Month: May 2020

With most global markets shutdown for May 1 celebration, US equity futures sank after President Donald Trump threatened to block a government retirement fund from investing in Chinese stocks and to slap new tariffs on China over the coronavirus crisis, while Apple and Amazon became the latest companies to warn of more pain in the future. As a result, the Emini wiped out virtually all of the weekly gains in one session.

Late on Thursday, Trump said his trade deal with China was now of secondary importance to the pandemic, as his administration crafted retaliatory measures over the outbreak. The threat confirmed that the global pandemic was now a top political issue for Trump who will seek to bash China as the US heads for the November election, and pulled attention back to the trade war between the world’s two largest economies that has kept global financial markets on tenterhooks for nearly two years.

Also weighing on sentiment was a 2.6% fall in Apple shares in premarket trading after the company said it was impossible to forecast overall results for the current quarter, even as it reported upbeat quarterly results. Amazon tumbled 5% after it warned it could post its first quarterly loss in five years as it was spending at least $4 billion in response to the coronavirus pandemic.

With European markets closed, equities dropped in the U.K., one of the few open markets, and the pound gave back some of this week’s gains as Prime Minister Boris Johnson pledged a “comprehensive plan” to lift the country’s lockdown, with details due next week. Stocks slumped in Tokyo and Sydney while most other Asian markets didn’t trade. While China was closed, China FTSE A50 Index futures, which trade in Singapore, were down over 4% as traders didn’t much like that a new trade war between the US and China may be imminent.

Wall Street fell on Thursday as grim economic data and mixed earnings prompted investors to take profits at the end of the S&P 500’s best month in 33 years, a remarkable run driven by hopes of reopening the economy from crushing virus-induced restrictions.

With global stocks posting their best month since 2011 in April spurred by a slowdown in coronavirus infections and $8 trillion promised in stimulus initiatives, earnings reports and economic data are serving a reminder of lasting pain. In addition to the disappointing earning reports from Amazon and Apple, data Friday showed South Korea’s exports plunged the most since the 2009, while a gauge of Japanese manufacturing did the same.

In FX, the Bloomberg Dollar Spot Index climbed for the first time in six days on the prospect of a renewed trade war, while the yen and Treasuries also gained on haven demand.  The offshore yuan was among the biggest decliners in emerging markets, weakening by the most in a month.

Yuan derivatives – the Australian and New Zealand dollars – led losses among Group-of-10 currencies following poor local economic data. The euro rose a third day to a two-week high, extending Thursday’s rally that was fueled by month-end demand.

In rates, Treasuries gained in a bull- flattening move, with 10- and 30-year yields falling by 4 basis points.

Crude dipped on Friday but heading for its first weekly gain in about a month as global production cuts began to take effect; gold rebounded from an earlier slump.

Looking at the day ahead, the calendar is a slightly lighter one thanks to the Labor Day public holiday in numerous countries. Data highlights include April’s manufacturing PMIs from the UK, Canada and the US, as well as April’s ISM manufacturing reading for the US as well. In addition to this, we’ll get the UK’s consumer credit and mortgage approvals for March, along with US construction spending for March too. Earnings releases include ExxonMobil, Chevron, Charter Communications, AbbVie and Honeywell International. Meanwhile, Exxon Mobil reported its first loss in 32 years.

Market Snapshot

• S&P 500 futures down 2% to 2,845.50
• STOXX Europe 600 down 0.6% to 338.02
• MXAP down 1.6% to 145.64
• MXAPJ down 1.1% to 473.45
• Nikkei down 2.8% to 19,619.35
• Topix down 2.2% to 1,431.26
• Hang Seng Index up 0.3% to 24,643.59
• Shanghai Composite up 1.3% to 2,860.08
• Sensex up 3.1% to 33,717.62
• Australia S&P/ASX 200 down 5% to 5,245.89
• Kospi up 0.7% to 1,947.56
• Brent Futures down 1.5% to $26.08/bbl
• Gold spot down 0.6% to $1,675.82
• U.S. Dollar Index down 0.02% to 99.00
• German 10Y yield fell 9.1 bps to -0.586%
• Euro up 0.1% to $1.0970
• Brent Futures down 1.5% to $26.08/bbl
• Italian 10Y yield rose 0.6 bps to 1.589%
• Spanish 10Y yield fell 7.6 bps to 0.723%

Top Overnight News from Bloomberg

• The euro-area economy could shrink as much as 12% this year and fail to return to its pre-coronavirus size until the end of 2022, according to the European Central Bank
• President Donald Trump is exploring blocking a government retirement fund from investing in Chinese equities considered a national security risk, a person familiar with the internal deliberations said
• U.K. Prime Minister Boris Johnson pledged a “comprehensive plan” to lift the lockdown that has crippled the economy, as he declared the U.K. has now passed the peak of the coronavirus outbreak. In his first press conference since recovering from Covid-19, Johnson promised to set out details next week on how businesses can get back to work
• The European Central Bank’s surprise tweaks to monetary policy amount to an effective interest-rate cut that puts banks on the front line of the euro-area economic recovery
• U.K. house prices rose last month before the full extent of the impact of the coronavirus pandemic hit the market, according to Nationwide Building Society
• The best month for global equities in almost a decade may be enough to convince investors the light at the end of the coronavirus tunnel isn’t a train, but the debate on what comes next is only just beginning as they adjust their focus to a financial landscape utterly changed by the pandemic

