and Jared Kushner telling him how brilliant his “not-a-plan” is.
We are so Rubber Ducked.
Without a deliverable plan, without clear and deliverable policies to support America through the crisis, the market is going to fade. Fact.
When the US economy weakens, then this crisis becomes full blown Global Depression and a Global Market Reset. At that point we’ll know who to blame…
US Coronavirus Outbreak Reaches Grim New Milestone As National Guard Arrives In Suburban New York: Live Updates
The global coronavirus outbreak has hit a new milestone: It surpassed 120,000 cases overnight. For anybody who’s still bothering to keep track, that’s 15x the number of cases from the SARS outbreak, which continued for nearly a year before it finally petered out.
In the US, the coronavirus outbreak has reached a grim new milestone. Thanks to the administration’s scramble to bring dozens of private and public labs on-line for testing across the country, the CDC has managed to confirm more than 1,000 cases of the virus. In the Westchester County town of New Rochelle, the epicenter of the outbreak in New York State, and the largest on the east coast, woke up to a 1-mile exclusion zone and national guard soldiers in the streets.
The town now looks like a “ghost town” according to several reports.
As the number of cases topped 1,000, the number of deaths has also climbed: Officially, there are 31 deaths and 1,039 confirmed cases, according to the Washington Post, which is significantly more than the number confirmed by Dr. Anthony Fauci during last night’s press conference.
Across the US, Washington State’s King County remains the epicenter of America’s worst outbreak, with 273 cases. New York is No. 2 with 176. After hinting about ‘mandatory measures’ last night that set tongues wagging about the possibility of Italy-style travel restrictions, Washington Gov. Jay Inslee is reportedly planning to announce a plan to…ban all events with more than 250 people, according to MyNorthwest.
At a press conference scheduled for Wednesday at 10:15 a.m., it is expected that Gov. Jay Inslee along with regional leaders and city mayors could announce a ban on large gatherings and events of 250 people or more in at least three counties. Any ban would affect upcoming sporting events in the area, including a home game for the XFL’s Seattle Dragons on Sunday.
Inslee has been hinting at this for the past week as a possible preemptive move to curb the spread of coronavirus. Over the weekend, he stated that his office was considering enacting “mandatory measures” in the days ahead.
Monday night on MSBNC, the Washington governor spoke to Rachel Maddow, admitting that soon, the state was “going to have to make some hard decisions.”
He further elaborated on that point during a Tuesday press conference, when he cited the need to “look forward ahead of the curve in Washington state.”
“We need to look at what is coming, not just what is here today,” he detailed, estimating that given limits on testing capacity, experts have told him there could be at least 1,000 untested coronavirus cases across the state.
So much for ‘hard decisions’….
This immense build up, only to announce restrictions that are only ‘slightly’ more comprehensive than the milquetoast event bans embraced by Germany, France, Switzerland and others, brings to mind a tweet we noticed earlier highlighting the sometimes unintended consequences that half-measures can create.
When 90% of Americans get the coronavirus, we’ll look back & say, “Man, that was pretty dumb making all college classes ‘remote’ while airfare and hotels are super cheap. Who would’ve thought 20 yr olds don’t give a fuck and just ended up traveling everywhere spreading disease.”
On the east coast, the State of New York is asking businesses to voluntarily consider having employees work two shifts as well as allowing telework, Gov. Andrew Cuomo said in an interview with CNN, the network that employs his brother, where he has been making near-daily appearances in addition to his daily press conferences.
“This is about reducing the density,” Cuomo said. “The spread is not going to stop on its own.”
He also announced 20 new cases of virus, bringing total in state to about 193, with most of the new cases diagnosed in New Rochelle, where the virus has clearly been circulating for weeks.
Elsewhere, China reported a rise in coronavirus infections imported from abroad, while noting 24 additional cases of coronavirus and 22 additional deaths on March 10, compared with 19 additional cases and 17 additional deaths on March 9, bringing the total number of cases in mainland China to 80,778 and death toll at 3,158. China’s Hubei province said it will mandate a return to work according to different levels of risk in an orderly manner, adding that key areas of the Wuhan economy will be allowed to return.
South Korea reported 242 additional coronavirus cases, bringing its total to 7,555 and 6 additional deaths, increasing the death toll to 60.
Elsewhere, Japan is reportedly planning to declare a state of emergency due to the coronavirus outbreak after the number of domestic cases rose by the largest daily number yet, with 59 new cases bringing the total to 1,278, while the total death toll has climbed to 19 and there were 427 discharged from hospital on Tuesday.
Italy’s total coronavirus cases rose to 10,149, from 9172, and the death toll increased to 631 yesterday from 463 in its largest daily jump yet.
Dual Shocks: OPEC Slashes 2020 Oil Demand Growth By 94%
While the monthly OPEC report is usually best used as a 100-page paperweight, this month – in the aftermath of OPEC’s collapse after Saudi Arabia announced it would unleash a scorched-earth price war on all high cost oil producers (itself included) – investors actually cared what OPEC had to say, beyond just the popular monthly table which shows oil production by OPEC member stated, and which showed that in February Libyan production cratered and Saudi Arabia was just below 9.7mmb/d…
… and instead oil-market watchers were more curious about the demand side, since they already know a supply shock is coming. What they found is that OPEC also expects a concurrent demand shock – the first such double whammy since the Great Depression – as OPEC now sees a whopping 94% drop in 2020 global oil demand growth in response to the economic impact of the coronavirus even as global oil supply is set to explode.
