US Retail Sales Crash By Most Ever In March, Despite Hoarding
While it is not entirely surprising given that practically all of America is under lockdown and the consumption-focused services sector is particularly distressed, US retail sales crashed 8.7% MoM in March (against expectations of a 8.0% drop)
Source: Bloomberg
Year-over-year, headline retail sales crashed 6.2% – the biggest drop since Sept 2009…
Source: Bloomberg
Ex-Autos dropped 4.5% MoM (slightly better than expected) and Ex-Autos-and-Gas dropped 3.1% MoM (again slightly better than expected, and the Control Group (that is used for GDP calculation purposes), somehow managed a 1.7% MoM rise (against expectations of 2.0% drop). The driver appears to be ‘hoarding’ as food and beverage and health stores saw huge rises in sales…
This was the biggest MoM surge in Food & Beverage store sales ever…
Source: Bloomberg
But the scale of hoarding in Food & Beverage is offset by the utter devastation across so many other sectors…
Source: Bloomberg
How long can that lift last? We would be worried about April’s data.
I’m done mincing words. I’m done giving people the benefit of the doubt. Whenever I do that The Davos Crowd and their highly placed agents make me look like a virtue-signaling fool.
Fire Anthony Fauci now.
For weeks I’ve been careful to separate the threat of the disease, COVID-19, from the political response. I’ve felt strongly that one can respect the virus while at the same time be wary of the political response and the panic engineered over it.
But that’s come to an end. It’s clear that the plan from the beginning was to allow this virus to run wild in high profile places like New York and Italy to create fear. It is also clear that people like Dr. Anthony Fauci were activated to ensure the worst possible response to the crisis would be implemented in the U.S.
And now, after more than a month after shutting down whole swaths of our economy and locking people in their homes under effective house arrest it’s also clear that most of this response was overblown and unnecessary.
And here in the U.S. the point man on this insanity has been Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID) whose ties to all the worst people you can imagine run very, very deep.
Lastly, it’s also very clear that President Trump was the target the entire time. He finally hit his breaking point yesterday because he realizes that now that he was advised poorly.
Sorry Fake News, it’s all on tape. I banned China long before people spoke up. Thank you @OANNhttps://t.co/d40JQkUZg5
First that tweet then there was the presser where he roasted the media.
This is the supercut video President Trump just played during the coronavirus briefing. It includes clips of MSNBC and CNN pundits downplaying coronavirus, @maggieNYT defending his China travel ban, and Govs. Cuomo and Newsom praising his administration’s response. pic.twitter.com/W6O1oEQuso
Now this morning, the Surgeon General Jerome Adams has effectively announced the U.S. has dumped the models created by the CDC and the WHO — models backed by Bill Gates and forced on the scene by his gatekeeper Fauci. From Breitbart and Fort Russ on Adams’ radio interview:
Data vs. Models: The Coronavirus Task Force is now working with real-time data about the country, Adams said, instead of the predictive models that were criticized for being overblown and exaggerated. — Breitbart
From Fort Russ:
He explained on the Sirius XM’s Breitbart News Daily host Alex Marlow, that given the new data, businesses will begin to re-open as early as May, others in June.
This runs contrary to the out-and-out fear-mongering of Dr. Fauci and Bill Gates who have made a media tour, threatening the public that businesses may not re-open for six months to a year, or until and unless governments purchase their conveniently patented, big-pharma vaccination.
According to Dr. Adams:
“What the American people need to know now is we actually have data, and so we’re tracking that data,”
Before this about-face, which appears to have come as an order from the Trump administration in consultation with the findings of Dr. Adams, the task force was working with’predictive models’, which had been created by the Bill Gates dominated WHO and CDC. Dr. Fausti’s control over the CDC has been criticized in the past for its for-profit motive in handling a range of illnesses from HIV to H1NI.
The lock down orders hopefully will be lifted soon, likely May 1st, but yesterday is a better date. The models have been dumped and the actual data are now in use. And the data are clear. There is no pandemic.
The WHO/CDC/Gates models have been horrifically inaccurate, catastrophically so.
If I didn’t know better I’d think these guys were economists for the Fed or the IMF. I thought this was supposed to be about science (SCIENCE!)?
If so I have a couple of questions for the so-called experts?
So why wasn’t the CDC advocating widespread testing while monitoring the data from Wuhan?
Why were the media roasting President Trump over his travel ban from China?
Why were people like Fauci, as late as early March saying this wasn’t a big deal, when he knew otherwise?
Why is no one roasting New York City Mayor Bill DeBlasio’s chesnuts over an open fire for not shutting down the biggest transmission vector in the entire country, the mass transit system?
Why is every death in the U.S. a COVID-19 ‘related’ death?
Why was everyone locked down and not just the high risk people?
It turns out, like everything else today, the answer to all these questions is simple… politics. And the worst kind of politics.
Meanwhile, Fauci keeps trying to upstage Trump, thinking he could continue to command the heights because he’s the chosen expert.
While I’m not Trump’s biggest fan, I have to say eventually he puts his foot down and when he does it then goes up the ass of some bureaucrat who richly deserves it.
And Fauci deserves far more than just the boot, as it were. He deserves all of our scorn and derision.
For all of you thinking I’m off base here, that somehow Fauci’s experience and credentials count for more than my vitriol I’m going to ask my last question.
Why should we listen to the word of any doctor that recommends people huddle in their homes afraid of a cousin to the common cold versus building up our immune systems and our herd immunity?
Fauci shouldn’t be leading a Presidential Task Force he should have his medical licence revoked for violating his Hippocratic Oath.
Do. No. Harm.
So, is he going to reimburse personally the billions lost by small businesses around the country? The destroyed supply chains, the spilled milk, the spoiled food, the people who weren’t treated for non-COVID illnesses as our hospitals were overrun with his political experiment in mass hysteria?
He’s no more a credible source for medical advice regardless of his resume than I am.
Nearly everyone knows that strengthening the immune system is how you fight a cold. Vitamin D, C, bone broth, rest and sunshine.
You don’t need a medical degree from Holy Cross to know this. But somehow Fauci never seems to approve or green light treatments that do that. It doesn’t matter if we’re talking cancer, AIDS, or COVID-19, the man is a walking death sentence. He’s the very essence of regulatory capture and prima facia evidence that power and corruption go together like peanut butter and jelly.
If you squint hard enough he really does look like Gollum.
If there is one thing that this pandemic has exposed, along with the concomitant economic dislocation it is that ‘experts’ better run for cover.
And it’s time that we looked at this situation with clear eyes and not the rose-colored glasses of what we want our government officials to be. Because if we don’t we’ll lose what’s left of our dignity. Forget the republic, folks. That’s gone.
This lock down is about whether or not we’re willing to actually walk the walk versus just whine about them ‘taking our freedoms.’ They are in the last stages of doing that right now, there’s no future tense anymore.
This is the present. This is real.
Men like Fauci shouldn’t just be fired, they should be tried and convicted for gross incompetence for the harm they are doing and the harm they’ve done.
Knowingly promoting mathematical models of disease transmission that were never intended to be accurate is FRAUD, not an honest error. He’s not the only doctor in the world with an opinion on COVID-19. Many of them are incensed with how this has been handled.
