Tag: news

The market rollercoaster is back, if somewhat less stomach-churning, with US equity rebounding from yesterday’s plunge which – now that the pension fund frontrunning trade is over – was the worst start to a new quarter since the Great Depression.

Q2 is off to a good start pic.twitter.com/Jy4DieoE6S

— Not Jim Cramer (@Not_Jim_Cramer) April 1, 2020

S&P futures rose 1.9%, trading just below 2,500, and keeping track with the bounce in European stocks on Thursday morning…

… as investors braced for the latest unemployment data which some skeptics expect could surge as much as a record 6.5 million.

Futures on all U.S. equity indexes climbed following sharp losses a day earlier, though traders will be wary of further evidence of how the spreading coronavirus is hitting the American job market, as global cases are set to surpass 1 million today. The Stoxx Europe 600 Index fluctuated before turning higher, with energy shares outperforming as oil and gas stocks gained more than 5%, with Royal Dutch Shell, Total SA and BP jumping between 3.3% and 5.0%, thanks to the rise in oil prices.  Shares in British Airways owner IAG added 1.5% after a person familiar with the matter said British Airways was in talks with its union about a plan to suspend around 32,000 staff so it can survive the coronavirus pandemic.

Earlier in the session, stocks in Asia were mixed, with Thailand’s SET and South Korea’s Kospi Index rising, and Australia’s S&P/ASX 200 and Japan’s Topix Index falling. In Japan, the Nikkei index ended down 1.37%, taking its losses to 25% so far this year as the BOJ bought less than the maximum ETFs for a second session.

The Topix declined 1.6%, with Hito Communications Holdings and Sankyo Tateyama falling the most. The Shanghai Composite Index rose 1.7%, with Sinopec Shanghai and JinJian Cereals Industry posting the biggest advances.

The market’s early bullish mood may deflate after today’s initial jobless claims report.  “U.S. jobless claims are expected to surge again and in this environment we cannot talk about a recovery in equities in the short term. The best you can hope for is stablization in the current environment,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

Initial claims for jobless benefits last week probably broke the week-ago record of 3.3 million, with 3.5 million expected, according to a Reuters survey of economists.

“We think last week’s print of just under 3.5 million is ripe for a dramatic upward revision,” said RBC Capital Markets’ chief U.S. economist, Tom Porcelli. “This week we look for another sizeable 4 million increase.”

Treasuries were broadly unchanged while investors again sought the safety of the U.S. dollar which hung on to recent gains despite the Fed’s announcement it would release Treasurys from its Supplemental Leverage Ratio calculation for one year, a move that in theory should release liquidity in the market and ease the dollar funding stress. The yield on safe-haven 10-year U.S. Treasuries fell as far as 0.5680% before rebounding.

“There had been fears about the bond market blowing up, but for the time being there’s a return to normal correleation in the market, so we don’t see a vicious cycle where bonds bring down equities and equities brings down bonds,” said Savary.

Euro zone government bond yields rose as investors cautiously moved back into riskier assets. The 10-year German government bond yield rose 3 basis points to -0.44%, rising away from the lows of -0.55% touched on Monday.

Oil surged as much as 13% after China unveiled plans to take advantage of a 60% plunge this year to add to stockpiles, coupled with optimism the price war between Saudi Arabia and Russia could moderate. Trump said he had talked recently with the leaders of both Russia and Saudi Arabia and believed the two countries would make a deal within a “few days” to lower production and thereby bring prices back up.

Looking at the latest virus data, China and South Korea have shown signs of controlling the virus, reporting falling numbers of new cases, but progress remains fragile and infections are soaring globally. The World Health Organization said the global case count would reach 1 million and the death toll 50,000 in the next few days. It currently stands at 46,906. U.S President Donald Trump, who had initially played down the outbreak, told reporters at the White House on Wednesday that he is considering a plan to halt flights to coronavirus hot zones in the United States. “Difficult days are ahead for our nation,” Trump said.

The Bloomberg Dollar Spot index rose while commodity currencies rallied with crude prices after a report that China plans to boost its oil reserves. Norwegian krone led Group-of-10 currency gains; USD/NOK slumped as much as 2.2% as Brent oil surged more than 12% on report of China buying plans; the Canadian, Australian and New Zealand dollars also climbed. The pound rose against both the dollar and the euro, rising an eighth straight day versus the shared currency — its best run since 2016. The yen weakened against the dollar for the first time in seven days on positioning flows. The Australian dollar gained 0.6% to $0.6110 and the Canadian dollar firmed 0.65% to C$1.4146. The euro traded down 0.3% at $1.0934 as the dollar advanced. The South African rand hit a fresh low while the Turkish lira touched a two-year low.

Expected data include jobless claims and factory orders. Walgreens Boots and Chewy are reporting earnings.

Market Snapshot

• S&P 500 futures up 1.9% to 2,493.25
• STOXX Europe 600 up 0.4% to 311.87
• Nikkei down 1.4% to 17,818.72
• Topix down 1.6% to 1,329.87
• Hang Seng Index up 0.8% to 23,280.06
• Shanghai Composite up 1.7% to 2,780.64
• Sensex down 4.1% to 28,265.31
• Australia S&P/ASX 200 down 2% to 5,154.30
• Kospi up 2.3% to 1,724.86
• German 10Y yield rose 2.6 bps to -0.432%
• Euro down 0.4% to $1.0921
• Italian 10Y yield fell 1.3 bps to 1.338%
• Spanish 10Y yield rose 3.1 bps to 0.734%
• MXAP down 0.3% to 133.66
• MXAPJ up 0.4% to 431.64
• Brent futures up 10% to $27.31/bbl
• Gold spot down 0.1% to $1,590.11
• U.S. Dollar Index down 0.1% to 99.55

Top Overnight News

• Spain reported 950 new coronavirus fatalities on Thursday, the largest toll in a single day and taking the total number of deaths past 10,000
• China said the U.S. is trying to shift the blame for the outbreak after American intelligence officials concluded the Asian nation concealed infections
• China is moving ahead with plans to buy up oil for emergency reserves after prices crashed, according to people with knowledge of the matter
• A county in central China has been put under lockdown again after a flare-up in coronavirus cases, pointing to the difficulty of sustaining outbreak containment in the face of carriers who show no signs of sickness
• German Chancellor Angela Merkel and auto-industry officials discussed in a phone conference Wednesday measures to minimize contagion risks and protect workers’ health once assembly lines resume churning out vehicles, according to people familiar with the talks
• German companies have applied for state aid worth 10.6 billion euros ($11.6 billion) under a government program run by state bank KfW
• U.K. house prices were climbing at the fastest pace in more than two years before the coronavirus pandemic almost brought the market to a standstill, according to Nationwide Building Society
• The number of Spaniards filing for jobless claims surged in March, the latest example of how the coronavirus pandemic is upending people’s livelihoods around the world

