Closing Market Summary: Shortened Week Ends on Higher NoteThe stock market climbed to end the holiday-shortened week, but the Thursday affair saw some intraday volatility. The S&P 500 gained 1.5%, extending this week's advance to 12.1% while the Nasdaq (+0.8%) underperformed but still gained 10.6% for the week.
The market climbed out of the gate after the release of another horrific weekly initial claims report was masked by news of more unprecedented action from the Fed to help none of the 16 million people who got fired over the past three weeks. Of course, the Fed would protest that direct support is not in its mandate, but neither is the ability to purchase junk bond ETFs or collateralized debt obligations, which can now be acquired by the Fed. The central bank also added another $2.30 trln in emergency lending capacity for businesses and municipalities. Fed Chairman, Jay Powell, said that the central bank will continue using its powers forcefully, proactively, and aggressively.
In Europe, the Bank of England announced that it will begin directly financing the U.K.'s fiscal needs while German Chancellor, Angela Merkel, rejected Italy's demand for the issuance of joint euro debt.
Also of note, the Japanese government will reportedly spend up to $2.20 bln to help Japanese manufacturers move their production facilities out of China.
Equities backpedaled from their highs in the afternoon, but ten out of eleven sectors were able to finish in the green. The gains were paced by groups like financials (+5.2%), real estate (+5.2%), and utilities (+4.8%).
The top-weighted technology sector (UNCH) lagged, which was also the case earlier in the week. The sector climbed 10.6% for the week while chipmakers also underperformed today. The PHLX Semiconductor Index lost 2.3%, narrowing this week's gain to 11.0%.
Costco (COST 300.01, -5.96, -2.0%) reported a 12.1% jump in domestic comparable sales in March, but its stock finished lower since the market had already priced in strong March sales.
The energy sector (-1.1%) turned negative in the afternoon amid volatility in crude oil. That volatility followed conflicting headlines from the OPEC+ meeting, where producers struggled to agree to a large output cut. The Wall Street Journal reported in the late afternoon that daily output in May and June will be reduced by ten million barrels. Crude oil ended the day lower by $2.30, or 9.1%, at $22.87/bbl.
Treasuries finished near their highs, sending the 10-yr yield lower by four basis points to 0.73%.
The U.S. Dollar Index fell 0.6% to 99.50, widening this week's loss to 1.0%.
Reviewing today's economic data:
- It was another dismal initial claims report, with 6.606 million jobless claims filed for the week ending April 4 (consensus 5.000 million), bringing the three-week total to 13,476,307 after revisions. Continuing claims for the week ending March 28 hit a record high 7.455 million
- The key takeaway from the jobless claims data is that the number of filings is simply astounding and a true sign of the vast impact of the sudden economic stop. Unfortunately, it likely still doesn't capture the fullness of the impact as it's reasonable to assume that the system for filing claims is overwhelmed and not facilitating every effort to file for jobless benefits
- The preliminary reading for the University of Michigan's Consumer Sentiment Index for April plummeted to 71.0 (consensus 79.3) from 89.1 in March. This is the largest monthly decline on record
- The key takeaway from the report is that the more modest decline in the Expectations Index captures a feeling that the impact of the COVID-19 cases and death rates could soon peak, allowing for a restart of the economy
- The Producer Price Index for final demand declined 0.2% m/m in March ( consensus -0.4%). Core PPI was up 0.2% (consensus -0.1%)
- The key takeaway from the report is that it doesn't fully reflect the impact of the COVID-19 shutdown measures as the pricing date for the survey was March 10
- Wholesale inventories decreased by 0.7% in February (consensus -0.4%) after decreasing a revised 0.6% (from -0.4%) in January
There is no data scheduled for Monday.
- Nasdaq Composite -9.1% YTD
- S&P 500 -13.7% YTD
- Dow Jones Industrial Average -16.9% YTD
- Russell 2000 -25.3% YTD
Saudi Oil Minister said to indicate willing to maintain cuts beyond 2022 - press
Investors should ask who will buy all of this new US government debt
The last time America sold war bonds they were essentially a tax on savers
Once upon a time, a whole two months ago, Jim Cramer, the hyperactive American television host, was famous for his love of free markets and equities.
Now, he has a new focus: persuading Donald Trump’s White House to issue “war bonds” to fund the fight against Covid-19. “War Bonds — it is time [for] 30-year, trillion dollars [at] 2%,” he tweeted this week, declaring that domestic investors “want this piece of paper. We want to win this war!””
Will Mr Trump listen? It is unclear. Larry Kudlow, Mr Cramer’s former colleague at CNBC who is now chief White House economic adviser, says he is “all for” war bonds as “a long-term investment”.