When issuing commands and recommendations that could cost the world its soul it is incumbent on the person making those recommendations to get them right, not run cover for evil oligarchs intent on shepherding humanity to their own private Mordor.
Because if they don’t then they are liable for results. But government operates in a true vacuum, immune to the effects of its bad decisions through sovereign immunity.
This is the fundamental problem with creating government agencies that have these powers. They are staffed by people who can be corrupted, and like Fauci are easy to corrupt to command controls over our lives that they have 1) not earned and 2) should never have.
And it’s why it’s time for us to stand up and no longer accept these men and women as any more wise and insouciant than we are. It’s truly time for the kind of intellectual revolt against the Progressive ideal of the wise engineer.
The palpable disappointment on the part of Gates, Fauci, the media and the Democrats at the effectiveness of hydroxychloroquine is all the indictment of these people you need to finally let the scales fall and see them for what they are.
These are megalomaniacs without conscience. They are Bond villians without the charisma. And we need to strip them of their legitimacy first in our minds and then in practice.
Because if it were up to them there would never be a cure for COVID-19, just an endless series of treatments that make us sicker and more dependent on them.
#FireFauci isn’t just a meme, it’s a metaphor for taking control over our lives and our society. It’s time to go outside, leave our homes and get back to work.
They know that if they keep your business closed for more than three months it’ll be gone forever. Bill Gates is obsessed with killing off billions of people and having the rest of us on residual poison waiting for the next vaccination for COVID-20 or COVID-21.
And while for Gates it’s not about making more money, it’s about the control, he motivates those around him with the promise of some of that sweet, sweet money they couldn’t ever earn for themselves honestly.
After destroying these small businesses and printing trillions will allow vultures allied with them to come in and pick the bones of our gutted society clean.
This is what they are setting up while Soros, cyborg that he is, apes the empathy we humans actually feel to demand the government print more trillions to support the common man hurting because of him.
If I didn’t have a soul, I’d actually appreciate the irony of it.
Frankly, it’s beyond sick and it has to end. If we don’t see this lock down and attempted coup to allow doctors to run the country for what it is, then we deserve everything that’s coming to us.
BofA Profit Plunges 45% On $4.8 Billion In Expected Credit Losses From Coronacrisis
Bank of America joined JPMorgan and Wells Fargo in setting aside billions of dollars for upcoming loan losses as the bank braces for a surge in defaults and delinquencies on its loans amid the complete US economic shut down.
The bank reports $22.8 billion in revenue (missing the exp. $22.91BN) generating $0.40 in EPS (missing the exp. $0.46) and $4.0 billion in profit, which was down 45% from the $7.3 billion last year…
… as the bank allocated $4.76 billion for loan losses (above the $3.93BN expected), an increase of $3.7 billion Y/Y and the most since 2010, as its business and household clients reel from the coronavirus pandemic. The bank joins competitors JPMorgan and Wells Fargo which posted their highest provisions in a decade Tuesday (JPMorgan set aside a little over $8 billion, Wells used $4 billion as the appropriate number).
The three big lenders have collectively stashed away more than $17 billion to cover defaults. A full breakdown of all reported credit provisions so far is as follows:
JPM: provisions $8.3b (+$6.8b)
C: provisions $7b (+$4.8bln)
BAC: provisions $4.8b (+$3.6b)
WFC: provisions $4b (+$3b)
USB: provisions $993m (+$600m)
GS: provisions $937m (+$601mln)
PNC: provisions $914m (+$702m)
Banks are trying to get ahead of the tsunami of loan losses they expect to come from the pandemic bringing large swaths of the global economy to a virtual standstill. While defaults haven’t yet spiked, bank efforts to build up their reserves show they’re bracing for a major recession.
Separately, BofA reported net interest income of $12.1B (or $12.3B on an FTE basis), down 2%, driven primarily by lower interest rates, partially offset by loan and deposit growth. The closely watched Net Interest Income was unchanged at 2.77% compared to 4Q19.
Noninterest expense of $13.5B increased $0.3B, or 2%, as investment spending was offset by cost-saving initiatives.
Curiously, net charge-offs increased by just $163MM to $1.1B from 4Q19, driven primarily by Commercial losses, which means that the real pain from the pandemic and the default wave has yet to hit. BofA’s Net charge-off (NCO) ratio of 46 bps increased 7 bps from 4Q19, while the provision expense of $4.8B increased $3.8B from 4Q19; allowance for loan and lease losses of $15.8B increased $6.4B from 12/31/19 and represented 1.51% of total loans and leases.
At the same time, nonperforming loans increased $0.5B from 4Q19 driven by increase in commercial loans. Commercial reservable criticized utilized exposure of $17.4B increased $5.9B, or 75 bps of commercial reservable utilized exposure, from 4Q19. The “increase was broad-based across industries.”
Putting it in context, the bank’s first-quarter provision for credit losses was almost five times the $1 billion it set aside a year earlier.
For those wondering what the impact of CECL was on BofA, the bank reported that the adoption impact of $3.3B includes $2.9B increase in allowance for loan and lease losses and $0.3B increase in the reserve for unfunded lending commitments; 1Q20 included a reserve build of $3.6B due primarily to deteriorating economic outlook related to COVID-19. In total, the allowance for Credit Losses Increased $6.9B, or 67%, since 12/31/19, due to CECL implementation and reserve build driven by deteriorating economic outlook due to COVID-19.
All we have to say here is watch those surging credit card losses.
While the balance sheet hit was widespread and will take years to pass through the income statement, there was a silver lining: as was the case with JPMorgan, Bank of America reported strong trading revenue in Q1, which rose 25% to $5.2BN from 1Q19 (and up 15% excluding net DVA). Excluding net DVA, sales and trading revenue of $4.3B increased 22% from 1Q19.
FICC revenue of $2.7B increased 13%, driven by increased client activity and improved market making conditions across all macro products (in particular Rates), more than offsetting weaker performances in the credit-sensitive businesses
Equities revenue of $1.7B increased 39%, driven by increased client activity and a strong trading performance in the more volatile market environment
Also of note, the average VaR was $48MM in 1Q20, up substantially from 35 last quarter and 37 a year ago.
On the other hand, BofA was quick to demonstrate the change in overall consumer payments and spending has been using its infrastructure. Some observations here:
1Q20 total payments increased 9% over 1Q19, with softening in credit and debit spend that began mid-February and accelerated in late March as stay-at-home orders affected a majority of Americans. Card spend for non-essentials declined, even for those not impacted by the pandemic from a cash flow or employment perspective, and purchases of essentials such as groceries increased. Consumers and Small Businesses paying expenses with other payment types slowed consistently as the stay-at-home orders expanded. Combined Credit and Debit Spend increased 4% year-over-year in 1Q20 despite the sharp decline in late March.
BofA also noted some curious trends in weekly loan and deposit activity, which were both “record breaking” as commercial loans increased $67B from 4Q19, driven primarily by commitment funding activity, by which the bank means the surge in revolver drawdowns. In fact, BofA said that ~90% of commercial loan growth was related to revolver draws on existing lines.