Asian equity markets traded mixed after a weak handover from Wall St where stocks extended on the prior quarter’s historical rout to finish the day with losses of more than 4% and the DJIA suffered a near 1000-point drop amid ongoing coronavirus fears. ASX 200 (-1.98%) was dragged lower by its top-weighted financials sector after the RBNZ ordered all banks in New Zealand to suspend dividends which pressured Australia’s big 4 that have operations across the Tasman and amid concerns there could be similar restrictions domestically, with airline shares also in a tailspin after the government denied Virgin Australia’s request for a loan and indicated it would not provide the Co. with a bailout. ASX 200 (-1.98%) was was also downbeat but off lows as the JPY-risk dynamic remained the main driver for Tokyo sentiment and with automakers lacklustre following abysmal monthly sales updates. Hang Seng (+0.8%) and Shanghai Comp. (+1.69%) initially struggled for direction amid the broad cautiousness and after PBoC liquidity inaction, while tensions with the US also risk flaring up as the latter is to tighten rules to prevent China from obtaining US tech for commercial purposes that could also be applied for military use and following US intelligence reports that alleged China concealed the coronavirus outbreak and underreported the number of cases and deaths. Finally, 10yr JGBs initially continued its pullback to below 152.50 with demand sapped heading into the 10yr JGB auction, although prices the rebounded on return from the lunch break and following mixed results in the 10yr auction which was mixed but still showed a jump in the b/c and minimal tail in price.

Top Asian News

• Thailand Imposes Curfew to Step Up Fight Against Coronavirus
• Qatar Is Said to Hire Banks to Raise Over $5 Billion in Bonds
• Iron Ore Now at ‘More Realistic’ Price After Fall on Virus Shock
• Japan Not Yet Ready to Declare Virus Emergency, Abe Says

European stocks attempt to clamber from yesterday’s steep losses (Euro Stoxx 50 +0.4%) after sentiment somewhat improved in APAC trade following a downbeat session on Wall Street. Bourses see modest broad-based gains, with Netherland’s AEX (+1.2%) leading the pack – propped up by Shell’s (+9%) Dutch listing and with ABN AMRO (+8.3%) and ING Groep (+1.8%) rebounding from the broad downside seen in banks yesterday. Meanwhile, US equity futures see more pronounced gains with the contracts higher to the tune of 2%. Sector-wise, Energy significantly outperforms – led by the price action in the oil complex as President Trump voiced optimism regarding a Saudi/Russia resolution, whilst demand from China keeps the sector underpinned. Other sectors are broadly mixed with underperformance seen in IT and Utility names – sectors do not reflect a specific risk tone. Travel & Leisure reside at the bottom of the pack as it feels no reprieve from the demand destruction caused by the virus outbreak. In terms of movers, the top of the Stoxx 600 was initially largely dominated by oil and gas names with Aker BP, Subsea losing steam as trade went underway whilst Tullow Oil (+8.0%), BP (+5.5%) and Shell remain among the top gainers. IAG (+2.5%) sees upside amid reports that the Co’s British Airways is nearing a deal to suspend 36k workers given the impact of operations from COVID-19. On the flip side; Carnival (-8.6%) sees pressure after S&P cut its rating to “BBB-“ from “BBB; the lowest investment grade level. Centrica (-7.4%) is weighed on by dividend and guidance suspensions coupled with the interruption of its Spirit Energy divestment. Elsewhere, Handelsblatt reported that the heads of Daimler (+1.0%), BMW (+3%) and Volkswagen (+1.0%) had a conversation with German Chancellor Merkel in which they wanted to explore how the corporations can rekindle production. The auto makers also raised worries regarding supply chains and expressed great concern regarding Southern Europe. On that note, Fiat Chrysler (-1.0%) slid at the open after Italy reported car registrations slumping 85.4% YY in March amid the lockdown measures in the country.

Top European News

• Citigroup Hires Ex-Danish Prime Minister Rasmussen as Adviser
• One of the World’s Best Welfare States is Starting to Crack
• EasyJet Founder Escalates Feud With Board Over Massive Jet Order
• Hungary Central Bank Pays Dividend to Boost State Virus Warchest

In FX, The Norwegian Krona and its Scandinavian partner are forging more gains on a combination of constructive technical factors, Euro underperformance and a recovery in oil prices prompted by China replenishing crude reserves at cheaper levels and US President Trump expressing confidence about resolving the spat between Russia and Saudi Arabia. Eur/Nok has been down below 11.2000 and Eur/Sek sub-10.9350, with the former also gleaning encouragement from ramped up Norges Bank selling of foreign currencies in April. Meanwhile, the Loonie is also benefiting from the firmer bounce in oil alongside the Rouble and Mexican Peso, as Usd/Cad tests support around 1.4100, Usd/RUB straddles 78.0000 and Usd/MXN pivots 24.0000. Elsewhere, the Kiwi and Aussie are consolidating off recent lows amidst less volatile trading conditions than seen of late, with Nzd/Usd holding firmly above 0.5900 and Aud/Usd not far from 0.6100 against the backdrop of relatively stable risk sentiment and Moody’s reaffirming NZ’s top notch triple A rating.

• EUR/CHF/JPY – As noted above, the single currency remains under pressure across board as COVID-19 cases and deaths continue to rise in the Euro area, while chart impulses turn more bearish after shallower rebounds in Eur/Usd and even Eur/GBP despite the UK also suffering mounting nCoV infections and fatalities. Indeed, the headline pair has not been able to revisit 1.1000 and looks more prone to relinquishing 1.0900, while the cross is capped beneath 0.8800 after waning well short of 0.8900. Moreover, further or ongoing erosion in Eur/Chf towards 1.0550 is helping to keep the Franc on a fairly even keel vs the Dollar within confined 0.9687-51 parameters, and the Yen is almost as restrained between 107.56-06 eyeing big option expiries in close proximity, but also extending from 106.50 to 108.00-05 – full details on our Headline Feed as 7.29BST.
• USD – Cautious trade ahead of the 2nd instalment of post-coronavirus global outbreak US initial claims that are widely expected to top last week’s circa 3.3 mn biggest ever total, with GS among those lifting already sky-high projections to 6 mn. The DXY is straddling 99.500 in the run up.

