The Market Today

Hopes for Remdesivir, Three Phase Plan to Re-Open Economy


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE

Coronavirus Chartbook (Click Here) – Updated by 9:30 a.m. CT

 

Hubei Revises Death Toll up 40%: China revised higher their total number of deaths from 3,342 to 4,632 citing nucleic acid testing which has given them different diagnostic conclusions.  All of the 1,290 newly reported deaths were attributed to Hubei Province.  The revision brings the fatality rate in Hubei up from 4.7% to 6.6%, closer to the global average.  Excluding the Hubei province, China has reported a total of 120 deaths and an overall fatality rate of 0.8%.

Case-Count Has Yet to Turn Convincingly Lower: Elsewhere, the number of cases reported over the past 24 hours in the U.S., Italy, France, Germany, Iran, to mention a few countries, exceeded the three-day trend rates for those countries, indicating an uptick in the rates of infection.  Total cases globally were up 93,754 to 2,172,031.

A report released Thursday indicating that Gilead’s drug Remdesivir has produced “rapid recoveries” in some severely ill patients that are part of a trial in Chicago. While a spokesperson for the University of Chicago stressed that it’s too early to draw definitive conclusions.  President Trump announced in yesterday’s press briefing a three-phase plan, approved by White House health experts, to loosen restrictions across the country “one careful step at a time.” Once a state has seen new cases decline for a two-week period, the White House would support that state’s governor moving to a phase-one re-open.

Phase One: Under the first phase, vulnerable persons would still be advised to stay home; non-essential travel should still be minimized; physical distancing would remain appropriate, particularly in gatherings of more than 10; schools and other youth activities would stay closed down; senior living facilities and hospitals should prohibit visitors; and bars would not open. However, telework would be encouraged but not required if businesses follow certain protocols, elective surgeries could resume, and some larger venues, such as restaurants, movie theaters, churches, and gyms, could open “under strict physical distancing protocols.” If cases don’t start to pick-up once phase one is implemented, states could move on to phase two.

Phases Two and Three: The major changes under phase two would raise the allowable gathering size from 10 to 50, although physical distancing should still be practiced; non-essential travel could resume; schools and youth activities can re-open; larger venues can moderate distancing protocols; and bars can open “with diminished standing-room occupancy.” A move to the third phase would allow vulnerable individuals to return to public life while maintaining physical distancing; the “low-risk population” should limit the amount of time they spend in large crowds, although there would be no crowd-size guidance; employees could return to work with no restrictions; hospitals and senior facilities could accept visitors and the protocols on larger venues, gyms, and bars would be further relaxed.


ECONOMIC CALENDAR

Leading Index of the Lagging Reports: The only economic report on the calendar today is the March Leading Index which is really a lagging index at this point in that it aggregates traditional economic reports into one index of early movers.  In today’s environment, we are increasingly monitoring alternative data sources because of their timeliness rather than traditional economic reports.


YESTERDAY’S TRADING

Push and Pull Between Bad Data and Hopes for Economic Re-start Continued Thursday: Stocks spent most of Wednesday’s session floundering in negative territory but managed to stage a slow-but-steady afternoon recovery that left the indexes higher by the close. Thursday’s theme was consistent with what has driven markets in each of the first three days this week: the economic data has been atrocious but there are signs the global economy could gradually re-open in the weeks ahead. Stocks slumped at the open following another round of dismal economic data, including 5.3 million new jobless claims that raised the four-week total to more than 22 million. Stocks and Treasury yields both bottomed within minutes of one another just after 9 a.m. CT. After a steady recovery, stocks and yields fell again at 11 a.m. after the U.K. (for at least three weeks) and New York State (until May 15) both extended their lockdowns. A second recovery ensued as investors awaited White House guidance on potentially re-opening the economy, with equities closing near their highs as the highlights of the three-phase plan were released just before the close. The Dow finished up 0.1%, the S&P 500 closed 0.6% higher, and the Nasdaq outperformed both with a 1.7% jump. After flirting with its all-time low of 0.15%, the 2-year yield rose 1.0 bp to 0.21%. The 10-year fell 0.5 bp to 0.63% but ended at its highest market of the U.S. trading session.

