The Market Today

California Goes on Lockdown; Virus’s Economic Toll Mounts


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

Growth Rate Continues to Be Exponential, California Goes on Lockdown: The rate of confirmed-case growth continues to increase AT AN EXPONENTIAL RATE.  New cases reported over the last 24 hours are up more than 10%.  There are, as of this morning’s Johns Hopkins data, more than 240k cases and 10k deaths.  It took almost three months for the first 100k cases to be confirmed and just 12 days for the second 100k cases.  Cases in the U.S. were up 51% over the past 24 hours.  The number of deaths in Italy, 3,405, now exceeds the number of total deaths in China. Late yesterday, California Governor Newsom announced a state-wide lockdown for the state’s nearly 40MM residents. The decision was made after trends in virus statistics and refreshed data models led the Governor to “believe the virus will impact about 56% of California’s population.” The order to “stay at home” is in place until further notice and expands actions already implemented in some of the state’s largest cities such as San Francisco and Los Angeles, but will not affect essential services.

Coronavirus Chartbooks (will be updated at 9:00 a.m. CT)

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TODAY’S CALENDAR

Markets Focused on Virus and Fiscal Package: Existing home sales are expected to rise 0.9% MoM in the February report scheduled for 9:00 a.m. CT.  Market focus remains on growth of the coronavirus and growth of the economic toll.  Expectations are that Congress will soon come to terms on a third phase emergency aid package. Reports are that the White House is pushing a $1.2 trillion package.  Included in it are direct payments to households worth $1,200 (individual) or $2,400 (married) combined with $500 for each child.  Those payments would start to phase out for individuals with incomes in excess of $75,000 or married couples who make more than $150,000. The payments would not be made once those income thresholds reach $99,000 and $198,000, respectively. Other aspects include $200B for the hardest-hit sectors, including $50B for airlines as well as $300B for small business loan guarantees. The bill would ease several tax-related timelines, including pushing back the individual filing deadline to mid-July


YESTERDAY’S TRADING

Market Sentiment Perked Up: After indiscriminate and brutal selling punished multiple assets classes over the last several days, investors eased back into the buying mode Thursday, despite data from the U.S. and Europe beginning to reflect the damage inflicted by the COVID-19 infection. European markets turned higher and closed with solid gains as U.S. equities reversed an opening drop and moved into positive territory. Equity markets were relatively calm with the S&P 500 trading within a 6.1% daily range, the tightest in six days, and closing up 0.5% on the day, the smallest final change in sixteen days. For the first time in nine days, the Dow finished less than 1,000 points (188 points) from where it started. Treasury yields remained volatile but closed lower following two days of sharp increases. The 2-year yield fell 8.3 bps to 0.45% as the 10-year yield dropped 5.1 bps to 1.14%. The 30-year bond underperformed after reports that the White House was considering 25- and 50-year bonds to fund the fiscal stimulus spending.

Data Remains Dour: While a welcome development, the relative calm wasn’t the result of cheerful data. A German business confidence index tumbled the most in nearly three decades. U.S. jobless claims jumped 70k to 281k, the first leap in what is feared will be a severe spike higher. A second regional Fed survey registered a record plunge in March. Ford announced it was suspending its dividend, fully drawing down $15.4B from a pair of credit lines, and withdrawing its earnings outlook. Darden Restaurants took similar steps. More state governors acted to try and stop the spread. New York will allow just 25% of a business’s workforce to be present, down from 50% earlier in the week. Texas banned gatherings of more than 10 people, closed schools until April 3, and limited restaurants to take-out only. Alabama officially closed its beaches. American Airlines said it would park 450 aircraft and cancel 55,000 flights over the next month. The U.S. Statement Department raised its travel advisory to Level 4 telling Americans to not travel abroad.

Deaths in Italy Now Exceed China’s Loss: Europe continued to be ravaged by the COVID-19 and the Italy’s death-count cross above the official number from China. The number of cases in the U.S. crossed 10,000 and the White House virus task force again warned to expect additional jumps in the days ahead as expanded testing capacity works through backlogged samples. In his daily briefing, President Trump spent a considerable amount of time talking about progress toward a treatment. He also noted that the Senate is working quickly to pass the $1T stimulus package, adding that if the virus spread worsens, “we’ll have to go back and talk” about potentially doing more.

Central Banks Remain Active: The ECB announced a new $750B Euro QE program Wednesday evening and was followed by the Fed announcing a plan to back prime money market funds. The Bank of Japan purchased more than 1T yen of government bonds, a record amount of ETFs, and offered trillions of yen in repo liquidity. According to Bloomberg news, central banks in Australia, Indonesia, Philippines, Taiwan, and Brazil all cut rates. During U.S. trading, the Bank of England cut rates by 0.15% to 0.10% and increased its asset purchase program by 200B Pounds to 645B. Early during U.S. trading, the New York Fed issued a statement that it was increasing its daily purchases of Agency MBS securities as part of the $200B program announced on Sunday. Separately, the Fed opened temporary Dollar swap lines with nine additional countries amid a Dollar surge and reports of disruptions in global Dollar availability.

Dollar Rise Continued as Oil Posted Biggest Daily Gain on Record: Other markets remained active as the U.S. Dollar extended its rally by 1.6% to its strongest level since January 2017. A stronger Dollar exacerbates the virus stress already weighing on emerging markets. Oil prices rallied sharply, sending U.S. WTI up more than 23% to $25 per barrel, its largest single-day increase on record, after crumbling by a similar amount the day before in its third-worst day in history. The gains unfolded after President Trump said “at the appropriate time I’ll get involved,” in the price war between Saudi Arabia and Russia.


OVERNIGHT TRADING

Market Sentiment Improves Friday As Stimulus Stacks Up: A bit of a relief rally has taken hold globally on Friday as investors continue to balance growing evidence of economic disruptions caused by the virus with an unprecedented and growing level of central bank actions and fiscal stimulus announcements. Equities across Asia rose more than 4% on average while Europe’s Stoxx 600 was up 2.6% just before 7 a.m. CT. The willingness to wade back into investments was seen across other asset classes as sovereign yields slid around the globe, oil prices added to yesterday’s historic gains, and the upward pressure on the Dollar ebbed. The U.S. currency weakened against every other major with the British Pound bouncing from its lowest level since 1985. U.S. WTI rose more than 2% and was approaching $26 per barrel. At 7:45 a.m. CT, the 2-year yield was down 6.9 bps to 0.38% and the 10-year yield was 13.9 bps lower at 1.00%.

Europe’s Virus Fight Remains in Focus: Faced with the largest number of virus-related fatalities worldwide, Italy’s PM was reportedly considering extending the country-wide ban on non-essential activities from March 25 to May 1. The military is assisting in enforcing the ban in some regions and the country’s foreign minister said police have handed out nearly 50,000 citations for non-compliance. Amid a lack of social distancing in Germany, a top official said “We will monitor the behavior of citizens this weekend” to determine if a curfew or ban of non-essential activities is necessary. Reports indicated Chancellor Merkel’s administration is working on a fund worth 500B Euros to support German businesses. and Saturday is a decisive day. In the U.K., the Bank of England cancelled its annual stress testing for financial institutions and PM Johnson said to expect more fiscal support for workers. While most central banks have been active this week, China’s PBOC unexpectedly chose to leave its Loan Prime Rates unchanged on Friday.


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