The Kennedy Center’s $25-million taxpayer-funded grant may just be the tip of the iceberg when it comes to coronavirus “stimulus.” Even after receiving heavy criticism for including the Center’s generous gift in the latest relief package, members of Congress are pushing for billions more to be sent to other arts organizations.
Last month, the Metropolitan Museum of Art of New York City (the Met) – an organization with a $3.6 billion endowment – kicked off a petition campaign lobbying for $4 billion more in taxpayer assistance to America’s museums and cultural non-profits.
For perspective, fourteen state governments receive less than $4 billion in federal aid during a typical year.
Without mentioning the Met’s large endowment, the New York congressional delegation published a letter to House Speaker Nancy Pelosi – citing the Met’s anticipated $100 million loss – and advocating for $4 billion for museums.
Reps. Alexandria Ocasio-Cortez, Jerrold Nadler, and eight other New York members of Congress argued that “due to the nature of the nonprofit industry, many of these museums do not have the savings necessary to survive such a hit,” and that “donors are understandably more hesitant to make charitable contributions given the economic uncertainty they face.”
However, the New York delegation failed to explain the public purpose of taxpayer subsidies for wealthy non-profit organizations like the Met, American Museum of Natural History, and the New York Botanical Garden.
The Met: With a $3.6 billion endowment and $4.4 billion in total assets, its trustees have a combined net worth of $500 billion. In IRS tax filings, the museum reported that its CEO, Daniel H. Weiss, received total compensation of nearly $1.2 million last year. Yet, the Met may furlough all employees after May 2nd. Since 2010, the organization received $3.7 million in federal grants. Last year, the Met disclosed $342,708 on lobbying.
American Museum of Natural History: Last year, the organization disclosed $1.5 billion in total assets (up $25 million in 12-months). Its network of wealthy individuals includes trustees Jackie Bezos (Jeff’s mom), banking executive Theodore Roosevelt IV, heiress Virginia Hearst Randt, and entertainment luminaries Tom Brokaw, Lorne Michaels, and Tina Fey. President Ellen Futter received over $1.7 million in compensation during FY2018. Since 2010, the museum received $71.1 million in federal grants. Last year, $249,545 was spent on lobbying.
New York Botanical Garden: With investments exceeding $315 million dollars, well-connected board members include Sigourney Weaver and NYC Mayor Bill de Blasio. The organization already receives public funding through the New York City Department of Cultural Affairs, the New York City Council, and the New York State Office of Parks, Recreation, and Historic Preservation. Since 2010, the Botanical Garden received $24.3 million in federal grants. Last year, $127,261 was spent on lobbying and total assets increased from $575.6 million to $606.8 million.
This is not the first time that non-profit, well-heeled, public arts charities and their congressional backers have requested—and obtained—federal grants.
In 2017, our auditors at OpenTheBooks.com published an oversight report finding that 80 percent of all federal arts grants flowed to organizations with over $1 million in assets. In fact, 71 organizations with assets exceeding $1 billion received $120 million during a ten-year period.
Now museums want even more money despite the fact that congressional action on coronavirus stimulus already helped America’s museums and cultural organizations.
We reached out to the museums for comment and the Met responded:
The arts and culture community employs over 725,000, and is an economic engine for innumerable communities. The Met has joined with the Alliance for American Museums to help mitigate the immense crisis this will cause to institutions of all sizes – particularly the small, but ever so valuable museums and cultural organizations that bring enlightenment, jobs, and financial activity across the nation.
The Met, a spokesperson 4/10/2020
Three weeks ago, the Phase III $2.2 trillion federal stimulus passed Congress and included $350 billion to aid non-profit organizations and small businesses (another $250 billion has been proposed). Museums and cultural organizations are eligible for this aid.
Furthermore, the coronavirus stimulus included $200 million in direct aid for arts organizations: $75 million for the National Endowment for the Arts, $75 million for the National Endowment for the Humanities, and $50 million for the Institute of Museum and Library Services.
Congressman Jerrold Nadler (D-NY) defended the New York congressional delegation’s $4 billion request in an on-the-record statement:
If we want to ensure that our cultural heritage is still here when this pandemic ends, and that the hundreds of thousands of museums workers have a job to go back to, we need to make sure our museums have the resources they need to stay afloat, like any other employer.
Congressman Jerrold Nadler
Read Rep. Nadler’s full response to our request for comment here.
As our nation enters the first major economic downturn in eleven years, museums and cultural organizations argue that they need another special carve-out on top of all existing coronavirus packages.
However, critics say that transparency is more important now than ever as well-funded institutions seek to capitalize on the national COVID-19 crisis.
&P futures rebounded alongside European and Asian stocks on Wednesday as oil pared its recent historic losses and upbeat quarterly earnings reports lifted investor sentiment following a two-day selloff due to a record crash in oil prices, even as companies warned of more pain in the coming months. Treasurys and the dollar dropped while gold gained, rising above $1700.
Emini futures climbed after the cash index dropped more than 3% a day earlier, when investors shrugged off the progress of a fresh relief package to counter the economic hit from the coronavirus. The Stoxx Europe 600 Index rose broadly in the wake of Tuesday’s slump.
Earlier in the session, Asian stocks gained, led by energy and communications, after falling in the last session. Markets in the region were mixed, with India’s S&P BSE Sensex Index and Jakarta Composite rising, and Japan’s Topix Index and Australia’s S&P/ASX 200 falling. The Topix declined 0.6%, with Istyle and Financial Products Group falling the most. The Shanghai Composite Index rose 0.6%, with Junzheng Energy and Ningbo Construction posting the biggest advances
The S&P 500 index fell nearly 5% in the first two days of the week as May WTI contracts plunged below zero for the first time ever, and the benchmark Brent hovered near 1999-lows, triggering alarm about the hit to the global economy from a near halt in business activity.