Tracking the Headlines: With focus on when economic activity will resume, Switzerland (April 27) and Poland (April 20) became the latest European countries to announce some form of economic re-opening while Mexico (May 30), the U.K. (for at least three week), and New York (May 15) all extended their lockdowns. A group of governors from states in the middle of the country formed a pact to plan for re-opening, mirroring processes previously taken by leaders from the West and Northeast. Wisconsin extended its lockdown until May 26 and New Jersey closed schools through May 15. California Governor Newsom said after a phone call with his colleagues and the President that the guidelines from the White House on re-starting activity were “what we were hoping to hear.” On the fiscal front, there continued to be no signs of progress on additional aid for small businesses even after the SBA said the $350B provided by the CARES Act had been exhausted. The CBO said that the more than $2T in relief provided under the CARES Act would add $1.6T to the deficit in fiscal 2020. From the corporate world, Apple said it would open a retail location in South Korea, Facebook said it had canceled all gatherings of more than 50 people through June 2021, and Royal Caribbean will keep its ships docked until at least June 11. In sports, the PGA announced the Charles Schwab Challenge will be its first event of the year and kick-off June 11 in Fort Worth without fans in attendance.


OVERNIGHT TRADING

China’s Economy Contracted Sharply in 1Q: China’s first quarterly economic contraction in official records back to 1992 was slightly more severe than expected, and yet global equities have rallied sharply so far on Friday. China’s economy shrank 6.8% compared with the first quarter of last year as COVID-19 caused the country to go on lockdown for most of the period. More detailed data for March reflected continued contraction but indicated the downward momentum may have ebbed towards the end of the quarter, particularly in industrial production, as China attempted to re-open after the virus receded. Despite the historic contraction, however, stocks in Japan and across Europe rose more than 3% as U.S. futures jumped sharply at the open of trading in Asia. With investors anxious to see when the world, and therefore the global economy, can regain some sense of normalcy, an effective treatment could go a long way to bridge sentiment until a vaccine can be created.

Hopes for Treatment as Country Seeks to Re-open Lifts Spirits: Those hopes were behind the risk-on mood underlying global markets on Friday following the after-market release of the report saying Gilead’s drug Remdesivir was having seeing “rapid recoveries.”  Additionally, President Trump’s announcement of his three phase plan to reopen the economy lifted spirits further. The combined developments have lifted futures on the S&P 500 by more than 2.5% but had little lasting effect on Treasury yields. The 2-year and 10-year yields were lower by less than 1 bp at 7:50 a.m. CT.


NOTEWORTHY NEWS

Fed’s Williams Sees “More Economic Pain” Coming: John Williams, President of the New York Fed, said it’s still too early to assess the economic impact of the virus disruptions and cautioned that there is “more economic pain to come.” He said cutting rates to zero has set the stage for a recovery once the virus passes, but highlighted that fiscal policy plays the leading role in the midst of the pandemic. The various liquidity facilities established have helped calm markets, but stresses will persist until the virus recedes. Looking ahead, he said, “Unfortunately this is a situation where I think the economy is going to be under-performing for some time” and will need monetary and fiscal support for the next couple of years.

Fed’s Bullard Sees Wide Range of Possible Economic Outcomes: St. Louis Fed President Bullard again said he believes a V-shaped recovery is possible if the virus is managed appropriately, specifically if appropriate testing is available to the public. However, he admitted that a depression-like outcome is also a possibility, particularly if the economy was forced into another abrupt stop in response to a hypothetical second wave of infections.

Fed’s Barkin and Kaplan Know Double-Digit Unemployment is Coming: Richmond Fed President Barkin expects unemployment to rise into the mid-teens, a development his colleague from Dallas also believes will play out in the months ahead. Dallas Fed President Kaplan said unemployment may soon reach the high-teens as he expects the economy could contract by as much as 30% in the second quarter. Although he believes activity will rebound in the second half of the year, it may only bring the level of unemployment down to 8% by the end of the year.

Fed’s Bostic Said Facilities May Need Tweaks: Atlanta Fed President Bostic said the Fed must now heavily lean on forward guidance with rates at zero, and hinted that tweaks to the new programs, he specifically mentioned the municipal liquidity facility, could be made if needed. He’s also concerned that borrowers seeking forbearance could put mortgage servicers under financial stress.


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