And, amusingly, as clients pulled money out, they deposited it right back in, with total corporation deposits soaring $149B from 4Q19, as BAC provided safety and soundness for customers and supported corporate clients. Global Banking deposits grew $94B, driven by client flight to safety as well as placements from draws on credit facilities for liquidity purposes.
And with clients scrambling to pull money out of the market in Q1, what do they do with the proceeds? Why, they park it with their neighborhood Bank of America, which saw a 6% surge in total deposits Y/Y, which rose to a record $1.439 trillion.
“Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began,” Chief Executive Officer Brian Moynihan said in a statement.
Moynihan has been a prominent voice in business since the Covid-19 crisis began, appearing alongside other bank CEOs at the White House in early March to discuss its economic impact. He’s pledged to retain staff and boost pay, and highlighted the lender’s forbearance efforts and its participation in the government’s small-business rescue program.
However, as Bloomberg notes, it hasn’t all gone smoothly. Despite being the first bank to accept applications for the rescue program, the company is fending off a lawsuit for favoring existing borrowers. Following a Zero Hedge report which first addressed the issue, last week, CNBC and the New York Times reported Bank of America’s sales and trading staff are facing pressure to come to the office even as they become increasingly concerned about the spread of the virus.
Global Coronavirus Cases On The Cusp Of 2 Million; Critics Outraged As Trump Prints Name On Stimulus Checks: Live Updates
In a decision that is angering virtually all of his political opponents and even many of his supporters, who are bristling at the notion of a White House deliberately delaying badly needed checks, the Washington Post dropped a bombshell report last night when it revealed that the Treasury Department has ordered President Trump’s name to be printed on stimulus checks as the IRS scrambles to send checks to every American who doesn’t have direct deposit already enabled.
It will be the first time a president’s name has been printed on checks sent from the IRS, and officials disputed claims that the payments to 70 million Americans would be delayed so that Trump’s name could be printed on the checks. Trump had been pushing Steven Mnuchin to substitute Trump’s signature on the check, but there were some legal roadblocks. Instead, the president’s name will appear on the left side of the check below a heading that reads “Economic Stimulus Check”. The White House claimed that this batch of checks will be released more quickly than the stimulus checks ordered by President George W Bush after the financial crisis.
Treasury Secretary Steven Mnuchin said that 80 million Americans will have their stimulus checks in-hand by next Wednesday.
Over in Europe, as Spain and Italy start the process of sending more workers back to work, European Commission President Ursula Von der Leyen said EU countries should use a “gradual tailor-made approach” to lifting lockdown restrictions. EU countries must make sure they meet three important preconditions before re-opening can proceed:
Significant decrease in the spread of the coronavirus
Sufficient health system capacity
Adequate surveillance and monitoring capacity
Meanwhile, Spain, which has the highest death toll per capita in Europe, reported the biggest increase in the number of new coronavirus cases in six days. The more than 5k new cases brought Spain’s confirmed total to 177,633, according to the Health Ministry. The number of fatalities rose by 523 to 18,579, compared to Tuesday’s increase of 637.
As socialist PM Pedro Sanchez touts data showing that the virus’s spread has slowed thanks to social distancing and the lockdown policies put in place by his government, members of the opposition confronted his government during a Parliamentary exchange on Wednesday where they accused Sanchez of undercounting the number of deaths linked to the virus across Spain.
“Nobody trusts you anymore,” one member of the opposition exclaimed. This is because Spain, like many other countries, only counts patients who have tested positive among the official figures. Yesterday, after criticisms published in the NYT, New York City Mayor Bill de Blasio ordered health officials to count all deaths suspected of being caused by COVID-19, even if they hadn’t been officially diagnosed.
That prompted a nearly 4k surge in NYC’s official death toll, driving the citywide total north of 10k, and driving total US casualties north of 25k (per JHU, the US had 26,059 confirmed deaths as of Wednesday morning).
And as Trump’s critics in the press continue to hammer the administration’s response to the virus (the NYT followed up WaPo’s big hit piece from last week with one of its own this week to keep the conversation alive), ignoring the fact that few governments were truly prepared for the virus, and that the Trump Administration did more during the early days of the outbreak to stanch the spread than most of its peers abroad, the FT reports that the European Commission is holding a “donation drive” this week to try and raise funds for virus research.
After acknowledging a few weeks back that it neglected to count ‘asymptomatic’ patients in its total coronavirus patient tallies, China for the first time released a cumulative count of asymptomatic coronavirus cases. The number? 6,764 – which instinctively seems well below the total number of cases that were excluded from China’ national count.
The German government is set to extend its COVID-19 restrictions until May 3rd, according to Handelsblatt, though details of the Interior Ministry’s plan to reopen the German economy have already leaked.
As the number of confirmed cases in Japan nears 10k, the government has released a dire sounding warning claiming that some 850,000 Japanese could be seriously sickened by the coronavirus, with almost half of them in danger of dying if harsher steps aren’t taken by the Japanese government – which has already declared a state of emergency – to implement more social distancing requirements.
South Koreans headed to the polls on Wednesday after the government decided not to delay a legislative election set for Wednesday.
Before we go, with half the global population facing some level of lockdown or movement restrictions, animals are beginning to venture out into abandoned human territory. In parts of Wales, goats can be seen walking the streets of the town.
“The goats absolutely love it,” said Andrew Stuart, a resident of Llandudno, Wales…”They’re taking the town back. It’s now theirs. Nothing is stopping them,” he said.
Why Is Hunter Biden Still Listed As Board Member Of Chinese Company He Vowed To Resign From?
Hunter Biden is many things. Ukrainian energy expert, artist, stripper impregnator, crack aficionado. Oh, and he’s still a board member of a Chinese private equity firm he said he’d resign from last October, according to Chinese business records reported by the Daily Caller.
Hunter Biden’s lawyer, George Mesires, told the Daily Caller News Foundation in early November that his client had resigned from BHR’s board, but he did not provide any evidence of his departure from the Chinese private equity firm at the time.
Chinese business records the DCNF accessed Tuesday still name Hunter Biden as a director of BHR. He also retains a 10% equity stake in BHR through his company, Skaneateles LLC, business records for the Chinese private equity firm show. –Daily Caller
In October, Biden pledged to leave the company, BHR Partners, a private equity fund backed by some of China’s largest state banks, local government and the national pension fund, by the end of that month.
According to BHR’s website, they manage $2.1 billion in assets. Biden, who remained an unpaid board member since its founding in 2013, obtained his equity stake in the firm in October, 2017 valued at $420,000 according to his attorney, Mesires. ‘
Hunter Biden had arranged for then-Vice President Joe Biden to shake hands with the CEO of BHR in December 2013, a meeting that caused some White House advisors to worry whether the younger Biden was exposing his father to criticism, The New Yorker reported.
In a statement issued Oct. 13 by his lawyer, Hunter Biden pledged to resign his position on BHR’s board “on or by October 31.” The statement did not say whether Hunter Biden intended to relinquish his ownership stake in the Chinese private equity firm. –Daily Caller
“The statement my son put out today, which I saw when he put it out — I was told it was going to be put out, I did not consult with him about what’s being put out — in fact represents the kind of man of integrity he is,” said Hunter’s father, Joe Biden, last October.
Yet, according to independent data provider Qixinbao, Hunter is still listed as a BHR board member as of Tuesday.
