Category: zerohedge

After collapsing to a record low -78.2 in April, The New York Fed’s general business conditions index advanced to -0.2 from -48.5 a month earlier. This is massively better than the -30.0 expectation.

Source: Bloomberg

As a reminder, a reading of zero is the dividing line between expansion and contraction meaning that at -0.2, New York is basically “back to flat” in June.

The move was entirely driven by an explosion in hope…

This reopening euphoria is the highest level of ‘hope’ for 6-month forward expectations since Oct 2009. And that rebound did not end well in 2009.

Authored by Bill Blain via MorningPorridge.com,

“I’m not ready for Monday – I’m going back to sleep..”  (She-who-is-Mrs-Blain, this morning.)

I understand the supply of high-quality recreational pharmaceuticals is fairly limited at present, so if anyone can send me a quarter ounce of whatever Morgan Stanley are smoking I would be profoundly grateful. Apparently the global economy is in a new expansion cycle, and we will surpass pre-coronavirus GDP before the end of this year in a V-Shaped Recovery, say my American former employers (many years ago..) Excellent! 

Sadly, no one seems to be sharing Morgan Stanley’s particular bullish insight with the market – which is setting up this morning for a “bit of a tanking” and a third consecutive down day. Markets are going to remain… fraxious… for the next few days. Volatile, risk off and expect to see the bad news mount… 

Hard Hats at the ready…

There are two big forces dominating market levels at present:

1) Short-term reactions: the daily news blurb primes the market to make a binary flip between Risk On/Risk Off days – RoRo as some are calling it. The buttons being pressed include the daily threats on new virus hotspots from Brazil, Beijing and Texas, second waves, US authorities warning they will keep borders closed, negative nellies on the TV, and general exhaustion with the news flow. For instance, who cares if Larry Kudlow said Jay Powel was too ”morose”, although he did say US unemployment could remain above 8%.

2) The Global Central Bank Put – how can markets head lower when the authorities simply can’t afford for it happen? It’s a free option, knowing they will intervene with another flood of liquidity and bailouts – if they can get their act together.

These two forces are essentially balancing each other. The danger is it turns chaotic. It feels like it might happen….

The short-term reactive news, and central bank promises, don’t address the real long-term threat issues to the global economy, which include: 

• Growing Civil Unrest and rising dissatisfaction with governments. 

• The rising number of bankruptcies. 

• Companies, like BP this morning, raising provisions and scaling back investment.

• Growing geopolitical tension. 

• Politics – the outlook for the US November elections has swung away from Trump – causing conniptions across C-Suites! 

• Disincentives to save as returns crash to zero.

• Rising unemployment, growing corporate insolvency threats and a rising sense of wobble. 

The market’s extreme detachment from the dismal underlying economic reality has become a major force in itself. The wider it is, the greater the prospect of a major shock/correction if it’s seen to be reversing. 

Good luck to the UK this morning as shops reopen –I expect “shopping with confidence” will prove underwhelming, and yet another gaff by our flolloping and accident-prone premier, Boris Johnson. 

And then there is the Coronavirus itself. Lockdowns are breaking down. Everyone wants normality.  Whatever we think about the apparently reduced threat – it’s not going to magically vanish. Get used to it. It remains a very real threat from top to bottom of the global economy:

• It’s going to change the way people shop, work and travel.

• It’s going to change government policy – especially in terms of intervention in markets and commerce. 

• It’s going to change corporate behaviours. 

I would guess that by this stage we all know someone who has spent considerable time in hospital with Covid-19. They are now in recovery, but have profound and ongoing medical issues. It’s increasingly clear we still don’t know enough about the virus. Over the weekend I was reading about how it seems to be more a vascular viral infection than an evolved flu. If you get it bad it’s taking out organs, triggering strokes and heart-attacks through blood clots. It requires new treatments. 

More than ever, I’m convinced Health and Pharma are areas for investment. The virus could prove a dominant economic theme through this decade. I also fear the vaccine could well be delayed if we discover we’re addressing the wrong symptoms rather than the cause. (Virus hopes are another new-factor fuelling delusional V-Shaped recovery hopes.)

Then there is the bond market. In bonds there is truth. Or at least there used to be. Today bond yields have been depressed to such artificially low rates as to be meaningless. But the key attribute of bond yields is relative value – they set the return rate across financial assets. Ultra-low rates force investors to take greater risk in return for decreasing yields. Which is now illustrated by the amount of money chasing stocks – which are making lower profits and going to pay lower dividends.

When rates are this low and returns are crashing… well… I’m just not very happy to be thinking my pension pot is now going to be paying me pennies, but I will still be taxed to infinity to pay gold-plated final salary pensions to Civil Servants and such. This picture is not getting any better… 

The big debates in bonds boil down to sovereign credit. The ability of governments to freely bailout insolvent companies, create jobs through fiscal infrastructure spending and pay rising social security costs is a function of their ability to raise money from the market. Traditionally that’s a function of the credibility of the country – not a problem for the dollar, but a massive problem for Italy. 

As countries lose credibility and their ratings and currencies slide – can they bear the costs of the virus? If you believe in the magic of Modern Monetary Theory – that countries can effectively digitalise unlimited money with zero side effects… Phew.. we should be alright. If not.. then back to the old rules; the conventional Reinhart/Rogoff wisdom says sell any country with a debt/gdp ratio higher than 90%. 

Am I too late to move to New Zealand? 

In a continuation of the selloff that started overnight, US equity futures and world stocks are plunging on Monday on signs that a second wave of the pandemic is emerging in parts of the United States and China, dousing investor hopes of a quick economic rebound that had powered the Nasdaq to record levels last week. Beijing closed the city’s largest fruit and vegetable supply center and locked down nearby housing districts after dozens of people associated with the market tested positive for the virus. A record number of new infections and hospitalizations were reported in more U.S. states, including Florida and Texas over the weekend.

After dropping as much as 1,000 points, Dow futures were down about 600 points at last check, with S&P futures dropping as much as 3.4% in early London trading in what some have dubbed “Meltdown Monday”, although S&P 500 futures managed to trim their losses in half, last down about 1.6%.

Travel stocks which were hit hard as passenger numbers dwindled due to travel restrictions, slumped on Monday with retail favorites such as United Airlines Holdings Inc, American Airlines Group, Carnival Corp, Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd down between 5.1% and 7.4% in premarket trading. Stocks from economically-sensitive sectors including financials and energy also lost ground. U.S. lenders Bank of America, Citigroup and Morgan Stanley dropped 3.1% to 4%. Oil majors Exxon Mobil and Chevron shed 2.8% and 1.5% respectively. The VIX index jumped to its highest level since April 22 at 44.44 points.

In Europe, cash equities steadied after an opening slump of as much as 3%, with miners, travel and tech stocks weighing, while rising health-care shares blunted the retreat across markets. BP Plc slumped as the British oil major predicted the pandemic will hurt long-term energy demand. Travel and Leisures stocks were hit hard: travel operator TUI and caterer Sodexo led declines in Europe’s travel and leisure stocks after analyst downgrades and amid signs of a second coronavirus wave eroding hopes for a quick recovery for the tourism, leisure and travel industries. Europe’s Stoxx 600 Travel & Leisure Index down 2.6% at 9:42 a.m. in London, the region’s second-worst performing sector on Monday. Airlines also declined, led by flagship carriers Lufthansa (-3.8%), which was downgraded to sell at Redburn, and Air France-KLM‘s 2.9% slide after being cut to sell at Redburn.

Asian stocks also fell, led by industrials and IT. All markets in the region were down, with South Korea’s Kospi Index dropping 4.8% and Singapore’s Straits Times Index falling 2.7%. The Topix declined 2.5%, with W-Scope and Casa falling the most. The Shanghai Composite Index retreated 1%, with China Shenhua and Jiangsu Luokai Mechanical & Electrical posting the biggest slides. Emerging-market stocks headed for their biggest drop in more than three weeks.

After a fierce rally sent global equities close to their pre-pandemic levels, sentiment in markets is starting to sour. In China, a string of top-tier data all missed expectations, and while consumer spending and investment continued to improve in May, there are few signs of a broad-based rebound needed to spur a V-shaped recovery.

“Any further sell off from here will likely see some larger unwinds of the more price and momentum driven investment styles,” said James Athey, a money manger at Aberdeen Standard Investments. “People will then start openly asking the question again, ‘Was that just a huge bear market rally?’”

In rates, US Treasury yelds are richer by 1bp to 5bp across the curve, 10-year by 3.6bp at 0.666%, with long-end-led gains flattening 2s10s by ~2bp, 5s30s by ~3bp. Bunds are cheaper by 2bp vs Treasuries while Spain notably outperforms after Fitch affirmed its sovereign rating at A- with a stable outlook Friday. During the Asia session, gains were pared after a block sale of 10-year futures near the highs.

