Three US universities are responding to the coronavirus crisis by creating (irony of all ironies) a Chinese style social credit surveillance system that will ‘score’ people based on their exposure to the virus.
According to a report from Tech site dot.LA, researchers at the University of Southern California, Emory University, and the University of Texas Health Science Center are jointly working on the system after receiving federal grant funding.
Like the Chinese social credit system, the scheme will consist of a mobile app for contact tracing the virus, and promises to track the real-time location and symptoms of individuals to calculate “personal risk scores”.
The score would be used to determine the need “for quarantine and decontamination,” according to the report, with “aggregate risk scores” also assigned to “locations like your neighborhood grocery store.”
The universities hope to have a working mobile app by August, in time for the start of the fall semester.
Welcome to the new normal. Surely the fallout of this system will all be positive.
When the coronavirus vaccine eventually comes along the system will presumably be updated to show who has had it and who hasn’t.
High social credit points for those who have taken it, no travel privileges for those who refuse!
The report notes that “Countries such as South Korea or China have used location-based digitized contact tracing. However, it has only been successful because citizens are forced to download it, opt into location monitoring, and regularly check in or otherwise be visited by enforcement authorities.”
“In that setting where there’s 100% mandated compliance, it’s been shown it can work, in our setting in the United States, I don’t see that really happening,” said Dr. Jeffrey Klausner, a professor of medicine at UCLA.
“We have enough problems with governors issuing orders and denying free personal movement, that the idea that people are going to be ordered to download apps to monitor their movement is highly unlikely and probably not constitutional.” Klausner added, conceding that
“It’s going to be difficult to get Americans to agree to involuntary surveillance.”
The report further notes that the social credit scoring could “become problematic if a school or employer requires students or workers reveal them as a condition of receiving a benefit, entering a building or returning to their office.”
“When you introduce ‘scoring’ that takes other factors into account, it complicates everything, and increases the risk that users will be misinformed or discriminated against due to factors beyond their control,” noted USC’s Cyrus Shahabi, a professor of computer science.
Indeed, the Chinese social credit system has reportedly blacklisted more than 13 million citizens as “untrustworthy,” state media recently bragged.
And what heinous behaviour led to the distinction? Well, jaywalking for one. According to Chinese media, other violations stretch to the following:
Bad driving.
Smoking on trains.
Buying too many video games.
Buying too much junk food.
Buying too much alcohol.
Calling a friend who has a low credit score .
Having a friend online who has a low credit score.
Posting “fake news” online.
Criticizing the government.
Visiting unauthorized websites.
Walking your dog without a leash.
Letting your dog bark too much.
The punishment for such a designation as “discredited entity” is to be barred from traveling by train or plane.
China restricted 2.56 million discredited entities from purchasing plane tickets, and 90,000 entities from buying high-speed rail tickets in July: NDRC #socialcreditpic.twitter.com/4zAwJ7hrBn
Here’s a dystopian vision of the future: A real announcement I recorded on the Beijing-Shanghai bullet train. (I’ve subtitled it so you can watch in silence.) pic.twitter.com/ZoRWtdcSMy
Apple and Google announced this year that they are working on a Bluetooth applications that will provide contact tracing of the coronavirus using smartphone location data.
ISM/PMI Surveys Signal Q1 Collapse In US GDP “Will Be Dwarfed By What’s To Come”
ISM’s data continues to lag Markit’s (due to the utter farce of supplier delivery reversals not being factored as a devastatingly bad thing in the former).
Markit Manufacturing 36.1 (record low)
Markit Services 26.7 (record low)
ISM Manufacturing 41.5 (not record low due to supplier delivery times)
ISM Services 41.8 (lowest since April 2009 – finally caught down to reality)
Finally ISM Services caught down to reality, somewhat, in April…
Source: Bloomberg
Measures of business activity, new orders and employment all fell to record lows last month in figures going back to 1997, according to survey data from the Institute for Supply Management on Tuesday. The industries in ISM’s report represent about 90% of the economy.
And the ISM Services print is way better than it should because of this shitshow!!
Source: Bloomberg
The composite gauge reflects a surge in the supplier-delivery index to a record 78.3, indicating longer lead times.
While that usually indicates strains from elevated demand, the deliveries index now reflects virus-related disruptions in supply lines and business closures.
The IHS Markit Composite PMI Output Index dropped significantly from 40.9 in March to 27.0 at the start of the second quarter. The overall decline was driven by historic downturns in both the manufacturing and service sectors following the escalation of the COVID-19 outbreak, and signals dramatic further worsening in GDP…
“The slump in the business survey indicators to all-time lows in April indicates how the 4.8% rate of economic decline seen in the first quarter will likely be dwarfed by what’s to come in the second quarter. “
“Measures to fight the COVID-19 outbreak mean vast swathes of the service sector has been especially hard hit by travel restrictions and social distancing, with temporary company closures and dramatically reduced demand resulting in an overall drop in activity of even greater magnitude than seen during the height of global financial crisis.
“With hope, infections rates have peaked and the economic downturn should start to ease as virus-related restrictions are lifted. However, while manufacturing may see a rebound in production as increasing numbers of factories are allowed to re-open, prospects look bleaker for many parts of the services economy, especially where businesses rely on travel, social gatherings or close contact with customers. Businesses such as airlines, bars, restaurants, cinemas, sports arenas and other recreational activities will likely be at the back of the line in terms of being able to re-open to anything like previous capacity levels, meaning the recovery will be long and slow.”
And finally, spot the odd one out!
Source: Bloomberg
Seems like China has this whole fake fucking data thing sorted out.
New York Confirms Another 1,700 Unreported Nursing Home Deaths Caused By COVID-19
Yesterday, Gov. Cuomo was urging local officials across his state to start preparing for the reopening on May 15. On Tuesday, state health officials reported another 1,700 previously unreported deaths from America’s nursing homes and adult-care facilities.
The revision follows a similar update made by NYC officials last month when they confirmed an additional 3,000+ COVID-19-linked deaths, including those who died at home and at nursing homes rather than in a hospital setting. According to Bloomberg, NYS and Gov. Cuomo are facing “scrutiny” over the state’s handling of the outbreak.