The tone in Asia was subdued owing to the mass closures in the region for Labor Day and following the negative handover from Wall St due to month-end rebalancing and with futures pressured after hours following mega-cap earnings from Amazon and Apple. Amazon shares declined around 5% in extended trade after mixed results in which the Co. missed on EPS but topped revenue forecasts and noted it expects to spend its entire USD 4bln of operating profit on COVID-related expenses, while Apple initially gained after it beat on top and bottom lines, boosted its share buyback by USD 50bln and raised its dividend, although the gains were only brief as the results were clouded by weaker than expected iPhone and iPad sales and after the tech giant refrained from providing a Q3 outlook. ASX 200 (-5.1%) was the laggard with downside led by heavy losses in the commodity related sectors and a slump in the top-weighted financials with selling exacerbated by profit taking after the index had rallied to its highest level in 6 weeks and notched its best month on record for April. Nikkei 225 (-2.8%) also suffered firm losses amid a slew of earnings and after Tokyo Core CPI data turned negative to trigger fears of a return to deflation, while reports also noted that PM Abe is to formally decide to extend the state of emergency due to coronavirus on Monday. As a reminder, markets in mainland China and Hong Kong were shut alongside most of the regional bourses, although China’s tensions with US remained in the spotlight after comments from US President who suggested he has seen evidence the virus had originated from the Wuhan Institute of Virology and that he can do tariffs to respond to China, with sources also later noting the US is considering blocking government retirement savings funds from investing in Chinese equities deemed a national security risk. Finally, 10yr JGBs were weaker amid spillover selling from T-notes which had reversed intraday gains and briefly fell below 139.00 amid heavy supply including Boeing’s USD 25bln 7-tranche offering, while JGB prices were also hampered by weaker demand at the enhanced liquidity auction for 2yr, 5yr, 10yr & 20yr JGBs.

Top Asian News

• Macau Casinos See Worst Month Yet as Gaming Revenue Plunges 97%
• SUVs Get Parked in the Sea and Reveal Scope of Auto Glut
• Stampede to Buy Euros at End-of-Month Fix Rattles FX Trading
• Biggest India Carmaker Clocks Zero Local Sales in April

Europe sees tumbleweeds amid mass closures in observance of Labor Day Holiday, as the UK’s FTSE 100 (-2.1%) remains the sole trading major index ahead of its market holiday next Friday. Sentiment remains on the backfoot, Nasdaq and Dow futures relinquished the 8800 and 24000 levels respectively before extending losses, as markets price in an escalation in US-Sino tensions after US President Trump threatened tariffs, whilst negatively perceived earnings from Apple (-3% pre-mkt) and Amazon (-4.5% pre-mkt) add further pressure to US equity futures. Apple beat on top and bottom line, but iPhone, iPad, and Mac sales fell short of forecasts. Amazon missed on EPS but topped revenue forecasts, albeit subscription services disappointed and the group expects to spend the entire USD 4bln of operating profit on virus-related expenses. Back to London, FTSE 100 sees most of its stocks in the red, with heavyweight Shell (-6%) continuing to be weighed on by its dividend cut alongside a broker downgrade and the pullback in the energy complex, BP (-4%) moves lower in tandem. Large-cap miners also reside towards the foot of the UK index as base metals take a hit from sentiment amid the prospect of escalating trade tensions between the world’s two largest economies: with Rio Tinto -3.7%, Glencore -5.3%, BHP -4%. On the flip side, RBS (+3.4%) is among one of the few gainers post-earnings after topping earnings and operating profit forecasts and despite Q1 impairments rising almost ten-fold YY to GBP 802mln from GBP 88mln.

Top European News

• Ryanair Cuts 3,000 Jobs, Challenges $33 Billion in State Aid
• Boris Johnson Pledges Lockdown Exit Plan With U.K. Past Peak
• Intu Drafts in Restructuring Chief as Talks With Creditors Loom
• ECB Says Economy Could Stay Below 2019 Level Through 2022

In FX, there was little respite for the Dollar in holiday-thinned volumes at the start of the new month due to Labour Day, but the DXY is clinging to or at least staying within sight of 99.000 by virtue of even more weakness in rival currencies amidst broad risk-off sentiment following US President Trump’s latest accusatory comments regarding COVID-19 and threat of reprisals against China, including more trade tariffs.

• GBP – Not the biggest G10 mover by a long chalk, but volatile given that the UK is one of the only European centres open on May 1st. Moreover, some payback after hefty month end gains has ensued, with Cable backing off further from 1.2600+ highs after failing to sustain momentum to test mid-April peaks and a key technical level in the form of the 200 DMA (1.2648 and 1.2654 respectively). Meanwhile, the Pound is also unwinding more upside vs the Euro as the cross rebounds further from sub-0.8700 levels towards 0.8750 and back above the 200 DMA yet again (now around 0.8722) on the usual RHS for fixing dynamic. For the record, an even weaker than prelim manufacturing PMI, collapse in consumer credit and miss in mortgage approvals were all largely brushed aside, along with significantly stronger than forecast Nationwide house prices.
• AUD/NZD/CAD/NOK/SEK – The major laggards, and in the case of the Aussie and Kiwi also the notable underperformers as overall aversion is compounded by a bearish research note from Westpac overnight. In short, the bank based its bleak outlook for the Antipodeans on prospects of ‘brutal’ earnings and data in coming weeks, and on that note AIG manufacturing PMI plunged deep below 50, while ANZ consumer confidence dropped to sub-100. Aud/Usd has duly retreated from 0.6500+ to under 0.6450 and Nzd/Usd has lost grip of the 0.6100 handle with Aud/Nzd pivoting 1.0600. Elsewhere, the Loonie has detached further from its close crude correlation, albeit with oil prices recoiling this is also keeping Usd/Cad afloat near 1.4050 vs 1.3850 at one stage on Thursday, pending the possible appointment of a new BoC Governor later today and Canada’s manufacturing PMI. Similarly, the Scandinavian Crowns have been scuppered by the downturn in crude and risk appetite, with Eur/Nok and Eur/Sek both nudging the tops of ranges near 11.3300 and 10.7500 respectively.
• JPY/CHF/EUR – All benefiting from the aforementioned ongoing Buck weakness, as the Yen bounces from circa 107.40, Franc eyes 0.9600 and Euro grinds closer to 1.1000 having breached the 55 DMA (1.0949) and yesterday’s best (1.0972) to expose resistance at 1.0991 before the 200 DMA (1.1035).
• EM – The ramp up in US vs China vitriol over the coronavirus has obviously taken its toll on the Yuan, as Usd/Cnh extends beyond 7.1300, but the contagion is spreading through the region like the global pandemic itself with Usd/Try up around 7.0400, Usd/Rub back over 75.0000 to name and highlight just a few.