In commodities, US President Trump said he thinks Saudi and Russia will make a deal regarding oil production and suggested that he may know how to solve it. There were also comments from the US Energy Department which urged Saudi Arabia, Russia and others to work together to calm oil markets, while it noted it is frustrating that Saudi and Russia are boosting production and do not advance shared interests in stable markets. Senior Gulf source said Saudi Arabia supports cooperation among oil producers to stabilize oil markets and that oil market turmoil was caused by Russia opposition to OPEC+ cuts at the meeting in early March.

US Event Calendar

7:30am: Challenger Job Cuts YoY, prior -26.3%

8:30am: Initial Jobless Claims, est. 3.7m, prior 3.28m; Continuing Claims, est. 4.94m, prior 1.8m

• 8:30am: Trade Balance, est. $40.0b deficit, prior $45.3b deficit
• 10am: Cap Goods Ship Nondef Ex Air, est. -0.8%, prior -0.7%; Cap Goods Orders Nondef Ex Air, est. -0.8%, prior -0.8%
• 10am: Factory Orders Ex Trans, prior -0.1%;
• 10am: Durable Goods Orders, est. 1.2%, prior 1.2%; Durables Ex Transportation, est. -0.6%, prior -0.6%
• 10am: Factory Orders, est. 0.2%, prior -0.5%

DB’s Jim Reid concludes the overnight wrap

With governments indicating that we’re going to be in a prolonged period of lockdowns that are pushing towards the dates we outlined in our “The exit strategy” note, it wasn’t exactly the strongest start to Q2 yesterday for global equity markets. They continued to decline as investors grappled with the implications of the coronavirus moving forward. Last week was the peak week of the great stimulus reveal but this week is seeing the reality of the situation re-emerge.

The S&P 500, which had already fallen by 20% in Q1 in its worst quarterly performance since 2008 (see our March/Q1 performance review here), fell a further -4.11%. The pullback was the biggest one day drop in 2 weeks, with the index falling 3 of the past 4 days now. Every sector and industry group was lower, though defensives like consumer staples continue to outperform their more cyclical counterparts. In Europe the STOXX 600 fell -2.93%. Banks underperformed with the STOXX Banks index down -4.34% as it fell for a 4th successive session. UK banks saw some of the biggest falls, including Lloyds (-11.66%) and Barclays (-10.34%) after they announced that they would not be paying outstanding 2019 dividends, nor would there be dividend payments or share buybacks this year after guidance from their regulators. While this is an understandable move, there is a slight financial stability risk as banks need investors and if investors believe they are going to be penalised then they are less likely to commit capital. A difficult balance to strike. On this topic, overnight, the Reserve Bank of New Zealand has also asked lenders that come under its jurisdiction to stop dividend payments for an indefinite period and focus on building capital. They will also not be allowed to redeem any non-Tier 1 capital notes.

Talking of the U.K., this is one country where covid-19 fatalities are still rising. They are up +31.5% over the last 24 hours, the second largest one-day increase over the last week. Cases also increased by +17%, as Prime Minister Johnson continues to call for additional testing. Elsewhere Italy and Spain continue to see slowing trends, with day-over-day changes in fatalities dropping again. Meanwhile cases in the US continue to grow. See our Corona Crisis Daily note for the full tables, graphs, and commentary. Note that as of today we have broken New York State out in our daily tables, with the 4th largest state in the US now having more cases than those reported in China as a whole. Overall US reported cases are now in excess of 200,000 and even VP Pence yesterday suggested that the country was on a similar trajectory as Italy. President Trump also said he was considering restricting flights between heavily affected ‘hot spots’, but that it may affect industry more. Dr. Fauci says that 18 month remains the timetable for a vaccine, and that we remain on target for it.

Staying with virus-related news, overnight, an article in China’s SMCP has suggested that a county in Henan have been asked to stay at home following news that there were three infection cases due to a doctor returning from Wuhan having the virus and already spreading to his colleagues. It’s unclear if this is a one-off, but if this is a re-surge of cases particularly as mobility picks up, then clearly there is the risk of lockdowns again.

A quick check on markets this morning and most bourses in Asia have pared heavier declines from the open. The Shanghai Comp (+0.33%) and Kospi (+0.52%) are now up while the Hang Seng (-0.09%) and Nikkei (-0.33%) are posting modest losses. The Australia’s ASX is down -2.03% with banks that have subsidiaries in New Zealand under pressure following the RBNZ news mentioned earlier. Meanwhile, futures on the S&P 500 are up +1.47% with the US dollar index and yields on 10y USTs being largely unchanged. Elsewhere, Brent crude oil is up +5.78% this morning with President Trump set to meet executives from the US oil companies tomorrow as the White House seeks ways to help the industry reeling from price drop.

Over in fixed income yesterday US Treasuries rallied further, with 10yr yields down by -8.6bps to 0.583%, their second lowest level ever and closing in on their all-time closing low earlier this month of 0.541%. They rallied 5bps of that after the US equity market had closed on news that the Fed is easing strains in the Treasury market by excluding Treasuries and deposits at the Fed from its supplementary leverage ratio rule. They hope this will also make it easier for banks to extend credit. This will last a year.

The yield curve also flattened, with the 2s10s curve down by -5.0bps to 37.0bps, its flattest level in nearly 3 weeks after peaking at 68.3bps back then. In Europe peripheral spreads were set for their 4th successive widening but a story hit the tape just as the market was closing that left them more mixed, with Italy slightly tighter and Spain still a touch wider. The story suggested that the Dutch were floating the idea of a €20bn fund as an EU virus response. As a sum it hardly touches the sides of what DB thinks will be a 20pp increase in Debt/GDP in Italy and Spain in 2020, but if it shows the direction of travel after the lack of progress at last week’s EU leader’s summit then this is a small step that the market will like.