The Caller notes that Biden’s continued presence on the list couldn’t be due too a processing delay in China’s National Enterprise Credit Information Publicity System (NECIPS), as a March 24 submission to reflect the resignation of Biden’s business partner, Eric Scherwin, as the company’s supervisor, was reflected. Scherwin and Biden served together as loobbyists for Oldaker, Biden & Belair as far back as 2008.
Finally – guess what address is listed for Biden’s firm – Skaneatles? Why, his $12,000 per month Los Angeles rental house valued at $3.8 million – which he resided in while desperately trying to avoid paying child support to the former Arkansas stripper he impregnated.
Global Markets Tumble Amid Dismal Earnings After WTI Crashes To 18 Year Low
US index futures slumped on Wednesday for a second time this week, reversing Tuesday’s sharp gains after a plunge in oil prices pressured energy stocks ahead of what is expected to be a dismal round of first-quarter earnings reports. The dollar and Treasuries gained as investors fled risk assets, while WTI crude plunged below $20, to the lowest level since 2002 after the IEA said oil demand will drop by over 9 million barrels a day this year, wiping out a decade of consumption growth.
Contracts on all three major U.S. gauges retreated after the S&P 500 closed at a one-month high on Tuesday, with the Emini trading back under 2,800. UnitedHealth Group, the biggest U.S. health insurer, reported a fall in quarterly profit, but its shares rose 2.6% in premarket trading as it maintained its 2020 profit outlook at a time when major companies have withdrawn forecasts due to the coronavirus pandemic. J.C. Penney slumped 14.7% as sources said the retailer was exploring filing for bankruptcy protection after the virus outbreak upended its turnaround plans.
The S&P 500 index climbed about 30% from its March trough, lifted by a raft of U.S. monetary and fiscal stimulus and on early signs that coronavirus cases were peaking in some hotspots, but is still down about 16% from its record high. The index jumped another 3% on Tuesday on hopes the Trump administration could move to ease lockdowns as the outbreak showed signs of ebbing. However, hotspot New York later sharply raised its official virus death toll to more than 10,000. Oil majors Exxon Mobil Corp and Chevron slipped about 3% as oil prices tumbled, pressured by reports suggesting persistent oversupply and collapsing global demand.
JPMorgan Chase and Wells Fargo kicked off the earnings season on Tuesday by reporting a slump in quarterly profits and setting aside billions of dollars to cover potential loan defaults. Moments ago Bank of America joined them (post coming shortly).
“It’s really going to be about forward guidance,” Erin Gibbs, president and CEO at Gibbs Wealth Management LLC, said on Bloomberg TV. “What we’re really going to be looking for is, are companies giving us an idea of when they think they’ll return to profitability, or, are they talking about more layoffs?”
In Europe, the Stoxx Europe 600 index headed for its first drop in six sessions, led by energy companies, as crude oil in New York fell below $20 a barrel amid a global slump in demand. French shares fell 0.9% as France became the fourth country to report more than 15,000 deaths due to the coronavirus after Italy, Spain and the United States. ASML Holding NV, a supplier to Samsung Electronics Co., reported a 40% drop in first-quarter earnings and refrained from providing guidance amid uncertainty caused by the pandemic. Dutch GPS and digital mapping company TomTom shed 2.7% after saying it expected negative free cash flow this year and lower revenue from its automotive and consumer businesses due to the pandemic. London-based asset manager Jupiter Fund Management dropped 5.6% after reporting an 18.3% drop in assets under management in the first quarter as fears over the pandemic rattled financial markets.
Much economic damage has also already been done, with the International Monetary Fund predicting the world this year would suffer its steepest downturn since the Great Depression of the 1930s. Ahead of a steady stream of results due in the coming weeks, signs of corporate stress caused by the pandemic are widespread.
“A lot of good news has been priced in and we’re due for some consolidation, particularly as we head into earnings season as we all know the numbers will not be good,” Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.
Earlier in the session, Asian stocks fell, led by energy and finance, after rising in the last session. Shares in Tokyo were little changed, Chinese and Hong Kong stocks slipped, with the Shanghai Composite Index retreating 0.6%, with Baotou Huazi Industry and Wuxi Shangji Automation posting the biggest slides. Australian equities dropped as a record slump in consumer confidence reminded investors of the impact of the pandemic on spending. The yuan dipped after China’s central bank eased policy further. Markets in the region were mixed, with Taiwan’s Taiex Index and India’s S&P BSE Sensex Index rising, and Jakarta Composite and Thailand’s SET falling.
European Union and U.S. federal officials are drafting plans to lift restrictions in an effort to mitigate the economic devastation, even as global virus infections edge closer to the 2 million mark. The earnings season should provide a better sense of how the pandemic will affect commerce as the global economy heads for a deep recession. Johnson & Johnson, JPMorgan Chase & Co.and Wells Fargo & Co. offered a mixed picture Tuesday, with Goldman Sachs Group Inc., Citigroup Inc. and Bank of America Corp. next up.
The big overnight mover was WTI, which tumbled fell below $20 a barrel after the International Energy Agency said demand would slump by a record this year despite a historic production cut deal. WTI futures fell as much as 4.5% in New York to the lowest since 2002. Oil demand will drop by over 9 million barrels a day this year, wiping out a decade of consumption growth, the IEA said, exhausting storage by mid-year. While Saudi Arabia and other Gulf producers have pledged to cut supply starting next month, they continue to flood the market in April. Stockpiles are rising everywhere and weakening key physical market gauges. New York oil futures moved deeper into contango, signaling an expanding glut, while swap prices indicate North Sea cargoes are trading at bumper discounts.
The IEA said consumption in April will fall by almost a third to the lowest level since 1995, and make this year the worst in the history of the oil market. Despite OPEC+’s efforts to balance supply, global inventories will accumulate by 12 million barrels a day in the first half of the year and “overwhelm the logistics of the oil industry” in the coming weeks, it warned. The massive OPEC+ deal to cut production starts next month. Until then the battle for market share persists with Abu Dhabi cutting its crude pricing for Asia. It follows a similar move by Saudi Arabia earlier in the week.
In Rates, 10Y Yields dropped as low as 0.67% after trading closing at 0.75% on Tuesday. Italian bonds remained under pressure amid lingering disappointment with the half-a-trillion euro plan to support coronavirus-hit economies agreed by euro zone finance ministers last week. Italy’s 2-year bond yield was last up 5 basis points to 0.89% after rising nearly 20 bps on Tuesday Ten-year yields were flat at 1.79%. The closely watched gap with Germany’s 10-year bond yield, effectively the risk premium Italy pays investors, continued to rise, last at nearly 220 bps, the highest since mid-March.
In FX, the dollar surged after several days of losses, as investors sought safety in the world’s reserve currency amid a wave of risk-off sentiment sweeping across global markets, with commodity currencies tumbling and oil prices sliding below $20 per barrel. The pound fell almost 1%, snapping a two-day advance. The Bloomberg Dollar Spot Index jumps as much as 0.8%, after three days of losses, as European stocks tumbled alongside U.S. equity futures as what is expected to be a turbulent earnings season gets underway. The BBDXY was last up 0.7%, with the dollar outperforming all Group-of-10 currencies; 10-year Treasury yield fell eight basis points to 0.67%.