In commodities, WTI and Brent futures gave up earlier mild gains as the positive sentiment seen earlier in the week peters out, whilst a lion’s share of market closures in Asia and Europe keep volumes subdued. Today marks the official inauguration of the OPEC+ output curtailment pact, albeit markets have already priced in the event. “The output cuts while significant may not be enough to fully offset demand destruction in the global market in the short term and the inventory build-up could continue for the rest of 2Q20, though at a slower pace”, ING reaffirms. That being said, reports noted that Iraq could face difficulties in adhering to its obligations under the deal. WTI June trades on either side of USD 19/bbl for a large part of the session before dipping below the psychological USD 18.50/bbl (high USD 20.50/bbl), whilst Brent July also resides closer to the bottom of its current USD 27.67-29.67/bbl intraday band.  Spot gold remains on the backfoot sub USD 1700/oz, with some attributing a correction amid a lack of fresh buyers. Copper continues its deterioration throughout the session on the risk-averse tone and absence of regional participants including its largest buyer China – prices eye the 24th Apr low at USD 2.30/lb.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 36.7, prior 36.9
• 10am: Construction Spending MoM, est. -3.5%, prior -1.3%
• 10am: ISM Manufacturing, est. 36, prior 49.1
• Wards Total Vehicle Sales, est. 7m, prior 11.4m

DB’s Jim Reid concludes the overnight wrap

Happy 1st of May to you all. We’ve already published our monthly performance review in what was the best month for the S&P 500 since January 1987. It was on track to be the best since October 1974 until the mild sell off yesterday. See the note in your inboxes for more on an incredibly strong month for asset returns in a period where the world economy practically ground to a standstill. Impressive stuff. Try explaining that to a new graduate. You’d probably want to send them towards a chart of the Fed balance sheet to help try to rationalise it.

Talking of central banks, yesterday’s main news came from the ECB, who in many ways reverted to type. They always pull out the heavy artillery in the heat of the battle but tend to retreat a bit when hostilities calm down. Although they announced that the interest rate on TLTRO III operations from June 2020 to June 2021 would be reduced to 50bps below the refi rate they didn’t increase PEPP (not expected at this stage) and most importantly downplayed the chances of OMT being used. Before we discuss the OMT we should note that for those banks whose net lending is above the lending performance threshold, the interest rate falls to 50bps below the average deposit facility rate, which is itself 50bps below the main refinancing rate. Furthermore, the ECB announced a new series of non-targeted pandemic emergency longer-term refinancing operations, which will start in May 2020.

The conclusion is that its lots of free money for banks, especially if they can lend it out. However the net impact was disappointment for European equities (including banks) as Lagarde downplayed the imminent use of the OMT and argued that the PEPP is the weapon of choice. The main issue with this is that OMT can be used more efficiently to divert from capital keys and help the likes of Italy. They may end up having to do more now with PEPP than they would have with a combination of OMT and PEPP. See Mark Wall’s piece on the meeting here. As a result of the meeting, the main European equity bourses were -2 to -2.25% lower with banks -5.5%.

Core sovereign debt rallied with yields on 10yr bunds falling by -9.1bps to a 7-week low of -0.586%. 10yr spreads widened somewhat in southern Europe however, particularly for Italy, where the spread over bunds was up +9.8bps, while Greece (+7.2bps) and Spain (+1.5pbs) also saw moves wider. The 2yr BTP/Bund spread was actually tighter which perhaps highlights not too much market concern over the ECB message. Over in the US, 10yr Treasury yields were down as much as 4.6bps to 0.58%, less than 5bps away from their all-time record closing low, before spiking higher in the US afternoon session to finish +1.2 bps higher at 0.639%.

Poor economic data along with negative earnings news saw equities give up their gains as we reached month-end, with the S&P 500 falling by -0.92% yesterday, while the VIX index of volatility, which had been trending downward from its highs in mid-March, saw its biggest increase in over a week, up +2.92pts to 34.15pts. Roughly 80% of the stocks in the index were lower on the day. Interestingly the two best performing subsectors in the US were Retailing and Technology Hardware. Both were led higher by their largest respective components, Amazon and Apple, which both reported after the close.

In terms of those earnings yesterday, Apple was down -2.59% after the market closed. This was even after the company saw quarterly earnings rise 1%, as CEO Tim Cook cited a drop in demand in late March/early April before rebounding in recent weeks. Though sentiment shifted more negative as the company declined to offer guidance for the first time in over ten years. Amazon was down -5.09% in after-hours trading after announcing a profit drop of 29% in the first quarter. The company offered a very wide range for operating income in the second quarter of a $1.5 billion gain to a $1.5 billion loss. The company is expecting to spend nearly $4 billion on “Covid-related expenses getting products to customers and keeping employees safe,” according to CEO Jeff Bezos.

Futures on the S&P 500 and NASDAQ are down -1.41% and -1.91% this morning respectively post those results. Those markets that are open in Asia this morning haven’t fared much better with the Nikkei down -2.49% and ASX -3.50%. In FX the dollar index is up a modest +0.12% while 10y Treasuries are down 2.2bps. The only data of note to flag this morning were the April export numbers in South Korea which revealed a larger than expected decline of -24.3% yoy (vs. -23.0% expected). That’s the biggest decline since May 2009.