At least 4,813 people have died from COVID-19 at state-regulated nursing homes since March 1, according to the new tally which includes patients who were killed before they could be confirmed in a lab.
Cuomo himself has said that if he could do one thing over, he would have taken more steps to protect the most vulnerable populations, including groups of elderly patients in nursing homes. Whether this updated list represents a complete accounting of nursing home deaths remains unclear; many critics suspect that thousands of deaths among managed-care patients likely haven’t been reported.
The revised list shows that 22 nursing homes, largely in NYC and Long Island, have reported at least 40 deaths each. Parker Jewish Institute in Queens and Isabella Geriatric Center, one of NYC’s largest nursing homes with 705 beds, have reported the highest number of deaths: 71 and 64, respectively. Previously, Isabella showed just 13 deaths as of May 1. It now has 43 patients believed to have probably succumbed to COVID-19. Ozanam Hall of Queens now is reporting a total of 53 deaths, up from just 10.
Among the hardest-hit Veterans Homes, the Long Island State Veterans Home has reported 53 deaths, including 48 confirmed and five presumed COVID-19 deaths. The New York State Veterans Home at St. Albans in Queens has reported 33 deaths while New York State Veterans Home at Montrose in Westchester says 22 residents have died.
By now, the horrors of a COVID-19 outbreak inside a nursing home have become shockingly familiar. And unfortunately, a state policy in effect in New York and elsewhere requiring sick patients to be moved back to their nursing homes – despite likely being infected with the virus and well-positioned to spread it to all their fellow patients.
The state’s March 25 policy reads: “No resident shall be denied re-admission or admission to a nursing home solely based on a confirmed or suspected diagnosis of COVID-19.”
Cuomo has for some insane reason tried to defend this policy, saying it was intended to ensure that home residents weren’t left “lingering” in hospitals without anywhere to go. Cuomo’s spokesman tweeted Monday that the policy follows federal Centers for Medicare and Medicaid Services guidance, but as Bloomberg pointed out, the federal guidance says only that a nursing home “can accept a resident diagnosed with COVID-19”” so long as other federal transmission precautions can absolutely be followed.
We suspect that in many New York nursing homes, that probably wasn’t possible – and the state should have known better.
And amazingly, Democratic officials are trying to protect the same policy in California, according to the Mercury News.
The UK Is Now Home To The Deadliest COVID-19 Outbreak In Europe
After flip-flopping a handful of times over the past few weeks, it looks like the UK has finally cemented its status as the deadliest outbreak in Europe, with the UK death toll topping 32,000 on Monday, placing it decidedly above Italy’s 29,079, even though Italy still has confirmed more cases overall, according to a tally kept by Reuters.
Reuters reports that the milestone will probably “increase the political pressure on Boris Johnson”, who has been consistently blamed for not acting sooner to impose a countrywide lockdown, a decision he made at the behest of the government’s top viral experts, as Reuters’ own reporting readily confirmed early last month.
The difference-maker that finally put the UK over the top was a report from the UK national statistics office which found another 7,000 deaths in England and Wales since the beginning of the outbreak, as HMG pledges to account for ‘every death’ caused by the virus. The UK’s most recent death toll was 32,313.
This policy will almost certainly guarantee that the UK will emerge as the death-toll leader in Europe, heaping even more pressure on Johnson, who is still enjoying something of a bump in the polls from his hospital stint.
Notably, the new figures haven’t yet been reflected in the Johns Hopkins data, though that should change as the data are updated.
The political opposition in the UK – which is still processing the results of a snap election held late last year that delivered a surprisingly large majority for Johnson and his conservatives – has repeatedly bashed Johnson for waiting until hospitals were being overrun in Italy before he started closing schools and businesses. They also say his government was too slow to introduce mass testing and provide enough protective equipment to hospitals, issues we now know were in part due to China’s hoarding.
Even as the UK works to account for every death, calculations run by the FT and WaPo seeking to examine total “excess” deaths and comparing them to the number of confirmed coronavirus deaths in a search for discrepancies, the Office of National Statistics said 33,593 more people had died than average up to April 24 in England and Wales, compared to 27,365 cases in which coronavirus was mentioned on the death certificates, which means there are likely still more deaths in the UK that will be added to the total en masse.
Will the market retest lows this summer? In this past weekend’s commentary, I discussed the end of the seasonally strong period for the market.
“Despite the sell-off on the last day of April, the Best Six Months has ended on a positive note, registering the best month in decades and the best April since the Great Depression.”
– Jeffrey Hirsch, Stocktraders Almanac
As noted, the primary seasonal signal has not crossed into negative territory yet but seems to be heading in that direction. If we keep grinding sideways for a few more sessions, it will come to pass. (Note: Sell-off Monday morning did test and hold support at the 50% Fibonacci retracement level.)
“The massive rally has undoubtedly been impressive and a welcome change from the carnage we experienced in February and March. April 2020 has been the best month since January 1987 for DJIA and S&P 500, and the best April since 1938.
But April’s huge move was not enough to put the Best Six Months (November-April) in the black, and that concerns us. The DJIA was down 10.0% for this Best Six Months period, which ended today, and the S&P 500 lost 4.1%.
When the market is down during the “Best Six Months,” it’s an indication that there are more powerful forces than seasonality at work, and when the bullish season is over, those forces may really have their say.”
– Jeff Hirsch
Confirming Analysis
John Murphy, of Stockcharts.com, also suggests the spring rally may have concluded.
“Several short-term technical indicators suggest that the spring rebound in stocks may have peaked this past week. The daily bars show the S&P 500 selling off on Thursday and Friday after touching its 62% Fibonacci retracement line (purple arrow).”
“It’s also not far from its falling 200-day average, which is also likely to act as an overhead resistance barrier (red arrow). The short-term momentum indicators may also be weakening. The 14-day RSI line in the upper box ended the week at 52, which puts it in danger of falling back below its mid-line at 50.