One of the main events to look out for today will be the latest weekly initial jobless claims in the US, which is one of the most important real-time indicators for markets right now as to what’s going on in the economy. Following last week’s record 3.283m claims, our US economists are forecasting 3.3m for the week ending 28 March, which as was pointed out last week far exceeds anything seen during the financial crisis, when the peak week in March 2009 was at 665k. Today’s release is actually more important than tomorrow’s jobs report for March, as the end of the survey period for that came before the spike in jobless claims we saw last week, so it won’t be as up-to-date on the current economic situation as jobless claims are.

In terms of data out yesterday, the manufacturing PMIs confirmed much of what we already knew from the flash releases last week, in that just about every country in the world has moved into contractionary territory. Looking at the major countries, the Euro Area PMI came in at 44.5 (vs. flash 44.8), while the German reading was also revised down slightly from the flash to 45.4 (vs. flash 45.7), as was the US which fell to 48.5 (vs. flash 49.2).

Over in the US, the ISM manufacturing was actually not as bad as expected, at 49.1, (vs. 44.5 expected). However, this was thanks to a jump in supplier delivery times, with the index rising to 65.0. Normally, slower deliveries mean that the economy is strengthening thanks to rising demand, but in this instance it is supply issues that are causing the problem, so it’s not much consolation. Furthermore, the new orders index fell to 42.2, the lowest since March 2009, while the employment index fell to 43.8, the lowest since May 2009.

To wrap up yesterday’s data, the ADP report of private payrolls saw a -27k decline in March (vs. -150k expected), and its second worst month going back to February 2010. However, as the ADP themselves acknowledged, the report doesn’t cover the full impact of the coronavirus as the report uses data through March 12th. We also got German retail sales for February, which rose by +1.2% mom (vs. +0.1% expected).

To the day ahead now, and there are a number of data highlights from the US, including the previously mentioned weekly initial jobless claims, factory orders and the trade balance for February, as well as the final reading for durable goods orders for February. Elsewhere, we’ll get the Euro Area PPI reading for February, the UK Nationwide house price index for March, along with Canada’s international merchandise trade for February.

Oil surged as much as 13% this morning following a report that China is planning to start buying cheap crude for its strategic reserves, as well as speculation that President Trump said he thought Saudi Arabia and Russia would resolve their differences in the oil price war that has sent supply soaring even as global oil demand tumbles.

Following massive builds in crude in the US as reported by the DOE and API, and amid sporadic reports that various storage facilities are starting to fill up:

• SALDANHA BAY OIL-STORAGE FACILITY SAID TO BE NEAR CAPACITY
• OIL TANKS AT VITAL AFRICA HUB ALMOST FULL AS CRUDE FLOODS MKT

… overnight, Bloomberg reported that Beijing instructed government agencies to start filling state stockpiles after oil plunged 66% over the first three months of the year, while the global benchmark’s nearest timespread also rallied strongly.

Beijing has asked government agencies to quickly coordinate filling tanks, Bloomberg source said. In addition to state-owned reserves, it may use commercial space for storage as well, while also encouraging companies to fill their own tanks. The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves.

According to Bloomberg calculations, 90 days of net crude imports translated to about 900 million barrels. By comparison, the U.S. currently holds about 635 million barrels in its Strategic Petroleum Reserve, according to government data.

And while the current size of China’s state reserves is unknown, and Beijing could use a different method for calculating net imports, oil traders and analysts at SIA Energy and Wood Mackenzie estimated it could amount to China buying an additional 80 million to 100 million barrels over the course of the year before it ran into logistical and operational constraints.

In September, the head of development and planning at the National Energy Administration said the country had total oil reserves, including strategic stockpiles, for about 80 days. In December, state-owned China National Petroleum Corp. said on its website that the government intends to boost the capacity of its strategic petroleum reserves to 503 million barrels by the end of this year, an indicator of the maximum amount the government can store.

The volume targeted is about the same as the Trump administration proposed buying last month for U.S. reserves to help that country’s drillers. The plan was thwarted after Democrats blocked a request for funds.

China is also planning to announce the fourth batch of strategic reserve sites, the people said. The expansion project has the dual advantage of creating larger emergency reserves and as an economic stimulus project to spur construction opportunities as the country recovers from the coronavirus.

While the purchases could help soak up some excess supply, traders said it will fall well short of offsetting the overall glut created by the virus lockdowns and the price war between Saudi Arabia and Russia.

As Bloomberg adds, China’s move comes as the physical crude market shows deepening signs of strain as supply explodes and demand collapses due to the coronavirus. Dated Brent, the benchmark for two-thirds of the world’s physical supply, was assessed at $15.135 on Wednesday, the lowest since at least 1999. Crude has slipped below $10 in some areas including Canada and shale regions in the U.S., Belarus wants to buy Russian oil for $4, while some grades have posted negative prices.

“News that China will take advantage of lower prices to add to reserves has clearly provided a boost to the market,” said Warren Patterson, head of commodities strategy at ING Bank NV. “But given the extremely bearish outlook for the market it is difficult to believe that this strength is sustainable.”

And speaking of the Saudi oil price war, overnight President Trump painted a more optimistic tone in the price war between Saudi Arabia and Russia, saying he thought the two would work out the differences even as Saudi Arabia began ramping up output to record levels in recent days. The rhetoric and the possibility of action from the White House sparked hopes for a truce in the price war between Saudi Arabia and Russia.

Speaking late on Wednesday, Trump said he expects the situation with Saudi and Russia will be resolved. He also said he’s planning to meet with independent oil producers in addition to the majors. “They’re negotiating, they’re talking, and I think they’ll come up with something,” Trump said. “I do believe there’s a way that that can be solved or pretty well solved.”

According to the WSJ, Trump is set to meet Friday with the heads of some of the largest U.S. oil companies to discuss measures to help the industry as it fights for survival. The chief executives of Exxon Mobil and Chevron are expected to attend.

Also attending the White House meeting will be Continental Resources Inc. CEO Harold Hamm, who has called for the Trump administration to intervene in the Saudi-Russian price war. Other shale companies have called on state regulators to enforce production cuts in Texas.

Trump also said he was confident Saudi Arabia and Russia would resolve their dispute over oil output and prices in the coming days.  In response, Russian President Vladimir Putin said Wednesday that oil producers should cooperate to mitigate the market decline, adding that Moscow is discussing the condition of the oil market with Washington and the Organization of the Petroleum Exporting Countries.