Back to central banks, the Fed separately announced yesterday that it was expanding the scope and eligibility for its Main Street Lending Program. Businesses with up to 15,000 employees or up to $5bn in annual revenue are now eligible, an increase from before when it was up to 10,000 employees and $2.5bn in revenue. Furthermore, the minimum loan size for certain loans would go down from $1m to $500,000, and there’d also be a new loan option for more leveraged companies where lenders would retain a 15% share on loans.

The central bank moves came against the backdrop of some of the worst GDP stats we’ve seen in many years yesterday. Starting with the overall Euro Area number, Q1 saw the economy contract by -3.8% compared with the previous quarter, in line with expectations and the largest quarterly contraction since the formation of the single currency back in 1999. However as we’ve been saying, given the lockdowns only started at the end of the quarter in March, this actually gives an incomplete picture of the extent to which the economy has shrunk, and we’re not likely to see the largest moves in the data until Q2. Indeed, ECB President Lagarde said in her press conference yesterday that in a severe scenario, their Q2 forecast pointed to a contraction as large as -15%.

Looking at the country-by-country releases where we got them, the French economy saw a quarterly contraction of -5.8% (vs. -4.0% expected), the largest quarterly decline in the data series going back to 1949, and exceeding the -5.3% quarterly decline in Q2 1968 when the country was gripped by social unrest. Following the previous quarterly -0.1% decline, this means the French economy has now experienced two consecutive quarterly contractions, a measure which is often taken to be the definition of a recession. Over in Italy, the economy contracted by -4.7% (vs. -5.4% expected) and on a technical basis went into its 6th recession of the Euro era. This one will only be Germany’s 5th over the same period. Meanwhile the Spanish economy saw a -5.2% (vs. -4.3% expected) contraction.

The only one of the 4 largest Euro member states left to report GDP is Germany now, and given all three of the others above came in worse than the Euro Area average, this implies that Germany could well have done significantly better than the others when we get their data in a couple of weeks (our economists think maybe -1.5%). It’s also noticeable, if unsurprising given the virus struck Europe first, that the Euro Area did much worse than the US. The US number from the previous day of -4.8% was on an annualised basis, meaning that the comparable quarter-on-quarter contraction for the US was “only” -1.2%, much smaller than the -4.8% decline in the Euro Area.

Staying on the ECB and the Euro Area, the flash CPI estimate for April yesterday came in at +0.4%, which the lowest inflation print since September 2016, though still above the +0.1% reading expected. The main reason for the decline was energy prices, which fell by -9.6% compared with a year earlier thanks to the recent plunge in oil, and the core CPI component was at a higher +0.9%. And speaking of oil, yesterday saw yet another rebound in prices, with WTI up +25.10% at $18.84/barrel, bringing its gains over the last two sessions to +54.70%. Brent crude also advanced with a +12.11% increase to $25.27/barrel. There was also news that ConocoPhillips will cut output by over 400k barrels a day in June. Norway also said it will reduce production yesterday. With the Nordic country producing 250k less barrels a day in June and then cutting 134k barrels during the second half of the year.

Looking at yesterday’s other data, the weekly initial jobless claims from the US provided yet another sign of how the economy has continued to slide well into April. Initial claims were at 3.839m in the week to April 25, above the 3.5m consensus expectation, while the previous week’s reading was revised up by further 25k. While this is the 4th week in a row that the number has declined, down from a peak of 6.867m in late March, the total number of claims in the last 6 weeks now stands at over 30m. Given the pre-covid number of nonfarm payrolls in February stood at 152m, we’re looking at around 20% of the labour force having now sought unemployment benefits, so some shocking numbers, and all eyes will be on the jobs report for April coming out a week today, where it’s widely expected we could see the highest unemployment rate for the US since before WWII.

Concluding with the final data points now, and German retail sales in March fell by -5.6%, the biggest monthly decline since January 2007, while the number of jobless claims rose by 373k in April. In the US, personal spending fell by a record -7.5% in March, the largest in data going back to 1959, while personal income was down -2.0%. The MNI Chicago PMI fell further to 35.4, and French consumer spending in March saw a monthly decline of -17.9%, far exceeding the -5.8% reading expected.

To the day ahead now, and the calendar is a slightly lighter one thanks to the Labour Day public holiday in numerous countries. Data highlights include April’s manufacturing PMIs from the UK, Canada and the US, as well as April’s ISM manufacturing reading for the US as well. In addition to this, we’ll get the UK’s consumer credit and mortgage approvals for March, along with US construction spending for March too. Earnings releases include ExxonMobil, Chevron, Charter Communications, AbbVie and Honeywell International.

Directly addressing the allegations that have upended his stalled campaign, former VP Joe Biden issued a statement denying sexual assault allegations made by Tara Reade – a former staffer who claims Biden digitally penetrated her against her wishes back in 1993

In the statement, Biden said the alleged assault “never happened” and that his papers at the University of Delaware include no mention of the incident.

The statement begins: “So I want to address allegations by a former staffer that I engaged in misconduct 27 years ago. They aren’t true. This never happened.”

In statement, Biden denies sexual assault allegation and says his papers at the University of Delaware don’t include any such record. Said accuser’s story has been inconsistent. “This never happened.” pic.twitter.com/ifFZ6nJV1m

— Manu Raju (@mkraju) May 1, 2020

UDel said yesterday it had no plans to release Biden’s papers.

The statement comes as MSNBC’s “Morning Joe” airs a supposedly “unscripted” interview with Biden over the allegations. However, a clip from the pre-filmed segment portends a flurry of softball questions, answered with the help of a teleprompter.

Here’s a photo of the teleprompter Joe Biden will likely be relying on this morning to answer questions about Tara Reade. pic.twitter.com/HuAgYEJAKh

— Trump War Room – Text TRUMP to 88022 (@TrumpWarRoom) May 1, 2020

Today’s MSNBC “exclusive” with Joe Biden is not a serious, unscripted reckoning.