Texas Instruments headed higher in thin premarket trading as it reported better-than-expected first-quarter results and said a strong inventory allowed it to be prepared for the disruptions caused by the pandemic. Netflix deemed a “stay-at-home” stock as the wide restrictions boost demand for online streaming services, more than doubled its own projections for new customers in the first quarter. However, its shares fell 2% as the company failed to translate the subscriber surge into additional revenues, while forecasting a weaker second half if the lockdown measures were to be lifted. Chipotle reported soaring digital and home delivery sales and said it had enough cash and liquidity to get through the next year.
Trader attention remains glued to oil, with Brent crude erasing a tumble that reached as much as 17% overnight, while West Texas oil also pared most of its slide, even though the June contract was trading just above single digits.
Yesterday, OPEC Delegates discussed the oil market crisis within a conference call; although the call was reportedly not designed to make a new oil decision and they were said to consider a May 10th meeting for further production cuts. Furthermore, Saudi, UAE, and Kuwait did not take part in the call and a delegate noted that OPEC+ members will be unable to start production cuts earlier because April’s oil production is already committed for export contracts. Meanwhile, the Iraq Energy Minister said OPEC+ could take additional steps to absorb the oil surplus but added that taking further measures by producer countries depends on global market development and compliance by other OPEC+ and other non-member producers with the oil cut deal. Russia again downplayed the gravitas of the oil market situation. Elsewhere, the fallout from the Texas Railroad Commission meeting saw two out of three Texas Oil and Gas regulators stated they are not ready to vote on oil output cuts today and they are to revisit the issue on May 5th. Sticking with North America, sources stated that producers in Alberta, Canada have reportedly already voluntarily cut 400k-700k BPD, according to Energy Intel. The contracts saw further downside as EU trade got underway, with WTI June resided under USD 11/bbl whilst Brent held onto losses of over 10% and eyed USD 17/bbl to the downside; however, since then we have recovered somewhat in what has been choppy trade for the complex but, ultimately, are in proximity to the lows – particularly for WTI, which ekes mild gains at the time of writing
The one thing that can definitively send oil sharply higher is a reopening in the global economy, and to this end, governments are devising ways to return people to work even as they discover infections are more extensive than they insisted only weeks ago. The coronavirus killed two people in California in early and mid-February, suggesting the pathogen was circulating in the U.S. weeks earlier than health officials thought. While Germany and a few other countries are moving to relax lockdown measures to contain outbreaks, Singapore – a global standard bearer for taming the deadly illness early on – has now become home to Southeast Asia’s largest recorded outbreak and is racing to regain control.
Meanwhile, corporate earnings have been mixed. Consumer-goods companies from brewers to paint-makers sounded notes of caution on spending. Heineken NV canceled its interim dividend, while Kering said it doesn’t see a recovery in the U.S. or Europe before at least June or July after sales at its flagship brand Gucci tumbled.
“There’s no way you can predict earnings right now,” Michael Cuggino, portfolio manager at Pacific Heights Asset Management LLC, said on Bloomberg TV. “It’s virtually impossible until we have more visibility with respect to how to world comes out of the coronavirus on the other side.”
Treasuries edged lower along with the dollar and European bonds fell. As Bloomberg reported yesterday, European policymakers plan to hold a call on Wednesday evening where they may discuss whether to accept junk-rated debt as collateral from lenders. Related to that, Italian bond yields and the risk premium the sovereign pays on its debt rose on Wednesday as the funding of the already heavily indebted country’s coronavirus stimulus plans remained uncertain. It may take European Union countries until the summer or even longer to agree on how to finance an economic recovery from the coronavirus pandemic as major disagreements still persist, an official with the bloc said on Wednesday.
“What we’re generally seeing is that there is less possibility that we are going to get some sort of conclusion on Thursday and even beyond that,” said Peter McCallum, rates strategist at Mizuho, referring to an EU summit on Thursday where measures to support coronavirus-hit economies will be discussed.
Yields across Italy’s curve rose, with the 10-year yield up as much as 10 basis points to 2.27%, a new peak since March 18, when the ECB announced its emergency purchase programme after trading hours. The gap between its 10-year bond yield and Germany’s – effectively the risk premium Italy pays – rose as high as 271 basis points, just five basis points away from touching their highest since the announcement of the emergency measures.
Spanish bonds extended declines and underperformed euro-area debt after the nation’s Treasury launched a massive 10-year syndicated debt sale.
In FX, a dollar gauge snapped two days of gains as European stock markets and U.S. equity futures rebounded. The dollar slipped versus all G10 peers; The Australian dollar advanced against its Group-of-10 peers after leveraged funds covered short positions exposed by better-than- expected retail sales data. Japan’s government bonds rose as the slump in oil prices raised concern about the global economic outlook, prompting demand for haven assets; the yen advanced for the first time in three days. Economic data include mortgage applications. AT&T, Thermo Fisher and Biogen are among companies reporting earnings.
