The Market Today
Daily Case Growth Yet to Unconvincingly Turn Lower
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT
Daily Case Growth Yet to Convincingly Turn Lower: It was not a great last 24 hours for case confirmations with total cases globally up 81,672 (+3.1%), the second worst day of the past six. In the U.S., the number of newly reported cases jumped 26,548 (+3.2%) while new deaths reported increased 3,178 (+6.8%). The number of cases still has not convincingly turned lower despite all of the various lockdown measures.
Deferment/Forbearance Survey Results: Over the last couple of weeks, Vining Sparks’ Loan Trading Group has been conducting surveys and having conversations with our customer network about deferment/forbearance. Attached are some charts and key takeaways from these surveys.
Weekly Deferment/Forbearance Survey Link: In the interest of continuing to better understand how borrowers are responding to offerings and how factors are evolving during the COVID-19 crisis, we are collecting additional data points about Deferment/Forbearance in a new survey – Survey Link – week of 4-20. 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.
TRACKING THE HEADLINES
Thursday’s Market Mover – Report Showed Gilead’s Remdesivir Ineffective in China COVID Trial: A headline from the Financial Times that read “Gilead antiviral drug remdesivir flops in first trial” moved the markets yesterday. Several follow-up headlines from the Times clarified the study was ended early due to insufficient participant availability. Continuing the confusion, the WHO, which published the report, quickly admitted it was posted inadvertently before formal review and took it down. Gilead issued a statement saying the headline mischaracterized the nature of the results, noting, “because this study was terminated early due to low enrollment, it was underpowered to enable statistically-meaningful conclusions, …As such, the study results are inconclusive, though trends in the data suggest a potential benefit for remdesivir, particularly among patients treated early in disease.”
House Passed $484B Stimulus Bill, Treasury Tightens Eligibility: In the U.S., the House passed the $484 billion relief bill that the Senate had cleared on Tuesday which will replenish funds for small businesses and provide funding for hospitals and testing. Also on Thursday, the Treasury and Small Business Administration tightened the requirements for businesses to get those funds. Companies must certify in good faith that the “loan request is necessary” due to a lack of “other sources of liquidity.” Any company that already received funds but shouldn’t have based on these requirements can return the money by May 7 without the risk of penalty.
Other Headlines: Reminding how far the virus impact has reached, Ontario extended its lockdown until May 6, Egypt set a curfew from 9 p.m. to 6 a.m. starting today, Malaysia extended restrictions for two weeks until May 12, Indonesia banned air travel until June 1, North Carolina pushed their lockdown out through May 8, and Illinois announced it was extending its stay-at-home order through May. President Trump said at his daily media briefing that social distancing guidelines set to expire next week may be extended into the summer. In New York, new cases rose but total hospitalizations were down again. More interesting because it relates to the idea of acquired immunity, a small and preliminary antibody study in New York projected a 13.9% infection rate. Governor Cuomo said the results could imply the mortality rate was as low as 0.5%. An official from the U.S. Department of Homeland Security said findings from ongoing studies show exposing the virus to higher temperatures and humidity has a “powerful effect” on shutting it down. The response to the virus’s economic effects from central bankers and governments has been swift and remains fluid. Separate reports indicated the BoJ was considering unlimited bond buying and the Fed may expand its liquidity facilities for municipalities and Main Street. The EU agreed on $580 billion in immediate funds but needs more time to discussing increases to the longer-term budget. Moody’s said increasing government debt burdens is the new normal.
Durable Goods Orders Drop on Transportation Items, but Core Orders Surprisingly Resilient: Durable goods orders for the month of March fell 14.2%, the second-worst drop in orders for products intended to last three-plus years on record. The data series only goes back to 1992. Not unexpectedly, there was massive noise in the transportation orders categories with non-defense aircraft orders falling 296%, defense aircraft orders rising 64%, and ship/boat building orders dropping 100%. Motor vehicle and parts orders also plunged, down 18.4%. The story of the report is likely the better-than-expected level of orders when excluding transportation items, down just 0.2%. Specifically, core capital goods shipments (excluding defense items and aircraft), which feeds into the BEA’s business investment tally, fell just 0.2% MoM versus expectations for a 7.0% decline. Orders of those same items, an indicator of future shipments, were expected to drop 6.7% but actually increased 0.1%. Most categories, excluding the aforementioned transportation items, did not plunge dramatically and orders for electrical equipment/appliance/components rose 1.5%. This is, perhaps, the only area of activity that has not cratered more quickly than expected.
At 9:00 a.m. CT, the University of Michigan will release their final revision for consumer confidence in April.