That would signal that the market uptrend is losing momentum. The daily MACD lines in the middle box are still positive. But the declining purple trendline overlaid on the MACD histogram bars (which measure the spread between the two MACD lines) suggests that upward momentum may be slowing there as well.”
Both analyses confirms our work and leaves the question of just how deep the retracement may be unanswered?
Risk Abounds
There is much to be concerned with.
While we are already well aware of what has happened since the onset of the “COVID-19” virus, we are beginning to get the first sets of actual data. Plunging levels of production, manufacturing, sales, and surging rates of unemployment will potentially weigh on investor outlooks.
Currently, the investing mantra has been that investors are “looking past” the 2020 period, and into 2021, betting on earnings growth to come surging back. While such could be the case, investors are aggressively overpaying for future growth, considering a complete lack of visibility on how deep the earnings recession will be.
However, as noted previously, we can certainly make an educated guess based on past recessionary experience.
“So, with the entire U.S. economy shut down, 15-20% unemployment, and -20% GDP, earnings are only expected to decline by 10 20%?”
A review of GAAP Earnings as compared to GDP suggests such is likely not the case. There is a high correlation between economic growth and corporate earnings. Such is because without economic growth, consumers don’t have paychecks with which to consume. Ultimately, it is consumption that drives corporate profits.
Optimistic Assumptions
Assuming a 15% decline in GDP (some estimates run as high as 30%), the suggestion of only a 20% decline in earnings seems naive. However, the latest update from Standard & Poors for S&P 500 earnings contains a mild revision in earnings estimates. We suspect these are still too high, as is the expected recovery.
To garner a better understanding, the two charts below compare operating (earnings before real stuff) to reported (actual) earnings, on both an annual basis and as compared to Q4-2019.
Given the magnitude of potential economic destruction, a 20% decline in earnings seems optimistic. Such also suggests that valuations at current levels remain rich as well.
Maybe this is why Warren Buffett is sitting on $138 billion in cash and telling his investors he can’t find anything attractive to buy.
“Price is what you pay; value is you get.”
– Warren Buffett
As earnings align with economic realities, the risk to markets currently remains to the downside.
“Bespoke looked at bear markets since 1928 (the past 92 years) to determine how many times a bear market made new lows after initially rallying out of the bear market territory. They found that markets made new lows after rallying more often than not, but found that more recent results were less ominous.
Our analysis of the Bespoke results yielded a different conclusion.
Original Bespoke data and results
Number of bear markets counted = 25
Number of bear markets making new lows = 14
Percent of bear markets making new lows = 56%
Number of bear markets since 5/14/40 to make a new low = 6
Percent of bear markets making new lows since 5/14/40 = 42%
However, Bespoke counted as separate bear markets, several periods that should count as part of a longer bear market.
If we make sure that a new period must be at least 12 months past the previous period, then there are only 15, not 25 separate periods. Out of the 15 bear markets, 9 made new lows or 60%.
Using this new definition of the market periods means that in the past 20 years (since 2000), ALL of the bear markets have made new lows (see annotated table 2) We think this analysis makes more sense, as we don’t include the period from 1/6/09 to 3/9/09 in the 2008-2009 bear market? It does not make much sense to talk about these last 2-months as a separate bear market. This perspective on the historic pattern points to a much more likely retest of the 3/23 lows.”
Conclusion
Will markets retrace to the March 23rd lows? Maybe.
It is a “risk” worth evaluating when investing your capital. As investors, there are many possibilities and probabilities of future outcomes. Our job is to weigh those outcomes and make informed decisions.
“Hoping” is not an investment strategy or a logical decision-making process.
Even if the markets have indeed put in the “bear market” low, there is more than a small chance, it is not the final low.
When even Warren Buffett calls out Energy, Retail, Airlines, and Non-Residential Real Estate (read REIT’s) as industries that have been destabilized and will not likely resemble the past in terms of growth and profitability, you have to question your investment “risk.”
Those sectors are core reflections of the broader economy, and while Technology are insulated from complete revenue destruction, they are not immune from a slow down in personal and business spending.
There is risk to the downside currently, more so than there is to the upside. As we head into the “seasonally weak” period of the year, coupled with a deluge of weak economic and earnings data, this is likely a good time to rebalance portfolio risk.
There is not an insignificant chance of the market to retest lows when you are least expecting it.
US Trade Deficit Widens On Record Crash In Exports
After reaching its smallest deficit since September 2016 in February, the US trade balance tumbled in March. The overall gap in goods and services trade widened to $44.4 billion from a revised $39.8 billion in February.
Source: Bloomberg
The surge in the deficit was driven by a plunge in US exports of goods and services. Exports dropped from the prior month by a record 9.6% to $187.7 billion, while imports fell 6.2% to $232.2 billion.
Source: Bloomberg
Declines in international travel and tourism made up a large portion of the decreases in exports and imports. Travel and transport exports dropped about $10.1 billion, while imports fell around $10.6 billion.
And the trade deficit with China has shrunk dramatically…
Source: Bloomberg
As Bloomberg points out, and is clear from the chart above, foreign trade was already diminishing heading into the pandemic, and now, faced with supply chain disruptions, a previously incomprehensible surge in unemployment and a drop off in demand, the world’s largest economy has pulled back more dramatically.
All the news that’s fit to print. It’s a classic phrase, but it’s clearly not One Size Fits All in our fractured political/media landscape. Want to hear how awful party X or country Y is? There is a media outlet for you. Want to hear the complete opposite? There is another channel for that. Want to get an objective opinion? Well good luck with that – but there are some slim pickings out there in blog-land. The best approach is arguably Hegelian – follow everything. Read The Telegraph and The Guardian; read The Washington Times AND The Global Times; watch MSNBC AND Fox News; then compare and contrast – and this runs true for financial press and market news too.