Market Snapshot
S&P 500 futures up 1.2% to 2,764.25
STOXX Europe 600 up 1.1% to 327.88
MXAP up 0.2% to 141.41
MXAPJ up 0.7% to 457.74
Nikkei down 0.7% to 19,137.95
Topix down 0.6% to 1,406.90
Hang Seng Index up 0.4% to 23,893.36
Shanghai Composite up 0.6% to 2,843.98
Sensex up 1.9% to 31,216.92
Australia S&P/ASX 200 unchanged at 5,221.25
Kospi up 0.9% to 1,896.15
Brent Futures down 9.2% to $17.56/bbl
Gold spot up 0.6% to $1,695.43
U.S. Dollar Index down 0.1% to 100.16
German 10Y yield rose 2.0 bps to -0.457%
Euro down 0.02% to $1.0856
Brent Futures down 9.2% to $17.56/bbl
Italian 10Y yield rose 21.4 bps to 1.978%
Spanish 10Y yield rose 10.4 bps to 1.108%
Top Overnight News
Singapore reported more than 1,000 new cases for the third straight day. New coronavirus cases in Germany stayed close to a three-week low as the country begins gradually lifting lockdown measures
The U.K. bond market looks set to face a flood of bond sales that dwarfs the current record for government borrowing set during the global financial crisis
ECB policy makers will hold a call on Wednesday evening where they may discuss whether to accept junk-rated debt as collateral from lenders
The euro area’s run of record-breaking government bond sales has continued in Spain, highlighting that demand for the region’s higher-yielding securities remains robust, when the price is right
Global funding markets are beginning to diverge — easing in the U.S. while still showing signs of stress in Europe
Oil’s plunge below zero for the first time in history has broken the models that many traders rely on to calculate risk. For Wall Street’s biggest banks, that has meant a franticscramble over the past 24 hours to recalculate the value and riskiness of their trading books
Asian equity markets initially extended on losses as the subdued tone rolled over once again from Wall St where sentiment was pressured by the continued oil market rout, but initially finished relatively mixed. Price action included the WTI June contract prices briefly slipping to single digits and with underperformance in tech amid President Trump’s plans for an immigration ban given the sector’s reliance on foreign talent. ASX 200 (U/C) and Nikkei 225 (-0.7%) were weaker with Australia dragged lower by the mining related sectors and as corporate updates trickled in with Beach Energy also suffering from softer quarterly production, while the Japanese benchmark briefly fell below 19k as the recent detrimental currency flows reverberated across exporter names. Hang Seng (+0.4%) and Shanghai Comp. (+0.6%) conformed to the subdued global risk tone but with losses in the mainland limited by anticipation of further support after Chinese President Xi pledged stronger macro policy tools to soften the epidemic fallout and the State Council noted that China will boost targeted assistance to those in need, as well as small businesses. Finally, 10yr JGBs advanced as the took advantage of the weakness in stocks and amid the BoJ’s presence in the market today for JPY 710bln of JGBs heavily concentrated in 3yr-10yr maturities.
Top Asian News
China’s Banks Hit by Increase in Bad Loans in First Quarter
India Eases Up on Currency Intervention, Protecting Reserves
Bank Indonesia Says IDR Exchange Rate Stability Maintained
Bank Indonesia Makes First Direct Purchase of Government Bonds
European equity futures see tailwinds from the turnaround in sentiment at the end of the APAC session (Euro Stoxx 50 +1.1%), with US equity futures also posting gains in excess of 1% in early trade. Sectors see broad-based gains, albeit energy lags as the complex remains under pressure from storage scarcity. In term of the breakdown, Tech names lead the gains following earnings from STMicroelectronics (+6.2%), whilst the sector also sees tailwinds from Texas Instruments (+3.0% pre-mkt), with the former, despite misses on its metrics, noted that Q1 was exited with stable net financial position, over USD 2.5bln in liquidity and available credit facilities above USD 1bln. Looking at other movers, Roche (+1.7%) is supported post earnings in which it topped estimates and pharma sales rose 7% YY. The Co. also stated that Clinical Phase III study to evaluate the safety and efficacy of Actemra/Roactemra in severe COVID-19 pneumonia is ongoing in several countries, with results expected in early summer, adding there is capacity for a rapid increase of production. On the flip side, Credit Suisse (+0.4%) is hampered vs. the region after it stated it is to take an additional EUR 900mln loan loss provisions in Q1. Finally, other earnings-related movers include Akzo Nobel (+7.9%), Ericsson (+6.4%) and Kering (-5.42), the latter reported a decline in Gucci sales of 23.2% YY.
Top European News
Spain Follows Italy With Record-Setting Bond Demand at Sale
EU Braces for Tense Call as Leaders Given No Plan to Work On
In FX, another swing in broad risk sentiment amidst less pronounced pressure on oil and other commodities has aided the latest Aussie, Kiwi and Loonie recovery, but with the former also benefiting from a short squeeze in wake of a record rise in retail sales per preliminary data for March. Aud/Usd took some time to digest the release and acknowledge the fact that stock-piling for COVID-19 boosted consumption, but subsequently breached 0.6300 on the way to circa 0.6350 with stops tripped above 0.6325 and macro fund offers over 0.6340 absorbed along the way. Meanwhile, Nzd/Usd retested 0.6000, albeit with a lag as Aud/Nzd rebounded from sub-1.0550 to around 1.0580, and Usd/Cad has retreated between 1.4237-1.4139 parameters on the aforementioned relative stability in crude prices ahead of Canadian CPI.
GBP/SEK/NOK – Sterling has unwound some of its recent underperformance on technical rather than fundamental grounds given Cable remaining above the 30 DMA (1.2257) and revisiting 1.2300+ levels, while Eur/Gbp has reversed towards 0.8800 as the DXY meanders within a tight band on the 100.000 handle and single currency continues to straddle 1.0850. Similarly, the Scandis are seeing some reprieve from oil and pandemic risk aversion, with Eur/Nok and Eur/Sek both off highs near 11.5950 and 10.9700 respectively and the Swedish Krona weighing up more unconventional Riksbank easing in the form of municipal QE in the run up to next week’s official policy meeting.
JPY/EUR/CHF – All sticking to pretty narrow and well trodden recent confines vs the Dollar, as the Yen flits from 107.86 to 107.52, Euro hovers below 1.0900 and above 1.0800 amidst decent option expiry interest at the former (1.5 bn) and 1.0825 (1 bn), and Franc pivots 0.9700.