The main driver of oil’s rally was “the announcement by Trump telling the world ‘we’ve been talking with the Russians and the Saudis and he’s quite proud of these oil diplomacy efforts,” said Bjørnar Tonhaugen, head of oil markets at consultancy Rystad Energy. “He’s trying to save the U.S. industry from collapse.”

Still, the oil rally faded and sellers emerged later in the morning as many oil-market watchers remained skeptical about the impact of any end to the price war given the impact of the lockdowns on demand.

“I don’t think this meeting significantly changes things, the oil market is still way out of balance and oil stocks are still rising at an unprecedented rate,” said Spencer Welch, director of oil markets at IHS Markit. “Producers are going to have to involuntarily cut production because there’s going to be nowhere for the oil to go.”

And as the world awaits for a change in status quo, oil storage around the world is beginning to fill up, prompting some companies to enact production cuts. Brazilian state-owned giant Petrobras last week became one of the first major companies to announce such reductions. Even with Thursday’s rally, oil prices remain below the cost of production for the U.S., Canada and Russia. Meanwhile, in the U.S. stockpiles grew by the most since 2017 on Wednesday, while consultants from IHS to FGE have said that world inventories may be full within weeks, an event Goldman previously said would be a game changer for the industry and prompted the bank to expect prices to dip in the teens if only for a short while.

Submitted by Eleanor Creagh, Australian Market Strategist at Saxo Bank

US equity markets recorded a seven-sigma move last week. Under a normal distribution, the expected occurrence of this event is equal to one day in 3,105,395,365 years

By the time this goes to print, a lot could have changed already — that is how quickly information is moving while financial markets, policymakers and communities grapple with the global pandemic. 

At this stage, sentiment is stretched and we are probably nearing peak panic, but that does not necessarily coincide with the market bottoming. With limited quantitative data related to the virus outbreak, precise forecasts are scarce. 

We are in uncharted waters with respect to both the global public health crisis and financial market conditions: hence the heightened cross-asset volatility. To have real confidence in a relief rally, volatility must reset meaningfully lower.

For now, the AUD remains under pressure as recession looms, but being a risk proxy there will be moments of optimism. The Reserve Bank of Australia (RBA) has lowered the cash rate to the effective lower bound of 0.25% and adopted QE policy in Australia, aiming to maintain the 3-year bond yield at 0.25% and support liquidity in fixed income markets. 

Heightened volatility and risk aversion; a domestic economy that’s already in the midst of a pre-existing slowdown; stretched consumers saddled with high household debt levels and a shift to unconventional monetary policy are all weighing on the local unit. The palpable rush to the USD certainly isn’t helping. The US dollar remains a safe haven in the midst of the global equity market and liquidity rout, cementing the path for recession as the strong dollar compounds the virus damage. 

The virus outbreak has sent tremors through highly leveraged financial markets, revealing multiple fault lines that we previously caught glimpses of in Q4 2018 and September 2019. These fault lines were patched over, fuelling the ever-extending complacency and yield reaching which have lulled markets and volatility alike throughout the past decade of central bank intervention. In the wake of the global pandemic, the fault lines are now fissures. 

Moreover, the record lows in volatility that drove a generation to chase excess yield, momentum and passive mania have been replaced with soaring volatility, stressed liquidity and deleveraging across all corners of financial markets. Even the havens are not safe while many dash for cash. 

US equity markets recorded a seven-sigma move last week. Under a normal distribution, the expected occurrence of this event is equal to one day in 3,105,395,365 years, a period almost five times longer than complex lifeforms have existed on planet. Clearly, we are not assessing these probabilities correctly. Not only has risk been misgauged due to the prior decade of financial repression surpassing volatility and spurring complacency, but the assumptions upon which we build our asset allocations are wrong and vastly understate true risk. 

As Steen highlights in the introduction to this outlook, the popular idea that the spectrum of asset allocation only stretches from some mix of bonds and equities has always been flawed. This most recent rout could truly shake the long-term allocation model away from a 60/40 bond/equity allocation. 

Markets are dealing with a health crisis that cannot be appeased by central banks. As the baton is passed to governments, who will be stepping up to provide cash directly to businesses and households, we enter a new regime. Whether the shockwaves of this event are truly enough to shift traditional industry thinking remains to be seen, but we should at least see a more broad-based approach to diversification over the long term — thus increasing exposure to the potential higher volatility regime shift.

Although the virus is a shorter-term issue, some of its ramifications will be long lasting. It has not only laid bare the fault lines in financial markets, but also the systemic risks embedded in our heavily interconnected and globalised supply chains. The US/China trade war was a warning shot for the global flow of goods and a reminder that tectonic shifts are underway for global geopolitical architectures and international cooperation. 

Vulnerabilities throughout global supply chains, ‘just in time’ manufacturing models and the pursuit of cost minimisation above all else have been exposed by the virus outbreak. The crisis of confidence among communities has been perpetuated by political fragmentation, populism and pro-nationalist sentiment. This means the tailwind for the ongoing de-globalisation shift has only grown — and with it, nationalism, protectionism and localisation. 

If low inflation has been perpetuated by globalisation and a 30-year spate of deregulation, the opposite should be true down the line. But only once the global economy emerges from the deflationary demand shock the virus crisis and oil price war brings. The assumptions that have underpinned asset prices for many decades are shifting, which favours increased portfolio diversification to counter trend assets to achieve superior risk-adjusted returns. For example, by building long-term allocations to real assets that benefit from eventual higher growth and inflation — such as commodities and precious metals.

What is currently a liquidity crisis could fast become a solvency crisis as the simultaneous shocks to demand and supply weigh on the balance sheets of otherwise solvent SMEs. This crisis is about too many to fail, as opposed to too big to fail. Distressed entities (businesses and households) desperately need a lifeline to maintain wages, rents and other such payments that do not stop as economic activity grinds to a halt. That cash flow support will be vital in providing goodwill payments to casual workers who lose shifts, extended sick pay for those unable to work and preventing layoffs for those businesses facing a material impact from the COVID-19 outbreak. 

Given the level of household debt, another key area of concern for Australia is the labor market. With household leverage ratios at almost 2x incomes, a spike in unemployment could prompt a far more serious economic fallout. That is why it is paramount for the government and the RBA to consider maintaining job security as a focal point in their response measures. 

The fiscal package to date is just the first line of defence that’s needed for the Australian economy. More will be necessary. The measures so far pale in comparison to the New Zealand government’s package, which is approximately 4% of GDP relative to the Morrison government’s 1.2%. 