For example, yesterday’s Daily underlined expectations that US-China relations would go off a cliff. Subsequently we saw two bombshell Reuters stories. The first is that according to anonymous officials, the Trump White House is going to “turbocharge” the extraction of supply-chains from China, taking an ‘all of government’ approach; this including financial incentives such as tax cuts or subsidies for those firms; the US is considering higher tariffs and targeted sanctions of Chinese individuals, and even close relations with Taiwan as well; and it wishes to bring other countries with it in a so-called new “Economic Prosperity Network”, which sounds like a combination of the TPP and the Cold War. At any point during the 2018-19 trade war, this would have been front page news. Instead, it got hardly a mention. It did rightly see markets dip somewhat yesterday, but arguably not to the extent the story deserved. It also ignored Peter Navarro following up that “Buy American would soon be the law of the land” for some US government departments. Perhaps the market, in its infinite wisdom, believes this is all electioneering and/or that Trump won’t follow through? There is form there – but such certainty in the face of such uncertainty!
Later in the day Reuters was at it again. This time with news that an internal Chinese report seen by Xi Jinping has concluded that in the post-pandemic era Beijing will face the toughest international anti-China pushback since 1989, and that in a worst-case scenario it needs to be prepared for armed confrontation between itself and the US. Reuters states that the report is regarded by some in China as their version of the 1946 “Novikov Telegram”, which was the former USSR’s response to George Kennan’s infamous telegram from Moscow that concluded the Soviets did not see the possibility of peaceful coexistence with the West, and that a US policy of containment was needed. One might think THAT would be front-page news. It wasn’t. It was hardly news at all. Yet there is no election coming up in Beijing.
It is probably not a coincidence that both of these stories emerged yesterday. The US clearly wants China to know that economic sabres are being sharpened in the hope that they don’t have to be used, just rattled; and China wants the US to know that they know the sabres are being sharpened – and that the outcome would be awful for both sides if they are used. Duelling with words is certainly preferable, after all.
This does not mean that something important is not happening here: it is. Neither does it mean markets should be ignoring it: they shouldn’t. Geopolitical tensions are escalating rapidly far beyond the extent to which markets are pricing for – apart from US Treasury yields, where the 2-year is hovering around a record low of just 18bp. An extra 10% US tariff on Chinese goods at this stage, as a random example, would actually be a very benign outcome given the rhetoric being flourished. Of course, one can make the point that USD/CNH is hardly moving. Yet as was stressed yesterday, this is not really a market. When it starts moving sharply we know that at least one sabre is already being used.
Meanwhile, on a different front, there are lots more headlines today about virus lockdowns being rolled back. It seems that real life will begin again in many developed economies within the next few weeks to some extent. That obviously generates one set of headlines – mainly “V-shaped” in tone. The problem is that once we get out of our houses we will see what the real economic damage is: no more hypothesizing what a post-pandemic recovery will look like. As alluded to yesterday, it’s likely to be very ugly due to lingering restrictions and prudent changes in behaviour (the kind of risk prudence markets aren’t showing re: US-China relations). For example:
As 3 in 4 Brits remain sceptical of leaving lockdown, the UK Chancellor is warning that half the population is now being supported by the government. Imagine what the bill is going to be. Imagine how we don’t need a Magic Money Tree to get out it.
New Zealand, which is seeing zero new infections, has seen PM Arden stress its borders will be staying closed for a long while yet. No tourism, sorry.
Australia, also doing well versus the virus, also has closed borders….and the RBA left rates on hold and pledged to keep them there until the economy is back at full employment, which could be years – or ever, depending on immigration policy. The RBA also pledged to do more QE if needed. (Which stopped AUD from ramping at this meeting for once.)
Showing the mental confusion when post-Covid geopolitics meets traditional “because markets” neoliberal thinking, Aussie Treasurer Frydenberg has stated that the country must avoid the evils of protectionism…while ensuring it is self-sufficient. Mate, self-sufficiency *requires* protectionism else everyone would already be buying Aussie because it’s cheaper. And perhaps it requires an Economic Prosperity Network too?
But back to what’s fit to print. Also not exactly screaming to the top of the front pages, Germany’s constitutional court will today rule on what Reuters (again!) is calling “an existential challenge to the ECB’s bond purchases”. Will judges give the green light for ECB operations to continue as normal, or place real limitations on them? Might that be an important story, perhaps, given the key role the ECB is playing, the risk downside, and the uncertainty of the outcome for markets? Apparently not. It’s more pressing for Bloomberg to tell us that US stock futures are heading higher along with oil. Perhaps to stop us all from having a fit.
SoftBank-Backed Home-Flipping Company Says It’s Time To Resume Buying Properties
Opendoor, a company backed by SoftBank that specializes in buying homes and flipping them, says now is time to get back into the market.
Far be it for us to question motives here at Zero Hedge, but one also must dryly note that their survival as a company likely depends on the market picking up, as well. The company’s main service allows owners to sell their homes without open houses or in-person closings, according to Bloomberg.
Opendoor allows owners to request bids online and then buys homes from those who accept. Then, it makes light repairs and re-lists homes without large markups, instead profiting by charging a fee above normal real estate commissions. Opendoor uses debt to buy homes and its borrowing costs move higher the longer it holds onto a property.
The company purchased about 19,000 homes in 2019 and 3,800 homes through March of 2020.
The company had previously halted purchases in March and laid off more than 33% of its staff as the housing market, like the rest of the economy, simply disappeared due to the coronavirus.
Chief Executive Officer Eric Wu said in an interview: “The value proposition we provide to customers is to help them move with certainty and convenience. We should be willing to take on some of that exposure and we should price homes appropriately due to that risk.”
Mike DelPrete, a real estate tech strategist who tracks the industry said: “They can’t afford to wait for things to get back to normal because they’re never going to get back to normal.”
Wu says that the company is even considering converting some of the houses on its books to rentals: “It’s always an option for us. It’s not something we’re actively pursuing at this moment.”
“There is still demand for people to move. That could be driven by the fact that people need more space because they work from home, or they want to move out of the middle of the city because they want something less dense,” Wu continued.
For now the company is touting the fact that its process is mostly “hands off”, which at a time of a global pandemic can act as a huge positive for those looking to social distance or quarantine.