Stocks Erased Gains on Report of Poor Results from Remdesivir Treatment: A solid day for U.S. equities was sharply interrupted around lunch by a headline from the Financial Times that read “Gilead antiviral drug remdesivir flops in first trial.” The S&P 500 plunged, erasing a 1.3% daily gain in a matter of minutes. The volatility continued as the confusion, discussed more above, carried over into the afternoon. Despite best efforts, stocks failed a couple of recovery attempts and ended essentially flat on the day. The Dow rose 0.2% while the S&P 500 fell less than 0.1%. Sector performances were mixed but energy stood out with a 3.0% gain. Oil recovered for a second day with U.S. WTI closing up 19.7% at $16.50 per barrel as Brent rose 4.7% to $21.33 per barrel.
EU Leaders See Need for Stimulus, House Passed U.S. Aid Bill: The sell-off Thursday on reports of poor remdesivir results followed a sharp rally last Friday on reports that the same drug had produced “rapid recoveries” in some severely-ill patients in a Chicago trial. The volatility around the drug-related headlines shows how important investors believe treatments are for a successful and sustainable economic re-opening until widespread testing becomes available and a vaccine can be developed. The virus has devastated the global economy, evidenced early Thursday as PMIs from Asia, Europe, and the U.S. all plunged to record lows. Leaders of the 27 EU countries endorsed a deal for $580 billion in immediate funds but need more time to work on longer-term budget expansion. In the U.S., the House passed the Senate’s $484 billion stimulus bill and Treasury tightened the eligibility requirements for receiving small business emergency funds. After the influx of headlines, Treasury yields ended mixed. The 2-year Treasury yield rose 0.6 bps to 0.22% while the 10-year yield settled 1.8 bps lower at 0.60%.
Market Sentiment Eases on Remdesivir Disappointment: Yesterday’s news about remdesivir’s ineffectiveness in producing positive results in patients in a Chinese trial, discussed more above, has global investors leery of raising risk valuations ahead of the weekend. Equities outside of the U.S. are generally weaker with MSCI’s Asia Pacific index earlier closing down 0.7% and Europe’s Stoxx 600 0.3% lower just before 7 a.m. CT. U.S. futures, however, recovered from earlier losses to trade 0.6% higher at 7:30 a.m. after the House passed the latest stimulus bill Thursday which now awaits President Trump signature. While most of Friday’s headlines pointed back to yesterday’s report on remdesivir as the reason, there were fresh economic reports consistent with Friday’s caution. Retail sales excluding fuel in the U.K. fell 3.7% in March, the largest drop on record. A popular measure of business confidence in Germany plunged to a new record low in April.
Treasury Yields Remained Little Changed Despite Double-Digit Drop in Durables Orders: Early divergence in European yields – Italian yields moving higher while German yields fell – was blamed on yesterday’s meeting of EU leaders that left tough questions about the details of a larger longer-term recovery plan unanswered. After that meeting, France’s Macron said leaders reached “a consensus on a fast response and a strong one,” but he admitted, “It is true that there are disagreements on the mechanism.” As trading has continued yields have reconverged lower with Italian yields now down more than German yields. In the U.S., Treasury yields were little changed at 7:30 after rising off their lows as equity futures recovered around 4 a.m. The 2-year yield was down 0.3 bps at 0.22% while the 10-year yield had inched up 0.2 bps to 0.60%. Oil prices bounced back from an earlier dip into negative territory and were stronger for a third day. U.S. WTI for June was up 3.6% at $17.11 per barrel.
U.S. PMIs Joined Global Indexes in Signaling Deepening Economic Crisis: Consistent with trends in PMI data released overnight in Asia and Europe, preliminary PMI surveys for the U.S. showed the services-led economic contraction deepening in April. Still signaling a broadening contraction within the manufacturing sector and hardly a silver lining, the 11.6-point drop from 48.5 to 36.9, the weakest since March 2009, was slightly better than the 13.5-point drop expected. The services PMI fell more, shedding 12.8 points to 27, a new low for the index in records back to 2009. The composite PMI index fell from 40.9 to 27.4, a record low. The composite index has dropped 25.9 points since January as the virus shutdown the U.S. economy.
New Home Sales Slumped as Expected in March: As expected, new home sales tumbled in March as the virus outbreak spread and states began to issue stay-at-home orders. The 15.4% drop last month nearly matched the expected decline and marked the sharpest contraction since July 2013. The overall pace of sales, a ten-month low of 644k annualized units, was softer than expected because of net negative prior revisions. Each of the prior three months’ activity was revised down for a cumulative negative revision of 48k annualized units. As with March’s plunging new housing starts and weaker existing home sales, sales of new homes are expected to decline even more severely in April. Data last week showed home builder confidence sank by a record amount in April.