It’s a fan club running interference for another friend. pic.twitter.com/Bxart1L3cp

— Trump War Room – Text TRUMP to 88022 (@TrumpWarRoom) May 1, 2020

Even the NYT is questioning why the major cable news organizations (aside from Fox News) have been reluctant to put Reade herself on the air. She has chosen to give her ‘exclusive’ interview to Fox News (rumor has it Chris Wallace, the network’s most reputable newsman, will conduct the interview).

 

 

After a banner April that saw US stocks notch their best monthly performance since the 1980s even as oil for May delivery slumped into negative territory and millions of jobs evaporated, US futures on are track to open deep in the red on Friday, as President Trump ratchets up the pressure on China and the media squabbles over whether he purportedly claimed to have seen evidence the virus was designed by the Chinese as a ‘bioweapon’ (that’s not even close to what he said) – but, since the Intel Community had released a report a few hours earlier claiming there was no evidence the virus was man-made, the mainstream press was desperate to make the president’s comments fit their narrative.

Since the “Chinese virus” imbroglio, we have been continuously baffled by the degree to which the American media, as well as the American left, has run interference for China. And apparently, we’re not alone in that…

This is a fucking lie

Question: “Have you seen anything at this point that gives you a high degree of confidence that the Wuhan Institute of Virology was the origin of this virus?”

Trump: “Yes, I have. Yes, I have”

Trump was not talking about the virus being “created” in a lab https://t.co/KqcF3mj7yZ

— Ryan Saavedra (@RealSaavedra) April 30, 2020

…moving on.

With most of Asia and Europe closed for ‘May Day’, the biggest news overnight comes out of the US and the UK. Following clashes between hundreds of “reopen now” protesters and state police at the Michigan State Capital in Lansing last night, Gov. Gretchen Whitmer managed to extend her badly-hit state’s strict stay-at-home order for another 28 days, even as the Republican-led legislature decided against extending Whitmer’s emergency declaration (so she did it herself).

Elsewhere, Texas officially reopened its economy on Friday as Gov. Greg Abbott ordered restaurants and retailers in the state should be allowed to reopen. His order will override orders from local officials, including in cities like Houston where the state’s outbreak has been centered.

Still, to say that Texas is taking things “back to normal” would be a tremendous exaggeration. Counties with fewer than five active cases of COVID-19 can reopen businesses at 50% capacity, which Abbott on Monday said would apply to nearly half of Texas’ 254 counties. Everywhere else, which is where the vast majority of the state’s roughly 30 million people live, can open back up at 25% capacity.

According to the Hill, Republicans believe Abbott is making the right decision given the economic devastation the pandemic has wrought.

In Texas alone, 1.5 million people have filed for unemployment over the last six weeks, with 254,199 claims coming last week alone. Republicans argue that voters can responsible enough to make their own decisions, and encouraged everyone to continue following ‘social distancing’ principles when in public. However, the governor is also facing pushback from big-city mayors who are overwhelmingly Democratic.

Austin Mayor Steve Adler made the economically devastating but undoubtedly necessary decision to cancel Austin’s SXSW Festival, and later issued a stay at home order for his city. Adler also released regulations that would impose fines on residents not wearing masks in stores. The cities of Dallas, Houston, El Paso, and San Antonio followed suit with their own stay at home orders. The state has fewer than 30k confirmed cases, and fewer than 1k deaths, meaning Texas does not rank among the worst-hit US states.

Texas and Georgia (which is heading into its second weekend of reopening) will be joined by more than a dozen other states, including some blue states, that will allow millions of Americans to return to stores, restaurants and movie theaters this weekend. They include: Ohio, Massachusetts, Minnesota, Arizona and Washington, among others.

While the staggering death toll and insurmountable horror of this outbreak simply can’t be ignored, neither can the fact that roughly one in five working-age Americans have sought unemployment benefits. That hints at some Depression-level unemployment coming down the pike, WaPo reports.

Dems freaked out over VP Pence’s decision to not wear a mask during a visit to the Mayo Clinic (he’s the VP, nobody ever gets within 6 feet of him), and we suspect there will be no shrotage of hand-wringing over President Trump’s trip to Camp David on Friday, his first trip away from the White House since the lockdowns began.

And as the White House’s social distancing guidelines expired on Thursday, leaving states to make all decisions going forward, Dr. Fauci warned some states to avoid “leapfrogging” critical milestones in an effort to open up more quickly, saying a premature reopening would come with “significant risks.”

Authorities around the world were preparing to closely monitor May Day marches as leftists from Greece to Germany vowed to ignore the bans, risking a repeat of the ‘International Women’s Day’ marches in Madrid which helped kick off the outbreak in Spain.

Finally, before we go, another egregious example of China shipping shoddy products has surfaced in the UK, where a group of doctors warned that 250 ventilators brought to the UK from China could cause “significant harm to patients…including death” if used in a hospital setting. The ventilators – like PPE sold to hospitals in Spain by China recently – are apparently defective.

Authored by Sven Henrich via NorthmanTrader.com,

The Fed poisons everything, and I mean everything. From markets, the economy, and I will even go as far as politics. Sounds far fetched? Let me make my case below. But as much as the Fed poisons everything, this crisis here again reveals a larger issue: The system is completely broken, it can’t sustain itself without the Fed’s ever more monumental interventions.

These interventions are absolutely necessary or the system collapses under its own broken facade. And this conflict, a Fed poisoning the economy’s growth prospects on the one hand, and its needed presence and actions to keep the broken system afloat on the other, has the economy and society on a mission to circle a perpetual drain.

So how does the Fed poison everything?

Let’s start with the Fed actual process of working towards its stated mission: Full employment and price stability.

