The Market Today
16.8 Million Unemployed Persons in Three Weeks
by Craig Dismuke, Dudley Carter
Case Growth Increases in Key Areas but French Revise Figures Lower: Almost 50k new cases were confirmed globally over the past 24 hours, a daily growth rate of just 3.4%. The overall case count was skewed, however, by a reduction of 26.9k in French cases as the country apparently changed their methodology. With the revisions, France’s confirmed-case fatality rate rose from 9.4% to the highest on record at 13.1%. In Italy, the number of new cases was the highest in three days. In the U.S., the growth rate ticked up again as several hotspots continue to show rapid growth. Cases in New York rose 7.6%, an increase from the previous day’s rate. Total fatalities reported globally is now 89,435 which includes 6,286 over the past 24 hours. While there have been some signs for optimism over the past week, the past 24 hours has been a bit more discouraging.
Another Fed Funding Program – $2.3 Trillion Funding for PPP Loans: The Federal Reserve set up yet another liquidity/funding program this morning, its seventh of the crisis. This morning, they announced the Paycheck Protection Program Lending Facility (PPPLF), a facility which will provide depositories funding collateralized by PPP loans. The $2.3 trillion program will run through September 30, 2020. The Fed will charge a rate of 0.35% and the terms will match the terms of the underlying PPP loan. Depositories originating PPP loans will receive 1.00% interest per the terms issued by Treasury last week.
Survey of Depository Institutions on COVID-19 Deferment/Forbearance: In the interest of better understanding how depositories are responding to borrower needs during the COVID-19 crisis, we are collecting data through a survey about Deferment/Forbearance offerings. The survey is brief and should take no more than a couple of minutes to complete. We will aggregate the responses and provide a summary to all respondents next week.
PowerPoint: Coronavirus Chartbook (PWPT)
PDF/Mobile: Coronavirus Chartbook (PDF/Mobile)
16.8 Million People File for Unemployment Over Three Week Period: Another 6.61 million people filed for new unemployment insurance during the week ending April 4. The previous week’s tally of 6.65 million was revised up 239k to 6.87 million. The three-week period from March 14 through April 3 has seen 16.78 million people file initial jobless claims. New claims now point to the unemployment rate rising to 13.8%. By state, California, Georgia, Michigan, New York, Pennsylvania, and Texas were all hit particularly hard during the survey week.
Powell State of the Economy Webinar: Fed Chair Powell will provide a late-scheduled update on the state of the economy via webinar this morning at 9:00 a.m. CT. Also at 9:00 a.m. will be the University of Michigan’s preliminary April report on consumer confidence.
Equities Rallied on Hope Slowing Virus Could Lead to Quicker Opening of the Economy: U.S. equities rallied on Wednesday and European equities recovered a sharp drop end nearly unchanged for the day as investors continued to balance optimism around some improvement in virus trends with obvious signs of signs of economic damage that has already occurred. Daily deaths from the coronavirus continued to reach record levels for the outbreak, but the tragic losses were to be expected as they lag the trend in new cases and hospitalizations. Dr. Fauci, top health adviser to the White House on the outbreak, said in an interview before markets opened that, “We’ve got to be cautiously optimistic not be overconfident,” but “I think we’re going to start to see soon—within the next week or so—kind of a plateauing out and a turning around.” The White House’s team of health officials met Tuesday night to discuss what reopening certain areas of the economy would look like if the virus does slow.
Sentiment Was Boosted by Senator Bernie Sanders Dropping Out: U.S. equities had opened stronger but gathered momentum after Senator Bernie Sanders suspended his presidential campaign, making the more mainstream former Vice President Joe Biden the presumptive nominee of the Democratic party. After flattening out ahead of the Minutes from the Fed’s emergency meeting (more below), stocks turned higher again and climbed to close near the highs of the day. The Fed’s Minutes showed broad support for its “forceful monetary policy response.” The S&P 500 ended the day up 3.4% at 2,750, 22.9% from its March 23 low and 18.8% below its February 19 all-time high. All 11 sectors rose with energy companies near the top on the back of stronger crude prices. Oil jumped more than 6% on hopes top producers will cut production in response to shattered global demand. Treasury yields ended mixed up the curved closed notably steeper. The 2-year yield inched down 0.8 bps to 0.25% while the 10-year yield added 6.0 bps to 0.77%.