In FX, the dollar rose versus most Group-of-10 peers. Risk aversion saw commodity currencies like the Australian dollar lead losses versus the greenback, after a jump in new coronavirus cases in Beijing, Tokyo and more than 20 U.S. states raised fears of a resurgence of the pandemic. All developing-nation currencies, except for Taiwan’s dollar, were weaker in early as the dollar climbed and U.S. stock index futures fell. Implied currency volatility climbed for a third day while spreads on dollar bonds widened as investors shunned riskier assets

Elsewhere, bitcoin dropped below $9,000 for the first time since May. Commodities also retreated, with gold, oil and copper all lower.

Expected data include the Empire State manufacturing survey and the latest TIC data.

Market Snapshot

• S&P 500 futures down 2.1% to 2,970.50
• STOXX Europe 600 down 1.6% to 348.56
• MXAP down 2.4% to 153.32
• MXAPJ down 2.2% to 494.07
• Nikkei down 3.5% to 21,530.95
• Topix down 2.5% to 1,530.78
• Hang Seng Index down 2.2% to 23,776.95
• Shanghai Composite down 1% to 2,890.03
• Sensex down 1.6% to 33,257.89
• Australia S&P/ASX 200 down 2.2% to 5,719.80
• Kospi down 4.8% to 2,030.82
• German 10Y yield fell 1.5 bps to -0.454%
• Euro down 0.01% to $1.1255
• Italian 10Y yield fell 5.2 bps to 1.318%
• Spanish 10Y yield fell 2.2 bps to 0.572%
• Brent futures down 0.8% to $38.42/bbl
• Gold spot down 0.5% to $1,722.53
• U.S. Dollar Index down 0.2% to 97.16

Top Overnight News from Bloomberg

• Beijing shuttered the city’s largest fruit and vegetable supply center and locked down nearby housing districts as dozens of people associated with the wholesale market tested positive
• The fragile recovery in China’s economy is pointing to a long road back for the rest of the world too
• The European Union fired a warning shot at China over its global trade ambitions with an unprecedented tariff decision to counter Chinese subsidies to exporters
• British Prime Minister Boris Johnson will step back into the Brexit fray on Monday as he holds talks with the European Union’s top officials, with both sides looking to reset negotiations that have drifted into stalemate

Asian equity markets traded negative and US equity futures also began the week on the backfoot in which the E-Mini S&P gapped below its 200DMA (3011.20) and the key 3000 focal point, with investor sentiment weighed by coronavirus second wave fears after several US states recently suffered a record number of additional cases including 2 of the 4 largest populated states – California and Florida. ASX 200 (-2.1%) and Nikkei 225 (-3.5%) declined at the open amid the downbeat tone although losses in Australia were briefly reversed amid resilience in tech and with authorities planning to fast track infrastructure projects valued over AUD 72bln to speed up the recovery, while exporter sentiment in Tokyo was dragged by unfavourable currency effects. Hang Seng (-2.1%) and Shanghai Comp. (-1.0%) were subdued after an outbreak prompted a lockdown of some areas in Beijing and following disappointing activity data in which Chinese Industrial Production and Retail Sales both missed expectations, but with pressure in the mainland cushioned after the PBoC conducted a CNY 200bln MLF operation. Finally, 10yr JGBs were relatively flat with prices only marginally benefitting from the weakness in stocks as participants also digested the inline-to-soft enhanced liquidity auction results for longer-dated JGBs and with the BoJ kicking off its 2-day policy meeting.

Top Asian News

• Beijing Outbreak Grows to Nearly 100 Cases in Test For China
• China’s Recovery Continues But Wary Consumers Show Vulnerability
• Turkey Showcases Air Power in Region With Major Attack in Iraq
• Warburg Pincus-Backed Group Is Said to Near 58.com Buyout Deal

Europe kicks the week off with sizeable losses [Euro Stoxx 50 -1.2%], albeit well off worst levels, as the region conformed to the global risk aversion amid growing fears of a second wave – with Beijing now seemingly the epicenter of a second outbreak, whilst several US states including Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma and South Carolina all experienced a record increase in coronavirus cases during the past 3 days. Bourse have drifted off worst levels as the session is underway, potentially due to short covering, but nonetheless remain in firm negative territory. Sectors are predominantly in the red and post an anti-cyclical performance, with energy recouping some losses but still retaining its spot as the laggard whilst healthcare names fare the best, marginally into positive territory. The detailed breakdown pains a similar picture, with Travel & Leisure one of the worst performers amid fears of further sectoral disruption. In terms of individual movers and shakers – BP (-3.5%) shares are pressured (alongside lower oil prices) as it anticipates Q2 charges of USD 13-17.5bln. Additionally, the group are cutting their long-term price assumptions as part of a review of development plans. Meanwhile, Commerzbank (-1.0%) reportedly rejected Cerberus’ demands for two seats on the supervisory board, according to sources; subsequently, Cerberus reportedly said they expected this to happen and will announce next steps in due course. On the flip side, AstraZeneca (+1.0%) are buoyed amid comments from Italy’s Health Minister who stated that Italy, Germany, France & Netherlands have signed a contract for 400mln doses of a COVID-19 vaccine – Co. CEO said the group will know by the end of Summer if a working vaccine is viable.

Top European News

• Johnson Returns to Brexit in Bid to Reboot Faltering Talks
• Johnson Tells Brits to ‘Shop With Confidence’ as Shops Open
• Immofinanz Seeks to Increase Capital by ~25% with Shares, Notes
• Danske Reallocates Roles and Cuts Jobs in Work-From-Home Push

In FX, the Dollar has retained some safe-haven allure alongside Gold and the Yen as 2nd wave coronavirus concerns spark another bout of broad risk aversion, with the DXY holding above 97.000 and well off mtd lows just under 96.000. However, the Greenback is still tussling with bullion and the Jpy given new outbreaks of COVID-19 across several US states and eight seeing a record rise in the number of cases over the last 3 days. Hence, Xau/Usd looks underpinned around the 10 DMA (Usd 1715/oz) and Usd/Jpy appears capped ahead of 107.60, albeit also mindful of decent option expiry interest between 107.20-15 (1.1 bn).

• NOK/AUD/CAD – Another downturn in crude prices and a further deterioration in Norway’s trade balance has undermined the Crown, while the Aussie is weaker in wake of Chinese ip and retail sales missing consensus to offset latest fiscal initiatives to support the economy via infrastructure spending. Meanwhile, the Loonie is also tracking oil down ahead of Canadian manufacturing sales, with Eur/Nok elevated within a 11.0187-10.8561 range, Aud/Usd pivoting 0.6800 and Usd/Cad firmly above 1.3600. Ahead, a big week for the Aussie kicks off with RBA minutes tomorrow and culminates in jobs data and retail sales on Thursday and Friday respectively.
• NZD/SEK – Also on the back foot, but the Kiwi benefiting to a degree from favourable Aud/Nzd cross flows towards the bottom of 1.0644-1.0583 parameters and the Swedish Krona holding up better than its Scandinavian counterpart by the same token, as Nzd/Usd sits more comfortably on the 0.6400 handle and Eur/Sek in a tighter 10.5835-5070 band.
• CHF/EUR/GBP – All pretty flat with the Franc near the middle of 0.9500-50 extremes vs the Buck and even tighter against the Euro between 1.0730-1.0695 after more deflationary Swiss data (import/producer prices) and latest sight deposits showing a big rise in domestic bank accounts in the run up to Thursday’s SNB policy review. Elsewhere, Eur/Usd seems constrained by 1.1225/30 bids and 1.1270 offers, 1.1270 with 1.5 bn option expiries at 1.1260 also keeping the headline pair in check, while Cable has reclaimed 1.2500+ status and Eur/Gbp is back under 0.9000 amidst reports of demand for Sterling via the cross before attention turns to UK PM Johnson’s Brexit call with EC President von der Leyen at 13.30BST.
• EM – Widespread declines on the lack of risk appetite, but especially for the Rub, Mxn, and Zar, while the Try is under pressure following Turkey’s airstrikes on PKK targets in Northern Iraq.

In commodities, WTI and Brent front-month futures bear the brunt of the overall risk aversion coupled with demand woes emanating from the resurgence in COVID-19 cases in the US and in Beijing. WTI has since reclaimed the 35/bbl handle (vs. 36.12/bbl high) as has Brent for the USD 38/bbl figure (vs. 38.80 high); as newsflow slows and prices grind higher ahead of US’ entrance. The week could prove to be a volatile period, barring COVID-headlines, the monthly OPEC and IEA oil market reports are due later this week, whilst the JMMC meeting will be underway on the 18th June. The committee will review secondary source data alongside current market fundamentals before proposing policy recommendations. Sources last week said that OPEC+ is to move cautiously to rebalance the market amid easing lockdowns, while anticipated Shale resumptions could also weigh on eastern producers’ minds. Participants may give less credence to the oil market reports as the prospect of rising cases could prove the reports stale. Moving to metals where, spot gold trades lacklustre around USD 1720/oz (vs. 1735 high), as the yellow metal decouples from its safe-haven properties amid early USD strength, although as the Dollar recedes, gold is seemingly weighed on by investors potentially on the sidelines as they observe the state of play. Copper prices have been moving broadly with the risk aversion. Reports noted that CME May copper volumes slid 40%, whilst LME volumes fell 26% as funds fled from high volatility amid the pandemic. Meanwhile, Dalian iron ore futures remained steady despite the second wave-woes amid falling stockpiles of the raw material.

