Weekly Market Update: World governments open stimulus floodgates and impose more lockdowns in efforts to flatten the curve on coronavirus spread and stabilize yield curves
Markets were forced to deal with the reality the coronavirus crisis has landed in the US full bore. Cases surged as testing ramped up significantly, and high population density areas in Europe and the US began to institute full lock down measures to fight the spread. Central bankers and politicians threw literally everything including the kitchen sink at the ongoing pandemic (“wash your hands frequently!”). Central banks led by the US Federal Reserve slashed rates back to or near the zero bound while simultaneously adding trillions of dollars in liquidity to support the functioning of distorted overnight lending markets. Governments introduced and began the process of implementing trillions of dollars of fiscal stimulus to fight what will almost assuredly be a deep global recession. By the end of the week, forecasts for Q2 GDP prints of -20% or more were common place alongside expectations that US initial jobless claims for the current week will rise into the millions for the first time ever when numbers are tallied next week.
No surprise then it was another wild week in terms of trading. US stocks tumbled back through the lows of December 2018 and the VIX soared above 80 midweek, leading to the liquidation of at least one hedge fund (Ronin Capital). US Treasury yields shot up mid-week after days staggering volatility that indicated serious dysfunction in overnight lending markets. The Dollar index surged more than 5% as turmoil in the lending markets ignited a fresh dash for US dollars. The Fed was forced to bring back the commercial paper backstop facility from the financial crisis while simultaneously injecting billions through multiple repo operations on a daily basis. Global central banks came together to reactivate billions in currency swap lines as they did during the financial crisis as well. Crude prices served as a further anchor to both equity markets and investor sentiment overall, despite some reports the US was trying to twist arms in Saudi Arabia and Russia. Demand destruction from a world economy in lockdown mode along with no signs of thawing between the Saudis and Russians sent WTI crude down more than 25% to below $25 barrel, to levels not seen since 2002. Late in the week, Senate Republicans pushed out a $1 trillion stimulus plan centered on cash payments to lower- and middle-income Americans, with the hope to negotiate a deal with Democrats over the weekend. Meanwhile the UK government promised to pay up to 80% of worker salaries if firms avoid layoffs. For the week, the S&P fell 15%, the DJIA lost 17.3%, and the Nasdaq declined 12.6%.
Most corporate news this week related to how companies are adjusting to the new normal amid the coronavirus outbreak. Bank of America unveiled plans to cushion the blow for customers, announcing clients with auto loans, small business loans, mortgages, and credit cards can defer payments while confirming pauses in foreclosure sales, evictions, and repossessions. The New York Stock Exchange said it would temporarily move to fully electronic trading and close its trading floors, starting next week. Reports said Amazon would only receive ‘high-demand products’ from third-party sellers until April 5th. Kohl’s, Ross, and Gap announced they would temporarily close all their North American stores to wait out the virus. FedEx’s revenue for the quarter beat expectations but, like dozens of other big firms, the company suspended its FY20 outlook amid coronavirus uncertainty. Lennar beat consensus on its top and bottom line, but the homebuilder said it expects traffic to decline and a decline in sales to follow, withdrawing its guidance, as well. Mylan ramped up its U.S. manufacturing of hydroxychloroquine sulfate tablets in order to meet potential COVID-19 patient needs, and promised to be in a position to begin supplying product by mid-April. Russia’s Sistema-Biotech said it plans to register its own testing system, which could make it possible to detect coronavirus within two hours.
SUN 3/15
*(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) CUTS OFFICIAL CASH RATE (OCR) BY 75BPS TO 0.25% (intra-meeting move); delays higher capital requirement for banks
*(US) FOMC CUTS TARGET RANGE BY 100BPS TO 0.00-0.25%; (2nd intra-meeting policy move); effective Monday, March 16th
*(CN) CHINA FEB YTD INDUSTRIAL PRODUCTION Y/Y: -13.5% V -3.0%E (1st decline since Jan 1990)
*(CN) CHINA FEB YTD RETAIL SALES Y/Y: -20.5% V -4.0%E
MON 3/16
*(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED FROM -0.10%; STRENGTHEN STANCE ON ASSET BUYING (intra-policy decision)
*(KR) BANK OF KOREA (BOK) CUT 7-DAY REPO RATE BY 50BPS TO 0.75% (intra-meeting move)
(EU) German financial regulator BAFIN sees "No systematic risk" for financial sector due to coronavirus
*(US) MAR EMPIRE MANUFACTURING: -21.5 V +4.9E (lowest since 2009)
(US) Treasury Sec Mnuchin: US banking system can handle this after the Fed's action; Trump administration's goal is to ensure businesses have liquidity, not to bail them out - press interview
(UK) Ukraine Pres Zelenskiy: plans to restrict travel inside the country - press
(FR) France Pres Macron: social restrictions will be strengthened; will step up measures to limit people's movements; Citizens should stay at home and only go out for essential things - national address