The Australian dollar tumbled during Asian hours, and the Norwegian krone followed suit as oil prices slid with the International Energy Agency warning that a glut may overwhelm storage despite the recent OPEC deal. It says global oil demand will plunge by a record 9% this year due to coronavirus lockdowns
The pound and euro both fell versus the dollar, with sterling unwinding around half of this week’s rally as the U.K. Office for Budget Responsibility warned that Britain’s economic output could shrink 13% this year. “The combination of weak economic data and cautious corporate earnings outlook could put the latest risk rally to the test and may even help the safe- haven USD,” said Valentin Marinov, a strategist at Credit Agricole. “The rally in commodity currencies is starting to look overextended and could be put to the test in the near term.” Cable fell as much as 1% to $1.2499, though still up around 0.6% this week. EUR/USD declined 0.5% to $1.0931 with the Stoxx Europe 600 index dropping for the first time in five trading days.
Gold prices fell on Wednesday as investors locked in profits after strong recent gains which sent the yellow metal just shy of its 2011 all time high. It was last at $1,721 an ounce.
Expected data include retail sales and industrial production. Bank of America, Citigroup and Goldman Sachs are among companies reporting earnings.
Market Snapshot
S&P 500 futures down 1.9% to 2,788.75
STOXX Europe 600 down 1.2% to 329.77
MXAP down 0.3% to 143.35
MXAPJ down 0.5% to 460.62
Nikkei down 0.5% to 19,550.09
Topix up 0.04% to 1,434.07
Hang Seng Index down 1.2% to 24,145.34
Shanghai Composite down 0.6% to 2,811.17
Sensex up 0.4% to 30,796.51
Australia S&P/ASX 200 down 0.4% to 5,466.67
Kospi up 1.7% to 1,857.08
Brent futures down 4.2% to $28.35/bbl
Gold spot down 0.8% to $1,713.56
U.S. Dollar Index up 0.4% to 99.32
German 10Y yield fell 3.9 bps to -0.416%
Euro down 0.4% to $1.0935
Italian 10Y yield rose 19.2 bps to 1.611%
Spanish 10Y yield fell 0.4 bps to 0.839%
Top Overnight News from Bloomberg
IEA says oil glut may overwhelm storage despite OPEC+ cut and revised global demand for 2020 to 90.5m b/d, from previous 99.9m
Germany is set to agree on an extension of nationwide lockdown measures until at least May 3 as the government debates with regional leaders on how to gradually relax restrictions on public life in the coming weeks.
Spain reported the biggest increase in the number of coronavirus cases in six days on Wednesday, while the daily death toll declined. There were more than 5,000 new infections in the 24 hours through Wednesday, taking the total to 177,633, according to Health Ministry data. The number of fatalities rose by 523 to 18,579, compared to Tuesday’s increase of 637
The IMF wants policy makers to avoid repeating the Depression-era mistake of ratcheting back budget deficits. Instead, it’s urging them to ramp up fiscal stimulus when the coronavirus contagion starts to abate
Asian equity markets traded cautiously as the region failed to follow through on the optimism seen on Wall St where all major indices posted firm gains as liquidity conditions normalized from the Easter break and after comments from President Trump stoked optimism for the US to re-open its economy soon. Nonetheless, the momentum petered out in Asia trade with ASX 200 (-0.4%) dragged lower by heavy losses in the energy sector after WTI crude prices dipped another 7% and briefly tested the USD 20.00/bbl level on demand concerns and with financials subdued after poor earnings results from their stateside peers. Nikkei 225 (-0.5%) exporters were hampered by the ill-effects of a firmer currency and amid the global production shutdown extensions, while KOSPI remained closed for National Assembly elections which is seen as a referendum for President Moon and the government’s handling of the coronavirus outbreak. Elsewhere, Hang Seng (-1.2%) and Shanghai Comp. (-0.6%) traded rangebound and conformed to the indecisive regional tone despite PBoC’s efforts in which it conducted a CNY 100bln 1-year Medium-term Lending Facility at a reduced rate of 2.95% (Prev. 3.15%), while the first phase of its previously announced 100bps targeted RRR cut took effect today but this was also unsuccessful in spurring momentum. Finally, 10yr JGBs were pressured from the open and proceeded lower before finding support near the 152.00 level, while the BoJ Rinban announcement provided little inspiration with the central bank only in the market for JPY 400bln in up to 3yr maturities.
Top Asian News
China Adds Cash to Banking System, Cuts Interest Rate on Loans
India Farm Output Lone Bright Spot in an Economy Set to Shrink
Albayrak Says Turkey Hasn’t Sought Help From Any Institution
European equities extend on losses seen at the cash open (Euro Stoxx 50 -2.1%), after a similarly (albeit to a lesser extent) handover from Asia, as the positive sentiment all Wall Street U-turned overnight. US equity futures also succumb to the broad risk aversion, with E-Mini S&P and Dow June futures back below the 2800 and 23500 marks respectively heading into more earnings. Back to Europe, bourses see broad-based losses with FTSE 100 (-2.4%) seeing more pronounced downside among the majors as the index is pressured by its large-cap Energy, Financial and Material names – three sectors which see steep losses in Europe, with the former the laggard amid price action in the energy complex. Similarly, financials suffer amid the lower yield environment and materials fall due to declines across the base metals. The sectors also clearly reflect risk aversion, as defensive fare considerably better than the cyclicals. In terms of the sector breakdown, Oil & Gas reside at the bottom, followed by the Travel & Leisure as lockdowns across some countries are set to be extended. In terms of individual movers. ASML (-1.8%) conformed to the decline in the region after opening higher post-earnings, in which its revenue and net printed relatively in-line with estimates, whilst suspending its Q2 buybacks but keeping its three-year programme intact. The CEO also noted that demand outlook is currently unchanged, and the group has not encountered any pushouts or cancellations this year, the group’s order intake remains strong. Sticking with earnings, TomTom (-7.3%) sees hefty losses amid dismal earnings after missing on all its company compiled estimates, withdrawing guidance and suspending share buybacks indefinitely. Finally, Adidas (-1.9%) received approval for a syndicated EUR 3bln loan from KFW contingent on a suspension of dividends.
Top European News
Germany Likely to Extend National Lockdown Measures Until May 3
Germany Mulls Easing Curbs as Europe’s Virus Struggle Progresses
Energy Shares Drag European Stocks Lower After Five- Day Rally
Swedish Debt Plan Triggers Backlash as Fiscal Hawks Under Attack
In FX, tthe Dollar was already clawing back losses across the board, but in particular relative to high beta and commodity based counterparts as Gold lost its lustre above Usd 1750/oz, but a more pronounced pull-back in crude prices following a bearish IEA monthly report gave the Greenback an extra fillip with the DXY back within striking distance of 99.500 compared to 98.828 lows. However, the index may encounter some technical resistance around recent recovery highs and run in to fundamental hurdles given bleak forecasts for upcoming US retail sales and ip data, not to mention the downside bias vs consensus.