How does it do that? Well, for the last 20 years mainly by extremely low interest rates and balance sheet expansion sprinkled with an enormous amount of jawboning. The principle effect: Asset price inflation.

It’s not a side effect, it’s the true mission. The Fed has been managing the economy via asset prices even though Jay Powell again insisted on saying the Fed is not targeting asset prices.

This is a lie. And I can prove it with one chart. Cumulative $NYAD, the flow into stocks versus M1 money supply:

It was not until the Fed flooded markets with cheap money creating the housing bubble that the $NYAD equation changed dramatically, and it was not until the GFC that the Fed went full hog wild on M1 money supply that $NYAD went full vertical alongside of M1. TINA! There is no alternative. Forcing money into equities to manage the economy with a rising stock market.

And guess what? They just saved the $NYAD trend again by going vertical on M1 in a fashion never seen before. All this despite $SPX clearly breaking its long term trend. So yes the Fed is targeting asset prices and Powell is lying when he says the Fed isn’t.

And the entire market knows this. Wall Street knows this. Why? Because the market is a follow the Fed machine long trained to jump back into equities at any sign of Fed action jawboning and promises. It’s no accident that “don’t fight the Fed” is popular mantra. It’s the very proof that market participants know that the Fed is in effect targeting asset prices. Just look at the past year and a half:

And of course this has been going on for years, whenever markets get into trouble here comes the Fed or other central banks with interventions and markets rally, here a long term with M1 money supply thrown in:

Recklessly widening the wealth inequality equation in the process. What happens when you have a slow growth recovery for 10 years and all the wealth benefits going disproportionally to the top 1% who own most of the assets that are targeted while real wage growth stagnates? For one you have a sizable portion of society that doesn’t have a pot to piss in, behind in bills, struggling to pay rent, little to no savings or retirement, taking on multiple low paying jobs with no benefits while real estate prices keep rising as the wealthy keep squeezing people out of neighborhoods. What? You think it’s a coincidence that people have to commute farther and farther to their jobs because they can’t afford housing in the areas where they work? Check San Francisco and Silicon Valley housing prices and commute stories. It’s a horror story.

And so what happens when we have a crisis such as this? Millions needing help immediately, food banks lined up with thousands in line waiting for help and food. A population not able to sustain itself for lack of savings and resources exposing the structural weakness of our broken system. After a 10 year recovery with 3.5% unemployment people should be well off. They are not. Far from it.

And the Fed knows wealth inequality is a huge problem. Powell said so himself in 2019:

“Sluggish productivity and widening wealth gap are the biggest challenges facing the U.S. over the next decade, Federal Reserve Chairman Jerome Powell said Wednesday. Speaking at a town hall in Washington D.C. to a group of educators, the central bank leader said his greatest economic fears lie outside the Fed’s purview. Specifically, he called for more aggressive policies to address income inequality. Wages at the middle and lower levels have “grown much more slowly” than those at the higher end, he said. We want prosperity to be widely shared. We need policies to make that happen,” Powell added.”

Outside the Fed’s purview. Really? No. Why? Because the Fed keeps insisting on bailing out Wall Street.

And the cost is huge. Don’t think for a second that the  political polarization we’ve seen over the past 20 years is an accident. It’s the natural consequence of anger within the larger population that feels left behind, is economically struggling and is being squeezed out and forced into 2 jobs, debt loads, and a general sense of angst. The perfect breeding ground for radicalization, populism and apathy at the same time.

And this anger only gets stirred further now as it’s clear who is again being saved by the Fed. Markets:

Price discovery pic.twitter.com/eIOqnlhNnp

— Sven Henrich (@NorthmanTrader) April 29, 2020

We may now have the 30M new unemployed people but market damage has once again been contained. Why? To minimize the economic damage so the Fed’s rationale.

The end results: With inequality is skyrocketing even further as millions are unemployed and many more are losing incomes while the shareholders and executives and those with larger retirement funds can take solace that the damage to them is minimized. No one can with a straight face claim that the trillions in Fed balance sheet expansion have not greatly contributed to the Nasdaq’s move to green and back above the February 2020 lows making shareholders not only whole but back in profit for the year despite the largest economic crisis of our lifetimes:

$NDX futures a mere 7% from all time human history highs and higher than February’s lows. pic.twitter.com/3Q0eLTrLFa

— Sven Henrich (@NorthmanTrader) April 29, 2020

Perversion in print. But don’t expect any sign of a guilt conscience on the side of the Fed. Expect hypocrisy. Wealth inequality is bad, but it’s not in our purview even though we drive it with our policies. But the Fed can afford hypocrisy. It’s not challenged. By anyone. Not by Congress which benefits from the license to do nothing implicitly provided by the Fed bailing everyone out all the time. Who needs to implement change when the Fed always comes to the rescue? Nobody big gets to fail.

The Fed can’t be challenged by the population, a population that has no say in the Fed’s role, has no right to elect or fire its leadership, heck, largely doesn’t even know what the Fed does.

Nor is the Fed challenged by the press who never presses the Fed on its failings of broken promises, their inability to normalize their balance sheet, their role in driving inequality nor their role in driving ungodly debt levels in society.

Where do you think record debt comes from? Cheap money of course, the very cheap money the Fed has provided. Oh but the debt is bad. Here another pretend handwringing from Jay Powell:

 “Federal Reserve Board chairman Jerome Powell told Congress that now would be a good time to reduce the federal budget deficit, which is expected to top $US1 trillion ($1.5 trillion) this year. “Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilising the economy during a downturn.”

These words were uttered just last November when the deficit was projected to be $1 trillion. Now that the deficit will be nearly $4trillion instead this year due to the crisis he now says it’s not the time not to worry about the debt and deficit. When, exactly, is the time?