The Australian economy comes from a position of weakness and desperately needed a fiscal contribution even before the virus hit. The economy has lost momentum since the second half of 2018: unemployment has risen, the private sector is in recession and both business and consumer confidence has been in the mire. In addition, more recently the combination of bushfires and drought have served a one-two punch to Australia’s economy and battered the agriculture, tourism and recreation industries even before any travel bans came into place. 

Things are moving quickly — far quicker than they did in the GFC — markets and shutdowns included. For each stimulus package announced, a corresponding travel ban is enacted or city is locked down. Shutdowns, border closures and disruptions are moving at such a pace that economists and markets alike cannot mark down growth expectations quickly enough. As the number of infections continues to rise globally, the likelihood of these measures becoming more aggressive will further impact economic activity. 

With so many unknowns at large, forecasts seem little more than vague verbiage that are consistently marked to market. However, what is certain is that an exceptional policy response is necessary. TINA (there is no alternative) can be applied in a different sense as monetary policy pushes on a string and unemployment rises. Policymakers must underwrite the demand shock and helicopter drop payments directly to households along with support for cash-strapped businesses. 

We have little doubt of this, given multiple conjectures toward wartime action to buy time in the virus fight while we await a vaccine or immunity. Although even this is no perfect solution, as the hit to sentiment and therefore demand cannot easily be reversed by monetary or fiscal policy. While consumers are fearful of the threat of a global pandemic, confidence will be hard to restore. Hence why containment efforts and public health policy are equally important in supporting confidence.

Although stimulus packages may ease downside risks to the economy, for markets to really recover the onus will be on reduced COVID-19 transmission rates, increased immunity and a clear containment of the outbreak. As yet, relative to previous crises, valuations have not become outright cheap. Nevertheless, hope springs eternal both in financial markets and humanity, so there will come a time for bargain hunting. However, as the rulebooks go out the window in terms of crisis rescue packages, we may eventually enter a different investment paradigm. The extraordinary fiscal stimulus, a de-globalisation tailwind and eventual recovery in economic activity will bring at the very least higher inflation expectations, and long-term bond yields may eventually rise. Perhaps we’ll see an opportunity to rethink diversification beyond the traditional 60/40 and a comeback for value, cyclicals and commodities.

Before we get started today, let’s take a minute to review…

• 3/10 1,000
• 3/11 1,267
• 3/12 1,645
• 3/13 2,204
• 3/14 2,826
• 3/15 3,505
• 3/16 4,466
• 3/17 6,135
• 3/18 8,760
• 3/19 13,229
• 3/20 18,763
• 3/21 25,740
• 3/22 34,276
• 3/23 42,663
• 3/24 52,976
• 3/25 65,273
• 3/26 82,135
• 3/27 101,295
• 3/28 121,176
• 3/29 139,773
• 3/30 160,377
• 3/31 185,469
• 4/01 199,729

…and on Thursday? 4/02 216,722

That looks like exponential growth to us.

Now that the administration is “all in” on social distancing as America battles what is now the biggest novel coronavirus outbreak in the world, President Donald Trump warned that Americans are heading for a “horrendous” two or three weeks as they hunker down at home, reiterating his warning about “painful” times ahead, while raising the possibility that the government might shutter all remaining domestic flights between coronavirus ‘hot spots’ in the US like NYC and Miami.

Looking ahead, economists are bracing for Thursday’s initial jobless claims to jump as much as 5 million – maybe even 6.5 million – after yesterday’s ADP report on private employment, and after last week’s record 3.3 million jump.

“I am looking where flights are going into hot spots.” Trump replied when asked if he was considering a temporary ban on all domestic flights. “Some of those flights I didn’t like from the beginning, but closing up every single flight on every single airline, that’s a very, very, very rough decision. But we are thinking about hot spots, where you go from spot to spot, both hot. And we’ll let you know fairly soon.”

“We’re certainly looking at it but once you do that you really are clamping down on an industry that is desperately needed,” Trump said.

On Thursday morning, the number of confirmed cases in the US climbed above 5,000 (it was 5,137 when we last checked), while the number of confirmed cases has climbed above 200k (to 216,722). This, after Vice President Pence said during last night’s press conference that models suggest the US is facing a trajectory similar to Italy’s, the country with the highest number of coronavirus deaths with more than 13k.

NYC remains the epicenter in the US, with more than 1,374 deaths, more than double the death toll from the rest of the state (585). The global case count is quickly heading toward the big 1 million (last count: 939,436) as case numbers in the US and Europe surge (even as Italy and Spain show the first signs of a ‘plateau’ of new cases) while China, South Korea and other Southeast Asian nations and territories (Thailand, Malaysia, Hong Kong) report a second wave. Around the world, 76,836 cases were reported yesterday.

More than 10,000 people have now died in Spain after contracting coronavirus, with a record 950 of them dying on Wednesday, the latest in a grim streak of daily death-toll records. Death toll records released Thursday morning in Spain showed the official death toll hitting 10,003, up from 9,053 the day before.

Spain now has 110,238 confirmed cases of coronavirus, an 8% increase. Though that’s slowed from the ~25% daily jumps seen earlier this month, it doesn’t change the fact that Spain is 2.5 weeks into a shelter in place-style lockdown. Thanks to the lockdown, Spain recorded its biggest jump in unemployment in its history, with more than 800,000 people filing for benefits last week.

As it turns out, the US isn’t the only developed western country that is ill-prepared to ramp up testing for the novel coronavirus: As angry tabloid headlines bash the British government, led by a currently sickened PM Boris Johnson, a top British health official expressed frustration with the government’s struggles to provide enough tests, claiming that “everybody involved is frustrated” as the UK scrambles to ramp up testing, the FT reports.

Fortunately, London’s Francis Crick Institute has developed a rapid diagnostic coronavirus test and says it hopes to test 500 frontline workers a day from next week.

Though the US government is preparing to bail out American airlines, international airlines remain locked in a free fall: On Thursday, British Airways is expected to announce plans to suspend about 32,000 employees as it seeks to cut costs now that nobody is flying unless they absolutely need to.

As businesses continue to struggle with planning for the future, a new report from the UN Department of Economic and Social Affairs said the global economy could shrink by almost 1% before year’s end. Before the outbreak, they had anticipated growth of 2.5%, the Washington Post reports.