EM – Softer than expected SA CPI has not hindered the Rand amidst the overall upturn in risk appetite, but the Lira is treading more cautiously into the CBRT even though the Central Bank has already lifted FX swap limit transactions to 30% from 20% in what may be an effort to keep Usd/Try under 7.0000 in the event that rates are cut again, as widely expected, but perhaps more than the -50 bp consensus. On that note, the Mexican Peso seems to have taken Banxico’s emergency ½ point ease in stride or at least lubricated by the less fractious state of trade in crude markets.
Australian Retail Sales (Mar P) 8.2% (Prev. 0.5%); largest increase on record. ABS said the March sales data indicated unprecedented demand for food retailing industry. (Newswires)
In commodities, WTI and Brent front month futures remain choppy, but ultimately mixed this morning, with WTI swinging between gains and losses whilst Brent remained in the red for the entirety of the session thus far. Yesterday, OPEC Delegates discussed the oil market crisis within a conference call; although the call was reportedly not designed to make a new oil decision and they were said to consider a May 10th meeting for further production cuts. Furthermore, Saudi, UAE, and Kuwait did not take part in the call and a delegate noted that OPEC+ members will be unable to start production cuts earlier because April’s oil production is already committed for export contracts. Meanwhile, the Iraq Energy Minister said OPEC+ could take additional steps to absorb the oil surplus but added that taking further measures by producer countries depends on global market development and compliance by other OPEC+ and other non-member producers with the oil cut deal. Russia again downplayed the gravitas of the oil market situation. Elsewhere, the fallout from the Texas Railroad Commission meeting saw two out of three Texas Oil and Gas regulators stated they are not ready to vote on oil output cuts today and they are to revisit the issue on May 5th. Sticking with North America, sources stated that producers in Alberta, Canada have reportedly already voluntarily cut 400k-700k BPD, according to Energy Intel. The contracts saw further downside as EU trade got underway, with WTI June resided under USD 11/bbl whilst Brent held onto losses of over 10% and eyed USD 17/bbl to the downside; however, since then we have recovered somewhat in what has been choppy trade for the complex but, ultimately, are in proximity to the lows – particularly for WTI, which ekes mild gains at the time of writing. Looking at the metals market, spot gold benefits from the Dollar pullback and reclaimed its USD 1700/oz handle. While copper trades subdued around USD 2.25/bbl, with miner Antofagasta stating that Q1 copper production rose almost 5% YY.
US Event Calendar
7am: MBA Mortgage Applications, prior 7.3%
9am: FHFA House Price Index MoM, est. 0.3%, prior 0.3%
DB’s Jim Reid concludes the overnight wrap
Markets stuck to the risk-off theme once again yesterday, as a negative cocktail of oil market turmoil, weak corporate earnings and concerns about Europe conspired to make this a more difficult week so far for equities. Indeed, with the S&P 500 down a further -3.07% yesterday, that means the index has had its worst start to a week for 5 weeks, back when markets were at their most tumultuous. And in another warning sign, the VIX index has also had its largest 2-day increase since it hit its peak back in mid-March.
All eyes were on oil once again yesterday, where governments tried unsuccessfully to contain the rout. Brent Crude fell below $20/barrel for the first time since 2002 and down -24.40% on the day. Things haven’t gotten any better overnight where it’s down another -12.62% to $16.89/bbl. May WTI settled yesterday at $10.01 but the previous day’s shenanigans (lows of -$37.63) extended into the June contract which was down -43.37% to $11.57 and is trading at $10.90 this morning. As our oil analyst Michael Hsueh pointed out the previous evening, negative pricing could extend into the June contract so the sharp move wasn’t a surprise.
OPEC ministers did not decide on any new policy measures on an unscheduled call last night, which followed reports earlier in the day that they’d start their planned output cuts immediately rather than waiting until the start of May. In a joint closing statement the ministers said that they should “continue holding such consultations”, but it remains unclear if any country has the ability or the inclination to cut further than what is expected to come on May 1. Meanwhile President Trump tweeted that “We will never let the great U.S. Oil & Gas Industry Down”, and that he’d instructed the Energy and Treasury Secretaries “to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!” Unsurprisingly, oil-producing currencies took a hit once again, with the Russian Ruble (-2.00%) and the Norwegian Krone (-1.85%) both suffering against the US dollar.
Other global equity markets joined the S&P lower, with the NASDAQ (-3.48%), the STOXX 600 (-3.39%) and the DAX (-3.99%) all seeing major declines. One sector that had a bad day were European banks, with the STOXX Banks index down -4.60% at its lowest ever level since the index began in the late 1980s, having now lost almost half its value since the start of this year. The overall risk-off came against the backdrop of some weak corporate earnings. Netflix surged +12% right after the closing bell, but within 2 hours had given the entire post-market rally to be back near unchanged. The online streaming company announced nearly 16 million subscribers (nearly double consensus estimates of 8.47 million), but the company’s guidance did not deliver as the company is forecasting a number of subscriptions will be cancelled when confinement ends. Going through the other highlights, Coca Cola (-2.24%) said that they’d experienced a global volume decline of around 25% since the start of April with sales outside the home suffering thanks to the pandemic. Lockheed Martin (-2.32%) lowered their sales outlook, while HCA Healthcare (-4.50%) withdrew their 2020 guidance and suspended their quarterly dividend programme. In Europe, PSA (+0.26%) said that they expected the European vehicle market to shrink by 25% this year, as they announced a 15.6% decline in their Q1 sales.
The overnight session has seen markets in Asia follow Wall Street’s lead however the good news is that the declines are more modest. Indeed the Nikkei (-1.06%), Hang Seng (-0.50%), Shanghai Comp (-0.16%), ASX (-0.14%) and Kospi (-0.81%) are all posting small declines. Elsewhere, futures on the S&P 500 are up +0.30% while yields on 10y USTs are down -1.8bps to 0.553%.