However, Steven Mnuchin, Treasury secretary, seems less persuaded. No wonder. With 30-year Treasuries commanding a yield of 1.4 per cent on Thursday, there is little immediate logic for the government to sell bonds that would cost the government more. In any case, Mr Mnuchin needs households to spend money on goods and experiences — not bonds — when the pandemic ends.
Yet, even if the words “war bond” never move beyond Twitter, investors should take note of this, for three reasons. Firstly, government debt levels are exploding in a manner which will soon shine a spotlight on who buys US Treasuries.
This week, for example, Goldman Sachs warned clients that America’s debt to gross domestic product would hit 99 per cent this year and 108 per cent in 2023, up from 79 per cent last year. If so, this would beat the previous record seen in the second world war — which, not uncoincidentally, was the last time the US sold war bonds to a patriotic public.
Thankfully, there is absolutely no sign that Mr Mnuchin faces problems funding this debt now. A compliant US Federal Reserve is already buying up Treasuries. If economic conditions deteriorate in the coming months it is likely that the Fed’s next step would be to embrace “yield curve control”, where it purchases both long and short-term debt to keep rates low along the entire range. Meanwhile, the dollar’s reserve currency status means that non-US entities continue to buy Treasuries too.
However, as investors ponder the future, they should (re)read a remarkable letter that Wall Street banks wrote to the Treasury last year — well before the pandemic hit — which warned of “an increased need for this [US] debt to be financed domestically”, since the proportion of foreign purchases of US Treasuries was falling. The banks suggested then that US households could be natural future buyers, since their holdings were relatively low.
Such calls are likely to intensify, with or without explicit war bonds, particularly if protectionism rises. “I think you will see a much bigger focus on the question of who is owning US debt — are they an ally, or not?” predicts one former senior central banker.
The second point to contemplate is what happens to US bonds. After the second world war, the US government reduced its debt pile with a mixture of growth and “financial repression”, a strategy of holding long-term rates below the prevailing inflation rate, creating negative real returns, amid investment controls.
Until a decade ago, it was hard to imagine this reoccurring in the west. But, as Carmen Reinhart and other economists have noted, echoes of this have emerged since the 2008 crisis. Regulatory reforms have led western banks and pension funds to buy more government debt, even as quantitative easing delivered negative real rates.
There is a high chance that financial repression will intensify in the coming years. This probably will not entail using the explicit investment, price and capital controls that were employed after the war. But nothing can be entirely ruled out. Investors should urgently reread Prof Reinhart’s research because it shows that financial repression delivers negative returns for bondholders. Those widely purchased war bonds, in other words, were essentially a tax on savers which the public accepted in the patriotic cause.
That, in turn, highlights a third point: American economic attitudes are changing at a startling speed to embrace more state interference. One obvious sign of this is Mr Trump’s attempt to use wartime powers to give orders to manufacturing companies such as 3M. Another is the Fed’s extraordinary $2.3tn support package for companies and local entities that was announced on Thursday morning — with even more largesse promised soon.
That horrifies some observers. “We are on a road to essentially changing our form of capitalism and free enterprise permanently — how do you claw this back?” laments Scott Minerd of Guggenheim partners. But such laments are rare right now. Mr Cramer’s appeal is not just a sign of the patriotic, state-controlled times; it also shows how cavalier the pundits have become towards the mountain of debt.
Germany to conduct Europe’s first large-scale coronavirus antibody test programme
Move will help researchers assess infection rates and monitor spread of disease more effectively
Germany is to carry out Europe’s first large-scale coronavirus antibody testing in an effort to help researchers assess infection rates and monitor the spread of the virus more effectively.
Lothar Wieler, head of the Robert Koch Institute, on Thursday announced details of three serological tests — one of blood donations, one involving four areas of the country that had seen large outbreaks of the virus and a representative study of the broader population.
In determining infection rates, experts currently use models based on data that can quickly become obsolete or incomplete, and they have long argued that spot checks and randomised tests are a better approach.
But no country has successfully implemented a nationwide antibody testing programme.
Germany has already emerged as a leader in testing for coronavirus itself, carrying out 100,000 tests per day.
The aim of the Sars-CoV-2 antibody test programme is to find out how many Germans are immune to the virus and “how large the proportion of asymptomatic cases is — that is of people who were infected by the virus but didn’t know it”, Dr Wieler said.
The tests would also shed more light on how many people in Germany had died, so how high the mortality rate was, he added.
All three studies will be carried out jointly by the Robert Koch Institute, the Institute of Virology at Charité Hospital in Berlin and the Helmholtz Centre for Infection Research in Braunschweig.
In the first, up to 15,000 samples will be taken every 14 days from blood donations. The second will concentrate on four areas worst affected by Covid-19, with representative blood samples taken from about 2,000 people. For the first and second surveys, work will start next week, with the first results expected in May.