(US) CDC reports 3,536 cases of coronavirus as of today (up from 1,678 prior report)
LUV Withdraws FY20 guidance due to coronavirus; Entered into a new $1B 364-day term loan credit facility and fully draws down; reducing capacity by at least 20% through June 5th, suspends share buybacks
BA S&P cuts rating 2 notches to BBB from A- (one notch above junk), outlook watch negative
XOM Consider 'significant' cut to its planned CAPEX program, to provide details on the cuts at a later date
TUES 3/17
*(DE) GERMANY MAR ZEW CURRENT SITUATION SURVEY: -43.1 V -30.0E; EXPECTATIONS SURVEY: -49.5 V -30.0E; Says German economy is on red alert
*(TR) TURKEY CENTRAL BANK (CBRT) CUTS ONE-WEEK REPO RATE BY 100BPS TO 9.75% (intra-meeting move)
*(US) FEB ADVANCE RETAIL SALES M/M: -0.5% V +0.2%E; RETAIL SALES (EX-AUTO) M/M: -0.4% V +0.1%E
*(US) FEB INDUSTRIAL PRODUCTION M/M: 0.6% V 0.4%E; CAPACITY UTILIZATION: 77.0% V 77.1%E
AMZN Warehouses reportedly are only currently receiving high-demand products until April 5th - Business Insider
*(US) JAN JOLTS JOB OPENINGS: 6.963M V 6.400ME
(US) OCC reportedly considering relaxing leveraged lending rules to free up bank liquidity - CNBC
*(US) FEDERAL RESERVE INVOKES EMERGENCY AUTHORITIES TO REINSTATE ITS COMMERCIAL PAPER FUNDING FACILITY (CPPF)
(US) Atlanta Fed cuts Q1 GDP growth to 2.9% from 3.1%
(US) Treasury Sec Mnuchin: Proposal would inject $1T into economy on top of $300B in deferred tax payments; this is not the time to worry about the deficit
*(US) NEW YORK FED TO OFFER $1T IN OVERNIGHT REPOS EVERY DAY THIS WEEK
FDX Reports Q3 $1.41 v $1.69e, Rev $17.5B v $17.1Be; suspends FY20 outlook
WED 3/18
700.HK Reports Q4 (CNY) Net 21.6B v 22.8Be, Op 28.6B v 17.3B y/y, Rev 105.8B v 103.7Be
*(EU) EURO ZONE FEB FINAL CPI Y/Y: 1.2% V 1.2%E; CPI CORE Y/Y: 1.2% V 1.2%E
NIO Reports Q4 (CNY) -2.73 v -3.20 y/y, Rev 2.85B v 3.44B y/y
*(US) FEB HOUSING STARTS: 1.599M V 1.500ME; BUILDING PERMITS: 1.464M V 1.500ME
(EU) Europe now reporting more coronavirus cases than China - press
JPM To temporarily close 1K Chase branches on virus concerns (out of 5.1K branches) - Financial Times
FNMA Assistance Options for Homeowners Impacted by COVID-19
(US) White House econ adviser Kudlow: may take equity positions in companies as part of aid
ICE *(US) NYSE TO MOVE TEMPORARILY TO FULLY ELECTRONIC TRADING; EQUITIES AND OPTIONS TRADING FLOORS TO TEMPORARILY CLOSE, BEGINNING MARCH 23RD
*(EU) ECB ANNOUNCES €750B PANDEMIC PURCHASE PROGRAM (PPP); to cover private and public sector securities; will consider revising QE limits to extent necessary
*(AU) RESERVE BANK OF AUSTRALIA (RBA) CUTS CASH TARGET RATE BY 25BPS TO 0.25%; to target yield on 3-year Australian Government bonds of around 0.25%; announces A$90B funding facility
THURS 3/19
*(CH) SNB LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED; steps up FX interventions
LEN Reports Q1 $1.27 v $0.83e, Rev $4.51B v $4.38Be; Withdraws guidance
AFKS.RU Sistema-Biotech plans to submit the registration dossier for its own SBT-DX-nCoV test system; makes it possible to detect coronavirus within 2 hours - Russian press
*(EU) ECB ALLOTS €115.0B IN TLTRO-3 OPERATION
(US) Trump administration said to consider selling ultra-long bonds to pay for $1.3T stimulus response - press
*(US) MAR PHILADELPHIA FED BUSINESS OUTLOOK: -12.7 V +8.0E (record decline index in month and lowest since July 2012)
AA Asset-backed 30-Day Commercial Paper rates ticked DOWN to 1.83% v 1.85% yesterday; 90-day 1.67% v 1.89% yesterday - NY Fed
(US) New York Fed to adjust purchases of mortgage backed securities (MBS) to address 'highly unusual disruptions in the market'; to conduct an additional $10B in purchases
*(UK) BANK OF ENGLAND (BOE) CUTS INTEREST RATE BY 15BP TO 0.10% (2nd intra-meeting move in Mar and lowest level in 325 years)
(US) VP Pence: we have identified tens of thousands of ventilators that can be 'converted to treat patients'
KSS Plans to temporarily close its stores nationwide - press
MYL Ramps up U.S. Manufacturing of Hydroxychloroquine Sulfate Tablets to meet potential COVID-19 patient needs; To be in a position to begin supplying product by mid-April
BAC Introduces new assistance for clients: clients with auto loans, small business loans, mortgages, credit cards can defer payments; confirms pauses foreclosure sales, evictions and repossessions
(US) Preliminary data reports this week from 15 states indicate initial total US jobless claims will skyrocket next week - press
*(PE) PERU CENTRAL BANK (BCRP) CUTS REFERENCE RATE BY 100BPS TO 1.25% (intra-meeting decision)
FRI 3/20
(DE) German Govt said to be planning a €500B rescue package for companies and banks to combat virus impact - German press
AA Asset-backed 30-Day Commercial Paper rates ticked higher to 1.98% v 1.83% yesterday; 90-day n/a v 1.67% yesterday - NY Fed
(US) FED acts with BOE, BOC, BOJ, ECB and SNB to provide daily swap line operations
(US) NY Gov Cuomo: 100% of non-essential workforce must stay home starting Sunday; only essential businesses can have commuting workers; this is not 'shelter in place' order, it is a 'pause' order
(US) NY Fed: afternoon $500B overnight repos will continue daily for the rest of the month; Will conduct total daily repos of $1T for the rest of March
(UK) PM Johnson: telling restaurants and pubs to close tonight, should only provide takeout and delivery orders
UK Fin Min Sunak: For the first time in history the government will help to pay wages; UK is lending unlimited sums of money interest free