The Market Today

JPM Sets Aside $8.3B for “Likelihood of a Fairly Severe Recession”

by Craig Dismuke, Dudley Carter


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

Total confirmed cases reported over the last 24 hours rose 74,572 (+4.0%) to 1,934,583. The daily rate of growth is a slight up-tick from the previous 24 hours, but continues to point to slowing growth overall. (See Chart of the Day)


Fed Speak: Speaking on the tape today are St. Louis Fed Bank President Bullard (10:35 a.m. CT), Chicago President Evans (11:30 a.m.), and Atlanta’s Bostic (2:00 p.m.).  None of the speakers are voting members this year.

Trade Prices Fall on Tanking Oil, Lower Airfares: Today’s only economic report shows import prices falling 2.3% in March and export prices dropping 1.6%. Much of the weakness in prices was related to the significant decline in oil prices during the month.  Excluding food and fuel prices, import prices actually rose 0.1% MoM while exports fell just 0.1%.  Also interesting, airfares to the U.S. fell 9.8% MoM, including a 12.9% drop in prices from Europe, a 7.4% decline in prices from Asia, and a 7.4% drop in prices from Latin America/Caribbean.  Airfare to destinations outside the U.S. plunged for a second month in a row, down 4.2% MoM after a 9.3% decline in February.  Nonetheless, this data is unhelpful in determining how deeply the economy will contract and when the world will be able to re-mobilize.


More Signs the Virus Could be Slowing in Key Global Hotspots: Despite positive updates from a couple of key global virus hot spots and more discussions as to when the global economy may reopen, U.S. stocks fell Monday as investors braced for the beginning of a historically uncertain corporate earnings season. New York and Italy both reported fewer new cases, continuing a general trend that has spurred some recent market optimism that significant lockdown procedures have been effective at slowing the virus’s spread and may be able to be surgically lifted in the weeks ahead. Those hopes for a return to some resemblance of normalcy, however, remain clouded by significant uncertainty around when restrictions should be relaxed and who will make the call.

President Trump, Governors Disagree on Who Can Lift the Lockdowns: In Europe, Italy has previously extended its lockdown through the end of April, a U.K. official called it “critically important” to keep distancing measures in place despite signs of some improvement (potentially until May 7 according to a later report), and France extended its stay-at-home order through May 11. In the U.S., President Trump tweeted that he had the power to determine if and when the country should be reopened while several governors said that the power rests with the states. Six governors from states in the Northeast, including New York and New Jersey, have partnered to create a panel to coordinate discussions on when and how to relax stay-at-home requirements. Governors from three states on the West Coast – California, Washington, and Oregon – later disclosed a similar process had been started. While the dynamics around attempting to restart economic activity amid the pandemic will certainly garner much attention in the weeks ahead, investors face a more immediate concern of digesting corporate earnings activity beginning this week.

Stocks Struggled Ahead of Earnings Season: The economic standstill of the global economy is expected to take an enormous toll on companies’ financial results and create an incredibly opaque outlook. According to an analysis by the Wall Street Journal, nearly 300 companies within the S&P 1500 pulled their forward guidance, roughly 175 stopped buybacks or reduced their dividend, and nearly 260 said they had drawn down a credit line. The uncertainty of the upcoming earnings season kept downward pressure on stocks. After posting its best week since 1974, the S&P 500 slipped 1.4%, although it did ultimately recover nearly half of its earlier losses. While equities struggled, Treasury yields pushed higher and steeper on very few headlines with the upward momentum steady throughout the day. The 2-year yield added 2.0 bps to 0.25% while the 10-year yield rose 5.2 bps to 0.77%. The Fed did announce that it would reduce how much overnight and term repo funding it will provide starting May 4, with one tranche of $500B in overnight funding offered each day, half the current level, and three-month money auctioned once a week, down from two such offerings under the current schedule. The reductions were made “in light of more stable repo market conditions” and after numerous other liquidity facilities were established in recent weeks to shore up broad market liquidity. In other markets, U.S WTI crude fell 1.5% despite a historic 9.7-million-barrel production cut being announced by OPEC+ on Sunday.


Global Equities Firm: Global equities rose Tuesday and non-Treasury sovereign yields pressed higher despite a decline in Chinese imports and exports last month and sharp drop in profit at JPMorgan. The MSCI Asia Pacific Index closed 1.6% higher Tuesday after trade data in U.S. dollar terms showed a 6.6% drop in Chinese exports in March compared with a year ago and a 0.9% decline in imports. Those declines were less severe than the respective 13.9% and 9.8% drops expected. U.S. futures turned higher following the trade data and have consolidated those gains during European trading. Europe’s Stoxx 600 jumped more than 1.3% at the open before gradually falling back to a more modest 0.6% gain at 7:00 a.m. CT. Continued improvement in the virus outlook in European hotspots hasn’t prevented most leaders from extending lockdowns, but has spurred along conversations about how and when to relax some social restrictions.

JPMorgan Profits Drop as it Provides for Losses, Johnson & Johnson Beat: U.S. futures wobbled after JPMorgan posted a sharp drop in profits, but quickly regained their footing. The company reported a 69% decrease in net income from a year ago as it set aside $8.3B for credit costs and indicated more reserve build may be needed in the next quarter in response to “the likelihood of a fairly severe recession.” The disappointment was mitigated somewhat by record trading results, a natural hedge to its banking business, but did result in the company lowering its full-year net interest income forecast. Providing investors with better news, Johnson & Johnson posted revenue and earnings that beat analyst estimates and reflected increases from a year ago. Sales of consumer pharmaceuticals rose while medical device activity slowed as hospitals canceled elective medical procedures. The Company raised its dividend but lowered full-year revenue and earnings forecasts. Shares of both JPMorgan and Johnson & Johnson were up over 3% at 7:30 a.m.

Treasury Yields Diverge Lower: Treasury yields are lower on the day having diverged from a trend higher that has played out across most of the rest of the world. In Europe, Italian yields were leading the general uptick with the 10-year yield up more than 8 bps. The outsized jump in Italian yields followed reports that the Italian government would seek a “significant deficit deviation” in order to fund a great fiscal response to the virus’s economic disruptions. The IMF said the global disruptions are “very likely” to result in the worst recession since the Great Depression. Even with stock futures near their highs of the day, the 2-year Treasury yield was 1.2 bps lower at 7:45 a.m. and the 10-year yield had edged back 3.4 bps.

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