Intellectual bankruptcy:

We’re witnessing full intellectual bankruptcy here.
Nothing matters.
Don’t worry.
Just spend.
Whatever it takes.
Consequences be damned.
No checks, no balances. No accountability.

Powell 2019: Debt not sustainable.
Powell 2020: Go wild & don’t worry about it.

— Sven Henrich (@NorthmanTrader) April 29, 2020

And never mind being held to account for moving the goalposts as past predictions and promises continue to be broken. The Financial-Industrial Complex Keeps Moving the Goalposts Dan Nathan called it this morning:

 “I have tried to highlight one simple fact, the Financial-Industrial Complex (you know who they are) wants to keep you in the markets and generally optimistic…their strategists and economists keep moving the goalposts, and they know that in desperate times they can rely on the Fed to take desperate measures.”

Daddy Fed is always there to keep the pain away giving cover and license to make no changes. The Fed in its arrogance is not copping to its role, part and responsibility of this vicious cycle it has created.

Instead we have to recognize the Fed will not stop at anything. There is no voice that says this is enough, or too much or it’s creating distortions.

Yesterday markets closed at 138% market cap vs GDP:

In the past large recessions brought market valuations down as bubbles deflated, and despite the pain with high unemployment wealth inequality was reduced. Not now, the Fed is blowing another bubble and is expanding wealth inequality. And the problem has not gone unnoticed. Via Bloomberg:

The Pandemic Will Reduce Inequality—or Make It Worse:

“The rich got even richer after the Great Recession, but the Great Depression changed the social order. From 1929 to 1932, the top 0.1%’s share of all U.S. household wealth plunged by a third, and the top 0.01%’s portion fell by half—a funhouse-mirror opposite of their 2007-10 surge.

The 1929 Wall Street crash helped create a new economic order in the U.S. called welfare capitalism. With the New Deal, American workers gained a safety net. With World War II, they won leverage with employers and higher wages. The owners of the means of production—well, they didn’t do as well. By 1950 the very richest Americans, the top 0.01%, controlled just 2.3% of the nation’s wealth, less than a quarter of their share in 1929. Meanwhile, the bottom 90% of households had doubled their share”.

What’s happening now is a repeat attempt of the 2009 crisis. All wealth benefits again go toward the top 1% who control all wealth, all the land and all the power and employees will be left to hold the bag again.

And so here we are. $NDX higher than the February lows, only 7% from all time highs. $SPX 9% down year to date. None of it has anything to do with fundamentals. Not a thing.

As Citi said yesterday: 

“The gap between markets and data is the largest on record. When limitless liquidity meets spiraling insolvency there’s bound to be a long-term price. Unlimited liquidity can postpone debt problems but not fix them.”

And that’s exactly right, but Jay Powell doesn’t care. He went full fiat yesterday. This is not a time to worry about debt or deficits he said. Fine, burn the house down while you’re trying to save it.

But we need to pay attention to all this, the Fed is the biggest market force at the moment and they are creating again the biggest market bubble known to man. And they were very clear in what they were saying yesterday:

“the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Translated:

BREAKING: Fed will never raise rates again.

— Sven Henrich (@NorthmanTrader) April 29, 2020

For when does anyone think we will go back to full employment? Bond traders have now priced in zero rates until 2024. We will also have multi trillion deficits for years to come. And who will benefit from all this? The bottom 90%? We’ve seen this movie before and it’s brought us to where we are now.

And not to go political, but be clear: Doesn’t matter who gets elected in November from a deficit perspective, they will all run huge deficits. It’s basically setting us up for slow growth which means we will never get back to full employment which means we will have zero rates forever. The cycle of doom here, it’s unfathomable.

No, the Fed poisons everything. Markets, the economy, even politics. Its actions have a wide spread impact on society, but because the cycle has become so vicious and debt and wealth inequality so prevalent ever more interventions are required to keep the system afloat. So the Fed is employing the same measures it did before but on a grander scale.

Now imagine if the Fed didn’t intervene with trillions of dollars. What would happen? Markets would collapse, debt would be crushingly unsustainable and the system would collapse. And then what? Have you forgotten the 1929 example already? Wealth inequality would shrink, a new economic order would emerge, the middle class would grow as opposed to shrink and have higher incomes as they would have more bargaining power, a New Deal. Sounds good? No, the financial industrial complex doesn’t want that, it’s a big club:

No, perhaps the truth is much more sinister than that.

And that is:

The system is not broken, it’s designed to function exactly as it is, because it benefits precisely the very same people that control it. Who controls the Fed? Not you or I or anyone we know. But you know who benefits the most from the Fed.

*  *  *

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The race is on: gig workers are anxiously awaiting benefits from the government as May rent is just hours from coming due.

And despite the fact that New York State has said it is working its way through the voluminous outstanding unemployment claims, many gig workers are still waiting behind those who are claiming regular unemployment, to receive benefits. 

The $2.2 trillion CARES Act includes unemployment for both regular workers and gig workers. New York has already paid out more than $3.1 billion in unemployment to more than 1.4 million people in the last 6 weeks alone. 

New York still has about 400,000 unemployment claims pending, according to Bloomberg. It is difficult to make progress on the backlog as new claims continue to come in. “An additional 207,172 unemployment claims were filed the week ending April 18, up 1,591% from the year prior,” Bloomberg noted.

Secretary to the Governor Melissa DeRosa said on Tuesday:  “The majority of those are the pandemic unemployment insurance. The problem is that as we get the backlog down in the previous weeks, that continues to build. We’re still getting claims in real time.”

The backlog is partially due to the timing of the law that took effect on March 27. DeRosa commented: “The feds then put guidance out that said you have to apply for unemployment insurance, get rejected and then apply for pandemic unemployment insurance, which was a complete disaster.”

As government was running the unemployed through bureaucratic red tape, it also decided to shoot itself in the foot when the “labor department staff accidentally mailed out some personal information, including Social Security numbers, to the wrong applicants” due to a human error.