In other news, the US senate passed $484bn in new pandemic relief funds yesterday. President Trump said soon after that he would sign the legislation and then turn to the next round of stimulus which is said to include aid to state and local governments and coronavirus caregivers, amongst others. The bill is likely to be voted on in the House today before it moves to President Trump’s desk. Trump also said in an overnight press conference that he’ll ask larger companies to return money they accessed from the federal stimulus package because it was intended to help small businesses while at the same conference Treasury Secretary Mnuchin threatened “severe consequences” for such companies. Trump also gave clarity on his decision on stopping immigration, saying the pause will be in effect for 60 days and will apply only to individuals seeking permanent residency with some exceptions and he will likely sign the order today.
Ahead of tomorrow afternoon’s European Council videoconference, there was a Reuters story yesterday which said that EU member states were moving closer to an agreement that would see the next long-term budget used for a stimulus package, rather than being done through coronabonds or some other form of joint debt issuance. However, the report also said that leaders continue to disagree on the implementation and “seem virtually certain to defer any final decision”. This was later backed up by Italian Prime Minister Conte, who said he didn’t think that leaders would manage to reach a “definitive solution” tomorrow. However he did say he was ready to work with the EU on a new ESM line which was seen as conciliatory.
The spread of 10yr Italian yields over bunds was up by +24.6bps to 263bps, its highest level since 18 March, though still below the intraday highs of 320bps reached that day. A large €16bn syndicated deal was successfully launched but likely led to indigestions across other parts of the curve. A reminder that S&P will likely opine on their review of Italy’s BBB rating by Friday. Late in the session Bloomberg reported that the ECB will hold a call tonight to discuss whether to allow junk rated debt as collateral. They’ve already done this for Greece and they might be preparing the way for Italian debt if the need arises over the coming weeks or months.
Meanwhile Spanish (+14.2bps), Greek (+31.3bps) and Portuguese (+13.9bps) spreads all saw sizeable moves wider as well, with the Spanish spread over bunds actually closing at its highest level since April 2017. Outside of southern Europe, sovereign debt actually performed much stronger, with US 10yr Treasury yields closing just above their lowest ever level, at 0.569%. 10yr bund yields also saw a fall of -2.9bps, while gilt yields were down -4.0bps.
Wrapping up with the data releases, there wasn’t a great deal out yesterday, though the ZEW survey from Germany saw the current situation reading fall to -91.5 in April (vs. -77.5 expected), which was its lowest level since May 2009. Nevertheless, the expectations reading actually surprised, coming in at (28.2 vs. -42.0 expected), its highest level since July 2015. We are going to get some choppy diffusion indices over the next couple of months as they measure activity relative to the previous month so it’s easy to have bigger swings in both directions than even the likely volatile nature of the data would suggest. Over in the US, existing home sales in March fell by -8.5% month-on-month, which was their largest monthly decline since November 2015. Finally in the UK, before the pandemic hit in the December-February period, the employment rate hit a record high of 76.6%.
To the day ahead, and data releases include March CPI readings from both the UK and Canada, the European Commission’s advance Euro Area consumer confidence reading for April, Italian industrial sales and industrial orders for February, along with weekly MBA mortgage applications and the FHFA house price index for February from the US. From central banks, Turkey will be deciding on rates and we’ll also hear from the ECB’s Rehn. Finally, earnings out today include AT&T and Thermo Fisher Scientific.
A family in Oxford, Wisconsin, is suing the local sheriff’s department after a patrol sergeant threatened to arrest a teenage girl for disorderly conduct for posting on Instagram about being infected with COVID-19.
Amyiah Cohoon, 16, is a student at Westfield Area High School in Westfield, Wisconsin…. According to this lawsuit, … [s]he was diagnosed with an upper respiratory infection with “symptoms consistent with COVID-19,” according to the lawsuit.
Cohoon went home and posted on Instagram letting people know that she had COVID-19 and was in self-quarantine. Her condition worsened and she was brought to the hospital for treatment. She posted again about the experience on Instagram. Finally, they were able to test her, but the test came back negative. According to the lawsuit, doctors told her it was likely she missed the window for testing positive, but she probably did have COVID-19, despite the test results. (False negative results have been an ongoing issue in accurately diagnosing infections.)
Some precedents suggest that public hoaxes about supposed dangers (e.g., deliberately falsely saying “I have coronavirus, and I was just in this store with all these other people”) are punishable, but I’m pretty confident that this would be limited to knowing lies: Simply saying that one has a disease when one sincerely believes this is so, even if it’s not certain, remains constitutionally protected. And certainly accurate reports of having a disease are protected, even if people find them disturbing. In any case, it will be interesting to see what happens with the lawsuit.
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A family in Oxford, Wisconsin, is suing the local sheriff’s department after a patrol sergeant threatened to arrest a teenage girl for disorderly conduct for posting on Instagram about being infected with COVID-19.
Amyiah Cohoon, 16, is a student at Westfield Area High School in Westfield, Wisconsin…. According to this lawsuit, … [s]he was diagnosed with an upper respiratory infection with “symptoms consistent with COVID-19,” according to the lawsuit.
Cohoon went home and posted on Instagram letting people know that she had COVID-19 and was in self-quarantine. Her condition worsened and she was brought to the hospital for treatment. She posted again about the experience on Instagram. Finally, they were able to test her, but the test came back negative. According to the lawsuit, doctors told her it was likely she missed the window for testing positive, but she probably did have COVID-19, despite the test results. (False negative results have been an ongoing issue in accurately diagnosing infections.)