Opendoor had previously raised $1.3 billion from investors that included SoftBank’s Vision Fund. We reported last month that SoftBank posted an astounding $25 billion loss for Q1.
And while growing home inventory and a potential lack of buyers remain obvious looming risks for Opendoor, Opendoor’s performance as a company remains a risk for Softbank. One big happy house of cards family.
Recent evidence suggesting most Covis-19 transmission happens from pre-symptomatic individuals.
This makes masks critical.
Mean number of days between someone getting infected with #COVIDー19 and their *infector* showing symptoms is negative 0.19 days! Suggesting most transmission is happening from pre-symptomatic individuals and masks are critical. https://t.co/8tnt6QM34n
Tests by the National Institute for Occupational Safety and Health found that about60% of 67 different types of imported masks tested allowed in more tiny particles in at least one sample than U.S. standards normally permit.
One mask that Niosh tested, sold in packaging bearing unauthorized Food and Drug Administration logos, filtered out as little as 35% of particles. Another, marked KN95, a Chinese standard similar to N95, had one sample test below 15%, far short of the 95% it advertised.
Officials in Colorado, Illinois, Massachusetts and Missouri said they found many imported masks failed quality tests.
Gregory Rutledge, an MIT professor, said his lab tested more than 40 masks in the Massachusetts stockpile that claimed to be made to China’s KN95 standard. He found only a third performed comparably to certified N95s.
Ear Loops
Lawrence General Hospital in Massachusetts said it had distributed part of a batch of Chinese-made masks using ear loops from its stock, before seeing a Niosh alert that the masks weren’t up to the American N95 standard their label suggested.
Miscalculation at Every Level Left U.S. Unequipped to Fight Coronavirus
The U.S. government focused more on preparing for terrorism than for a pandemic. Despite the severe 2009 flu, the government lacked a permanent budget to buy protective medical gear for its Strategic National Stockpile of supplies for health emergencies.
The Trump administration further weakened the safety net as it rejiggered the Health and Human Services Department’s main emergency-preparedness agency, prioritized other threats over pandemics, cut out groups such as one that focused on protective gear and removed a small planned budget to buy respirator masks for the national stockpile, according to former officials.
The N95 story reveals failures of readiness at every level.
Three-Point Synopsis
Trump did not take the pandemic threat seriously.
At the outset of the crisis, the US exported millions of good masks to China.
Then in a panic need for masks, the FDA lowered quality standards and imported millions of bad masks from China.
That is how “almost identical” (except they don’t work) masks get into widespread use in US hospitals.
Where Do You Find Them?
Q: Where do you find the good ones?
A: Sorry, I don’t know
If they attach on the ears, they are not approved. If they are from China, they are also suspect.
Amazon Search
An Amazon search of N95 masks bring up many items that are: “Currently unavailable. We don’t know when or if this item will be back in stock. …. Prioritized for organizations on the frontlines responding to COVID-19.“
There are numerous masks that attach behind the ears but those “almost identical” are not N95.
Finder.Com has a supplier, Canopus, labeling masks with ear loops as N95. Beware.
Global Markets Jump On Easing Of Lockdowns, Surging Oil
Traders are buying in May and not going away.
For the second consecutive day, US equity futures rose on Tuesday, bolstered by continued gains in the price of oil which headed for its longest winning streak in nine months amid optimism demand is rebounding and the peak of the production glut is behind us, while a slew of countries eased coronavirus-led restrictions in an attempt to revive their economies bolstering optimism for some random letter-shaped recovery.
Hopes for a recovery in demand boosted oil prices, helping energy giants Exxon Mobil and Chevron lead gains among the blue-chip Dow components.
Over in Europe, every sector climbed as the Stoxx Europe 600 advanced after slumping a day earlier and missing out on the late rebound for U.S. stocks. Shares of energy companies led the gains as oil extended its rebound. U.S. futures and European equities briefly trimmed gains as risk sentiment was curtailed after a 7-to-1 ruling from Germany’s top court over the legality of ECB stimulus found that some parts of the quantitative easing program aren’t backed by European Union treaties and gave the central bank three months to fix the asset purchase program. Total SA was among the big winners despite reporting a 35% plunge in first-quarter profit.
Earlier in Asia, there was little activity with markets closed in Japan, China and South Korea.
Wall Street snapped a two-day losing streak on Monday as gains in large tech and internet companies and oil prices outweighed concerns about the latest U.S.-China tensions and downbeat sentiment from the annual meeting of Warren Buffett’s Berkshire Hathaway.
The S&P 500 has climbed about 30% from its March lows on the back of unprecedented stimulus measures and signs of a plateau in new COVID-19 cases in many areas. However, many market experts have warned that the rally could be tested amid a risk of another wave of virus infections and with growing evidence of the damage to economy and corporate America.
The euro fell as investors scrutinized a verdict from Germany’s top judges over the legality of European Central Bank stimulus. They ruled that some actions taken by the country’s Bundesbank to participate in the asset purchase program were unconstitutional. Most bonds in the region turned lower led by Italian debt.
“There is reaction among euro area government bonds, but this ruling in Germany is not definitive for sentiment today on global markets,” said Stephen Gallo, head of European FX strategy at the Bank of Montreal. “Signs that lockdowns aren’t being severely re-tightened are setting the tone.”
Efforts by many major economies to start easing restrictions that have helped contain the coronavirus pandemic are inspiring a fragile confidence and hopes for an economic recovery. Countries including Italy as well as some U.S. states are tentatively lifting some restrictions this week but at the risk of a second wave of infection as global deaths surpassed a quarter of a million. However stocks remain on shaky ground as U.S.-China tension flares, and traders weigh the chances of a second wave of infections.
As global deaths from the pandemic topped 251,000, Hong Kong said it will ease curbs on social gatherings and reopen shuttered schools. California, the first state to shut down its economy over Covid-19, said it will start loosening its lockdown on Friday. Italy began to reopen its economy after two months. Spain started to relax its lockdown regime after weeks of confinement.