Now that the 2020 Tokyo Games have been officially postponed until next year (they’re still the 2020 Games though), Japan can focus on fighting the virus without that albatross around its neck: But as the country stands “on the very brink” of a coronavirus crisis, Prime Minister Shinzo Abe has resisted calls to try and enforce a state of emergency and other measures. Instead, he’s planning to send every household two small washable cloth masks, a decision that has earned him no shortage of ridicule.

Abe’s “two masks” plan was brutally mocked on social media, with many questioning how the masks would be split between a whole family.

一世帯に二枚のマスク #贋作 #○○風に時事ネタを振り返ろう pic.twitter.com/43j8zUizyK

— 北村ヂン (@punxjk) April 1, 2020

Tokyo alone reported 97 new cases on Thursday, a new record high, and the latest in a two-week resurgence that has turned back the clock on Japan’s fight against the virus.

As more government officials catch the virus, the Philippine ambassador to Lebanon died of complications arising from the virus this week, the country’s Department of Foreign Affairs announced on Thursday. Ambassador Bernardita M. Catalla, a nearly 30-year veteran of the diplomatic corps., died in Beirut early Thursday morning.

Finally, as Indians continue to grumble about that the inept implementation of that country’s three-week lockdown, imposed despite a relative dearth of cases as officials feared rapid spreading in the country’s slums, the death of a middle-aged man in Mumbai’s Dharavi slum has stoked worries about the highly contagious virus ripping through what’s widely regarded as the largest slum in Asia.

Authored by Ramin Mazaheri for The Saker Blog,

Germany and their moral poses… a century of Europe cries, “Enough!”

It’s hard for those living outside of Europe to understand the resentment towards Germany; Germans themselves often seem totally oblivious – the “German professor” only ever sees bad, unruly students, after all.

When I first moved to Paris in 2009 I remarked how all the Germans I met were so very nice. I was told, “They have to be, after what they’ve done.”

Low blow?

Hardly. Ignoring history is not politeness or PC progress or evidence of forward-thinking: it’s denial, hysteria and illusory thinking.

To paraphrase Henny Youngman: Take my Mutti – please. Angela Merkel is my generation’s Margaret Thatcher. When Thatcher died there were street parties in the UK, which were brutally repressed by cops, but the billionaire-directed Western Mainstream Media ordered paeans to be penned instead.

For Merkel there has similarly never been anything but fawning coverage, as evidenced – aggravatingly – by this recent story from the Associated Press: Merkel shines in handling of Germany’s coronavirus crisis.

Why such love for an abusive mother? Because she certainly hasn’t abused the German 1%: under Merkel German corporations have re-colonised much of Central Europe, they have extracted as much wealth as possible from weaker Eurozone nations like Greece, and downward pressure on wages was maintained on the German post-Hartz Re(De)forms workforce via the importation of hundreds of thousands of skilled Syrians and detested “minijobs”.

On a pan-European level ever since 2008, and even in the heat of the 2012 European Sovereign Debt Crisis, we have Germany’s constant refusal for “more Europe”, which is the only possible way to save this (atrocious, anti-democratic, unaccountable, corrupt, American-penned, socialism-detesting) version of the pan-European project. Germany refuses to collateralise Eurozone debt, even though it is Germany who would collect as they are the debtors, because Germany doesn’t want mere dead gold but living debt slaves.

The Eurozone is simply so riddled with contradictions and stupidities it just defies journalistic explanation:

Germany just doesn’t get it – for every country with an export surplus, there simply has to be a country with a corresponding deficit. It was German (and French) banks who signed off on the bad loans to the “immoral” Greeks which precipitated the biggest Eurozone problems, and yet it is German banks who got bailed out, despite their errors; and yet it is German banks who got QE to loan; and yet it is German banks which didn’t loan a dime of QE, and certainly not to Greeks. Germany is the biggest recipient of the ECB bond-buying, even though they don’t need it, whereas Greece was excluded even though they need it?

Crazy, but let’s look at Germany’s explanation for all these selfish actions action: moral hazard. They simply cannot perpetuate immorality, and deficits (even if to pay for the elderly, the poor, health care, education, etc.) are immoral. Haven’t you read your Kant, and his OCD-morality? German absolutism is absolute; their personal conscience must be clean no matter how many murderers must be let in the door to commit murder.

So… explain your €822 billion bailout, Germany?

Wait – what? A bailout worth 22% of annual German GDP?

What happened to budget rigour and the moral imperative of balanced budgets? What happened to the total, facile nonsense that a national economy is simply a household writ large? What happened to Yanis Varoufakis recycling absurd stereotypes like “Teutonic discipline” (has he never seen an Oktoberfest?)?

Oh, I get it… Germany is in a crisis – EU deficit rules need to be relaxed.

However: Greece and others were in a crisis for years – why didn’t their crises matter?

(Millions starving in Yemen, millions dying of bad water globally, deaths from natural disasters – indeed, why does the Corona crisis matter so very, VERY much more than those crises? I just can’t comprehend the West’s crisis criterion.)

But it gets worse with Germany: Bailouts for Greece and other crisis-hit nations were contingent on forcing open their economies. German and Dutch companies gleefully bought up assets and market share, and forced in their products but now Germany Will Block Foreign Takeovers to Avoid Economy Sell-Out?

It’s disgusting, German hypocrisy.

But Europeans have been dealing with this for quite some time. In January I wrote this article to explain Europe’s perpetual stagnation and unrest: 1941, 1981, 2017 or today – it’s still Germany’s fault.

Need more? In 2017, foolishly assuming that QE would actually end, I wrote France’s historic effort for an anti-austerity Eurozone, which detailed the self-harming, wooing efforts from De Gaulle to Mitterrand to Hollande aimed at ending this historical trend: “France wanted to not be conquered by the US-German alliance, so they kept proposing a Franco-German (capitalist) alliance.”

Ramin, you seem rather anti-German. Are you a tribalist-racist?

No. What I am is a daily hard news journalist in the heart of Europe and I am fed up with reading lecture after lecture from Germany; hypocrisy after hypocrisy; duplicity upon duplicity.

Just tell me this: where is the “moral hazard” in the Corona crisis, Germany?

Shine a light on that for me, Mutti Merkel.

She cannot. There is none.

There are healthy companies – who have as much Teutonic economic discipline, intelligence and good DNA as a pure and spotless German – in places like Italy which are going to go under without something like Corona-bonds to provide financing wrought by the Marxist logic-defying Western shutdown.