Markets Continue to Watch for Virus Developments: Global markets mostly rose Wednesday while U.S. futures leveled off after yesterday’s strong gains and were little changed ahead of this morning’s jobless claims data. Signs the virus may be slowing began to show up last weekend as several global hot spots reported consecutive days of fewer cases. Those trends lifted stock prices and investors’ spirits on hopes physical distancing measures could be pared back in the weeks ahead. However, uncertainty has kept the preliminary optimism in check as it’s unlikely any major economy is opened before May. While cases have slowed in Italy, a local news outlet reported Thursday that the government was expected to extend its stay-at-home mandate through the end of the month. Spain reported fewer new cases on Thursday, but also is expected to push any relaxation of its lockdown until at least after April 25. That timeline roughly matches up with the current timeline in the U.S. from the White House and CDC, which extended distancing guidelines that were initially put in place on March 16 through April 30.
Markets Respond Relatively Little to Jobless Claims and Fed Announcement: While deemed medically necessary, those measures have resulted in significant economic disruption around the world. In the U.S., more than 16 million Americans have now been furloughed or lost their jobs over the last three weeks. As corporate earnings season begins to unfold, the damage to businesses operations is expected to be clear. After markets closed yesterday, McDonald’s and Starbucks both reported large drops in same-store sales and withdrew their forward guidance. Those disruptions are consistent with the dynamics that policymakers have tried to push against with extreme policies, such as those announced this morning by the Federal Reserve. After the jobless claims and Fed announcement, stock futures had pushed into positive territory while Treasury yields remained lower for the day. The 2-year yield fell 1.5 bps to 0.24% while the 10-year yield had dipped 3.6 bps to 0.74%.
Fed Minutes Reflect Concerns Over Widespread Market Dysfunction and Imminent Economic Destruction: The Fed released their Minutes covering both their March 3 and March 15 emergency meetings. The review of financial conditions noted dysfunction almost every fixed income market, highlighting that Treasury and MBS trading conditions were impaired, off-the-run Treasury trading ceased to function effectively, primary issuance of IG corporates was sporadic, primary issuance of HY corporates and leveraged loans had virtually stopped, spreads in the municipal sector had widened substantially, issuance of commercial paper had dried up, the secondary market for financial and non-financial commercial paper was nearly non-existent, and primary and secondary trading of ABS and CMBS was less orderly. The Committee re-ignited asset purchases specifically to combat the widespread dysfunction of the funding markets. Also a concern for Fed officials was the imminent economic destruction caused by the virus and the associated efforts to contain it. Participants noted that the outlook had “deteriorated sharply” and was “profoundly uncertain.” The economic weakness was also expected to delay inflation’s return to their two-percent target. Given the market dysfunction and economic concerns, the Minutes noted that a “forceful monetary policy response” was warranted. Going forward, they view “new forward guidance” and additional “balance sheet measures” as potential tools to address further weakness.
ICYMI – March 2020 Monthly Review: March was a historically treacherous month for global markets and the economy as the COVID-19 health crisis deepened, drawing unprecedented responses from monetary and fiscal policymakers around the world. While the reported cases in China continued to slow, the number of individual countries with at least one infection saw a threefold increase in March and hot spots began to pop up across Europe and in the U.S. The U.S. banned travel from Europe and every state across America gradually moved to issue statewide stay-at-home orders. The dire economic consequences of much of the world moving into quarantine began to show up in record-low PMIs and millions of Americans filing for unemployment insurance. The Fed was forced to cut rates to zero, resume its quantitative easing purchases, and launch numerous liquidity facilities to calm the markets. The Federal Government pulled together to pass more than $2 trillion in fiscal relief. Reflecting expectations for a certain end to the longest U.S. expansion ever recorded, the S&P 500 plunged into a bear market, down another 12.5% in March, its worst month since 2008. The 2-year yield tumbled 67 bps to 0.25% while the 10-year yield dropped 48 bps to 0.67%. Click here to view the full recap.