AUD/NZD/CAD/NOK/RUB/MXN – Aside from renewed risk aversion fuelled by the aforementioned about-turn in oil and metals, the Aussie has been undermined independently by a sharp deterioration in consumer sentiment per Westpac’s April survey, while the Kiwi is down in sympathy even though the Aud/Nzd cross has reversed from circa 1.0570 towards 1.0500. Aud/Usd got tantalisingly close to a hefty 1 bn 0.6450 option expiry at one stage, but now appears more inclined to hit 0.6300 and Nzd/Usd is even nearer 0.6000 from 0.6100+ overnight. Elsewhere, the Loonie is back below 1.4000 vs 1.3876 and still nervous ahead of the BoC, Eur/Nok is hovering just shy of 11.5000, Usd/Rub is pivoting 74.0000 and Usd/Mxn is paring back following a marginal breach of 23.9800.
GBP/EUR/CHF/JPY – Also victims of the Buck’s broad revival, but to varying degrees as Cable reverses from 1.2630 to test 1.2500 and the Euro wanes 10 pips or so before 1.1000 to 1.0920, though not far enough to disturb decent expiry interest between 1.0890-1.0900 (1.3 bn). However, Eur/Usd may lose more momentum on a closing basis if the pair cannot reclaim 1.0950 and a Fib level just above, while the Pound will be eyeing the resumption of Brexit trade negotiations with the EU. Turning to the Franc, gains vs the Dollar have been eroded within a 0.9597-0.9648 range, but not against the single currency as prior support around 1.0550 seems to be morphing into a Eur/Chf cap. Similarly, the Yen has retained a solid safe-haven premium in cross terms, but Usd/Jpy failed to extend through 107.00 and subsequently rebounded to 107.50 or so amidst reports of fresh long positions being instigated on trading platforms.
SEK/EM – Firmer than expected Swedish CPI metrics have helped the Swedish Krona evade much of the general risk-off positioning, but no such luck for Lira or Rand with the latter succumbing to further heavy post-SARB rate cut depreciation in wake of the SA Government supposedly reneging on wage deals according to the PSU.
In commodities, WTI and Brent futures gave up gains early-doors having had somewhat of a rangebound APAC session. Desks argue that participants are realizing that the OPEC+ cuts are not going to balance the markets over Q2, whilst cuts outside the group are more likely to be market-driven, thus the curtailments are to be gradual as opposed to immediate. Elsewhere, the oil and gas regulator in Texas – the Texas Railroad Commission – voiced disagreement on whether mandated cuts should be implemented. Bigger producers largely opted for market-driven declines whilst the smaller players supported cuts. Whilst the situation in Texas will be followed, Oklahoma are to conduct a meeting on 11th May to discuss mandated output curbs. Prices saw renewed pressure upon the release of the IEA Monthly Oil Market Report which stated that global oil demand is set to fall by a record 9.3mln BPD in 2020. Both the EIA and IEA unsurprisingly cut world oil demand outlook, although the latter by a considerably larger amount than the former, which forecasts a fall of 5.6mln BPD this year. The Agency also stated that it can reach SPR purchases of 200mln BPD over the next three months – a longer timeframe than the touted 2 months by the Saudi Energy Minister. The report also echoed some recent comments from IEA Chief Birol, stating that no feasible agreement could cut supply by enough to offset the near-term decline in demand. The OPEC Monthly report is set to be released on April 16th; participants will be on the lookout for synchrony among the three reports. Meanwhile, the weekly Private Inventories added further fuel to the bearish bias after printing a larger-than-expected build of 13.1mln vs. Exp. +11.7mln. WTI and Brent prices saw a fresh bout of weakness which coincided with the IEA report, with the former hitting levels last seen in 2002. WTI resides below USD 20/bbl and printed a current base at around USD 19.15/bbl. Brent front-month dipped below USD 28/bbl amid the concoction of bearish factors. Over in the metals complex, spot gold succumbs to a firmer Dollar alongside potential retracement of its recent rally, with prices closer to USD 1700/oz, having risen to a whisker away from USD 1750/oz (USD 1747/oz at best) in the prior session. Separately, Copper prices are under pressure from USD action alongside the risk aversion seen across the market. The red metal still resides above USD 2.25/lb having waned off overnight highs of USD 2.34/lb.
US Event Calendar
8:30am: Retail Sales Advance MoM, est. -8.0%, prior -0.5%
Retail Sales Ex Auto MoM, est. -5.0%, prior -0.4%;
Retail Sales Ex Auto and Gas, est. -5.2%, prior -0.2%
8:30am: Empire Manufacturing, est. -35, prior -21.5
9:15am: Industrial Production MoM, est. -4.0%, prior 0.6%; Capacity Utilization, est. 74.0%, prior 77.0%
10am: Business Inventories, est. -0.4%, prior -0.1%
10am: NAHB Housing Market Index, est. 55, prior 72
2pm: U.S. Federal Reserve Releases Beige Book
4pm: Net Long-term TIC Flows, prior $20.9b; Total Net TIC Flows, prior $122.9b
DB’s Jim Reid concludes the overnight wrap
Global equity markets advanced further yesterday as the market decided that flattening new case and fatality growth rates pretty much everywhere across the developed world is more important at the moment than working out how successful the exit strategies will be and how protracted the economic impact will be. Equities also liked comments from White House economic adviser Kudlow suggesting Mr Trump will make some “important announcements” over the next few days regarding state guidelines on reopening the economies even if Director of the National Institute of Allergy and Infectious Diseases, Anthony Fauci, said that a May 1 target to reopen is “a bit overly optimistic” for many areas of the country.
Overall it feels like we’re pricing in closer to a “V-shaped” recovery at the moment but it’s clearly difficult to disentangle the impact that the extraordinary support from the authorities is having. The Fed’s kitchen sink is still reverberating around markets. All is not well everywhere though as Italy and Oil had a bad day yesterday as we’ll touch on below.
The very latest on the coronavirus shows the growth rate of both new cases and fatalities over the past 24 hours were the lowest since the first week of March, before the outbreaks had really spread around Europe or the US. Global cases rose by 3.1% or by just over 60,000 cases to just shy of 2 million. Meanwhile fatalities rose by 5.8% or nearly 6,890 people globally, meaning the number of people confirmed to have passed away from Covid-19 now sits at 126,557. For more see our Corona Crisis Daily.
The S&P 500 ended the session up a further +3.06% to put it +27.20% above its closing low back on March 23rd. Meanwhile the VIX index of volatility continued to decline, falling for the 7th time in the last 8 sessions as it reached its lowest level in over 5 weeks (at 37.89). Over in Europe, the STOXX 600 (+0.61%) also nearly made it into bull market territory as well, before giving up some of its gains at the end of the session to put it up +19.40% since its own closing low on March 18th.
