The Market Today
Another 4.4 Million Unemployed Tripling Job Loss of Great Recession
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT
Case Count Slows Over Last 24 Hours: There are an additional 62,044 cases reported globally over the last 24 hours according to the Johns Hopkins CSSE data. This brings the global total up to 2,657,512 including 184,372 deaths. In the U.S., the number of new cases rose 17,318, a positive slowdown from the previous 24-hour period. There are now 842,624 confirmed cases in the U.S. including 46,785 deaths.
Tracking the Headlines: Most of the virus-related headlines continued to center around how fast the global economy could re-open and what policymakers around the world could do to keep it afloat until it does. Top officials from the White House sounded upbeat on the prospects for restarting activity in the near-term. Treasury Secretary Mnuchin said he hopes “most of the economy, if not all of the economy” will be open later this summer. White House adviser Kudlow said he hopes that May could be a transition month for the U.S. economy to open more broadly in June. Texas Governor Abbott said his state hasn’t been hit as hard as others such as New York and indicated he would make a major announcement regarding re-opening later this week. While New York saw its first uptick in new cases in seven days, total hospitalizations were down and Governor Cuomo said cases in the southern part of the state appear to be in descent. California’s governor said some elective surgeries could resume. Outside of the U.S., the virus updates were mixed and Spain’s parliament voted to extend the nationwide lockdown until May 9. As to policy efforts, House leadership said it expects the interim relief bill to pass easily on Thursday. To ease potential stresses in the mortgage market, the FHFA announced GSEs could purchase loans in forbearance as long as they qualified based on underwriting standards. Senate Leader McConnell made headlines when he said his personal preference was for states under stress from COVID with heavy pension burdens to use the bankruptcy code for protection instead of federally-provide relief funds.
Initial Jobless Claims Show Another 4.4 Million Unemployed Bringing Five-Week Total to 26.4 Million: Initial jobless claims for the week ending April 18 rose another 4.427 million bringing the five-week total up to 26.423 million. Given the number of unemployed who have already reported in the March household report, the claims data now point to the unemployment rate rising as high as 18.4%. The new incentives to remain in the labor force (continue looking for work) and collect improved unemployment insurance may help push the eventual unemployment rate near this level. For context, the economy lost 8.7 million payrolls during the Great Recession. The longest expansion on record eventually yielded cumulative payroll gains of 22.8 million.
PMIs Expected to Fall Further: At 8:45 a.m. CT, the Markit Manufacturing and Services PMIs are expected to show an even further collapse in U.S. economic activity. The manufacturing PMI is expected to fall from 48.5 to 35.0 while the services index is expected to drop from 39.8 to 30.0.
New Home Sales Shuttered: At 9:00 a.m. CT, the March New Home Sales report is expected to show a 15.8% drop in sales. The data is notoriously volatile and April is likely to be an even harder-hit month.
Yields Rose as Oil Stability Boosted Equity Markets: Treasury yields rose throughout the morning as stocks held on to early gains and oil prices showed signs of stabilizing after an unprecedented plunge to start to the week. The S&P 500 rose 2.3% Wednesday despite expectations for this morning’s data to show the historic ranks of the unemployed grew even larger last week and offer additional PMIs showing activity contracted sharply in April. After collapsing more than 50% in the first two days of the week, the U.S. WTI futures contract for June jumped 21% to close above $14/bbl. Brent recovered 5.9% on Wednesday after dropping more than 30% over the prior two days to a 21-year low. Energy companies trailed only tech as all eleven sectors of the S&P 500 finished stronger. The recovery in sentiment was strengthened further by the Senate passing a bill Tuesday evening ahead of Wednesday’s session to provide just shy of $500 billion in interim relief funds. Discussions continue around the need for a broader phase four package. The 2-year yield inched up 0.4 bps to 0.21% while the 10-year yield jumped 3.7 bps to 0.61%.
Oil Moves Higher Again, Other Markets Steady before Key U.S. Data: Oil prices continued to move higher on Thursday but other markets checked up after Wednesday’s recovery and ahead of a key jobless claims update and PMI data in the U.S. At 7:30 a.m. CT, U.S. WTI had added another 17% overnight to $16 per barrel while Brent rose 8.5% to above $22 per barrel. Other markets were relatively quiet and little changed. Thursday’s schedule of events captures well the underlying dynamics behind ongoing economic tensions that have led to historic market volatility since the middle of February. The global economy has been devastated by the virus outbreak and lockdown measures implemented to slow its spread. The unprecedented shutdown has stoked fears of a deep recession, if not depression, forcing policymakers around the world to launch incredible levels of stimulus to keep their economies afloat.
PMIs and Policy Efforts Highlight Ongoing Push and Pull Between Hope and Despair: From the Asia-Pacific region, Australia’s preliminary composite PMI for April slumped again from 39.4 to 22.4, a record low. Japan’s preliminary April composite PMI fell again from 36.2 to 27.8, a record low. Australia’s central bank launched a quantitative easing program for the first time in March as it cut rates to zero and Japan’s PM Abe recently announced a stimulus package worth roughly $1 trillion. In Europe, the first estimate of the bloc’s composite PMI for April tumbled from 29.7 to 13.5, a record low. Led by weakness in their services sectors, composite PMIs for Germany and France fell just fewer than 20 points to 17.1 and 11.2, respectively. While leaders from the individual countries have announced state-specific stimulus efforts, leaders from each are gathering by video today to continue negotiations on a bloc-wide relief package that early reports indicate could be worth more than $2 trillion. In the U.K., the first look at April’s PMI showed the index slid to 12.9 from 36 in March. The U.K. government and Bank of England have unveiled a list of measures to mitigate the economic damage. Consistent with these themes, April PMIs for the U.S. are expected to be similarly weak later this morning and the House is expected to pass a bill for roughly $500 billion in new stimulus money.
Numb Markets Relatively Little Changed Despite Record-Worst PMIs, Millions More Unemployed: In a typical environment, such economic figures would elicit wildly volatile market swings and an acute risk-off response. However, considering that the situation has now been unfolding for two months and already produced evidence of previously-unimaginable economic stops and moves in markets, investors has become somewhat numb to shockingly bad economic data. After those reports were released but before the U.S. jobless claims update, markets were relatively little changed. While yields were modestly lower across Europe, the 2-year and 10-year Treasury yields were unchanged at 7:20 a.m. CT. Europe’s Stoxx 600 and U.S. equity futures were essentially flat. After the update from the Department of Labor showed 4.4 million more Americans sought unemployment insurance last week, less than economists expected, Treasury yields edged up by less than 1 bp. At 7:40 a.m., the 2-year yield was trading at 0.22% with the 10-year yield at 0.63%.