In rates and FX, Bloomberg Dollar Spot Index reversed an earlier loss and the greenback rose versus most Group-of-10 peers. The euro whipsawed after Germany’s constitutional court partly dismissed an ECB QE case but said some action is unconstitutional. The euro initially touched a session high against the dollar after the first headline on the ruling, before reversing, and losses extended as stops were hit around the 21-DMA; Italian bonds edged lower after the news. Treasury and bund yield curves bear steepened and commodity currencies, led by Australia’s dollar, held up well against the greenback as oil prices climbed; Australia’s central bank maintained policy and said it was ready to boost bond purchases, if needed.
WTI and Brent front month futures continue their grinds higher amid optimism of a rebalancing market as oil producers curtail output and economies gradually come back online. Further on the supply side, the Texas Railroad Commission is to convene today at 15:30BST to discuss and vote on mandated oil cuts. Markets largely expected the Commission to vote against the production limit.
Elsewhere, spot gold is on the backfoot amid the risk-appetite in the market and trades on either side of 1700/oz. Copper meanwhile remains underpinned by the risk-tone alongside the prospect of demand spurred by the reopening of global economics.
Expected data include trade balance and PMIs. Fiat Chrysler, Cheesecake Factory, and Disney are among companies reporting earnings.
Market Snapshot
S&P 500 futures up 0.5% to 2,840.25
STOXX Europe 600 up 1.6% to 333.65
MXAP up 0.6% to 143.59
MXAPJ up 0.9% to 462.76
Nikkei down 2.8% to 19,619.35
Topix down 2.2% to 1,431.26
Hang Seng Index up 1.1% to 23,868.66
Shanghai Composite up 1.3% to 2,860.08
Sensex up 0.6% to 31,889.14
Australia S&P/ASX 200 up 1.6% to 5,407.07
Kospi down 2.7% to 1,895.37
Brent futures up 6.8% to $29.05/bbl
Gold spot down 0.1% to $1,699.70
U.S. Dollar Index up 0.4% to 99.92
German 10Y yield rose 3.4 bps to -0.529%
Euro down 0.1% to $1.0892
Italian 10Y yield rose 0.4 bps to 1.593%
Spanish 10Y yield rose 0.3 bps to 0.762%
Top Overnight News from Bloomberg
The European Central Bank’s quantitative-easing program looks set to fight another day, even after German judges issued a three-month ultimatum to fix flaws in the controversial measure. In a 7-to-1 ruling, judges said that it isn’t backed by European Union treaties
Hong Kong’s leader said some social distancing measures will be eased, Italy began to reopen its economy after two months and Spain started to relax its lockdown regime after weeks of confinement. In the U.S., California and Arizona took steps toward reopening as New York reported the fewest new infections since mid-March
Chinese state media unleashed a torrent of criticism against Secretary of State Michael Pompeo – – calling him “evil” and a liar — as Beijing sought to push back against the U.S.’s virus allegations without prompting a confrontation with President Donald Trump
Italian banks are seeking to remove another 6 billion euros ($6.6 billion) of non- performing loans from their books before a new wave of toxic debt is unleashed because of the coronavirus outbreak
Australia’s central bank kept the interest rate and yield objective unchanged Tuesday as it braces for the shock from the shuttering of large parts of the economy to stem the spread of the coronavirus
With the U.K. government all but certain to ramp up spending to save jobs and keep businesses afloat, BOE Governor Andrew Bailey may signal he’s willing to buy more debt to keep borrowing costs from rising. At the current pace, the central bank will hit its current bond-buying goal around the end of June
U.K. new-car registrations plunged 97% in April to a level not seen since February 1946, after the government closed auto dealerships and other businesses to slow the spread of the coronavirus
Asian equity markets traded positively as the region took impetus from the rebound on Wall St where all major indices spent the session gradually paring earlier losses from the renewed US-China trade tensions and geopolitical concerns in the Korean peninsula, with the upside led by strength in tech and energy. As such, ASX 200 (+1.6%) is higher with the energy names mirroring the outperformance of the sector stateside on continued gains in oil prices and with strength seen across all of the big 4 banks, while Afterpay Touch extended on its rally after Tencent recently became a substantial shareholder in the Co. Hang Seng (+1.1%) was also underpinned by the improved risk tone and following comments from Chief Executive Lam who stated the time has come to ease social distancing measures and that she will announce the easing of restrictions as soon as possible. However, gains were limited by GDP data which showed Hong Kong fell deeper into a recession with the largest contraction on record for Q1 and as mainland China remained shut, alongside holiday closures in Japan and South Korea.
Top Asia News
Australian Central Bank Holds Fire as It Braces for Economic Hit
At Least China’s Big Market Reopen Won’t Be So Brutal This Time
‘Mind Boggling’ 122 Million Jobs Lost in India, CMIE Says
Malaysia Cuts Key Rate by Most Since 2009 as Economy Reopens
Stocks remain positive territory [Euro Stoxx 50 +1.0%] following on from a similarly positive APAC session, albeit stocks saw substantial downside on the release of the German Constitutional Court verdict which issued a three-month ultimatum to the ECB in order to demonstrate proportionality – i.e. the monetary objectives of PSPP are not disproportionate to the economic and fiscal policy effects. Should the ECB fail to show this, then the Bundesbank may no longer participate in PSPP. On the release, DAX cash slipped from around 11,700 to around 10,6200 before continuing to trickle lower before finding a recent base just above 10,500. Sectors are all in the green with outperformance in the energy sector as the oil market continues its upwards trajectory. Some defensive sectors also lag cyclicals – with the exception of Healthcare. The sector breakdown also paints a similar picture with Oil & Gas and Basic Resources the top performers – whilst Household Goods and Food & Beverages reside on the other side of the spectrum. In terms of individual movers Infineon (+2.5%) rises post-earnings despite mixed numbers as the group issued earnings following its withdrawal earlier in the year. SAP (-0.8%) is weighted on after it identified that some of its cloud products did not meet one, or more, of the contractually, agreed or statutory IT security standard conditions – this affects 9% of customers. Total (+5.4%) is supported post-earnings amid the rise in oil prices alongside announcing that new measures taken will allow organic cash breakeven to remain below USD 25/bbl in 2020. Finally, Pandora (+6%) resides towards the top of the Stoxx 600 after noting in its earnings that it has the liquidity to sustain a stress-test scenario where all physical stores are temporarily closed throughout 2020.
