And so we’ve reached the precarious state of disunion in which the only thing the warring elites can agree upon is that the Federal Reserve should rescue their private wealth, regardless of cost or consequences.
America’s divides are proliferating and deepening by the day. The key political and economic divides predate the pandemic, but the pandemic is acting as a catalyst, creating new divides and exacerbating existing ones.
Let’s start with the politicization and subsequent polarization of re-opening the economy. In a reasonably sane, coherent society, this issue would be subject to common sense debates about risks, trade-offs, policies, responses to new data, etc.
But American society is neither sane nor coherent, so what should be a non-partisan debate was immediately politicized, to the absurd extreme that “progressives” must favor continuing strict lockdowns lest they be accused of being “conservative.”
The erosion of middle ground and the disappearance of de-politicized policy debates is a clear sign that a society is doomed to disintegration not just of the social order but the political and economic orders.
Author Peter Turchin has described the disintegrative stage in his book Ages of Discord, in which he modeled a Political Stress Index comprised in part of these three dynamics:
1. Stagnating real wages due to oversupply of labor.
2. Overproduction of parasitic elites.
3. Deterioration of central state finances.
The pandemic has catalyzed the oversupply of labor and the deterioration of central state finances, and illuminated America’s vast overproduction of parasitic elites, most of whom feed off various cartels and monopolies or the financial system, which has been saved yet again from gravity by the super-wealthy’s most important protector, the Federal Reserve.
The pandemic has created new divides that highlight existing extremes of inequality. Those Americans in poor health and in jobs that cannot be performed at home are at greater risk than healthy Americans who can work at home.
Those Americans whose regular pay was considerably less than unemployment plus the federal bonus have zero financial motivation to return to work, while overpaid parasitic elites are getting paychecks even if they’re performing little or no work.
The top 10% who own 90% of all assets are breathing a sigh of relief that the Federal Reserve printed up a couple of trillion dollars to save the stock market from a well-deserved collapse, while the bottom 80% who own a tiny slice of America’s wealth are not directly impacted by the market’s swoon or recovery.
The top 10% has financial reserves to smooth out any disruptions arising from the pandemic and policy responses, while the majority of the bottom 80% have few if any reserves or resources to tap.
Meanwhile, the splintering of America’s failing elites has been amplified by the pandemic. The moral decay of the elites is as visible as their insatiable greed. The two are of course intimately connected: once the morals of the ruling Elites degrade, what’s mine is mine and what’s yours is mine, too.
I’ve previously covered two other key characteristics of an empire in terminal decline: complacency and intellectual sclerosis, what I have termed a failure of imagination. We can see both complacency and intellectual sclerosis in the elites’ response to the pandemic.
Michael Grant described these causes of decline in his excellent account The Fall of the Roman Empire, a short book I have been recommending since 2009:
There was no room at all, in these ways of thinking, for the novel, apocalyptic situation which had now arisen, a situation which needed solutions as radical as itself. (The Status Quo) attitude is a complacent acceptance of things as they are, without a single new idea.
This acceptance was accompanied by greatly excessive optimism about the present and future. Even when the end was only sixty years away, and the Empire was already crumbling fast, Rutilius continued to address the spirit of Rome with the same supreme assurance.
This blind adherence to the ideas of the past ranks high among the principal causes of the downfall of Rome. If you were sufficiently lulled by these traditional fictions, there was no call to take any practical first-aid measures at all.
And so we’ve reached the precarious state of disunion in which the only thing the warring elites can agree upon is that the Federal Reserve should rescue their private wealth, regardless of cost or consequences. America is doomed, not because its citizenry is incapable of adaptation, but because its ruling, warring elites are incapable of surrendering any of their wealth, power or control, or allowing anything to threaten their precious cartels and monopolies, starting of course with the key controlling monopoly, the Federal Reserve.
After all but ignoring sexual assault allegations made against former Vice President Joe Biden, many famous figures in the #MeToo movement are now rushing to the presumptive Democratic presidential nominee’s defense or suddenly discovering the importance of nuance and restraint in discussing unproven allegations.
New testimony from people who knew her in the early 1990s suggests that Tara Reade complained privately of being sexually assaulted by Biden in 1993 when she worked as a staff assistant in his Senate office. Those accounts have proven especially problematic for women rumored to be on Biden’s shortlist for vice president.
Former presidential candidate and Sen. Kamala Harris (D–Calif.) said last year that she believed three women (Lucy Flores, Caitlyn Caruso, and D.J. Hill) who accused Biden of inappropriate touching or kissing. “I believe them and I respect them being able to tell their story and having the courage to do it,” Harris said at an April 2, 2019, event for her presidential campaign.
But now that she’s allegedly among Biden’s top choices for VP (and regularly doing digital events with him), Harris has nothing to say about the Reade allegation and has gone full “We have to do everything we can to elect Joe Biden.”
Meanwhile, Sen. Kirsten Gillibrand (D–N.Y.) and former Georgia gubernatorial candidate Stacey Abrams have said they don’t believe Reade, while Hollywood’s self-appointed #MeToo spokeswoman Alyssa Milano has suddenly discovered the virtues of due process.
“As we started holding politicians and business leaders and celebrities around the world accountable for their actions, it was easy to sort things into their respective buckets: this is wrong, this is right,” Milano writes in Deadline. But now, as credible allegations against Biden surface, Milano has suddenly discovered that “the world is gray” and conversations about sexual assault should have more “nuance.”
“Believing women was never about ‘Believe all women no matter what they say,’ it was about changing the culture of NOT believing women by default,” Milano claims.
That’s true enough for many folks. But for Milano (and some Democratic politicians and pundits), the assertion that “it’s okay to look at evidence and come to your own conclusion” was very much missing when they weren’t political allies or personal friends of the accused.
Some typically enthusiastic supporters of sexual assault survivors are trying to sidestep hypocrisy allegations by declaring that Reade is simply not credible. For instance, MSNBC contributor Jill Wine-Banks tweeted: “I support #MeToo and instinctively believe accusers, but as a former prosecutor, I use critical thinking to evaluate allegations and test credibility. Tara Reader’s accusation against Biden fails the test of credibility.”