US Event Calendar

• 8:30am: Empire Manufacturing, est. -30, prior -48.5
• 4pm: Net Long-term TIC Flows, prior $112.6b deficit

DB’s Jim Reid concludes the overnight wrap

Patient zero in the U.K. was not in my household after all as my wife tested negative for Covid antibodies over the weekend. It must have been the worst flu ever over Xmas then.

New virus cases continue to bubble up in certain parts of the world and we again include our full Covid case and fatality tables in the full report – including the four most troublesome US states at the moment. There were Sunday headlines of China seeing the largest increase in new cases since April and a very localised lockdown around a market in Beijing. However at 57 new cases reported in a country of 1.4 billion people we have to put this into some perspective. This rounded up the 1-day new case growth to 0.1% after 62 days of 0.0% growth. A further 49 cases have been reported overnight with Beijing shutting down housing districts in and around the market in focus.

Meanwhile, the US is still struggling to reduce daily new case growth below 1% as all of Western Europe have. The most problematic states continue to be California, Texas, Florida and Arizona. Over the weekend these 4 states were responsible for over 16,500 new cases, or roughly 37% of the total new cases in the US. The first three are the largest states in the US so it is a worry that cases continue to rise nearly 3 months into the pandemic. Weekend reporting issues might be an issue but the 7 day average rise in daily cases in California and Texas is 2.2% currently, the same as a week ago in California and down slightly in Texas from 2.4%. Arizona and Florida are more worrisome. Arizonian cases rose by 4.5% in the last week on average, up from 4.1% the week prior, while Florida saw cases rose by 2.3% on average up from 1.8% in the period before. Rtlive’s estimates of effective transmission rates, Rt, show Arizona at the highest currently in the US at 1.18. California is now estimated at 1.0 after being slightly under a few days back, indicating that efforts to reopen may be raising the risk of transmission. Overall 16 of the 50 states are now estimated to have an Rt value over 1, while only 9 states have the entire confidence interval of their Rt values under 1.

At DB, we’ve had a lot of internal debate about whether the piecemeal, lack of centrally planned US approach to fighting this virus will eventually be worse for growth than the more synchronised and more thorough lockdown approach of Europe. My personal view is that whilst the latter looks very effective on paper, the fact that more of the US economy has remained open for longer means they’ll probably see a better short to medium term growth outlook. It’s hotly debated here though. The other thing to comment on around the four highest virus growth US states is that death rates still remain relatively low in them as you’ll see in our tables. Overall, it’s possible that globally we are now shielding the vulnerable better and that even if we do see a second wave it might not be as deadly as the first. Anyway, expect the market to be obsessing about these states this week.

The worsening virus newsflow has seen most Asian markets start the week on the back foot. The Nikkei (-0.98%), Hang Seng (-0.62%), Kospi (-0.58%) and ASX (-0.73%) are all down as we go to print. Moves for Chinese bourses have been more muted following the data (more on the shortly). In FX, the Japanese yen is up +0.21% amidst the risk off. Meanwhile, yields on 10y USTs are down -4bps to 0.665% and futures on the S&P 500 are down -1.22%. Elsewhere, WTI oil is down -2.84% to $35.23.

In terms of that data, China’s activity data for May did suggest an improving growth outlook albeit slightly disappointing relative to expectations. Industrial production rose to +4.4% yoy (vs. +5.0% yoy expected and +3.9% yoy last month) while retail sales rose to -2.8% yoy (vs. -2.3% yoy expected and -7.5% yoy last month) and YtD fixed asset investments ex rural printed at -6.3% yoy (vs. -6.0% yoy expected). Finally the surveyed jobless rate in May came in line with expectations at 5.9%.

In other weekend news, US infectious disease expert Anthony Fauci suggested that bans on travel to the US may remain until a vaccine arrives. Elsewhere, Italian news daily La Repubblica noted over the weekend that the Italian government may request up to EUR 36bn in credit lines linked to the ESM by the end of July. The report added that PM Conte has received preliminary approval from Foreign Minister Luigi Di Maio of the Five Star movement, which has been against tapping the fund and said that Italy would aim to request an ESM loan along with other EU members including Spain and Portugal.

In terms of this week, central banks will feature highly on the agenda, with decisions from the Bank of Japan (tomorrow), the Bank of England (Thursday) and a number of others, while Fed Chair Powell will also be testifying before Congress (tomorrow and Wednesday). Elsewhere, European politics will be in focus, with a European Council meeting taking place on Friday where the recovery fund will be discussed, as well as talks between Prime Minister Johnson and EU leaders on today about their future relationship. Meanwhile we’ll get an increasing number of hard data releases for May, offering further insight into how different economies have fared as various lockdown measures have been eased.

Starting with central banks while the BoJ (tomorrow) is likely to see no policy change, the Bank of England (Thursday) are expected by DB to ramp up QE by a further £125bn with more QE likely over the course of the year. Their decision comes against the backdrop of Friday’s data showing UK GDP contracting by -20.4% in April, following its -5.8% decline in March, and with the country still only slowly easing lockdown restrictions.

Another central bank highlight will be Fed Chair Powell’s appearances before the Senate Banking Committee tomorrow and the House Financial Services Committee on Wednesday. He’ll be delivering a testimony as part of the semiannual Monetary Policy Report that’s submitted to Congress. It’ll be interesting to hear what he has to say on the outlook and how he sees the recovery progressing given his remarks in the most recent press conference that “we’re not thinking about thinking about raising rates”. So close to last week’s FOMC there is unlikely to be much new news but his tone will be closely watched as many in the market have criticised his downbeat nature at last week’s press conference. Rightly or wrongly, markets like a bit of sparkle from their central bank leaders and didn’t feel they got enough last week. Finally, central banks elsewhere will also be making a number of decisions next week, including in Switzerland, Norway, Indonesia, Russia and Brazil.

At the end of the week, the European Council summit on Friday will be of particular importance, with EU leaders due to discuss the recovery fund to deal with covid-19, along with the EU’s new long-term budget. Last month, Commission President von der Leyen presented a proposal for a €750bn recovery fund, which would include a mixture of grants and loans to member states. As part of this, the Commission would borrow from markets on behalf of the EU. However, the plans would require unanimity among the member states, and there are differences of views between them, not least on the extent to which the fund should be balanced between grants and loans. However, talks on the issue are expected to keep going into July, when Germany will take over the rotating EU Presidency.

Staying on European politics, and Brexit will return to the headlines as a high-level meeting between UK Prime Minister Johnson and the Presidents of the European Commission, Council and Parliament takes place by video conference this afternoon. The two sides have now agreed to an intensified timetable for negotiations on a free-trade agreement, with talks in each of the 5 weeks from the week commencing 29 June to the week commencing 27 July. The question will be whether today’s high-level talks can provide fresh impetus for the negotiations.

On the data front, it isn’t a particularly eventful week. The US will be releasing more hard data for May, with retail sales, industrial production and capacity utilisation figures coming out tomorrow, before housing starts and building permits for May are released on Wednesday. Our economists believe the trough of activity was in early May where their tracker showed YoY growth of -11%. It’s now around -9%. Moving across the Atlantic, here in the UK, this week sees inflation, retail sales and unemployment data released. For more on the rest of the week’s calendar see the day by day week ahead at the end.

Looking back at last week now, global equity markets in the US and Europe fell the most since the worst days of this covid-19 crisis. While Fed Chair Jerome Powell indicated midweek that the Fed would continue to use its tools to support the US recovery, the central bank’s bleak long term forecast and rising virus cases in the largest US states caused a reversal in investor risk sentiment. The S&P 500 (+1.31% Friday) nearly erased all of the previous week’s gains, falling -4.78% on the week, with the largest one-day fall coming on Thursday (-5.89%). The tech-focused NASDAQ went back to outperforming the S&P after two weeks of lagging the broader index, down “just” -2.30% over the 5 days (+1.01% Friday). For both the S&P 500 and the NASDAQ it was the worst weekly performance since the height of the crisis in the week ending 20 March. European equities fell even more on the week as the cyclical-over-growth outperformance trade of the past 1-2 weeks unwound. Banks were at the forefront of this on both sides of the Atlantic – US Bank stocks fell -11.17% while European Banks fell -9.76%. The Stoxx 600 as a whole fell -5.66% (+0.28% Friday) over the five days. The DAX was down -6.99% (-0.18% Friday), while the CAC fell -6.90% (+0.49% Friday), the IBEX retreated -7.37% (+0.20% Friday), and the FTSE MIB dropped -6.44% (+0.43% Friday). Asian indices did not fall as much, with the Nikkei down -2.44% over the week (-0.75% Friday) while the CSI 300 was largely unchanged at +0.05% (+0.18% Friday), and the Kospi fell -2.27% (-2.04% Friday).