Top European News
Irish Banks Again Europe’s Worst Performer as Crashes Add Up
Britain May Get First Floating Gas Store to Ease Reserve Crunch
U.K. Services Hit a Wall in April, Deepening Virus Malaise
Italian Bonds Fall After German Court Rules on ECB Bond Buying
In FX, The euro currency was already on the verge of relinquishing 1.0900+ status vs the Dollar ahead of the German Constitutional Court’s judgement on ECB QE and only got a fleeting fillip when the verdict went in favour on the grounds of insufficient evidence support the motion that the policy measure violates the prohibition of monetary financing. However, some of the Bank’s actions are deemed to be illegal and not backed by the EU Treaty, so the Senate has set a 3 month deadline for the GC to clearly define PSPP proportionality in the context of associated economic and fiscal effects, after which time the Bundesbank may not be permitted to participate in the asset purchase scheme, or reinvestment following the transition period. Eur/Usd has subsequently slumped towards 1.0800 and support seen around 1.0800, with the DXY eyeing 100.000 given the Euro’s hefty weighting in the index.
CHF – The Franc has extended declines against the Greenback to sub-0.9700 in wake of downbeat Swiss data and survey releases in the form of CPI and consumer confidence both turning more negative, but Eur/Chf has retreated further towards 1.0500 on the aforementioned Euro depreciation that may also have implications for the PEPP.
NOK/SEK/AUD/CAD – Relative G10 outperformers, as the Norwegian Crown draws more momentum from oil’s continued recovery and the aforementioned Euro weakness to retest 11.2000, while the Swedish Krona takes some encouragement from preliminary Q1 GDP metrics showing resilience the economy before the anticipated COVID-19 demise, with Eur/Sek hovering just above 10.7000. Elsewhere, the Aussie is holding a portion of its post-RBA gains following unchanged rates, albeit off overnight peaks when stops were tripped beyond 0.6450, and the Loonie is also benefiting from the more pronounced rebound in crude prices within a 1.4030-95 range ahead of Canadian and US trade reports.
GBP/NZD/JPY – All struggling to contend with Buck’s revival at the expense of the Euro in large part, but Cable has taken comfort from an upward tweak to the UK’s services PMI and Eur/Gbp’s reversal through the 200 DMA to stay afloat between 1.2420-85 parameters. Conversely, the Kiwi is being hampered somewhat by cross-winds given upside in Aud/Nzd from the low 1.0600 area to just shy of 1.0650 after the RBA, but pivoting 0.6050 vs its US counterpart in advance of NZ Q1 labour data tonight. Meanwhile, the Yen remains entrenched in Japanese holiday trade within a 106.50-90 band and waiting for the end of Golden Week that ends just in time for NFP on Friday.
EM – Little respite for the Lira as attempts to pare losses become less compelling and shallower into the 7.0000 handle, with Usd/Try increasingly more inclined to extend the break and target record peaks not seen since Turkey’s economic, fiscal and currency crisis in 2018.
In commodities, WTI andBrent front month futures continue their grinds higher amid optimism of a rebalancing market as oil producers curtail output and economies gradually come back online. Further on the supply side, the Texas Railroad Commission is to convene today at 15:30BST to discuss and vote on mandated oil cuts. Markets largely expected the Commission to vote against the production limit –called “pro-rationing”. Texas is the largest US oil-producing state, with an output of around 5.4mln BPD, accounting for around 41% of the nation’s production. The State of Oklahoma (557k BPD) is expected to discuss quotas on May 11th followed by North Dakota (1.425mln BPD) on May 20th. In terms of bank commentary, UBS expects oil markets to be balanced in Q3 followed by a period of undersupply in Q4. The Swiss bank expects Brent proves to recover to USD 43/bbl by end-2020 but notes that global travel restrictions are likely to keep the market oversupplied in Q2. WTI June resides at the top of its current USD 21.13-22.77/bbl range while Brent July also sees itself at the top-end of its intraday USD 27.77-29.41/bbl band. Later today, eyes will be on the API data for back the storage decline narrative, with extra focus on Cushing. Some traders warn that although the metric may print a smaller build, this does not mean storage capacity is expanding – but rather less room for larger builds. Elsewhere, spot gold is on the backfoot amid the risk-appetite in the market and trades on either side of 1700/oz. Copper meanwhile remains underpinned by the risk-tone alongside the prospect of demand spurred by the reopening of global economics.
US Event Calendar
8:30am: Trade Balance, est. $44.2b deficit, prior $39.9b deficit
9:45am: Markit US Services PMI, est. 27, prior 27
9:45am: Markit US Composite PMI, prior 27.4
10am: ISM Non-Manufacturing Index, est. 37.9, prior 52.5
DB’s Jim Reid concludes the overnight wrap
One of the things that has kept me going through a busy but hard lockdown has been the final series of Homeland and the penultimate series of Better Call Saul. We finished both over the last two nights. For those who gave up on Homeland seven seasons ago after the ridiculous plot, all I can say is you’ve missed a show that got better and better with age. As for Better Call Saul it is possibly as good as Breaking Bad which is an incredibly high bar. So my wife and I now have a hole to fill. After high level negotiations we’ve decided to move onto the latest series of Narcos tonight.
Global equity markets had a plot twist last night as after looking set to continue their fall yesterday a late rally saw US stocks finish slightly higher as oil continued to recover (WTI +3.08%). However the rally also seemed to coincide with California reporting the fewest covid-19 deaths since early April and potentially opening lower-risk businesses as soon as this Friday.