Gillibrand told CNN, “When we say believe women, it’s for this explicit intention of making sure there’s space for all women to come forward to speak their truth, to be heard. And in this allegation, that is what Tara Reade has done. She has come forward, she has spoken, and they have done an investigation in several outlets. Those investigations, Vice President Biden has called for himself. Vice President Biden has vehemently denied these allegations and I support Vice President Biden.”
“I know Joe Biden and I think he’s telling the truth and this did not happen,” Abrams told CNN on Tuesday.
But wherever you stand on Reade’s credibility, it’s absurd to pretend there’s significantly less reason to believe Reade than there was Christine Blasey-Ford or any other recent accusers of high-profile political men. And the things people are citing in order to undermine Reade’s credibility are the very things Democrats and progressives have waved away when it came to allegations against Republican politicians, “shitty media men,” etc.
“The job description for Joe Biden’s running mate has suddenly become more complicated: the Democratic vice presidential nominee must now defend him against sexual assault accusations without looking hypocritical,” noted Politico this week.
And it’s not just that they’re women and thus expected to stand for all feminism; many of these particular women have made protecting women and girls from sexual abuse a huge part of their public image and political performance. As Politico‘s Marc Caputo notes, many of Biden’s potential running mates “played lead roles in opposing the Senate confirmation of Justice Brett Kavanaugh in 2018. … leaving a trail of unambiguous statements at sharp odds with the role they’ll need to play for Biden in a general election.”
“We were talking about violent stories, because I had a violent situation,” said LaCasse, who describes herself as a strong Democrat. “We just started talking about things and she just told me about the senator that she had worked for and he put his hand up her skirt.”
Another contemporaneous account: “Lorraine Sanchez, who worked with Reade in the office of a California state senator in the mid-’90s, told Insider that she recalls Reade complaining at the time that her former boss in Washington, D.C., had sexually harassed her, and that she had been fired after raising concerns.”
The new stories are bringing more attention to interviews leftist podcaster and journalist Katie Halper did in March, talking to Reade, her brother, and a close friend of Reade’s. Both of them “recall Reade telling them about it at the time,” writes Halper.
Reade’s friend told Halper she encouraged her not to go public with the allegation at the time out of concern for public scorn without any real resolution. “It was the ’90s,” she told Halper, suggesting that no one would have cared or believed Reade back then. “Back then people assumed girls just get over it,” she said. Reade’s brother Collin Moulton said his mother had urged her to report the assault to police, but he had suggested she just move on. “I wasn’t one of her better advocates,” he told Halper. “I said let it go, move on, guys are idiots.”
Asked about Reade by The Daily Beast, prominent women’s groups would not comment. Reporters Scott Bixby and Hanna Trudo “contacted 10 top national pro-women organizations for this story, including Emily’s List, Planned Parenthood Action Fund, NARAL Pro-Choice America, and the National Organization for Women. Most organizations did not respond to a detailed request for comment about the allegation by Tara Reade.”
Bixby and Trudo draw parallels between the current situation and Democrats’ sudden disinterest in sexual assault allegations and workplace harassment of women when the person being accused was Bill Clinton.
“I don’t have any insight on why women’s groups have been largely silent on the accusations,” writes Erin Gloria Ryan at the Beast today, “but if I had to guess, it’s because what Biden is alleged to have done pales in comparison with things Trump has been accused of, and that Reade is, at press time, the only person to make serious assault allegations against Biden.”
ELECTION 2020
Reason‘s Matt Welch talks to U.S. Rep. Justin Amash (L–Mich.), who is now officially the first Libertarian Party (L.P.) member of Congress. Amash’s Wednesday announcement that he’s seeking the L.P. presidential nomination set off the standard wave of complaints about how Americans owe it to their nation to vote only for either a Democrat or a Republican.
“If we want more liberty and smaller government, then Amash should have just stayed in Congress,” suggests a Washington Examiner op-ed.
“If Amash gets the Libertarian nomination and stays in until the end, he could wind up going in the books as the guy who voted to impeach Trump one year, then tipped the election to him 11 months later,” writes Joe Walsh in The Washington Post.
But it’s “far from clear, if history is any guide, that [Amash] will hurt Mr. Biden more than Mr. Trump,” writes Liz Mair in The New York Times. “What libertarians like me hope is that he enables a growing number of Americans to register their dissatisfaction with the major parties and their policy agendas.”
SCOTUS will also consider whether a rule that groups receiving anti-HIV funding “have a policy explicitly opposing prostitution and sex trafficking” is a First Amendment violation.
California Closes All State Beaches And Parks After Crowds Ignore Social Distancing
After the season’s first heatwave last weekend and tens of thousands, if not hundreds of thousands of people flocked to beaches in Southern California, ignoring social distancing rules, Gov. Gavin Newsom is expected to close all state beaches and parks starting Friday, according to a memo first seen by CNN.
“We wanted to give all of our members a heads up about this in order to provide time for you to plan for any situations you might expect as a result, knowing each community has its own dynamics,” the memo reads.
The closure could be announced as soon as Thursday, and state park officials, along with local law enforcement, will support efforts to close the sites, the memo adds.
The memo comes as overcrowded beaches were seen in Orange County and Ventura County last weekend as residents poured onto the coast looking for relief from the heatwave.
On Monday, Newsom blasted beachgoers:
“This virus doesn’t take the weekends off. This virus doesn’t go home. We have to manage and augment our behavior,” he said. “The only thing that will set us back is people stopping practicing physical distancing.”
At one point, estimates showed at least 90,000 beachgoers flocked to Newport Beach in Orange County.
Newport Beach April 25
Photos of the coast crowds have circulated social media who appear to be breaking social distancing rules.
The memo comes as the state is preparing to reopen the economy in phases. Newsom said the state is now in the first stage, as opening retail businesses and schools could be “weeks away.”