With worries of a protracted first wave or potential second wave dampening economic activity, oil fell for the first week since late April. While OPEC+ agreed to extend production cuts at the start of the week, the global demand picture has not materially improved yet. And on a week where risk assets repriced the risks around reopening the economy, the commodity traded sharply lower. WTI futures fell -8.32% (-0.22% Friday) to $36.26/barrel and Brent crude retreated -8.44% on the week (+0.47% Friday) to $38.73/barrel.

As risk assets traded lower and volatility spiked, credit spreads both in the US and Europe widened on the week. European HY cash spreads were +44bps wider on the week (unchanged Friday), while European IG spreads were +13bps wider (+1bp Friday). US HY cash spreads were +78bps wider (-12bps Friday), while IG widened +9bps on the week (-1bp Friday).

Peripheral debt widened across the board as well, with Spanish 10yr yields +19.9bps wider to German bunds over the week, while Italian BTPs were +19.7bps wider, Greek 10yr yields widened less at +8.6bps, and Portuguese bonds widened +19.4bps. With risk assets falling sharply toward the end of the week, core sovereign bonds rallied with US 10yr Treasury yields falling -19.2bps (+3.4bps Friday) to finish at 0.703%, while 10yr Bund yields fell -16.2bps over the course of the week (-2.5bps Friday) to -0.44%. With yields lower and investors seeking havens, Gold rise +2.71% on the week (+0.18% Friday). The largest one week move for the metal since late April.

Economic data on Friday continued to show the economic hardship brought on by the coronavirus, with Euro Area industrial production falling by -17.1% in April, following its -11.9% decline in March. In the US, the University of Michigan consumer sentiment survey bounced back 6.6pts to 78.9 (vs. 75 expected), which is still near 7 year lows.

Submitted by Eleanor Creagh, Australian Market Strategist at Saxo Bank

Summary: Following the relentless run up in risky assets off the March lows, we are seeing 2-way price action return to the market. USD strength is resuming as risk sentiment sours and gravity is visible once again in risk assets.

Last week’s price action underscored that despite the aggressive rebound off March lows, a degree of fragility remains. Of course, markets are all about 2-way price action and it is fair to say, prior to last week’s sell off, price action had been very one-sided, with sentiment and positioning reaching extremes. Bankrupt companies were flying, the put-call ratio was close to 10-year lows and sports betters were morphing into fully-fledged portfolio managers. Speculation was rife and complacency a foot.

However, the pullback we saw on Thursday, although warranted given extremes in positioning, revealed more than just the extreme speculation driving markets higher in recent weeks. The realized move in the S&P 500 was far greater than the implied daily move in the S&P 500 from the VIX index. Here, there are a number of conclusions we can draw:

• We know markets are not normally distributed in any case, but last week’s 4 standard deviation move in the S&P 500 confirms active fat tail risk is in play
• Despite meeting the technical definition of a bull market (20% off lows), price action is not characteristic of a secular bull market, revealing an underlying fragility
• As my colleague Peter Garnry notes, VIX not indicative of a bull market
• Combined, we urge caution.

However, these are unusual and uncertain times. We know that fundamentals are wildly disconnected from market pricing, something my colleagues and myself have discussed at length in recent weeks. However, does that mean we are ready to call time on the liquidity induced mania revealed in recent weeks.

At this stage we would argue that although fundamentals will eventually trump liquidity, the liquidity driven narrative has proved strong and tough to break, particularly as the lack of appealing alternatives and the expectation that rates will remain low for an extended period drives investors up the risk spectrum into equities (TINA). Conditioned by the central bank put to “buy the dip” these investors are reaching for yield and piling into risky assets (FOMO). The existence of this dynamic perversely dictates one need not be positive on the expectations of a swift economic recovery, to be long stocks (and by default short cash/efficient markets/price discovery). Post consolidation/retracement these factors are likely to remain key drivers of continued upside and will persist in lending an underlying support to risky assets.

As we said last Tuesday, prior to Thursdays sell off, for short-term traders, now is the time to tighten stops and book gains. We maintain this defensive stance on risk.

The news cycle has certainly turned for the worse and it is clear the world still has a COVID-19 problem. Fresh lockdowns in Beijing, an uncontrolled first wave in the US and EM’s (India, Peru, Brazil, Chile, Pakistan) struggling to control the pandemic locally corroborate a cautious stance. In Beijing, “The risk of virus spread is very high, and resolute and decisive measures are needed to prevent further spread,” vice premier Sun Chunlan said during a state council meeting on Sunday, as reported by state media.

Without a vaccine, as lockdowns are lifted a persistent and growing first wave presents a clear risk for a true second wave resuming in the Northern Hemisphere once colder weather remerges. This would be a real hurdle that extended valuations fail to reflect. These risks are now being more adequately considered, but for how long is the question. In the current paradigm, when the only bull market is in intervention, the cynic in me wonders how long until the newswire, “a vaccine is close” crosses!

Summary:

• China blames outbreak on imported salmon
• Official warns risk of resurgence is high
• World nears 8 million case mark
• Brazil surpasses UK death toll; now second only to US
• 23 US cases see new infections climb
• UK allows many retailers to reopen for first time in 3 months

* * *

US equity futures initially broke below 3,000 last night after dozens of new coronavirus cases were reported in Beijing and Guangdong Province over the weekend. During a press briefing organized by China’s National Health Commission, Vice Premier Sun Chunlan spooked traders by claiming the risks for a resurgence of the coronavirus in Beijing were “high” due to the outbreak at the Xinfadi seafood market, billed as the largest wholesale market for seafood and meat in Asia. On Saturday, China reported 57 new infections, its largest resurgence in 2 months, before confirming dozens of additional cases on Sunday (remember, cases are always reported with a 24 hour delay).

40,000 Beijing residents are reportedly on lockdown, with at least half of the districts in Beijing reporting new cases. Officials in Beijing blamed flights from India and Bangladesh for carrying more infected individuals (some of them foreigners) to Guangdong, with 14 of the patients confirmed in the province flying from Bangladesh and three from India. Beijing’s warning about a “high” risk of resurgence follows a warning from Saturday when officials warned that the part of Beijing surrounding Xinfadi (situated in the southwestern part of the capital city) had assumed a “wartime posture”, as nearly a dozen neighborhoods were placed back on lockdown.

In total, some 80 new cases were reported in China over the weekend.

As we await the latest batch of infection data out of China, the Global Times reported Monday that the closure of Xinfadi “will impact seafood sales worldwide”, and as a result, sales of salmon had already been suspended across China after a sample of the virus was detected on a chopping board owned by a fishmonger selling imported salmon.

The linkage to the imported salmon and the national ban on salmon sales are, of course, bits of political theater to convince the Chinese people that new cases of the virus are tied to foreign sources. Here’s an excerpt from a Global Times editorial published Monday in China.

We must also admit that we still know little about COVID-19. Our knowledge is still limited about where the virus comes from, how it spreads and how COVID-19 patients should be treated.

This determines that when there are still many countries affected by the epidemic, it is impossible for China to completely eradicate the virus. The epidemic may break out from unexpected directions, and we must be able to withstand such situations and respond effectively. What happened in Beijing is very likely not the end of China’s domestic COVID-19 spread.

Moving on from China, we begin the week on the cusp of the latest grim milestone for the international outbreak: With the world still reporting roughly 100k new COVID-19 cases a day, with at least 40k of these coming from Latin America alone, the global tally passed 7.9 million mark Monday. And while roughly half of those, some 3.8 million, have already recovered, another 433,394 have succumbed to the deadly virus.

Yesterday, authorities in Tokyo confirmed they had uncovered the biggest cluster of cases in more than a month. Adding to the alarm, local TV news station FNN reported early Monday that another ~50 cases had been confirmed in Tokyo, the biggest jump since May 5, although the number is roughly equivalent to the number of cases confirmed over the weekend. Of these new cases, approximately 20 were linked to a popular nightlife district in the city.

Those who have been monitoring the rankings for countries with the highest number of COVID-19-linked fatalities might notice a change: As of Monday, Brazil has officially surpassed the UK total for COVID deaths, moving into second place behind only the US.

After its latest update on deaths and new confirmed cases last night, Brazil has counted 43.3k deaths since the outbreak began, and many on the ground have warned that this figure greatly underestimates the true number of deaths. Mexico has also been accused of undercounting fatalities in hotspots like Mexico City.

In the US, roughly half of the states are seeing new cases rise, many alongside hospitalizations. Texas has seen hospitalizations hit record highs, while Florida, NC, SC, Arizona, Nevada and many other states are seeing an increase in new cases reported daily.

Even Georgia, which was heralded for its ability to reopen aggressively without sparking a massive resurgence in new cases, has reported a discomfiting spike over the past few days, according to the NYT.

Meanwhile, as we noted last night, in New York, Gov Cuomo is threatening to shut down Manhattan and parts of the Hamptons if he keeps receiving complaints about COVID-19-related violations. In Tennessee, authorities in Nashville have cited a number of businesses for breaking social distancing rules, including one bar where patrons were packed in shoulder to shoulder.