The S&P 500 was up slightly (+0.42%) by the close, impressive given futures were -1.74% at the lows in Asia on Monday with the index over -1% lower just after the US open. One sector that couldn’t claw all the way back were US airlines following Warren Buffet’s weekend announcement that Berkshire Hathaway had completely exited its stakes in the four major carriers. American Airlines (-6.96%), United Airlines (-4.34%), Delta Airlines (-5.67%) and Southwest Airlines (-4.95%) all saw major falls. Technology stocks continued to be the outperformers, with the NASDAQ finishing +1.23%. The VIX reversed course as risk assets rallied, with the volatility index falling -1.22pts to 35.97. Earnings weren’t the main driver yesterday but Tyson Foods fell -7.82% after the largest US meat supplier forecast lower production and higher costs during their earnings call before the US open, while not offering official guidance. After the close AIG reported earnings with about $272 million in costs attributed to virus losses, with the stock down only slightly -0.54% in post-market trading. CEO Duperreault said on the accompanying earnings call that it would probably be the “single largest” catastrophe loss ever, but that AIG was “in a strong financial position before this crisis began.” Like many other companies this quarter, the company withdrew previously released guidance and failed to offer a concrete forecast.
The bounce back overshadowed the US/China story as various news items over the last few days have all pointed to a further escalation in tensions. Reports yesterday suggested that the response will spill over into the trade arena too, with Reuters reporting US officials who said that the administration were seeking to remove global supply chains from China and were considering further tariffs as well.
Those Asian markets that are open are trading up this morning after taking their cue from Wall Street with the Hang Seng (+0.55%), ASX (+1.27%) and India’s Nifty (+1.46%) all advancing. Markets in Japan, China and South Korea are closed for a holiday. Futures on the S&P 500 are also trading up +0.59% while WTI is up a further +6.52% and closing in on $22.
Back to yesterday and European equities were among the hardest hit, although that was mainly because they were reacting to Friday’s falls elsewhere when they were closed for the Labour Day holiday. The DAX (-3.64%), the CAC 40 (-4.24%) and the FTSE MIB (-3.70%) all saw major declines, though the continent’s sovereign bonds had a more mixed performance. While the spread of both Italian (-1.9bps) and Greek (-1.4bps) 10yr yields over bunds tightened, those on Spanish (+1.3bps) and Portuguese (+2.2bps) widened. Elsewhere the dollar had its second strongest day in over two weeks, with the dollar index up +0.41%, though the pound continued its falls from last Friday, ending the session down -0.50% against the US dollar. That move comes ahead of the start of trade negotiations between the US and the UK today, which will be taking place via videoconference.
The moves in sovereign debt markets came ahead of an expected ruling from the German Constitutional Court this morning. They’ll be delivering their final verdict on the compliance of the ECB’s Public Sector Purchase Programme (PSPP) with the ECB’s mandate and the EU treaties, which prohibit the monetary financing of member states. The original case was actually filed back in 2015, shortly after the ECB started their original asset-purchase programme. The German Constitutional Court then requested an interim ruling from the European Court of Justice, who said in December 2018 that PSPP was acceptable as an instrument of monetary policy, so all eyes will be on whether the GCC agree with the ECJ or whether they might constrain German participation in ECB policy. As I said yesterday what I know about the German constitutional court could be placed on the back of a postage stamp with room to still write. However after an extra day of reading this has increased to a postcard size and from listening to our expert from Frankfurt Barbara Bottcher, it seems that the court could remind the euro area (and the markets) that the question of the Bundesbank’s participation in future risk mutualisation shouldn’t be taken for granted even as they’ll likely accept PSPP today. Whilst it would be a major shock to see a negative ruling the court could still define some conditions around PSPP. Don’t forget we haven’t even got to the legality of PEPP yet but as this current case has taken a few years to get to where we are then the market will cross that challenge when it eventually needs to.
Back to the US, DB’s Matthew Luzzetti has just gone live with his second podcast episode looking at how the US economy is being impacted by the Coronavirus. Visit https://www.dbresearch.com/podzept/ to listen and subscribe to Podzept on Spotify, Google and Apple Podcasts. Sticking with the US, the New York Fed said yesterday that it expects to begin purchasing shares of eligible ETFs in early May through the SMCCF and added that its lending through the PMCCF and SMCCF via purchases of corporate bonds will begin soon thereafter. In additional details, the New York Fed said that it “will generally not purchase shares of an ETF that are trading at a premium” of 1% above its net asset value, or if the NAV premium diverged from the trend of the previous year. It also clarified that companies will have to provide written certifications that they were not able to obtain financing through traditional channels if they wish to place debt directly with the Fed through the PMCCF and added that subsidiaries of foreign companies may use the facilities if they have “significant operations” – meaning “greater than 50%” of assets, income, operating revenues, or operating expenses – in the US, and a majority of employees based there. Meanwhile, the US Treasury said that it plans to boost the US borrowing from April to June by c. $3tn to fund new stimulus spending legislation and tax receipt deferrals.
In terms of data out yesterday, we got a bunch of manufacturing PMIs, though they didn’t get much attention since countries not on holiday had released on Friday, while the flash PMIs had already given us a clue as to the numbers. Anyway, once again the figures showed sharp contractions, with the final Euro Area PMI revised down two-tenths to 33.4, a record low since the series began in 1997. In terms of the countries without a flash reading, Italy and Greece came in at 31.1 and 29.5 respectively, a record low for both. Outside of Europe, India was another badly affected country, with a 27.4 reading.
Wrapping up with the other data, US factory orders fell by -10.3% (vs. -9.7% expected) in March, while durable goods orders fell by -14.7% (vs. -14.4% expected). Meanwhile in Hong Kong, GDP fell by -5.3% in Q1, the largest quarterly decline on record.
To the day ahead now, and there’ll be the aforementioned German Constitutional Court verdict on the ECB’s PSPP, as well as the start of negotiations on a UK-US trade agreement. We have a number of earnings announcements including Disney, while we’ll hear from the Fed’s Evans, Bostic and Bullard. Finally, data highlights include the services and composite PMIs for April from the UK and US, while there’s also the ISM non-manufacturing index for April from the US and March’s trade balance.