As confirmed cases top one million with more than 60,000 deaths across the country, President Trump is quickly trying to reopen the economy amid threats a second coronavirus could be lurking around the corner.
The communist Chinese government was painfully aware that bio-labs including the Wuhan Institute of Virology, where it is thought the coronavirus could have originated, were in desperate need of safety upgrades to prevent accidental leaks.
An article in Asian Review notes that Chinese President Xi Jinping has been discussing the need for “biosafety” improvements for the past year.
“Beijing had been preparing biosecurity law, but not fast enough,” the report notes, adding that “China has been preparing for it carefully for quite a long time, conscious of how the country was perceived overseas.”
The report goes on to explain that France, a country instrumental in the construction of the lab, found a significant flaw in the framework for ensuring the safety of virus research in China.
“China wanted to catch up with advanced countries in biotech research as soon as possible. To that end, it needed to establish related laws on par with those in countries like France, the U.S. and Germany.” the report continues.
A report was received by the Chinese parliament last October, detailing 8 points where safety needed to be upgraded:
1) The prevention and control of major emerging infectious diseases, animal and plant epidemics.
2) Research, development and application of biotechnology.
3) Ensuring biosecurity in laboratories.
4) Ensuring the security of China’s biological resources and human genetic resources.
5) Preventing the invasion of alien species and protect biodiversity.
6) Dealing with microbial drug resistance.
7) Preventing bioterrorism attacks.
8) Defending against the threat of biological weapons.
The report notes that “the measures were not introduced in time for China to prevent the Wuhan outbreak. Instead, information was initially covered up and China’s first steps were delayed.”
In February, when it was clear that the outbreak was spreading, “Xi urged top leaders to enhance the country’s governance capacity for biosafety and to enact “a biosecurity law” at the earliest possible date,” according to the report.
This only enhanced the suspicions of those who believe the virus leaked from the lab.
Since that time, China has denied the US access to the Wuhan lab,according to US Secretary of State, Mike Pompeo. The facility has come under increased scrutiny after it was revealed that the US government under the Obama administration funded research there for a number of years.
Furthermore, a University of Texas Medical Branch lab director who visited the Wuhan institute in 2017 says that it would be foolish to dismiss the idea that the coronavirus escaped from the facility, and that “Accidents happen” in such labs.
Footage from inside the lab, broadcast in 2018, showing scientists working on coronavirus in bats, has increased scrutiny on the lab even further.
Shell Cuts Dividend For First Time Since World War II
This morning, European energy giant Royal Dutch Shell made history when it became the first supermajor to cut its dividend for the first time since the second world war as the coronavirus pandemic cut quarterly earnings in half and forced the oil major to slash spending in order to preserve liquidity. The board of Shell said it had decided to reduce the quarterly dividend to 16 cents per share from 47 cents.
“Shareholder returns are a fundamental part of Shell’s financial framework,” Chad Holliday, chair of the board of Royal Dutch Shell, said in a statement.
“However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent.”
According to the FT, the cut in the payout by two-thirds is part of a “reset” of the Anglo-Dutch group’s dividend policy and not a short-term measure, amid concerns about economic growth as well as questions over future oil prices in a world that shifts towards cleaner fuels.
Net income adjusted for cost of supply, the company’s preferred profit measure, dropped to $2.9bn in the three months to March 31. This compared with $5.3bn in the same period the previous year and analysts’ estimates of $2.3bn.
The company is taking the first steps of a “fundamental shift for Shell over the next 30 years”, CEO Ben van Beurden told reporters on Thursday, “balancing short-term needs with long-term goals” to become a net-zero emissions business by 2050. “Today is a very difficult day for the company,” said van Beurden. “But it is the prudent thing to do . . . We absolutely want to preserve the financial resilience of the company even though we have no idea what could happen.”
van Beurden described energy market conditions through the first three months of the year as “extremely challenging.”
“Given the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell,” he added.
Shell warned that the situation would be even “more severe” in the second quarter, with oil prices at the start of the year likely to be a “high point” for 2020. Brent crude, the international benchmark, is trading around $24 a barrel having hit an 18-year low last week. “We don’t expect a recovery in demand in the medium term,” Mr van Beurden added.
Alongside the cut to its dividend, Shell announced it would not continue with the next tranche of its share buyback program. Since the launch of the program, the oil major said it had bought back almost $16 billion in shares for cancellation.
“On the face of it, the dividend cut and cancellation of share buybacks may be seen by some shareholders as a negative move in the short term,” David Barclay, senior investment manager at Brewin Dolphin, said in an email.
Energy consumption worldwide could drop 6% in 2020, the International Energy Agency said on Thursday, equivalent to India’s total annual demand. van Beurden said it was “hard to say” if oil demand would ever return to previous highs.
Shell was already under pressure before the coronavirus outbreak with weaker refining and chemical margins and challenging economic conditions forcing the company to slow shareholder distributions and re-evaluate debt reduction targets. Since then, in response to the pandemic, Shell has said it will suspend its share buyback program altogether and announced that capital expenditure would fall to $20bn or less this year, from initial plans for $25bn. It also said its operating costs would decline by $3bn-$4bn.
The current environment stands in stark contrast to last year, when Shell’s cash bonanza prompted it to say that oil prices above $60 a barrel could enable the company to distribute at least $125bn to shareholders in the form of dividends and buybacks over the next five years.
The CEO said that pledge was “against a totally different backdrop”, adding that Shell was preparing for a deep and protracted downturn. Not cutting the dividend would have left Shell “without options” to reposition the company for the future. The annual payout will fall from almost $15bn to just over $5bn, freeing up $10bn of capital.
Commenting on the move, Tom Ellacott at Wood Mackenzie said: “A permanent dividend reset could also accelerate the strategic pivot [from Big Oil] to ‘Big Energy’ through the reinvestment of more retained earnings in the youthful zero-carbon energy sector.”
Richard Buxton, head of UK equities at Merian Global Investors, who counts Shell among his top 20 holdings, said he was “absolutely delighted” at the cut, adding: “We could not square the circle of investing in the energy transition, managing long-term reserves and their ultimate decline with over-distribution.”