Hundreds queuing outside #Birmingham #Primark this morning – they’ve opened the doors ahead of the official 8am start because of demand @bbcwm @bbcmtd pic.twitter.com/wVkn1DFE6U

— Kathryn Stanczyszyn (@stanchers) June 15, 2020

And in the UK, thousands of retailers reopened Monday after almost three months of lockdown restrictions put in place amid the coronavirus pandemic.

Authored by Jeffrey Snider via Alhambra Investments,

The Federal Reserve’s models really are the most optimistic of the bunch. With the policy meeting conducted today, no surprises as far as policies go, we now know what ferbus has to say about everything that’s happened this year. Skipping the usual March projections, what with the FOMC totally occupied at the time by a complete global monetary meltdown Jay Powell now says “we saw it coming”, the central bank staff released the calculations performed by its DSGE prodigy concurrent with today’s policy meeting.

According to these simulations, the US economy will contract by somewhere between 5.5% and 7.6% for all of 2020 and then rebound by hopefully 4.5% if not 6.0% in 2021. The median forecast, to make things simple, calls for -6.5% this year followed by +5.0% next year.

And that places the Fed’s projections out in front of everyone else’s, not that it means anything.

Each and every one of these continues to look the same. The most optimistic forecasts, the FOMC’s, are not categorically different from the rest. The uncertainty pertains instead to estimates for just how bad off we might be by the end of next year; there’s no debating the massive economic damage already done.

This “V” everyone is talking about and hoping for keeps coming up conspicuously light on the right. Only a partial comeback which will almost certainly leave the world to deal with the fallout from years of underperformance – following more than a decade of unacknowledged and unexplained underperformance already.

But, QE or something.

These statistical simulations already assume “stimulus” is, has been, and will continue to be tremendously helpful. In addition to all their biases and unrealistic premises, as noted yesterday, underlying each and every one of these sets of projections, especially the Fed’s, is the unproven (to put it kindly; in empirical reality these are disproved ten times over across every part of the planet) assumption monetary policy is some kind of miracle drug.

If only in terms of “jobs saved.”

Before Jay Powell got on TV last week to talk a lot about how helpful the Fed can be, and how the biggest risk in his lurid liar’s mind must be interest rates exploding higher, the OECD had already put out its own forward-looking estimates. Even though you may not have seen this particular set, you’ve already seen them many times before recently.

The V’s very light on the right.

Their purple line “single-hit” scenario envisions COVID-19 being a one-off, no second outbreak, and still look where it ends up; substantially, dangerously below where the economy should have been had governments properly distrusted statistical modeling in both Economics as well as epidemiology.

And that purple disaster assumes, of course, how, “Policymakers have used a vast array of exceptional measures to support healthcare systems and people’s incomes, as well as to help businesses and stabilise financial markets.” These best-case scenarios are all predicated on the same fairy tale.

If Jay Powell can lie to the public convincingly enough, and keep it up for long enough, then we just might avoid a second and more disruptive leg of GFC2 and keep to the disaster of the purple line as opposed to an outright catastrophe. See what I mean about “jobs saved?”

In the same part of the world as the OECD, and on the same day, yet another mainstream series of modeled projections was released, this one by the World Bank which basically ends up declaring the same thing as everyone else: the world is screwed. According to these numbers, the FOMC’s figures are only slightly elevated. They call for the US economy to drop 6.1% in 2020 and then come back 4% in 2021.

Only a little lighter on the right side of their “V.”

While that’s not really a “V”, either, it’s much closer to one than what’s being envisioned for the rest of the developed world; Japan and Europe. The former is looking like -6.1% but then only +2.5%. The latter is projected to collapse by 9.1% this year, and only rebound by 4.5% next year. If you thought the euro was in trouble in 2011…

As I’ve been writing (constantly), these are not the scenarios everyone right now has in mind. Certainly not what’s propping up valuations on Wall Street. There’s this idea, priced into equities, that COVID-19 was a serious health risk that has already been surmounted and is fading into historical trivia. Once the pandemic is over, it’s over.

On the contrary, every single one of the mainstream models, predisposed to be overly optimistic, indicates the exact opposite thing. When you can’t even get DSGE on your side even though DSGE is basically made to be on that side. What we are left to argue about is just how screwed we are; not whether we are.

Even the Economists at the World Bank are nervous about their purple, since they also realize the dangers in relying on “stimulus” for these more optimistic numbers (that are, again, terrible). In other words, they also know how everything has to go perfectly in order to achieve them. The world has no room left for anything more like March.

The global recession would be deeper if countries take longer to bring the pandemic under control, if financial stress triggers defaults, or if there are protracted effects on households and firms.

Second and third order effects, in other words. We can’t afford even a whiff of those despite signs and signals already showing up in too many key indications.

And even if everything does go right, we don’t have a wave of bankruptcies or more of GFC2 frightening consumers and businesses beyond what it already has, it will be a disaster greater than the Great “Recession.” Perfect illustrating this “best” case, the World Bank supplies what should be worth far more than every $1000 stock:

If you thought 2008-09 was fun, just wait until 2022! And that’s only if “stimulus” can save a multitude of jobs between now and then.

The problem with calling what’s going on right now survivor’s euphoria is that we haven’t actually survived anything – economically speaking. It was premature in the middle of 2008 after Bear, just as it is almost certainly premature right at this moment. Shock euphoria just doesn’t have the same ring to it, though, does it?

But that’s all that has really happened so far; we haven’t made it past the thing, we’ve only made it past the shock which has produced the thing. A shock which was amplified by what may prove to have been only the first leg of GFC2.

What every single one of these highly optimistic mainstream modeled assessments shows is that this thing has only gotten started. That’s why there’s no “V.” It wasn’t nothing as people are now being led to believe, hooked by crooks.

No wonder Jay Powell learned so quickly to be a damned liar.

Since the coronavirus pandemic began grinding the global economy to a halt, we have been keeping a close eye on the auto market. The auto market was mired in recession prior to the virus and therefore has been disproportionately affected by the slowdown in the global economy.

In January, prior to the virus shutdowns, auto companies set the tone for the year, starting 2019 just as miserably as 2018 ended, with major double digit plunges in sales from manufacturers like Nissan and Daimler. Since then, things have only worsened, with major markets like China and the U.S. seeing sales fall off a cliff as consumers have been forced to stay home. 

We have recently noted that U.S. auto manufacturers are teeing up sizeable incentives to get buyers back into showrooms. Europe is following suit, with Volkswagen starting a sales initiative to revive demand, including improved leasing and financing terms.

But at the same time, used car prices have been tanking. Over the last few months we detailed how used car prices were set to cripple what little interest in new cars remains, how dealers are scrambling to desperately offer incentives and how ships full of vehicles are being turned away at port cities due to a lack of space and inventory glut.

Today, we want to take a look at where the used car price plunge – which continues to put pressure on the industry – is having the biggest impact. A new report from CoPilot, a car shopping app, looks at the recent drop in used car prices in the U.S.

Research firm Manheim has indicated that wholesale prices dropped as much as 11% in April, but also that this price drop hasn’t fully hit the retail market yet. The report predicts that since “dealers have largely avoided purchasing new inventory in recent weeks, they aren’t in a rush to cut prices as a way to move their existing inventory.” 

It also predicts a sharp drop in retail prices in the coming weeks, stating that “a combination of record supply, damaged consumer confidence, and new car incentives will ultimately create a perfect storm causing retail prices to drop sharply in the coming weeks.”

Between January and May, individual U.S. states experienced price drops ranging from 1% to 5%, the report shows.

The CoPilot report does a good job parsing out on both a state-wide level and metropolitan area-level, where used car prices are falling the most. The app “analyzed its proprietary dataset of more than 6 million auto listings in the United States and created a ranking based on each location’s change in average listing price between January and May 2020.”

The top 5 metro areas that saw price declines included:

1.  Miami-Fort Lauderdale-West Palm Beach, FL: Average change in used car prices: -6.59%

2. Orlando-Kissimmee-Sanford, FL: Average change in used car prices: -5.85%

3. Salt Lake City, UT: Average change in used car prices: -5.20%

4. Dallas-Fort Worth-Arlington, TX: Average change in used car prices: -5.19%

5. Minneapolis-St. Paul-Bloomington, MN-WI: Average change in used car prices: -5.12%

You can view the full list of all metro areas here:

And the top 5 states that saw price declines included:

1. Florida, -4.86%
2. Delaware, -4.55%
3. Utah, -4.5%
4. Colorado, -4.33%
5. North Carolina, -4.31%

You can view the full list, by state, here:

The report also found that “Trucks have seen the smallest decline in average sale price so far, at only 2.9 percent compared to 3.6 percent for all used vehicles. This is consistent with the fact that demand for trucks typically increases when gas prices and interest rates drop, trends which make owning a truck more affordable.”

“Luxury vehicles and electric vehicles are disproportionately represented among the top 15 models with the biggest drop in used car prices so far,” the report also concluded.