Forget it – shot down already by Germany and their Dutch toadies. Same old story….

The corona overreaction defies Marxist logic and is economic suicide (socialist-inspired nations like China and Iran control their economies, so they can do things which the corporate-dominated West cannot) but yet another German refusal to help, to pool debt and risk, to show solidarity means Germany must leave the Eurozone.

Hell, we KNOW they have the money – while they have had their boots on the throats of people like the Greeks the Germans have also been assiduously picking their pockets. Germany can afford such a staggeringly huge bailout because of these incredibly immoral profits! Oh no Ramin, you’re wrong – they got those profits simply because German capitalists are so very moral. Sure, sure….

German bankers entrapped poorer Eurozone countries into debt slavery, and now that their slaves are sick Germany wants a quarantine?

You’ll never read such analyses in the West, that’s for sure, but what is absolutely, absolutely certain is that the average Eurozone citizen knows what I am talking about already. Anti-German sentiment is going to absolutely explode if Germany’s historical pattern – pro-US imperialism, anti-European project, self-interest above solidarity – continues.

Everybody in Europe (and the whole world) has seen how China, and not Germany, is the one sending supplies to corona-hit Italy. Yes, the Eurozone’s terrible structure means it is always fiddling while Rome burns, but I truly believe that German (capitalist-imperialist) leadership simply doesn’t care.

Of course there are good Germans who want Corona bonds, but the simplest solution to the Eurozone’s crisis has always been to expel Germany.

“If Germany is unwilling to take the basic steps needed to improve the currency union, it should do the next best thing: Leave the eurozone.”

 That’s an assessment from Nobel Prize-winning economist Joseph Stiglitz. Yes, I did write ‘The Euro’ by Stiglitz: Even fake leftists say ‘exit’, but the point is that only far-right neoliberals don’t see that a “Deutsch-parture” can painlessly end the Eurozone’s near-constant stagnation and dissension. The Netherlands can similarly be invited to leave as well.

Unless naked, would-be German emperors can finally get off their high horses and on board with morality and unity – via something like Corona bonds – a huge explosion of jingoism and neo-fascism in the Eurozone is around the corner.

Fine by me I guess – history shows that this is the last step before socialism because: how can fascism ever possibly succeed for the lower classes? It seems some Western nations need to go through this step (yet again) before accepting that the needs of workers, not bankers, and the poor must always be predominant in political policy.

As bodies pile up at New York City area hospitals, 45 refrigerated tractor-trailers were dispatched to the city to act as temporary morgues last month. We noted last week that morgues in the city were “nearing capacity” and would be full by the first week of April.

In a matter of weeks, the city has transformed into the epicenter of the COVID-19 outbreak in the US, with 1,714 deaths and 76,049 confirmed cases (as of Wednesday, April 1).

Makeshift morgues line the streets around some area hospitals in Manhattan, are being used to relieve the stress of the hospital system that has been overwhelmed with COVID-19 patients.

New video (not mine) from #NYC where bodies of the victims of #COVID19 line the sidewalk outside a hospital for transfer to a mobile morgue unit. #NewYork #coronavirus #FlattenTheCurve #CoronaUpdate #Quarantine @NYCEMSwatch pic.twitter.com/sJm6gQh7qT

— Sam (@gotmybelton) March 29, 2020

“We’re putting them out near major hospitals as a precautionary measure to prepare for the worst-case scenario,” a spokesperson said.

New York City is building a temporary morgue to deal with an expected influx of deaths from the coronavirus outbreak pic.twitter.com/xcc0fNB9Ex

— QuickTake by Bloomberg (@QuickTake) March 25, 2020

Two trailers are now needed to handle Wyckoff Heights overwhelmed morgue. Be safe and quarantine new york. #COVIDー19 #nyccoronavirus pic.twitter.com/mkFucfNzVE

— Marc Koz (@mjkoz) April 1, 2020

For those of you who continue to think or say that #Covid-19 is being exaggerated or its not that big of a deal. You can see in this video hospital workers in New York dragging dead bodies into 53’ft trailers.
Still dont think its that serious? #stayhome and #stayhealthy pic.twitter.com/5fmEMj2S8R

— UNREGULATED MEDIA (@unregulatedm) March 31, 2020

Hospitals in New York have rented refrigerated trailers to store overflow bodies from the Coronavirus.

Never have I seen a more incompetent and evil President – one who is responsible for this.

Trump has now joined the pantheon of serial killers and mass murderers of the past. pic.twitter.com/6QRgqCZTKk

— Frank Woods (@quantumscribe) March 30, 2020

The lower building in foreground is the Office of the Chief Medical Examiner of the City of New York, and the “morgue” for New York County = Manhattan. The white 40′ refrigerated truck-trailer is for… exactly what you think it is for. pic.twitter.com/srZwVlaThK

— Nero Claudius Drusus (@drususclaudius) March 26, 2020

In lower Manhattan, a large tent and tractor-trailers have been installed, which is acting as an overflow for the central morgue.

Last week, a shocking video showed a forklift raising a body into a makeshift morgue outside a Brooklyn hospital.

A sad scene at Brooklyn Hospital #Covid_19 #coronavirus pic.twitter.com/dRUNE61yPs

— Joe Borelli (@JoeBorelliNYC) March 29, 2020

Now there’s something even more shocking. On par to what we showed readers several months ago with body bags piling up at a Wuhan hospital. This time it’s allegedly happening at Lenox Hill Hospital, a member hospital of Northwell Health, located in Manhattan’s Upper East Side. 

The disturbing video first shows the makeshift morgue outside of the hospital. Then transitions into a building, presumably inside the hospital, with black body bags scattered across several rooms and lining a hallway, suggesting that this hospital could have already hit full capacity. 

Jack could you confirm whether the is Lenox hill hospital in Manhattan?

WARNING: Disturbing video pic.twitter.com/ZCiY5ZZCpX

— Johnny Bling 🇺🇸⭐⭐⭐ (@Fightba40518677) April 1, 2020

And just in case the Twitter police delete the video, here are some screenshots of the video below: 

We noted on Tuesday that US hospital systems had restricted doctors and nurses from sharing their accounts of how hospitals are running out of medical supplies and are being overwhelmed with the fast-spreading virus. 

America’s hospital system is cracking.