The moves higher for equities came as earnings season saw a number of companies report even if there was some mixed results. JPMorgan Chase reported that net income was $2.9bn, down 69% on the same quarter a year ago, with an $8.3bn provision for credit losses, up from just $1.5bn a year ago. Total trading revenues were +32% on Q1 2019, which beat investor day guidance of up mid-teens. The stock was -3.17% as bank stocks broadly were sold (S&P 500 Bank Industry group down -2.22%) in favour of Technology and Consumer stocks (both over +4%) for the second day in a row. Over at Wells Fargo (-4.40%), net income was $653m, down from $5.9bn in Q1 2019, while their own provision expense for credit losses was $4.0bn. Meanwhile Johnson & Johnson (+4.02%) lowered their 2020 guidance, now seeing full-year operational sales of $79.2-$82.2bn, down from $85.8-86.6bn back in January, but increased their dividend. The increased dividend and comments around a possible coronavirus vaccine saw sentiment in the stock improve even as guidance was cut. They are aiming to have a single-dose vaccine available for broad use early in 2021, and also is testing two backup vaccine candidates. They aim to produce 600 to 800 million doses in the first half of next year alone according to comments released after their earnings announcement. Today the main earnings highlights will be from UnitedHealth Group, Bank of America, ASML, Citigroup and Goldman Sachs.
Markets in Asia have been a bit less enthusiastic with most major bourses close to flat this morning. That includes the Nikkei (+0.07%), Hang Seng (-0.11%) and Shanghai Comp (-0.15%) while the ASX is down a steeper (-1.08%). In currencies, the Australian dollar is down -0.50% following data that showed Australia’s household sentiment fell to 75.6 in April (from 91.9 in last month), the biggest fall in the 47-year history of the survey. In commodities, Brent crude oil prices are up +1.28% this morning while most base metals are also trading up with iron ore +0.83%.
Overnight, China added another drip of stimulus to its economy with the PBoC injecting CNY 100bn via the one-year medium-term lending facility in to the economy at a rate of 2.95% vs 3.15% previously. The operation comes ahead of CNY 200bn of loans maturing on Friday.
In other news, the Washington Post is reporting that Federal health officials have begun drafting plans to end social-distancing measures and reopen businesses called the “Framework for Reopening America”. The document describes a phased program that would split the country into areas based on risk, with low-, moderate- and high-risk sections. Low-risk areas could open first, no earlier than May 1, with moderate- and high-risk areas later. The report added that the document says that none of the steps should be taken until widespread testing capabilities are in place. Futures on the S&P 500 are trading down -0.51% this morning.
Prior to this, President Trump announced during his press briefing yesterday that he would be instructing his administration to stop all funding for the World Health Organization on the basis that the body should not have taken China’s data at “face value” and that they failed to share information on the coronavirus early enough. According to WHO, the US has given $893 million to the organization in the current 2-year funding cycle.
Sticking with the US, after the market closed yesterday major US airlines and the Treasury reached an initial agreement on the aid that the government votes on in the recently passed fiscal stimulus bill. There is a total of $25billion in payroll assistance being allocated across all major airlines. Airlines that agreed to participate also included Alaska Air Group, Delta Air Lines, JetBlue Airways, United Airlines Holdings, Allegiant Airlines, Frontier Airlines, Hawaiian Airlines and SkyWest. Further, American Airlines Group and Delta Airlines said overnight that they will get $5.8bn and $5.4bn in support respectively. That accounts to almost 45% of the agreed assistance. Delta Chief Executive Officer Ed Bastian said in a message to employees that “The funding, along with self-help measures we have taken, will prevent furloughs and pay rate reductions through the end of September, despite the 95% drop we’ve seen in passenger traffic.” Shares of American Airlines (+10.7%), Delta (+9.29%) and JetBlue (+16%) are all up in afterhours trade along with those of other carriers.
Back to yesterday and over in fixed income, there was another notable widening in European sovereign bond spreads yesterday as the Eurogroup meeting from last Thursday has yet to convince markets that it is workable for all. As we highlighted yesterday Italy have said they won’t use the ESM and are putting a lot of faith in the recovery fund element of Thursday’s deal. This will be fleshed out at the April 23rd Eurogroup meeting. See our Italian economist Clemente’s piece (link here) yesterday on this and the domestic political tensions that have built up before and after last week’s meeting and agreement. Basically the Five Star are adamant that the ESM is not an option. Their coalition PD partners are a bit more pragmatic and are also putting a lot of hopes on the recovery fund. Meanwhile Salvini’s main opposition League party are capitalising on the situation and are stepping up the rhetoric against the Government and Europe. The Brothers of Italy party are also doing the same. So this story still has a lot of unfinished business to it.
The spread of Italian 10yr yields over bunds rose by +22.4bps to 216bps yesterday, its highest level since March 18th. It was a similar theme for other southern European countries, with the spread on Greek (+16.7bps), Spanish (+9.0bps) and Portuguese (+7.2bps) bonds all rising. Bunds themselves though made small gains, with 10yr yields falling by -3.0bps, while those on US Treasuries also fell by -2.0bps. The other big story from last Thursday namely credit continued to grab headlines. After the Fed’s foray into HY, markets continued to tighten with US HY and IG -35bps and -11bps tighter with Euro HY and IG -67bps and -10bps tighter. Oil fell on demand worries based on a report from the IMF on the global economic outlook that we get into below, as well as signals of continued oversupply with an American Petroleum Institute report showing that U.S. crude stockpiles surged 13.14 million barrels last week. Brent crude closed down -6.74% and WTI fell -10.26%. Our analyst Michael Hsueh put out another bearish piece yesterday. See here for more details.
These moves in financial markets came against the backdrop of yet another set of dire forecasts on the global economy yesterday, this time from the IMF’s semi-annual World Economic Outlook. In the report, which was entitled “The Great Lockdown”, they forecast that world GDP would contract by -3.0% this year, which would far exceed the -0.1% global contraction in 2009. Furthermore, unlike 2009 they forecast that both the advanced economies (-6.1%) as well as the emerging markets and developing economies (-1.0%) would see declines in GDP. Looking at the most severe declines, they see the Euro Area economy contracting by -7.5% this year, which includes large declines for Spain (-8.0%), Italy (-9.1%) and Greece (-10%). Meanwhile the volume of global trade would fall by -11.0%.
Against this backdrop, G7 finance ministers and central bank governors met virtually yesterday, with their statement saying that they “reiterated their pledge to do whatever is necessary to restore economic growth and protect jobs, businesses, and the resilience of the financial system.” However, ahead of this call, French finance minister Le Maire told reporters that the US was preventing attempts to boost the IMF’s capacity through the creation of more special drawing rights. That said, the statement released by the US Treasury department afterwards did call “for more and urgent contributions to the IMF’s Catastrophe Containment and Relief Trust and the poverty Reduction and Growth Trust to address critical funding needs.” There’ll be a call between G20 finance ministers and central bankers today.
Looking at other unprecedented forecasts, the UK’s Office for Budget Responsibility, which is the government’s independent fiscal watchdog, published a scenario that sees the economy contracting by an unprecedented -35% in Q2, with the deficit rising to 14% of GDP in 2020-21, which would be the highest level since WWII. This is a scenario rather than a forecast, and assumes that the lockdown lasts for 3 months, followed by a partial lifting over the following three months. The news was no better in France either, where finance minister Le Maire said that the economy would shrink by -8% this year, and the budget minister said that the budget deficit would rise to 9% of GDP.