 

Via Southfront.org,

A suspected U.S. drone strike on Idlib’s city center on Sunday has killed two senior commander of al-Qaeda-affiliated Horas al-Din, Qassam al-Urduni and Bilal al-Sanani. The strike targeted the commanders’ SUV as it was passing on a road in the western part of Idlib city. The SUV, a silver Hyundai Santa Fe, was struck with what appears to be two U.S.-made AGM-114R9X Hellfire missile.

The AGM-114R9X Hellfire, dubbed “Ninja Bomb,” is armed with a kinetic warhead with pop-out blades. The missile has been deployed in secret since 2017, with its existence revealed in 2019. The below shows the aftermath of the strike by the weapon developed by the CIA (Warning: Graphic).

Pro-militant sources revealed that Qassam al-Urduni was the general military commander of Horas al-Din. Bilal al-Sanani, on the other hand, was the commander of the group’s al-Badiya [desert] Army. Both terrorists were Jordanian citizens.

In December of last year, a U.S. drone strike killed Abu Khadija al-Urduniyi, a senior Jordanian commander of Horas al-Din in northern Idlib. Abu Khadija’s SUV was also struck with an AGM-114R9X Hellfire missile.

#Syria: the military commander of Horas Al-Din was killed today by a US drone, firing the Hellfire “AGM-114R9X” missile already used in the past. Nicknamed “Ninja missile” it has a kinetic warhead with blades (with tremendous effect on ppl inside the car) & doesn’t use explosives pic.twitter.com/LDQkxbfMgU

— QalaatM (@QalaatM) June 14, 2020

The Wall Street Journal previously described of the secretive cutting edge weapon:

Both the Central Intelligence Agency and the Pentagon have used the weapon while closely guarding its existence. A modified version of the well-known Hellfire missile, the weapon carries an inert warhead. Instead of exploding, it is designed to plunge more than 100 pounds of metal through the tops of cars and buildings to kill its target without harming individuals and property close by.

To the targeted person, it is as if a speeding anvil fell from the sky, the officials said. But this variant of the Hellfire missile, designated as the R9X, also comes equipped with a different kind of payload: a halo of six long blades that are stowed inside and then deploy through the skin of the missile seconds before impact to ensure that it shreds anything in its tracks.

Qassam al-Urduni, Bilal al-Sanani and Abu Khadija al-Urduniyi were reportedly former commanders of al-Qaeda’s Hay’at Tahrir al-Sham.

Footage purportedly of the circling drone just before Sunday’s targeted attack:

The assassination of al-Urduni and al-Sanani is without a doubt a serious blow to Horas al-Din. However, this attack will not likely affect the terrorist group’s influence in Greater Idlib.

Recently, the group and other al-Qaeda factions formed a new operations room in the northwestern Syrian region.

Volkswagen announced last week it was going to be launching its in-home charging station – and installation – ahead of the launch of its ID3 electric vehicle, which is expected to hit the streets later this year. VW started selling its level 2 charging station called “ID.Charger” on Friday of last week, according to electrek.

The company has also said it’s building a “complete charging network around the ID.3.”

The charging station is equipped with a Type 2 connector, which is the standard for EVs in Europe. It’s available in three different configurations that start in price around $450 USD. All options have a power output of up to 11 kW. 

Peter Diekmann, Key Account Manager at the Volkswagen subsidiary Elli which is responsible for charger, said: “In the past, buying a wallbox was often a tiresome and long-winded exercise for customers. We want to change that and are offering a single-source solution for the ID. Charger – from purchase and installation through to commissioning.”

The chargers are available in eight European counties effective immediately. 

Thomas Ulbrich, Member of the Board of Management of the Volkswagen Brand responsible for E-mobility, said: “Volkswagen is also setting new standards for charging in the volume segment. We will be building a complete charging network around the ID.3 over the coming months. The ID. Charger gets things rolling, further charging services will follow. In future, charging an electric car is to be as clear and simple as charging a smartphone.”

Recall, we wrote back in May that VW has sold out many of its EVs into the second half of 2020. The automaker’s CEO said on a podcast in May that many of its EVs are already “sold out far into the second half of the year.” 

The company’s market share for EVs more than doubled to almost 4% and could rise as high as 5% or 6% by the end of 2020 with help from incentives and tax breaks, CEO Herbert Diess said. The company has a longer-term target of EVs accounting for about 40% of deliveries by 2030.

Days before that, we wrote about the Volkswagen ID3, which, with a price point of $33,000 possibly represents the biggest challenge to Tesla’s dominant EV status yet. The vehicle goes on sale in Europe and the UK this summer, despite the coronavirus and offers the same amount of range and storage space as a Tesla Model 3.

Volkswagen has been taking pre-orders for the car and more than 35,000 people have placed deposits so far, according to Autocar. Those who placed deposits will be able to buy their cars starting June 17 in Europe. The UK will follow in mid-July due to the time it takes to get approval for right hand drive models.

Volkswagen sales boss Jürgen Stackmann said at the time deliveries are on track and that the ID3 is the company’s sole focus right now: “The focus of the company now is on ID 3. We’re almost ready, and we just need a few more weeks to get the software to where we need it to be. The entire team are working on this topic, and we want to deliver a great quality product on time – and that time is this summer.”

And the target for VW is clear: the company is “very confident” that it “won’t lose sight of Tesla,” Deiss said.

Authored by Iain Davis via In-The-Together.com,

The Lockdown regime, ushered in by the UK government on March 23rd and enacted into Law on March 25th, appears to have led to the premature deaths of tens of thousands of people in the UK. In my previous post LOKIN-20 The Lockdown Regime Causes Increasing Health Concerns we discussed the likelihood that the Lockdown would cause significant excess mortality. With the release of the latest report on non COVID 19 related deaths from the Office of National Statistics we can now start to see the scale of those deaths.

The ONS reveal that between March 7th and May 1st (ONS Week 11 – 18) there were 46,380 excess death, over and above the statistical 5 year average, registered in England and Wales. Figures for Scotland and Northern Ireland are not included.

Of the 46,380 excess deaths 12,900 (27.8% of additional excess deaths) were not attributable to COVID 19. This suggests that 33,480 (72.2% of additional excess deaths) were attributable to COVID 19.

However, as we discussed in COVID 19 is a Statistical Nonsense it is by no means clear how many of those deaths were as a direct or even indirect result of COVID 19. The problem is that the UK State has created a system for registering COVID 19 deaths which is unusually vague, for the UK, and wide open both to error and misinterpretation.

All nations have their own registration processes and data collection systems, but the situation in the UK is not dissimilar to that in Italy. The Italian government imposed their severe lockdown on March 9th. On March 20th, as significant numbers of assumed COVID 19 deaths mounted, Italy’s National Institute of Health (ISS) issued a report into the characteristics of the decedents.

Citing the research, which found no clear COVID 19 cause of death in 88% of deaths attributed to coronavirus, the scientific adviser to Italy’s minister of health, Professor Walter Ricciardi, said:

“The way in which we code deaths in our country is very generous in the sense that all the people who die in hospitals with the coronavirus are deemed to be dying of the coronavirus……On re-evaluation by the National Institute of Health, only 12 per cent of death certificates have shown a direct causality from coronavirus.”

Sir Patrick Vallance

We might consider this in light of the statement made by Professor Ricciardi’s UK counterpart. Speaking on April 16th the UK’s Chief Scientific Officer, Sir Patrick Vallance, stated:

“It is worth remembering again that the ONS rates are people who’ve got COVID on their death certificates. It doesn’t mean they were necessarily infected because many of them haven’t been tested. So we just need to understand the difference.”

The UK State, like the Italians, instructed the ONS to record any and all mentions of COVID 19 on the death certificate (MCCD) as COVID 19 mortality. Furthermore, the ONS were told to accept suggested COVID 19 mortality figures from the Care Quality Commission (CQC) even if COVID 19 was not mentioned on the MCCD.

This has left the collection and reporting of COVID 19 mortality in England and Wales in total disarray. Certainly the MSM’s reporting of those statistics, which has overwhelmingly been in support of the Lockdown regime, is as close to meaningless as it is possible to get without simply making them up.

Between March 7th and May 1st figures from the CQC played no part in the ONS mortality analysis. The CQC didn’t start submitting their data to the ONS until April 29th. I mention it here, not only to highlight how absurd the COVID 19 mortality statistics have become, but also because CQC figures will be important as we attempt to assess the true scale of LOKIN-20 deaths in the UK.

Undiagnosed COVID 19

ONS state:

“It is possible that symptoms may not be apparent or that COVID-19 could be mistaken for illnesses with similar symptoms. Some death certificates state that more information will be provided later, and some of these have since been updated to mention COVID-19. This supports the theory that COVID-19 is under-diagnosed at present on death certificates.”

This is an illogical statement from the ONS. It does not support their claim that COVID 19 has been under diagnosed.

If symptoms are not apparent there is no reason to suspect that COVID 19 was the cause of death. Presumably, nor were there any symptoms of rabies or malaria. You wouldn’t suspect they were a cause of death either, though you might if you followed ONS logic.