Until now, oil companies – especially dividend aristocrats – had largely pulled on a series of financial levers, also including bond issuance and securing new credit lines, to safeguard their dividends. Yet analysts said these measures were not enough to offset the hit to cash flows. This week BP maintained its dividend despite a 66 per cent drop in first-quarter profits but said it would review the shareholder distributions in the second quarter. However, last week, Norway’s Equinor became the first oil major to cut its dividend this earnings season. It raised concern that other energy giants may follow suit.
Shares of Shell dropped to the bottom of the European benchmark during early morning deals, down more than 7%.
Oil companies have been in crisis mode as lower energy prices and a collapse in demand for fuels and chemicals puts intense pressure on their finances, with severe lockdowns and travel bans in place across much of the world.
US Consumer Spending Collapses By Record, Worse Annual Drop Than Peak Of Lehman Crisis
Given the headline data from yesterday’s GDP print, this should not be a total surprise but Americans’ spending crashed in March.
After adjusting for inflation, spending slumped 7.3%, also the most ever and underscoring data out Wednesday that showed the sharpest drop in consumer spending since 1980 during the first quarter.
The report also showed nominal incomes dropped the most since January 2013. reflecting a 3.1% decrease in wages and salaries as a result of the pandemic.
Source: Bloomberg
This sparked the biggest annual contraction in US spending ever – larger than at the peak of the Lehman crisis
Source: Bloomberg
If there is any silver lining, Americans are “living within their means” like never before as the savings rate explodes from 8.0% to 13.1% of disposable income… the highest since 1975
The numbers are the latest tally of how the shutdown was bearing down on a U.S. economy that’s all but officially in a recession… which can only means more gains for stocks, right?
Over 30 Million Americans Have Lost Their Jobs In The Last Six Weeks
In the last week 3.839 million Americans filed for unemployment benefits for the first time.
Source: Bloomberg
That brings the six-week total to 30.31 million, which is over 12 times the prior worst five-week period in the last 50-plus years.
And of course, last week’s “initial” claims and this week’s “continuing” claims… the highest level of continuing claims ever
Source: Bloomberg
A breakdown by states shows that claims generally declined, with the biggest drops in California, Florida and Connecticut, while Washington, Georgia and New York saw a continue pick up.
And as we noted previously, what is most disturbing is that in the last six weeks, far more Americans have filed for unemployment than jobs gained during the last decade since the end of the Great Recession… (22.13 million gained in a decade, 30.3 million lost in 6 weeks)
Worse still, the final numbers will likely be worsened due to the bailout itself: as a reminder, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, could contribute to new records being reached in coming weeks as it increases eligibility for jobless claims to self-employed and gig workers, extends the maximum number of weeks that one can receive benefits, and provides an additional $600 per week until July 31. A recent WSJ article noted that this has created incentives for some businesses to temporarily furlough their employees, knowing that they will be covered financially as the economy is shutdown. Meanwhile, those making below $50k will generally be made whole and possibly be better off on unemployment benefits.
As Mises’ Robert Aro noted earlier in the week, the stimulus packages being handed out across this world provide us with an opportunity to document the anticapitalist process as it unfolds in real time, keeping in mind that when these inflation schemes fail, it will likely be blamed on capitalism.
The combination of increasing the money supply in order to pay people not to produce goods or services has consequences that not a lot of people are talking about.
It flies in the face of the free market and is as nonsensical as a negative interest rate. A loan that is forgivable is unconventional to say the least, because a loan is normally defined as an amount borrowed that is expected to be paid back with interest. When a loan is given on a first-come-first-served basis for the purpose of paying people not to work and is forgivable because it’s guaranteed by the United States government, we shouldn’t call it a loan.
It may be called socialism, maybe interventionism, and some may still prefer the term statism; but one thing is certain when it comes to the Paycheck Protection Program: it’s not capitalism!
Welfare cliffs are of course not the only reason so many capable Americans languish in partial dependency on government assistance. Dreadful government schools in poor areas and systematic obstacles to getting a job, such as minimum wage laws and occupational licensing laws, are also to blame. But the perverse incentives of America’s welfare system really hurt, and the CARES Act may have been a serious tipping point.
But, hey, there’s good news… well optimistic headlines as Treasury Secretary Steven Mnuchin said he anticipates most of the economy will restart by the end of August.
Finally, it is notable, we have lost 434 jobs for every confirmed US death from COVID-19 (60,999).
Watch Live: ECB President Lagarde Explain How More Of The Same Is Different This Time
Full Einsteinian insane-tard-ness…
The European economy is collapsing faster than the Obama administration’s case against General Flynn… but ECB chief Lagarde is suggesting more of the same as the fix for what has not worked at all until now – keep the negative rates, maintain the asset-purchases, add more “focused lending”, and most of all the promise of more of all of this when this “more” doesn’t work.
Watch the press conference live here (due to start at 0830ET)
S&P Futures Reverse Rally On Poor European Earnings As Oil Rebound Continues
US equity futures dipped on Thursday, reversing an overnight rally that pushed the S&P just shy of 3,000 as traders turned nervous at the end of the strongest month for stocks in 50 years with investors awaiting the weekly jobless claims data, while Nasdaq futures rose after upbeat earnings from Facebook and Tesla.
Futures for the S&P 500 turned lower on Thursday following a drop in European shares after a three-day surge as investors weighed corporate results, more dismal data and the latest virus news. Despite the wobble in the Emini, the underlying S&P index remains on track for its best month since 1974.
Nasdaq 100 futures clung to the green following strong results from Microsoft, Facebook and Tesla after the Wednesday close. Crude futures jumped for a second day after gasoline consumption started to recover in the world’s biggest economies.
Facebook rose 8.6% after beating analysts’ estimates for first-quarter revenue and saying it had seen “signs of stability” for ad sales in April after a plunge in March. Tesla gained 8.5% after posting its first ever GAAP quarterly profit, taking investors by surprise as its automaker peers were hit by a slump in consumer demand and factory shutdowns. Investors will now focus on the two remaining FAANG stocks – Apple and Amazon.com – which report results after markets close.