Some precedents suggest that public hoaxes about supposed dangers (e.g., deliberately falsely saying “I have coronavirus, and I was just in this store with all these other people”) are punishable, but I’m pretty confident that this would be limited to knowing lies: Simply saying that one has a disease when one sincerely believes this is so, even if it’s not certain, remains constitutionally protected. And certainly accurate reports of having a disease are protected, even if people find them disturbing. In any case, it will be interesting to see what happens with the lawsuit.
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First US Coronavirus Deaths Occurred Weeks Earlier Than Believed, Officials Find: Live Updates
Now that the Senate has passed the $484 billion relief bill to top off the ‘Paycheck Protection Program’ (which hasn’t been able to make any new loans in five days), Washington reporters claim that the House should follow that up with a vote on Thursday, before hopefully sending it to the president’s desk.
Last night, we reported on a new study out of China authored by the same scientist who first proposed Beijing’s lockdown plan that highlighted some troubling new discoveries that might complicate the quest for a vaccine. The researchers isolated and analyzed new mutant strains of the virus that appeared to be much more ‘aggressive’ (i.e. likely deadlier) than earlier strains. Furthermore, these deadlier strains were not only found to carry higher viral loads – making them much more infectious – but they were also found to have genetic similarities to strains isolated in New York and Europe, potentially explaining the strikingly high mortality rates.
During the early days of the US response, Dr. Fauci and others insisted that there was “no evidence” of any significant mutations in the virus that might impede research into a possible vaccine. While that might have been true given the evidence at the time, clearly, it no longer is.
Whether this leads to a revision in vaccine timeline targets remains to be seen, but we would be surprised to see any such information released through official channels.
Curiously, the only vaccine-related news we’re seeing on Wednesday are reports about two companies, one German, one British, that have just received a ‘green light’ to move on to the next phase of vaccine-related study.
German biotech company BioNTech will become the first European company to proceed to clinical trials of a potential COVID-19 vaccine after receiving regulatory approval to accelerate the firm’s testing. Presumably, the firm’s experimental vaccine has already shown some success in preliminary human studies – typically a prerequisite before moving on to clinical trials. The German Federal Institute for Vaccines was responsible for issuing the approval.
The Times of London reported last night that the first British human trials of a coronavirus vaccine will start on Wednesday as Britain ‘throws everything it has’ at developing a vaccine, according to Health Secretary Matt Hancock. Scientists in Oxford are expected to begin to test the safety of their experimental vaccine. Hancock also announcing another £20 million in funding to speed the quasi-public project through larger-scale human trials over the summer, as well as £22.5 million for a parallel vaccine project at Imperial College London.
However, the biggest bombshell to drop overnight was probably a statement from health authorities in California that the first coronavirus deaths in the US likely occurred weeks earlier than initially thought. Officials told the local press that forensic scientists in Santa Clara had discovered two autopsies on people who had died undiagnosed at home on Feb. 6 and Feb. 17 that showed signs of COVID-19.
A third death on March 6 was also found to be caused by COVID-19. The first virus-related death in the US was reported in California on Feb. 26.
“These three people died at home at a time when testing was very limited and only possible to get via the Centers for Disease Control and Prevention,” the forensics department said. Tests at that time were only available to people who returned from high-risk areas, or those who went to a doctor with serious and obvious coronavirus symptoms. Notably, a recent study in Santa Clara County also found that the viral penetration in the area was “50-80x higher” than official statistics suggested.
As India begins the process of reopening its economy, a new issue is arising: Indian doctors and nurses report that they have been subjected to horrifying treatment at the hands of their fellow townspeople and community members, as family members of dead patients have, in some cases, attacked doctors for failing to save their family member. The situation has gotten so bad that a funeral procession for a doctor who died fighting the virus was attacked by an angry mob, forcing the doctor’s family and colleagues to flee. A colleague returned later to dig a grave for his friend.
To try and stop doctors from simply walking off the job as India’s rate of confirmed infections climbs above 20k and the bodies continue to pile up, the Indian government has, at the behest of the Indian Medical Association, issued an emergency order making violence against health-care professionals a serious crime. Doctors around the country have said they will observe a “Black Day” on Friday, with any opting to wear black armbands to identify themselves as health-care workers.
Spain announced a slight relaxation of its five-week lockdown earlier this week when the government caved to popular demands that children under the age of 14 be allowed to leave their homes unaccompanied by an adult.
And now, as Spain’s rate of deaths ticks higher, PM Pedro Sanchez is pushing ahead with his plan to extend the lockdown until May 9, asking his country’s parliament to approve the extension, which he first announced days ago. Sanchez said that the lifting of the quarantine order must be “slow and gradual” to save lives.
“The general requirement to stay at home will not be lifted until we are prepared,” he said, although he added that in future the conditions of the lockdown “will not be the same as up to now,” with shifts in the rules in the second half of May.
Finally, an FT analysis of data released by the ONS has determined that the actual death toll from COVID-19 across the UK might be as high as 41k, more than double the roughly 17.5k ‘official’ death toll according to the Department of Health and Social Care. Here’s more on that from FT reporter Chris Giles.
NEW: The excess UK deaths linked to coronavirus are likely to be around
41,000
as of yesterday, not the 17,337 of the hospital deaths announcements
Here is the explanation for that estimate, which I will update daily
The methods are simple and involve no forecasting of how the Covid-19 pandemic will progress.
It is just an updating model – taking the best data from @ONS, the best concept (all cause mortality), and removing the delays in producing that data in a conservative way
The methods are simple and involve no forecasting of how the Covid-19 pandemic will progress.
It is just an updating model – taking the best data from @ONS, the best concept (all cause mortality), and removing the delays in producing that data in a conservative way
We know that linked to Coronavirus there have been many excess deaths since mid-March – In England and Wales, there have been 15,161 cumulatively in the ONS data already published.
Excess deaths is death registrations compared with the recent five year average.