Your tax dollars at work. And hey, don’t worry, the state is providing “free credit monitoring” to make up for it. 

Meanwhile, the people who have been filing for unemployment, like Elise Milner, an independent off-Broadway director and playwright, don’t know how long they’ll have to wait and have bills coming due in hours.

“Online I’m being told that I’d probably have to wait six weeks, but I know a lot of people who put their claim in before mine and they’re still waiting,” Milner commented. 

She tried to submit her application on April 1 but couldn’t finish the online application and was “booted” off of the site. She then tried to call the state’s unemployment office. “I tried calling 22 times the first time and I got a busy signal,” Milner said.

When she finally was able to submit her online application, the phone interview that was required happened unexpectedly at 7AM on Easter Morning. Milner was asleep, with her phone on silent. When she got a second call, days later, the person couldn’t tell her when her benefits would be paid. 

New York rideshare driver Syed Husnain Zaidi said he submitted a claim on March 20 and still doesn’t have benefits. The agency called him on April 13 and told him he was “all set”.

Since then, he has gotten no word. “It’s very frustrating,” he said. 

Nationwide lockdowns and a public health crisis sparked by the outbreak of COVID-19 has caused severe economic damage across the UK manufacturing sector, which suffered its “worst month in history” in April, a new report via IHS Markit suggests. 

The closely watched survey on Friday showed one of the worst month-on-month contractions in manufacturing output, employment, new orders, and new export trade on record. The headline number on the Markit/CIPS Purchasing Managers’ Index (PMI) crashed to 32.6 in April, down from 47.8 in March. 

“The fall in the Manufacturing PMI (which is a composite of five indices) was softened by a comparatively modest reduction in stocks of purchases and record lengthening of vendor lead times (which has an inverse contribution to the PMI level). Survey data were collected between 7-27 April. Response levels were similar to those observed before the outbreak,” the report said. 

“The survey-record contractions in output, new orders, employment and new export business were felt across the manufacturing sector, with series-record declines in each of these variables seen across the consumer, intermediate and investment goods sub-industries. Companies linked the declines to the consequences of the COVID-19 outbreak, particularly regarding company closures, weak domestic and global demand and labour shortages (following job losses and staff furloughs). In the few cases where companies reported an increase in either output or new orders, this was generally from those producing (or repurposed to produce) medical- or food-related goods.

“Business sentiment also remained low by the historical standards of the survey in April. Although companies still forecast (on average) that output would be higher one year from now, the degree of positive sentiment was up only slightly from March’s record low. While the hardship caused by the ongoing pandemic continued to depress confidence, some manufacturers indicated that an end to (or at least an easing of) the COVID-19 crisis would hopefully lead to a restart of economic activity both at home and abroad.

“Vendor lead times lengthened to the greatest extent in the 28-year survey history, reflecting logistical issues, border difficulties for overseas goods and delays to shipping and air freight. Some manufacturers also experienced constraints due to closures or capacity shortages at suppliers. This was despite a series-record reduction in purchasing activity. Stocks of inputs and finished products both decreased during the latest month.

“Price inflationary pressures remained only mild during April. Average input costs rose only slightly and to the least marked extent in the current five-month sequence of increase, as higher prices resulting from shortages and transportation costs were partly offset by lower oil prices and some suppliers lowering their charges in the face of weak demand. Selling price inflation was at a near four-year low.”

Commenting on the absolutely horrific PMI print, suggesting the British economy is heading for a deep recession, if not depression, is IHS Markit’s Rob Dobson: 

“UK manufacturing suffered its worst month in recent history in April, as output, orders books and employment all fell at rates far surpassing anything seen in the PMI survey’s 28-year history. Huge swathes of industry were hit hard by company closures, weak global demand, lockdowns and social distancing measures in response to COVID-19. The only pockets of growth were seen at firms making medical and food products.

“Supply-chains also felt the full force of the outbreak as average supplier delays rose to the greatest extent seen since PMI records began. International goods flows were constrained by delays in air freight, shipping and border control issues, and staff shortages often limited production.

“Inflationary pressures are remaining in check at the moment, linked to weak demand and collapsing global oil prices, but persistent shortages could start to drive some prices higher, notably for food.

“The outstanding question remains how long the current restrictions will need to remain in place, and which sectors can start to safely reopen. The pressure is mounting, as the longer the global economy remains in lockdown the greater the cost to industry will grow, and the greater the likelihood that more jobs will be cut.”

Also commenting is Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:

“Last month’s dismal predictions became a reality in April as the manufacturing sector took an abrupt nosedive into the red with purchasing activity, production and new orders falling at the fastest rates in the near 30-year survey history.

“There was only one reason for such a ruinous result – the COVID 19 coronavirus pandemic which affected supply chains from beginning to end. Domestic customers deferred orders and export customers thrashed around trying to source a dwindling number of raw materials to keep their supply chains operating before finally giving up. Complicated by government edicts terminating normal business activity, UK companies were forced to put factories on lockdown anyway bringing their operations to a complete stop.

“With the expectation of potential price rises to come, some firms resorted to stockpiling measures in an attempt to beat future supply pandemonium which only exacerbated the problem of dysfunctional supply chains. Some sectors such as food and medical supplies were able to continue but obstacles in logistics and transportation as borders closed and social restrictions were implemented meant usual activity was beyond difficult.

“There is no comparable time in history to make predictions against but as production ramps up again in the Far East, the sector remained optimistic that in a year’s time the operating environment will resemble some new normality.”

The final print on April manufacturing activity was even lower than the flash reading released earlier this month, a sign that the outlook for UK businesses has deteriorated further as millions of Britons feared there was no end in sight for the countrywide lockdown. Though on the last day of the month, Johnson laid out some broad-strokes guidelines for reopening the economy – ending the month with a glimmer of hope.