Europe’s Stoxx 600 Index also gave up an early gain to trade lower after Societe Generale SA posted a surprise first-quarter loss and Royal Dutch Shell cut its dividend for the first time since World War II. The ECB did not expand its pandemic bond-buying program in the wake of data showing the French and Spanish economies plunging into record contractions and German unemployment surging, however it did launch a new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) which will be conducted to “support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop.”
Earlier we found that the eurozone’s economy shrank by the fastest rate on record in the first quarter of 2020 as measures to contain the coronavirus pandemic froze business and household activity, according to figures published on Thursday. The GDP of the eurozone fell by 3.8% in the first quarter compared with the previous quarter, preliminary estimates from Eurostat found. This is the largest drop since the series began in 1995, and larger than seen in the worst of the financial crisis.
Earlier in the session, Asian stocks gained, led by energy and materials, after rising in the last session. The Topix gained 1%, with MS Consulting and TechnoPro rising the most. The Shanghai Composite Index rose 1.3%, with Routon Electronic and Shanxi Coal posting the biggest advances.
As Bloomberg notes, investors continue to weigh a brutal global recession against hopes for a coronavirus treatment and an eventual end to lockdown measures across the world. The U.S. government’s top infectious-disease expert, Anthony Fauci, said early results from the Gilead drug trial offered “quite good news,” while results from tech giants show some parts of the economy have remained resilient. That’s even as many firms slash dividends and data shows Europe slumped into a recession last quarter alongside America.
Although today’s data is likely to show weekly jobless claims stabilized around 3.5 million after scaling record highs in March, other numbers have shown that the U.S. economy is set for its sharpest contraction since the Great Recession. On Wednesday, the Federal Reserve pledged on Wednesday to expand emergency programs to revive growth but dashed hopes for a fast rebound, saying the economy could feel the weight of consumer fear and social distancing for a year.
In FX, the dollar gauge headed for its first monthly loss in four months following a recovery in global risk appetite. The Bloomberg Dollar Spot Index slipped and the dollar weakened against most Group-of-10 peers. Norway’s krone advanced, tracking gains in oil prices. The yen pared gains amid month-end flows and positioning related to Japan’s Golden Week holiday; traders digested reports that Prime Minister Shinzo Abe will extend a national state of emergency by a month.
In rates, Treasuries and U.S. equity futures edged up, while the euro slipped and German bonds gained after the European Central Bank’s policy decision disappointed some traders who were hoping for more.
In commodities, oil advanced a second day on signs fuel consumption is starting to recover in the world’s biggest economies
Looking at the day ahead, the ECB decision and President Lagarde’s subsequent press conference are likely to be the highlight. There’ll also be a number of data releases, including both Q1 GDP and April’s CPI for the Euro Area, France and Italy. There’ll also be the Euro Area and Italian unemployment rate for March, the Germany change in unemployment for April and Canadian GDP for February. And from the US we have March’s personal income, personal spending, the core PCE deflator, as well as weekly initial jobless claims, April’s MNI Chicago PMI and Q1’s employment cost index. Finally, earnings releases include Apple, Amazon, Visa, Comcast, McDonald’s, Amgen, Gilead Sciences and Twitter.
Top Overnight News
Coronavirus upheavals and wider credit premiums are stoking a shift toward medium-length tenors in the euro corporate bond market. The proportion of deals maturing in five years to seven years has doubled since the outbreak
China’s first official data for April suggest the economy has split into two tracks as weak overseas demand contrasts with a domestic rebound
A recovery in emerging-market assets has failed to bring much relief for governments sweating the risk of default
In the simmering contest to succeed German Chancellor Angela Merkel, Bavarian Premier Markus Soeder has emerged as the uncrowned king of the crisis. His hard line to clamp down on the spread of the disease in the wealthy southern state has propelled him to the forefront of Germany’s conservative bloc
Gilead Sciences Inc. said there are more than 50,000 courses of the company’s experimental Covid-19 therapy, packed in vials and ready to ship as soon as the drug is authorized for emergency use by U.S. regulators
Coronavirus patients who remain positive weeks after diagnosis may harbor dead virus particles that can’t be distinguished from infectious ones in standard tests, scientists in South Korea found
Asian equity markets traded positively as the region took impetus from the gains on Wall St where sentiment was underpinned by coronavirus treatment hopes after preliminary results from Gilead’s Remdesivir drug trial showed a 31% faster recovery time and lower mortality rate compared to patients that were given a placebo. Furthermore, the Fed reiterated to keep supporting the economy as necessary and encouraging earnings from several tech heavyweights after-market briefly added fuel to the momentum for US index futures. ASX 200 (+2.4%) was lifted by strength in the energy sector as oil prices continued to make up ground and with a slew of corporate updates in focus. Nikkei 225 (+2.1%) outperformed as it played catch up on return from the holiday closure and as a weaker currency provided an uplift to exporter sentiment, while Industrial Production and Retail Sales data were not as bad as had been feared despite both printing in contraction territory. Shanghai Comp. (+1.3%) was also positive ahead of the extended 5-day weekend in the mainland for Labor Day holidays and amid several blue chip earnings, although gains were somewhat capped by the absence of Hong Kong participants and following mixed Chinese PMI data in which official Manufacturing and Caixin Manufacturing PMIs fell short of estimates but Non-Manufacturing and Composite PMIs both improved. Finally, 10yr JGBs were lacklustre with demand subdued by gains in riskier assets and following a similar uninspired tone in T-notes, while the absence of the BoJ in the market today and resistance ahead of the 153.00 level also ensured the mundane price action.