The England and Wales chart, compared with the previous 50 years shows this is not a normal seasonal flu
Carl Henegan, professor of evidence based medicine at Oxford university, says: “I don’t think we’ve ever seen such a sharp upturn in deaths at that rate” pic.twitter.com/Wg18u9Oxcy
But these data come with big delays. In England & Wales, the data published on April 21, refers to death registrations in the week ending April 10 and there is an average delay between death and registration of 4 days.
Following the report’s release, UK Foreign Minister Dominic Raab announced that the death toll of UK health care workers has climbed to 69, significantly higher than the previous number.
And in South Korea, while the world waits to learn more about what’s going on with KJU, South Korean President Moon Jae-in unveiled a $32.4 billion relief package for hard-hit businesses, while pushing for a New Deal-style program that would put out-of-work South Koreans to work building new national projects.
Crude Crash Puts Focus On Banks With Most Exposure To Oil
Submitted by Peter Garnry of Saxo Bank
Summary:Netflix delivered its first positive free cash flow quarter but the Q2 guidance on net additions of subscribers was disappointing suggesting less positive impact on Netflix relative to the existing trajectory before the COVID-19 outbreak. The oil price collapse due to the lack of storage will cause bankruptcies and loan losses on energy loans and thus Q2 loan losses will be severe. We take a look at European banks and also highlight the banks with the highest exposure to the oil industry. Finally we present a fair value model on STOXX 50 based on dividend futures which shows that European equities have a potential 35% downside risk.
Yesterday we had one the worst equity sessions in several weeks as the oil market collapse likely caused some margin calls hitting several markets. Italian government bonds (BTPs) traded lower increasing the likelihood of a heated EUCO meeting tomorrow where Italy will once again push for joint euro bonds. The probability for a new severe euro area crisis is going up and BTPs (10YBTPJUN20) should be on anyone’s watchlist. While equities have stabilised a bit here in early European trading the nervousness has increased also evidenced by the moved yesterday in the VIX curve.
Last night after the close Netflix reported what was initially perceived as a good result but at later inspection it turned out to be disappointing on the guidance. Netflix reported its first positive free cash flow in Q1 as growth in expenses in content assets slowed dramatically. While the global subscriber base rose by 15.8mn the y/y growth was only 22.8% in line with previous quarters and the company guides with only 7.5mn new subscribers in Q2 which is outright disappointing given the share price developments leading up to the earnings release.
The majority of the net new subscribers came from EMEA and APAC showing that the US market is saturated for Netflix, even in a lockdown environment. With operating margins around 17-18% this source will also provide less tailwind going forward at it’s closer now to Disney’s and in general the competition is heating up from Amazon, Apple and Disney. With Netflix valuation still elevated at 1% FY23 forward free cash flow yield the company is priced for perfection and the only certain thing in investing is that high valuation on average compresses future returns.
Last week showed higher provisions for loan losses among US banks and this week the first European banks will report earnings. Today Svenska Handelsbanken reported a jump in credit losses to SEK 538mn SEK from SEK 288mn a year ago. Loan losses tend to go up over time as higher loan portfolios increases the provisions for loan losses which flows to the loan loss reserves. But Handelsbanken reported that SEK 400mn in additional provision requirements for expected credit losses. This is the direct impact from COVID-19 beyond what was set aside during normal times. The amount is still small and Handelsbanken is one of the best banks in Europe, but the loan loss reserve ratio is currently set to 0.2% against the peak of 0.21% in 2009. Given this crisis could become deeper, and especially for Sweden relative to the financial crisis of 2008, and thus a loan loss shock could come to Swedish banks.
Also today UniCredit reported €900mn in extra reserves as the bank is preparing for losses due to the extraordinary decline in economic activity from the lockdowns in Europe. Besides the general impact from the COVID-19 on loans the recent oil price collapse will have a significant impact on loans to the energy sector and according to Bloomberg the European banks with the highest exposure to oil companies are Natixis, Credit Agricole and DNB. European banks are flirting with the lows from March and our worry is whether the European banking sector is strong enough to weather the recession from COVID-19.
Clients have asked us to extend our dividend futures model on S&P 500 to European equities. Today we ran the model on STOXX 50 and we were a bit shocked about the result. STOXX 50 dividend futures for Dec 2021 trade future dividends at €64 against current dividends of €122.46. An almost 50% decline in dividends by 2021 and even more depressing the European dividend futures curve does not price in a rebound to the peak, so compressed profitability for many years.
Using the same methodology of historic dividend yields, earnings yields and payout ratios we can estimate the fair value of the STOXX 50 Index of the dividend futures. As the chart shows the current price in the STOXX 50 is significantly above the median (dotted line) and the mean at €1,800. In fact the fair value is 35% below the current price. Obviously the discrepancy could be a combination of both too positive sentiment in European equities and a mispricing in dividend futures. Nevertheless, it reinforces our negative on equities. Based on these number the STOXX 50 is valued at a 2.2% dividend yield against the average of 3.8% since 2004. Typically we observe a lower dividend yield when the economy is healthy and growing strongly.
USO Oil ETF To Execute 1-For-8 Reverse Stock Split
With chaos in the crude space getting worse by the day, and with some predicting that oil could plunge as low as negative $100 per barrel, every day is now a scramble for survival for the largest oil ETF, the USO, which is desperate to avoid the liquidation that its smaller peer, the OIL ETN which was fully redeemed, succumbed to yesterday. And to survive, it will succumb to the lowest tricks in the book including puffing up its stock price using such cheap gimmicks as reverse stock splits.
On Wednesday morning, USO manager USCF said in an 8K filing that “it will execute a one-for-eight reverse share split that will be effective for shareholders of the United States Oil Fund.”