To the day ahead now, and there’s a raft of data releases from the US, including February’s business inventories, March’s retail sales, industrial production and capacity utilisation, April’s Empire State manufacturing survey and NAHB housing market index, along with the weekly MBA mortgage applications. Over in Europe, there’ll also be the final March CPI reading from France and Italy. From central banks, the Bank of Canada will be deciding on rates, the Federal Reserve will release its Beige Book, while Atlanta Fed President Bostic will speak. And finally, earnings releases include UnitedHealth Group, Bank of America, ASML, Citigroup and Goldman Sachs.
The Cass Freight Index showed a weak U.S. freight market to end 2019 and to start 2020, and just as we were seeing signs of coming off the bottom, we get the coronavirus and all related smacks to an economy that was already struggling to gain traction.
This has quickly gone from a China production concern to a U.S. (and global) consumer spending problem. No business, no jobs, and no income for many leads to much less freight moving around.
US Rail Volume Comps – Cass March 2020
Truckload linehaul rates – Cass March 2020
This index turned lower in mid-2019.
Cass Truckload linehaul Index – March 2020
Intermodal Volumes Cass – March 2020
Cass Conclusion
All historical truckload and intermodal data was restated in November 2019, with an extremely high correlation to the previous data.
We hope the Cass Indexes bottom in April, and the quicker businesses can reopen, the better readings we should see in May and June.
Unrealistic Hope
There is no harm to hope, but expecting a quick, sustained recovery is another matter.
Ever since Cass outsourced production of this report to Stifel, the Cass report been one of rampant overoptimism.
The original writers (named Cass) were sounding recession signals whereas Stifel writer David G. Ross, spoke of signs of a freight bottom for the last few months.
We can never prove which view is correct, but seeing signs of a bottom in a recovery that was already the longest in history seems more than a bit questionable.
Ford Scrambles To Raise Money As Dwindling Cash Balance Becomes A Focus
Ford, already in a precarious position from the pandemic shutdown and an auto market that was in recession prior to the coronavirus, is now starting to look at options to raise cash.
On Monday, Ford said it expects to report a loss later this month and that it had about $30 billion on its balance sheet as of April 9. This indicates the company has burned through about $8 billion since the end of last year, according to Bloomberg. The company says it is expecting a Q1 loss of about $600 million before interest and taxes. Revenue is expected to be down 16% from a year ago.
CEO Jim Hackett has already suspended the company’s dividend and has drawn $15.4 billion from two credit lines last month to free up liquidity. As the manufacturer waits for the all-clear to start producing vehicles again, it is considering raising even more cash.
Tim Stone, Ford’s chief financial officer, said:
“We continue to opportunistically assess all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility. We also are identifying additional operating actions to enhance our cash position.”
Ford has several options it can consider, including tapping the U.S. asset-backed securities market. The Federal Reserve’s Term Asset Backed Securities Loan Facility should “aid in a revival” for that market (actually, it is the market), BI analyst Joel Levington notes.
But for now Ford thinks it has adequate cash to make it through the third quarter at least. Recall, in 2006, Ford was well known for lining up $23 billion that allowed it to avoid bankruptcy.
Just yesterday we noted that the used car market is bracing to experience a collapse that could wind up costing the industry billions.
The collapse is coming as a result of used vehicle auctions grinding to a halt – along with the rest of the country – and vehicles piling up at places where buyers and sellers transact secondhand cars.
Levington said: “GM assumed a 4% decline in residual values this year. If the 10% drop Manheim has seen recently persists, depreciation expense could counter the $1.9 billion that GM Financial earned in pretax profit last year.”
A similar headwind could be felt by rental car companies, who would likely get less money from selling their used fleet of vehicles, which are also sitting idly by as the pandemic paralyzes the nation.
Hertz, Avis and Enterprise have all sought help from the Treasury Department for loans, tax breaks and other types of support.
Hamzah Mazari, a Jefferies analyst, said: “For Hertz and Avis, every 1% increase in fleet costs saps about $20 million from earnings before interest, taxes, depreciation and amortization.”
Voice of America reports that Turkey’s President Recep Erdogan is planning to send a fresh wave of migrants to Europe, with officials fearing many of them will be infected with coronavirus.
“Greek forces are on heightened alert as reports have surfaced that Turkey is preparing to push through a fresh wave of migrants to Europe. Officials in Athens say, they fear that refugees infected with the coronavirus may be among the new wave of asylum seekers,” reports VOA.
Intelligence has been produced showing how Turkish authorities have moved migrants from inland areas to the shore, where smugglers are waiting to ferry them to Europe.
Greece’s coastguard, Air Force and Navy have stepped up patrols against what they see as another organized effort to unleash thousands of migrants as a political weapon.
Back in February, President Erdogan announced that Turkey would be re-opening its border and encouraging millions of migrants to invade Europe.
During the incursions, Christian churches were trashed and thousands of precious olive trees were chopped down as part of an economic attack.
Thanks to a strong response from Greek security forces and a massive revolt by the Greek people, there has been no repeat of 2015, when up to 2 million migrants eventually reached Europe.
Erdogan initially agreed to hold back the migrant tide in 2016 after the European Union paid Ankara €6 billion, but the Turkish leader is now using the threat of re-opening the floodgates to push for more money and concessions.
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“Wasted” – 50 Million Pints Down The Drain Unless UK Pubs Reopen By Summer
Britain remained in a nationwide lockdown in mid-April as virus-related deaths and confirmed cases climb. A crashed economy and high unemployment risk sending the country into depression. Non-essential businesses, like pubs, have been shuttered for nearly a month.
BBC News is reporting, with no clear timeline of when lockdowns will dissipate, tens of thousands of pubs across the country have been severely damaged with limited cash flow in the last thirty days. They are holding large sums of beer inventory that could expire if lockdowns continue for the next several months, which would result in over 50 million pints of stale beer being dumped, according to a leading industry body.
The Campaign for Real Ale (Camra) estimates the nation’s 39,000 pubs each have around 15 barrels of inventory.
Camra’s chief executive Tom Stainer fears many pubs will have to dump stale beer if the lockdown extends into summer.
“It’s a very sad waste of all the work and talent that goes into producing great beer,” Stainer told the BBC. “People won’t get to drink it and all those resources have been used up for nothing.”
He added: “It’s not the biggest issue that the country is dealing with, but aspects of life like going to the cinema or cafe, or going for a pint, are something we treasure.”
Since pubs were forced to close their doors on March 20, supermarket have seen a 20% increase in alcohol sales. Consumers have shifted where they buy their beverages in the lockdowns as public health orders force everyone to drink at home. This trend will likely continue for the next several months, further pressuring pubs.
Iain Crockett, director of Gloucestershire-based Severn Brewing, said the lockdown has severely impacted pubs and down the supply chain to brewers.
Crockett said smaller brewers could see financial hardships while larger ones with storage capacity and capital can weather the economic storm.
Some pubs are already asking the government where they can dump stale beer. In the coming months, tens of millions of pints could be destroyed if lockdowns continue.
BBC notes that some brewers have started converting stale beer into hand sanitizer, by extracting the alcohol.
According to OpenTable data, restaurant traffic in the UK remains collapsed through mid-April, with little hope customers will return this month.
In the US, some state and county governments have allowed bars and restaurants to remain open, only allowing delivery or curbside pick-up of food and alcohol.
Nevertheless, the pandemic has been a significant headache for the service industry, resulting in millions of jobs lost in the Western world.