Top Asian News
Japan’s Abe Set to Extend Virus Emergency Into June, Reports Say
Malaysia May Skip Spot LNG Sales With Prices at Record Lows
Tokyo Steel Warns of Slump in Profit This Quarter as Virus Bites
BlackRock Buys India Sovereign Debt as Others Head for Exit
European equities waned off highs since the cash open (Euro Stoxx 50 -0.2%) and failed to sustain the momentum from a positive APAC handover, as markets digest a slew of earnings and sets sights on the ECB’s policy announcement later . Overall, bourses trade mixed with mild outperformance in the CAC 40 (+0.1%) – aided by the likes of Safran (+1.7%) post-earnings and Airbus (+5.4%) as shares are underpinned after its CEO noted the group is in talks with French states – yesterday Finance Minister Le Maire said the gov’t could aid Airbus if the time is right. Sectors remain mixed and do not reflect a clear risk tone. Energy is the clear laggard as Shell (-6.3%) plumbs the depths post-earnings, afflicting the FTSE 100, after the group cut dividends for the first time since 1945 amid the oil price slump. The sector breakdown is similarly diverse but sees Travel & Leisure as the top amid hopes of looser global lockdown measures. Individual movers again largely consist of post-earning action; Lloyds (-5.9%) remains pressured after reporting a slump in Q1 pre-tax profit alongside a rise in impairments of around GBP 1.2bln YY. BASF (-1.0%) is lower after missing on Adj, EBITDA expectations, and cutting Q1 EPS to EUR 0.96/shr from EUR 1.53/shr whilst withdrawing guidance. Orange (+1.1%) holds onto opening gains as the group does not expect to significantly deviate from its FY targets. BBVA (-1.5%) holds onto losses after reporting an impairment charge of over EUR 2bln. Other earnings-related movers include Swiss Re (-2.5%), Deutsche Boerse (+2.6%), Nokia (+3.7%) and Danske Bank (-1.8%) Elsewhere, Wirecard (+4.8%) rises as its chairman does not see CEO Braun behind replaced, which follows activist Hohn’s call to remove the CEO. Finally, AstraZeneca (+3.3%) sees upside after the Co. and Oxford Uni announce landmark agreement for a COVID-19 vaccine, aims to secure CHADOX1 vaccine potential to patients. Co. would, under this agreement, be responsible for the worldwide manufacturing and distribution – with the CEO stating it should have a good idea in June or July whether its COVID-19 vaccine works.
Top European News
Homebuilders Cancel Land Purchases as U.K. Economy Shrinks
Transport Giant DSV to Cut 3,000 Jobs as Crisis Upends Business
SocGen Posts Loss as Equities Trading Wiped Out in Rout
Lloyds Books 1.4 Billion-Pound Charge and Scraps Targets
In FX, the Dollar is holding up relatively well in wake of the FOMC and presser from Fed Chair Powell that was forthright in terms of appraising the sever economic impact of the coronavirus containment efforts and the high probability that even more stimulus will be required, monetary and fiscal, to try and ensure a robust post-pandemic recovery. Moreover, the Greenback remains prone to further month-end outflows for rebalancing purposes and erosion of safe-haven premium given buoyant risk sentiment based on hopes for an anti-COVID-19 treatment and/or vaccine. However, the DXY is managing to stay within proximity of the 99.500 level that has been pivotal within recent ranges and is still keeping the index resistant on approach towards 99.000
CHF/GBP – The major “outperformers”, albeit amidst quite restrained parameters overall, as the Franc inches closer to 0.9700 and further away from 1.0600 vs. the Euro, while Cable rebounds towards 1.2500 and Eur/Gbp recoils towards 0.8700 on a mix of month end demand and technical factors. Note, one bank model is pointing to outsize Sterling demand vs. the Buck and especially from 1500BST to 1600BST when fund managers re-hedge stock portfolios, while the cross is back below the 200DMA again.
CAD/EUR – Another upturn in oil prices has helped the Loonie consolidate gains above 1.3900 and almost match the current mtd peak not far from 1.3850 ahead of Canadian data comprising monthly GDP and PPI, while the Euro is still meeting resistance ahead of 1.0900 and last week’s apex just shy of the round number, though also finding underlying bids on dips despite more downbeat Eurozone data in the run-up to ECB
JPY – The Yen also looks locked between decent option expiries and a key chart level that was marginally breached on Wednesday, while many Japanese participants were otherwise engaged given a market holiday on the penultimate trading session of April, but did not trigger stops to test 106.00. Subsequently, Usd/Jpy is meandering between 106.87-42 and back above the aforementioned technical mark (50% Fib retracement at 106.45)
AUD/NZD – Aud lost impetus around 100 DMA at 0.6567, and mega 2.7 bn expiry at 0.6570. Nzd hampered by bleak NBNZ Biz survey.
New Zealand ANZ Business Confidence (Apr) -66.6% (Prev. -63.5%). (Newswires) New Zealand ANZ Activity Outlook (Apr) -55.1% (Prev. -26.7%)
In commodities, Energy contracts wane off best levels as European trades goes underway, but nonetheless remain firmly in positive territory, with WTI June +14% just above USD 17/bbl (intraday range USD 15.45-17.75/bbl) while the Brent July contract sees gains of around 8%, with prices just north of USD 26/bbl (intraday range USD 24.41-26.66.bbl). In terms of fresh developments, Norway Oil Ministry said Norway will be cutting oil output by 250k BOE/D in June and then lowered to 134k BPD in H2 until year-end, while the start-up of production at several fields will be delayed until 2021 and that production in December 2020 will be 300k BPD less than originally planned. Meanwhile, over in the US, Texas regulators released details on a proposed order to cut Texan output by around 1mln BPD, with a potential vote next week. Albeit, Texas Railroad Commission Chairman Christian said he still opposes mandated oil production cuts to address global oil curb. Elsewhere, US President Trump said they will have a plan to support oil companies soon. Other reports also noted the Trump administration is close to rolling out new lending facilities to help oil and gas companies struggling from a collapse in prices. Amongst all this, IEA’s Chief Birol warned that global storage could be full by mid-June and called on OPEC+ to mull further cuts, with the initial pact set to officially come into effect tomorrow. Elsewhere, spot gold sees modest gains as equities pull back from highs, with the yellow metal towards the top of its daily band of USD 1709.79-1719.66/oz. Base metals focus on lower mining output and the prospect of economies reopening for business, with Copper prices firmer on the day, albeit off highs, as the red metal meanders around mid-range at USD 2.4/lb and Zinc rallying some 2% in overnight trade.