Here are the main points, courtesy of RanSquawk
2020 global oil demand growth forecast revised down by 920k BPD from 990k to 60k BPD, reflecting slower global economic growth associated with a wider spread of Covid-19 beyond China, which however was the bulk of the demand collapse
Preliminary data indicates that global oil supply in February decreased by 290k BPD to average of 99.75mln BPD, up 780k BPD YY.
In February, OPEC crude production fell by 546k BPD MM to average 27.77mln BPD, according to secondary sources. Crude output increased in Iraq, Nigeria, Angola, Congo and UAE whilst production decreased mainly Saudi in and Libya (-647k BPD MM), Iraq and Kuwait.
Of course, with bank analysts now admitting a recession is now virtually inevitable, we expect the April MOMR will seen an outright drop in demand in 2020, one which will only get bigger with time.
Here are the other highlights:
OPEC
Demand for OPEC crude in 2020 was revised down by 1.1 BPD compared to the prior report and stands at 28.2mln BPD, around 1.7mln BPD lower than the 2019 level
The share of OPEC crude oil in total global production decreased by 0.5 ppt to 27.8% in February compared with the previous month
NON-OPEC
For 2020, the FSU oil supply forecast revised up by 10k BPD to and is expected to grow 70k BPD to 14.44mln BPD OECD
OECD oil demand was revised down by 60k BPD, with most of the downward revisions appearing in 1H20.
Considering the latest developments, downward risks currently outweigh any positive indicators and suggest further likely downward revisions in oil demand growth, should the current status persist.
OECD total product inventories rose by 38.6mln barrels MM in January to stand at 1.508bln barrels. This was 59.2mln barrels above the same time a year ago, but 8.8mln barrels lower than the latest five-year average.
CORONAVIRUS
Based on preliminary and partly estimated data, China’s oil demand started the year at modest growth levels. Oil demand growth in January 2020 posted an increase of 0.16mln BPD compared to January 2019, though this was far below the average monthly growth level in 2019 of 0.36mln BPD
WORLD ECONOMY
Following a considerably weaker economic growth for 2H19 in Japan, Euro-zone and in India, the Covid-19 related developments necessitated a further downward revision of the 2020 GDP growth forecast to 2.4% from 3.0% forecast in the previous month. This compares to a 2019 GDP growth estimate of 2.9%.
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What about the supply shock? We didn’t need the OPEC MOMR for that: the following headline is sufficient to see may Brent will soon plunge into the teens as Deutsche Bank warned earlier this week.
A mild winter in the northern hemisphere, the COVID-19 outbreak, and now the price war that Saudi Arabia declared last weekend have combined to produce an all-new oil price crisis just four years after the last one. And things might get worse before they get better.
After last week data from hedge funds showed a slowdown in the selloff of oil and fuel contracts, as reported by Reuters’ John Kemp, this week’s data, for the first week of March, indicated a serious acceleration of sales. During that week, Kemp reported in his weekly column, fund sold the equivalent of 133 million barrels of oil across the six most traded oil and fuel contracts. This compares with sales of just 11 million barrels of oil equivalent across the six contracts just a week earlier.
The overall long position of hedge funds on oil and fuels was down to 392 million barrels by March 3, Kemp also noted, which compares with 970 million barrels at the start of 2020. That’s a decline of as much as 60 percent, and that’s not all. The ratio of bullish to bearish positions, Kemp says, has fallen to 2:1 from 7:1 in January and is one of the lowest ratios in the past few years.
Meanwhile, the COVID-19 epidemic is marching across the world, fueling panic and dampening oil demand as people self-quarantine, flights get grounded, Italy extends its lockdown to the whole country, and a growing number of states in America declare a state of emergency.
While this was happening, Saudi Arabia fired the first shot in what many are seeing as an all-out price war. After Russia refused to take part in deeper production cuts to prop up prices, with energy minister Alexander Novak saying that from April the country’s oil producers will be pumping oil as usual, without compliance to any OPEC+ quotas, Riyadh said it was cutting the prices for its oil and planning a production increase, utilizing its full production capacity, which is about 12 million bpd.
The bad news: hedge funds were extremely bearish on oil and fuels even before OPEC+ broke down.
This suggests they might get even more bearish on oil after the latest developments there. And this, in turn, means prices could fall further despite a temporary improvement yesterday, in which Brent recouped some of its losses to trade, at the time of writing, at close to $37 a barrel.
“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” John Kilduff from Again Capital told CNBC.
“The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”
“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Goldman Sachs’ Jeffrey Currie said. The investment bank cut its oil price forecast for the second and third quarter to $30 a barrel for Brent, noting that the benchmark could dip even lower, into the $20s.
The situation in oil looks like a three-person staring contest. With low-cost producer but ambitious spender Saudi Arabia on one side, pumping at will, Russia on the other, braced for lower prices and its previous experience with price crashes, and US oil producing companies on the third side, grappling with insufficient cash for dividends and, for many shale producers, a heavy debt burden. For now, the analyst consensus seems to be that U.S. shale independents will be the ones to blink first.