The ONS doesn’t tell us why MCCD’s have been updated later to mention COVID 19. Nor do we know how many of the non COVID 19 deaths were later changed to COVID 19 deaths. The most reasonable explanation for this change is that the decedent passed away before test results were available or where a subsequent case note reviews indicated the presence of COVID 19. We will discuss positive test results later, but suffice to say they are a reason to reduce not increase claimed COVID 19 mortality.

As previously discussed a case note review is not a reliable way to identify COVID 19. Not least of all for the fact that that the reviewing doctor may have never met the decedent. Elsewhere, in their report, the ONS state:

“It is possible the conditions ‘other acute lower respiratory infections’ and ‘influenza and pneumonia’ could exhibit similar symptoms to COVID-19 and therefore be mistakenly recorded in place of COVID-19….it is possible that symptoms may not be apparent or that COVID-19 could be mistaken for illnesses with similar symptoms….”

Prof. Karol Sikora

This is an astute observation from the ONS. The symptoms of influenza, pneumonia and other acute respiratory infections are virtually indistinguishable from the most dangerous respiratory symptoms of COVID 19. While the ONS seem eager to suggest this means COVID 19 has been under diagnosed, considerable over diagnosis is far more plausible.

Prof Karol Sikora, former director of the World Health Organisation (WHO) cancer program, highlighted this concern recently. He stated that doctors appeared to be putting COVID 19 on to MCCD’s injudiciously with “any hint” of it’s presence being sufficient to record it as cause of death. While he estimated that approximately half of the ONS reported COVID 19 deaths were attributable to COVID 19, it is perhaps a little unfair to blame the medical profession for this potentially excessive misdiagnosis.

Following the Coronavirus Act, the State, the NHS, the Royal College of Pathology and the ONS were among the many influential institutions who were compelled by the legislation to issue COVID 19 guidance to MCCD signing practitioners. It practically guaranteed attribution of COVID 19 mortality on the flimsiest of evidence. For example, the ONS stated:

“If before death the patient had symptoms typical of COVID 19 infection….it would be satisfactory to give ‘COVID-19’ as the cause of death.”

As the ONS acknowledges, these symptoms could have been caused by a range of respiratory illnesses. The obvious consequence of the guidance they issued is over, not under, diagnosis of COVID 19. Doctors have to follow policy like anyone else. They are not to blame for this problem. State legislators and policy makers are.

Seeing as COVID 19 is supposed to be a pandemic, if under diagnosis is an issue, we should see an unseasonable increase in pneumonia deaths within the non COVID 19 mortality figures. Flu, COVID 19 and other similar respiratory illness often resolve as pneumonia in end stage palliative care.

Yet the ONS contradict this notion in their own report:

“It unlikely that symptoms of COVID-19 have been mistaken for pneumonia since Week 14 (week ending 3 April 2020). It is possible this contributed to non-COVID-19 excess deaths observed before that time.”

The ONS report that the numbers of non COVID 19 deaths have been recalculated in order to provide the most up to date figures. The stated 12,900 figure is not evident in their released data sets for the Week 11 – 18 period.

There were no non COVID 19 excess death initially reported in week 11. It appears, of the additional 2,061 deaths added later, 220 were eventually noted in week 11. We will focus on the initial released data sets here.

Between Week 12 to Week 18 there were 10,839 additional non COVID 19 deaths originally reported. Of these 421 (3.9%) occurred before Week 14. With misdiagnosed pneumonia being an unlikely reason for more than 96% of the reported non COVID 19 deaths, we must ask why the ONS would bother to suggest this may account for them.

Clearly, according to their own reported data analysis, it doesn’t. There is no basis for them to make such a claim.

ONS data shows no increase in pneumonia deaths

ONS Strawmen

This theme of undiagnosed COVID 19 persist throughout their report, without justification. The ONS note the significant increase in deaths from a range of other conditions, recording large spikes in deaths from asthma and diabetes within non COVID 19 mortality. While they acknowledge that delayed care could be the cause, they also promote their pet notion that COVID 19 still might account for these deaths.

“This could indicate that some people suffering from these conditions are not receiving care fast enough to prevent death occurring. It is also plausible that some of these deaths are because undiagnosed COVID-19 had exacerbated the pre-existing condition.” 

Nightingales – empty!

For some reason the ONS also make a couple of strawman arguments to try to explain the non COVID 19 mortality. The first is reduced hospital capacity.

During the Lockdown regime hospital capacity increased. There was no reduction. While the ONS recognise that deaths have increasingly occurred at home and in care settings, rather than hospitals, their rationale to explain this seems odd.

They state both that the NHS has been adapted to deal with COVID 19 cases and that healthcare for non COVID 19 illness may have been reduced which may have increased mortality. With regard to reduced access to hospital treatment, the ONS state:

“[This] could indicate that people who are very ill with these conditions are remaining at home when previously they may have been admitted to hospital or a hospice for near end-of-life care.”

This is true. However, their report is supposed to be an analysis of the 12,900 additional excess deaths that occurred in a 7 week period in England and Wales. Not only have the ONS framed this within the context of strawman argument, they appear to be suggesting that patients not being treated in hospital just happened. People simply remained at home, as if this were their choice.

ONS statistics – Graphics from Christopher Bowyer

If that analysis seems odd, the ONS strawman explanation of death registration changes is downright bizarre. The argument they present is that the Coronavirus Act improved the efficiency of the registration process.

The ONS are in the business of reporting mortality statistics. For them an improvement in the speed of the registration process is one measure of improved efficiency. However, if those registered death certificates provide increasingly meaningless causes of death, haste has significantly reduced efficiency.

Deaths are referred to coroners where the cause of death is not clear. This reduces the speed of registration but also improves accuracy, from a statistical perspective. The Coronavirus Act 2020 more or less ruled out any referral to a coroner. The UK’s chief coroner issued the following advice to coroners:

“The aim of the system should be that every death from COVID-19 which does not in law require referral to the coroner should be dealt with via the MCCD process.”

Doctors were instructed to assume all symptoms of respiratory illness indicated COVID 19. If they were uncertain, referral to a coroner was certainly a waste of time and the Coronavirus Act removed access to the second opinion of a Medical Examiner.

For some unfathomable reason, the ONS appear to agree that COVID 19 is a uniquely clear cause of death. Despite the fact that they recognise COVID 19 symptoms are more or less the same as those of numerous other infections, a diagnosis of COVID 19 somehow removes any doubt. The Coronavirus Act has made sure of this and the ONS believe this is more efficient:

“This would increase efficiency in registering cases that would have typically gone to inquest.” 

Troubling inquests and corroborating medical opinions, to ensure the stated cause of death is accurate, are unnecessary for all COVID 19 deaths. Though what this has to do with non COVID 19 deaths is anyone’s guess. Not much, according to the ONS, who state:

“This suggests that despite observing efficiency improvements in registrations, these improvements themselves are unlikely to be driving much of the increase in death registrations observed in recent weeks.”  

Not only does this raise significant concerns about the accuracy of the ONS reported statistics, it begs the question why they felt the need to include a suggested explanation, in their written analysis of these deaths, if they had already ruled it out. This appears to have been included purely to promote the idea that the Coronavirus Act improved registration efficiency.

Yet, within their own report, the ONS provide more than sufficient reason to seriously question that claimed efficiency gain. The Coronavirus Act reduced the accuracy and reliability of mortality statistics in England and Wales. That this doesn’t seem to matter to the ONS is worrying.

Evidence of Lockdown Regime Deaths

It is apparent that the Lockdown regime has caused significant loss of life. There is no doubt that delayed treatment for serious conditions increases the mortality risk considerably.

At the time of writing (10/06/2020) COVID 19 is said to have affected 0.4% of the UK populations and 0.06% have reportedly died as a result. Cancer alone kills 0.24% of the population every year in the UK. Even if you accept that all claimed deaths from COVID 19 were as a result of the syndrome, cancer kills at least four times as many people.

In 2018 541,589 people died in England and Wales. This represents 0.92% of the population which means approximately 0.15% of the population die every two months. The top 5 leading causes of death account for more than 40% of those deaths.

ONS data

On average these five causes kill 0.37% of the population every year, equating to approximately 0.06% every two months. Roughly the same figure as reported COVID 19 deaths. Yet for these people, during the Lockdown regime, treatment and essential screening has effectively been withheld.

During the same period hospital bed occupancy has been at an all time low. Additional capacity was added in the form of the various Nightingale hospitals, though these have not been required to treat COVID 19 patents.

During the Lockdown regime, cancer screening and treatment was put on hold. Cancer Research UK estimate that 290,000 people have missed cancer follow ups, indicating that around 20,000 current cancer sufferers, who would otherwise have been detected, remain without a diagnosis in the UK. They state that 2.1 million people have missed screening appointment, potentially at the cost of another 3,800 lives. The impact upon cancer survival rates alone has been devastating.