US Event Calendar
8:30am: Personal Income, est. -1.5%, prior 0.6%; Personal Spending, est. -5.0%, prior 0.2%
8:30am: Real Personal Spending, est. -5.7%, prior 0.1%
8:30am: PCE Deflator MoM, est. -0.3%, prior 0.1%; PCE Deflator YoY, est. 1.3%, prior 1.8%
8:30am: Initial Jobless Claims, est. 3.5m, prior 4.43m; Continuing Claims, est. 19.5m, prior 16m
8:30am: Employment Cost Index, est. 0.6%, prior 0.7%
9:45am: MNI Chicago PMI, est. 37.7, prior 47.8
9:45am: Bloomberg Consumer Comfort, prior 41.4
DB’s Jim Reid concludes the overnight wrap
One has to be so careful that you’re own biases don’t influence you’re own thinking. After an awful few days at home where the twins are going through their terrible two stage together (biting, punching, scratching, hysterical crying etc) and my four year old is bored without school my wife continues to be at the end of her tether. I hide out in my office as much as I can but it’s not pleasant seeing her so frazzled when I go down to make a coffee or get lunch. So when I saw a U.K. Telegraph article overnight that no child has been found to have passed coronavirus to an adult I immediately showed it to my wife and we did a little jig. Who knows if it will ever be peer reviewed but the study did involve a partnership with the Royal College of Paediatricians.
We can only hope but there is more and more evidence that children do not have a big role to play in transmitting the virus which given the person hygiene of my twins sounds very strange.
Anyway more hope was in the air as it was a bumper day for financial markets yesterday before, and especially after, Gilead Sciences (+5.68%) announced that early results from a clinical trial showed that the remdesivir drug helped patients recover more swiftly from the coronavirus. At the White House Anthony Fauci, the government’s top infectious-disease specialist and head of NIAID confidently pronounced that this shows a “drug can block the virus”. Fauci has been relatively circumspect to date so this was an encouraging departure in tone. The New York Times reported later in the US session that the FDA was looking at granting emergency authorization for the drug soon. Gilead Sciences CEO Daniel O’Day said overnight that there are more than 50,000 courses of the company’s experimental Covid-19 therapy, packed in vials and ready to ship as soon as the drug is authorized for emergency use by the FDA. Later in the day, President Trump announced “Operation Warp Speed”, a program that will try to organize private pharmaceutical companies, government research agencies, and the military to try to cut vaccine development time down to under 8 months. While we’re on the virus, today’s CCD has a couple of graphs on NYC fatalities which add to yesterday’s UK demographic data (in the CCD), and also show what percentage had underlying health conditions. See that for more.
After all that excitement the Fed unsurprisingly announced that they voted to keep IOER and forward guidance unchanged and that they would keep them so until the economy was “on track”. The committee said that they believe the virus will continue to heavily effect economic activity, employment, and inflation in the short term, while also posing “considerable risks to the economic outlook over the medium term.” This could imply that the governors do not believe a true V-shaped recovery is in the works and that their accommodative monetary policy may be in place for longer. In the press conference, Chair Powell said that he expects reopening will boost consumption but not to prior levels and that there are concerns about ‘scarring’ that the crisis may have caused leading to a longer period of adverse conditions. Please see our US Economists full recap of the meeting here.
In terms of the broader market performance yesterday, the news from Gilead sent equities higher, with the S&P 500 ending the session up +2.66%, withstanding a little more two-way trading during Fed Chair Powell’s press conference. This means that the index is now over 30% above the lows reached back on 23 March, an astonishing rise in such a short space of time given the circumstances. The index is ‘only’ just over 13% down from February all-time highs. In further positive news, the VIX index of volatility also declined further to 31.23pts yesterday, its lowest level in over two months, while Bloomberg’s financial conditions index for the US eased to its most accommodative level in nearly 8 weeks. Over in Europe, equities were similarly buoyant, with the STOXX 600 (+1.75%) and the DAX (+2.89%) both advancing strongly.
After hours earnings supported the buoyant mood. Microsoft rose over 5% in extended trading before settling at +2.15% as cloud services and internet-based software demand has seen a sharp increase with companies shifting to work-from-home practices. Facebook rose +10.49% in after-hours trading, with the social media company reporting a +18% increase in Q1 revenue with sales coming in at $17.7bn (vs. $17.3bn consensus). The company has seen an uptick in engagement with more and more customers confined to their homes – daily users of all Facebook-owned apps was 2.36bn in March vs. 2.26bn in December.
The positive sentiment has continued in Asia but before detailing that China PMIs have come out overnight with the state manufacturing PMI printing at 50.8 (vs. 52 last month and 51.0 expected) while non-manufacturing PMI rose to 53.2 (vs 52.3 last month and 52.5 expected) bringing the composite PMI print to 53.4 (vs. 53.0 last month). In the details for the manufacturing PMI, new export orders plunged to 33.5 (vs. 46.4 last month), the second largest drop on record, suggesting the lack of external demand as much of the external world remained in lockdown. Meanwhile, the unexpected rise in the non-manufacturing PMI could be largely because the respondent believe that the situation has improved viz-a-viz the previous two months as on ground cinema halls are still closed and inter-city travel is still limited. So whilst encouraging the reading seems to be over-stating the recovery and a problem that diffusion indices are likely to suffer until the global situation normalises. The National Bureau of Statistics said alongside the release that “Some manufacturing companies said newly signed export contracts have dropped sharply, and some existing orders were cancelled.” Separately, China’s Caixin manufacturing PMI, which is more biased towards export oriented SME slipped back into contractionary territory with a reading of 49.4 (vs. 50.1 last month and 50.5 expected). Elsewhere, China and South Korea have agreed to ease quarantine requirements for business travellers under the so-called “fast-track” entry scheme which will take effect from May 1.