The reverse share split will reduce the number of USO’s shares outstanding and will result in a proportionate increase in the net asset value per share (“NAV”) of USO. As a result of the reverse share split, USO shareholders on April 28, 2020 will receive one post-split share of USO for every eight pre-split shares of USO they hold. Immediately after the reverse share split is effective, USO’s post-split shares will have an NAV that is eight times higher than that of pre-split shares.
The reverse share split will affect all of USO’s shareholders. The reverse share split will not affect any shareholder’s percentage interest in USO, except to the extent that the reverse share split results in a shareholder receiving cash in the transaction. The NYSE Arca does not permit the trading of fractional shares. As described below, shareholders otherwise entitled to receive fractional shares as a result of the reverse share split will thus receive cash in lieu of such fractional shares.
Considering that the biggest holder of the US are very unsophisticated retail investors, the 8x “jump” in the price of every USO share just may fool the majority of shareholders that the ETF won’t go “….. and it’s gone” next month, should oil really hit -$100.
Another interesting’s day play in prospect as markets digest the ongoing oil-shock, BoA predicting $3000 Gold price, and stocks taking a bit of tiny tumble. I detect something of a new reality setting in among clients – many never expected markets to rally so hard after March’s fall. Now there is an increasing sense the market got ahead of itself, boosted by all the central bank and government promises. Now the market is settling in for the “Long Run” – fundamentally reassessing where the global economy is headed. Lets see where it takes us.
Yoorp
If I get a chance, I am going to put out a Porridge Extra on Yoorp this afternoon. I’ve been thinking a lot about Europe – readers will be surprised to learn I’m somewhat optimistic (but only because I suspect they will successfully mumbleswerve and avoid an Italy bust-up by kicking the proverbial can further down the road)! I haven’t had a chance to put it all together yet, but I suppose I really ought to try before tomorrow’s big Zoom Call between Europe’s leaders..
Fixed Income ETFs
I must congratulate the ETF industry for a superb piece of counterfactual post-crisis agenda setting in the FT this morning! I am wondering if the ETF lobby has contracted the Chinese State Propaganda Ministry to run their media campaigns?
“All that Drama about fixed income ETFs was overplayed”says the FT. The article’s narrative is how Fixed Income ETFs eased market tensions through March’s turbulent markets by acting as a “safety valve” for the corporate bond market. It cites a recent BIS report about how ETFs are a suitable input for risk management and reg cap calculations, boosting by association the credentials of these market hero products.
Really?
Silly me. Here was me thinking it was the BoE, ECB and Fed coming in with QE Infinity packages, and finding ways to buy Junk and Junk ETF onto Central Bank balance sheets that saved the corporate bond markets? (The ECB is debating junk purchases today.)
How wrong was I? Apparently, the recovery in Corporate Bonds is nothing to do with Central Bank distortions. It was ETFs that saved us! All these years (35 and counting) in Fixed Income and I never knew. (US Readers: Sarcasm Alert.)
The article is all puff. And that worries me.
Retail investors read the FT – they think it is credible and a journal of record.
I’m agnostic on ETFs – many times over the past 10 years I’ve proposed them as potential portfolio solutions to clients. However, a large portion of the fund managers I work with, especially those grey-hairs who traded through the last crisis, are sceptical and suspicious of them. I share some of their concerns that any instrument based on wholly on a fairly non-discrete pool of illiquid underlying components, (ie the corporate bonds that comprise Fixed Income ETFs), is potentially also vulnerable to illiquidity events.
Generally, I would give support to ETFs as useful portfolio tools and an effective way for informed retail investor to address bond markets. Buyer beware: in crisis markets – stormy waves can swamp all assets. Understand their risks and why not use them?
However, when you start to ascribe superhero powers to a financial instrument, there is a risk that investors start to believe. And when that belief is based on nonsense and marketing puff, it gets dangerous.
The gist of the FT article this morning is the Net Asset Value (NAV) of an ETF – which is effectively just a basket of corporate bonds mimicking an bond index – will lag any wild price movements of the individual bonds (which are wholly illiquid), therefore acting as a “dampner” on chronic price over-reaction: a “safety valve” which mitigates the wild swings in prices of wholly illiquid bonds.
I would agree, and that’s fair enough in “normal” markets. For investors playing trends and following bond indexes, EFTs have greater liquidity than the component bonds. In many cases they are apt investment choices. I have ETFs in my PA accounts. I could not get bids on some last month.
In a market where most fund managers and portfolio traders have less than 10-years experience and tenure, most haven’t seen market crisis. Lacking crisis experience, they will tend to believe what the ETF experts, sponsors and promoters tell them about liquidity. From this morning’s FT article its clear the journalist also believes. I suspect he’s regurgitated what ETF promoters have fed him.
That’s not journalism – that’s one step up from a precis of a press release.
What happens to ETFs in time of chronic crisis could have been very different. In the pre Fixed-Income days of 2008 we saw the bond markets set like concrete. It happened again last month. In times of crisis illiquid bonds prices crash precipitously when there are no buyers. Successful brokers know who the bottom fishers are – the accounts who look for chronic illiquidity to cause prices to massively over-react. But otherwise, markets become offered-only. Your price is where they will trade.
In March ETFs looked caught in exactly the same negative feedback loop as the underlying bonds. There were no bids for many Fixed Income ETFs.
The only thing that reversed the chronic decline was the prospect of unlimited QE creating liquidity – if liquidity can be defined as Central Banks promising to buy whatever junk (literally) the investment banks and dealers want to flog them.
The ETF industry is trying to write the history books. The truth should out. It is disingenuous for the ETF industry to suggest EFTs saved the fixed income markets and performed well through the March selloff. Let’s be blunt about it, some very large firms are very all-in as ETF promoters. They have an agenda to push.
ETFs – like everything else – were bailed out by Central Banks.