In London the mean ambulance response time increased by 43 minutes. Nationally the average ambulance response times for the most serious category 1 emergencies rose to 8 minutes 7 seconds, 1 minute and 7 seconds above the recommended maximum.

Jason Oke from the Nuffield Department of Primary Care Health Sciences at the Oxford University reported that in May both general A&E presentations and those for heart attacks were down by half. Cardiovascular disease kills nearly 170,000 people every year in the UK. With an average mortality of 460 deaths per day, a 50% drop in presentations, over the nearly three months long Lockdown regime period, has and will significantly increase mortality from cardiovascular disease.

Crucial surgery and diagnostic tests, for a range of other serious conditions, have been delayed in huge numbers. As the NHS confederation warns that waiting lists will exceed 10 million, the mainstream media insist that you believe this is due to coronavirus.

The best you can say about this claim is that it is doubtful. We should not discard the possibility that it is intentionally deceptive.

With more than enough capacity to treat both the seriously ill non COVID 19 and COVID 19 patients, there is no doubt that the Lockdown regime has resulted in the unnecessary deaths of at least 12,900 people. Unfortunately, further analysis of the COVID 19 statistics suggests the figure is much higher.

ONS statistics – Graphics from Christopher Bowyer

The Real Scale of LOKIN 20 Mortality.

If the unnecessary delay and denial of healthcare were an identifiable syndrome we could perhaps call it LOKIN 20. In order to assess the impact of LOKIN-20 we need to consider the excess mortality that we would not otherwise expect to observe.

It is this additional excess mortality the MSM commonly report in their daily coronavirus updates. They consistently attribute it either to COVID 19 or the “collateral damage” of the coronavirus crisis. The Lockdown regime itself appears to be largely immune from criticism as far as the mainstream media are concerned.

The BBC reported mortality figures for the entire UK combining data from the ONS, Northern Ireland Statistics and Research Agency (NISRA) and National Records Scotland (NRS). On the May 9th 2020 the BBC stated that these excess deaths stood at 63,708.

Via the ONS, this reported mortality included notifications of suspected COVID 19 deaths from the Care Quality Commission (CQC). An unknown number of these may not even record COVID 19 on the MCCD.

Public Health England did not not record any statistically significant excess mortality in England until Week 13 (week ending 1st April). Therefore the reported 63,708 excess deaths have occurred almost entirely during the Lockdown regime period, up to June 9th.

Using ONS data for England and Wales we can derive an estimate of the likely percentage of deaths that were genuinely attributable to COVID 19. We can apply these to the statistics revealed by the BBC and extrapolate relative figures for the whole of the UK.

ONS statistics – Graphics from Christopher Bowyer

Unless there is some unknown pathogen ravaging the nation, what remains are excess deaths which correspond precisely with the Lockdown regime period. We don’t have any other explanation for this loss of life, but all losses occurred during the Lockdown. We will call this LOKIN 20 mortality.

With 50,107 deaths allegedly attributed to COVID 19, the BBC report 13,601 LOKIN 20 deaths. Of the 50,107 COVID 19 deaths 9,510 were identified by symptoms alone. As previously discussed, it is not clear how many of these deaths can legitimately be attributed to COVID 19.

Approximately 95% of COVID 19 decedents have at least one other serious comorbidity. While this brings into question all of these claimed COVID 19 deaths, where diagnosis is by observation alone and both pneumonia & influenza are also mentioned on the death certificate, it cannot be objectively determined that these deaths were from COVID 19.

For weeks 14 to 22 the ONS report that 37.3% of all COVID 19 deaths also mentioned both pneumonia and influenza. While we don’t know the distribution of these deaths between those identified by test results and those identified merely by symptom, we can reasonable state that at least 3,547 of the 9,510 symptom diagnosis were inconclusive. This leaves us with potential LOKIN 20 mortality figure of 17,148.

The BBC state that 40,597 COVID 19 deaths were confirmed following positive tests results. There is a considerable problem with this attribution. A positive test result for SARS-CoV-2 does not necessarily indicate that the patient was suffering from COVID 19.

A large proportion of people who test positive for SARS-CoV-2 are asymptomatic. This means they have the virus but not the resultant syndrome of COVID 19. They may be pre-symptomatic, developing the disease later, but at the time of testing they don’t have it.

Without COVID 19 they do not have a disease that will impact their health. Just because someone is critically ill with a heart condition, testing positive for SARS-CoV-2 doesn’t mean that COVID 19 is making their condition worse. Without the symptoms it almost certainly isn’t.

A study of asymptomatic SARS-CoV-2 patients in China found that the presence of the virus alone had little to no impact on their presenting conditions. Nearly 80% of the studied patients did not develop COVID 19, although CT scans possibly indicated signs of the disease.

The British Medical Journal report that Australian researchers thoroughly tested all the passengers on a quarantined cruise ship. Cruise ships are almost the perfect incubator for a viral infection. Studying COVID 19 in such an isolated population is of particular value.

Approximately 59% of the 217 passengers tested positive for SARS-CoV-2. This is in keeping with the estimates of the UK government’s chief scientific adviser, Sir Patrick Vallance, who stated that COVID 19 herd immunity would be achieved with a 60% infection rate. Again, 81% of those infected were asymptomatic. Asymptomatic rates on two quarantined aircraft carriers, the U.S.S. Theodore Roosevelt and the French Charles de Gaulle, were 58% and 48% respectively.

A similar figure of 78% asymptomatic infection was found in a study by Chinese researchers who tested overseas arrivals into their country. They showed no symptoms and therefore there was no evidence they were suffering the ill effects of COVID 19.

Another study of an isolated community of approximately 3000 people in the northern Italian village of Vo’Euganeo found similar results. Sergio Romagnani, professor of clinical immunology at the University of Florence, stated that between 50%-75% of positive test cases were asymptomatic.

Depending upon which study you look at this asymptomatic rate varies between 5% up to 80%. For our purpose, estimating the likely impact of the Lockdown regime, we’ll use the asymptomatic median of 42.5% of positive test cases.

This is lower than most study estimates but many of them are based on data models. We’ll stick to this conservative estimate in light of the empirical data measured in isolated communities.

This means that 17,211 of the claimed 40,497 COVID 19 deaths identified by SARS-CoV-2 positive test results are unlikely to have had COVID 19. Added to the potential 17,148 LOKIN 20 deaths already noted, it appears LOKIN 20 accounts for at least 34,359 of the 63,708 deaths reported by the BBC.

ONS statistics – Graphics from Christopher Bowyer

Apparently the Lockdown regime has already led to the premature deaths of at least 54% of the people the State and the MSM report as dying from the direct or indirect impacts of coronavirus. This is slightly more than the 50% estimate of Professor Karol Sikora.

Critics will rightly point out that I have made some assumptions to arrive at this figure. For example, we don’t know how many of those diagnosed by symptoms alone actually had COVID 19, nor how many positive tests for SARS-CoV-2 were accurate or how many patient subsequently developed COVID 19. In truth, we may never know.

However the UK State’s Lockdown Regime, despite claims of being led by the science, is based upon the computer models of Imperial College. These were not only wildly speculative, they were also demonstrably wrong.

The calculation presented here is based upon the cited empirical scientific evidence. Given that the Italian National Institute of Health (ISS) found that only 12% of claimed COVID 19 deaths could be clearly attributed to the disease, I have erred on the side of caution.

34,359 LOKIN 20 deaths is a conservative estimate. If we based our calculation on the Italian research, LOKIN 20 deaths could be as high as 56,000.

UK child poverty will be caused by the Lockdown regime

Sadly, it appears the UK State are intent upon continuing their Lockdown regime. In all likelihood this policy has already led to the premature deaths of more than 34,000 British people. Unfortunately that figure is set to rise.

The NHS are already faced with a staggering backlog of cases for critical health conditions other than COVID 19. It is difficult to see how further considerable mortality can be avoided. Worse still, the economic impact of the Lockdown regime is disastrous. Every day that it continues the situation deteriorates.

The UK Gross Domestic Product (GDP) fell by a jaw dropping 20.4% in April. To put this into context, the sharpest monthly drop of GDP following the 2008 financial crisis was 1%. April 2020’s decline is more than nine times greater the the pre-Lockdown regime record of 2.2%, set in June 2002. Whereas COVID 19 has no statistically significant impact upon child mortality, the poverty wrought by the Lockdown regime certainly will.

The words of George Batchelor, a co-founder of Edge Health, who provide data analysis to the NHS, are disquieting. Predicting that health services will be overwhelmed by the backlog, and the other impacts of the Lockdown regime, he stated:

“If projected forwards, these numbers get so large it is hard to relate to them on a personal level.”

We can only hope that Edge Health’s warnings are overly pessimistic. However, it is clear that the State and the mainstream media will blame any large second or third wave of mortality on coronavirus, either directly or as a suggested consequence. It will be a deception. The Lockdown regime is the cause and the health costs of LOKIN 20 are the effect.

I hope those of you who read this, who find the presented logic reasonable, will reject those claims when they arrive. More importantly, please tell others why.