Bloomberg has also reported overnight that the Trump administration may today announce a plan to offer loans to the ailing oil industry possibly in exchange for a financial stake. Earlier, at the White House press conference Treasury Secretary Mnuchin had said that “This is not going to be a bailout,” and added that a team at both the Treasury and the Energy department are talking with people around the world and are considering “a lot of different strategies.” Another interesting bit which Mnuchin mentioned at the conference was that the administration has been considering a way around the storage capacity issue by buying undeveloped oil reserves and making them part of the U.S. emergency stockpile. Under the approach, the government would also effectively pay some domestic drillers to halt production indefinitely — or at least until prices rebound. So, one to watch. Elsewhere, Reuters reported overnight that Trump said that he thinks that China is determined to see him lose the November election based on Beijing’s response to the coronavirus and he was considering various ways to punish the Chinese government. He added that the US trade deal with China has been “upset very badly” by the economic fallout from the pandemic.
Asian markets are trading up this morning with the Nikkei (+2.83%), Shanghai Comp (+1.30%) and ASX (+2.34%) all advancing. Markets in Hong Kong and South Korea are closed for a holiday. Futures on the S&P 500 are up +0.48% overnight while those on the Nasdaq are up +0.83% on the after hours earnings beat by Microsoft, Facebook and Tesla. Elsewhere, WTI oil prices are up a further +15.74% this morning to $17.44 while most base metals are also trading up with iron ore being up +2.18%.
In other overnight news, the Nikkei is reporting this morning that Japan will extend a national state of emergency over the coronavirus by a month to June with the report adding that the final decision will be made after a meeting of experts tomorrow.
With the Fed now out of the way, attention will turn to the ECB’s latest monetary policy decision today, along with President Lagarde’s press conference afterwards. In their preview (link here ), our European economists write that they think an increase in the Pandemic Emergency Purchase Plan (PEPP) is becoming more likely as the downside economic scenario becomes more realistic. However, they note that size is not a constraint yet, as by today the ECB may only have spent around €100bn of the total €750bn commitment. The more relevant question in the near term would be a signal of a stronger PEPP reaction function to rising yields, something that could be done with a verbal signal or indirectly through the ECB’s market activities. Separately, they also think that the composition of the PEPP could be adjusted today, as following last week’s decision to suspend the minimum credit rating rules for collateral they think it’s possible that the Governing Council harmonises the collateral rules with the asset eligibility rules for the asset purchase programmes. So for credit investors will they grandfather fallen angels? From our side on balance probably not today but the prospect is getting more likely over time given the recent Fed move.
Elsewhere, sovereign debt generally had a good day, with bund yields falling -2.6bps. Italian BTPs were the exception however, which sold off following the ratings downgrade from Fitch to BBB-. The spread of yields on 10yr BTPs over bunds was up +5.4bps by the end of the session, bringing to an end a 5-day run of narrowing Italian spreads. To be fair they opened over 10bps wider and spent the risk-on session slowly recouping around half their losses. US 10yr Treasuries were slightly weaker, with yields up by 1.4bps to 0.627%.
Other risk assets performed strongly as well on the back of the Gilead news, with oil also surging higher. WTI was up +22.04% to $15.06/barrel, while Brent Crude was up +10.17% to $22.54/barrel, in turn seeing energy stocks outperforming on both sides of the Atlantic, and sending the Russian ruble up +1.51% against the US dollar. The oil complex was helped by some better inventory data, especially demand for motor gasoline. Could it also be that the recent evidence from mobility data that more drivers are back on the road is increasing demand a little? US gasoline inventories fell by 3.67mm barrels compared to a build of 2.49million. A demand indicator, weekly gasoline supplied, rose by 549k barrels a day. The Mnuchin news mentioned above may have helped as it is in the Asia session.
As well as the ECB, attention today will also be on the advance reading of Q1 GDP for the Euro Area in March, which will give us a first indication of how output has fared with the lockdowns. The Bloomberg consensus is expecting a -3.8% quarter-on-quarter decline, which if realised would be the worst single quarter since the single currency’s formation back in 1999. While we’re on the Q1 GDP readings, we should mention that the US number released yesterday saw an annualised contraction of -4.8%, (vs. -4.0% expected), which was the biggest quarterly contraction since Q4 2008. As we all know Q2 will be worse given the lockdowns. They’ll give analysts a starting point to adjust Q2 numbers though.
For those seeking out more high frequency data, all eyes will once again be on the latest weekly initial jobless claims later today from the US, covering the week ending April 25. Our economists are looking for a 3.7m reading, which would be the 4th consecutive weekly decline. Although that would be a positive in that we appear to be past the most rapid period of job losses, that shouldn’t make us lose sight of the fact that the last 5 weeks’ readings have been the worst 5 in the data series going back to the late-1960s, with job losses of an unprecedented speed and scale, as over 26m initial jobless claims have been made.
Wrapping up with yesterday’s other data points, the European Commission’s economic sentiment indicator fell to 67.0 (vs. 73.1 expected) in April, its lowest level since March 2009. However, M3 money supply growth for the single currency bloc rose by 7.5% yoy in March, its fastest growth since December 2008, mostly driven by the increase in QE. Finally, US pending home sales in March fell -20.8% (vs. -14.3% expected), the largest monthly decline since May 2010.
To the day ahead now, and as mentioned the ECB decision and President Lagarde’s subsequent press conference are likely to be the highlight. There’ll also be a number of data releases, including both Q1 GDP and April’s CPI for the Euro Area, France and Italy. There’ll also be the Euro Area and Italian unemployment rate for March, the Germany change in unemployment for April and Canadian GDP for February. And from the US we have March’s personal income, personal spending, the core PCE deflator, as well as weekly initial jobless claims, April’s MNI Chicago PMI and Q1’s employment cost index. Finally, earnings releases include Apple, Amazon, Visa, Comcast, McDonald’s, Amgen, Gilead Sciences and Twitter.