In the third, 15,000 people in 150 regions across Germany will be tested for antibodies. Work is to start next month.
Mr Wieler said the tests would allow health authorities to “better describe the course of the epidemic and get to know it better”. It would also allow researchers more effectively to evaluate measures taken to slow the spread of the virus and provide more information about unrecorded cases that were not reflected in official statistics, he added.
Establishing how far the virus has spread and how many of those infected died will help authorities decide when they can allow people to return to normal life.
In the US, the Centers for Disease Control is also carrying out antibody testing. One survey involves blood samples from people not diagnosed with the virus in coronavirus hotspots, the second is a national survey from different parts of the country and the third a study of health workers.
Tim Colbourn, an associate professor at University College London’s Institute for Global Health, said it would be “really helpful” to know what actual infection rates were through random antibody testing.
“Efforts to measure prevalence of Covid infection through random sampling of the population will shed light on this key unknown,” he said.
A better idea of infection rates could help identify clusters and target health interventions, he added.
Other countries have announced plans to carry out nationwide tests but struggled to get them off the ground. India announced on April 4 that it would start rapid antibody tests of people reporting coronavirus symptoms in “containment zones” — hotspots with a cluster of infections — and in large migration centres. It put out a tender for the tests last month.
But it has yet to ramp up capacity and faces significant logistical challenges after Narendra Modi, prime minister, put the country on a strict 21-day lockdown that has disrupted supplies of testing kits.
Some governments have seen antibody tests as a crucial stepping stone to relaxing some of the harsher lockdown measures introduced throughout the world to curb the pandemic.
One of the main caveats is that scientists haven’t reached a uniform consensus on whether immune responses to Sars-Cov2 are adequate and sustained.
But, say experts, greater testing and a more thorough epidemiological picture would help health authorities respond more quickly and stem clusters and outbreaks before they surged.
Bill Gates and the 10 other tech titans with the power to shape how the US fights the coronavirus
The billionaires’ response has been called “lackluster.” Here’s who can change that.
What Silicon Valley billionaires decide to do with their money and power from now on in the Covid-19 crisis matters. It could affect the amount of suffering the US experiences in a recession and the amount of time before things return to normal. It might even have an impact on the number of people who will die from the coronavirus.
So this moment is a test for the nation’s billionaires, who tend to point to their philanthropy as a riposte against calls for higher taxes. If ever there were a moment for the nation’s wealthiest to part with considerable amounts of their net worth to solve a social problem, it is now.
But despite the frequency of the word “million” in press releases, observers say some of the public commitments to charity so far have been relatively small. For instance, two heavily tech-backed philanthropies, the Silicon Valley Community Foundation and Tipping Point, have both unveiled $30 million fundraising goals for Covid-19-related giving, amounts that have struck outsiders as surprisingly modest.
David Callahan, a prominent journalist on the subject, deemed the billionaire class’s total giving to be “lackluster.”
“If anyone can afford to give more in response to the pandemic, it’s the richest of the rich, with far greater assets than private foundations,” Callahan wrote in his newsletter Inside Philanthropy over the weekend. “In recent years, though, giving by billionaire donors has amounted to only a tiny sliver of their wealth and many billionaires barely give at all. There are no signs yet that this crisis will change that.”
Though billionaires’ foundations and donor-advised funds face calls to drastically increase or accelerate giving at this moment, philanthropy veterans say it can take time — sometimes too much time — for lumbering foundations to come up with a coherent strategy in a crisis.
There is a lot still to be desired, but these 11 Silicon Valley billionaires — mostly men, and all white, as billionaires often are — are among the people who could make the biggest financial impact if they choose to do so. They have the money, the corporate power, the political relationships, and the celebrity to shape the country’s response to the pandemic. Watch these folks closely.
Jack Dorsey
Jack Dorsey came out of nowhere on Tuesday when he said he’d move $1 billion of his equity in Square to a limited liability corporation (LLC) set up to fund Covid-19 relief, among other things. This instantly established Dorsey as one the most important philanthropists in the country right now.
The Twitter founder stopped short of offering an exact figure for how much he plans to give for fighting coronavirus and its consequences, but he said he will detail each of his grants in this spreadsheet. Even if he gives just 10 percent of the $1 billion pledged for the Covid-19 response, Dorsey would become the world’s biggest individual donor on this matter.
It will be especially revealing to watch Dorsey, given his meager public charitable record to date. A proponent of universal basic income, Dorsey might center his money on efforts to give Americans cash directly, or maybe he’ll back food insecurity, as his first grant went to a new food fund.
Bill Gates
The founder of Microsoft has emerged as, by far, the most visible tech leader during the coronavirus crisis after committing $100 million. More important than that sum has been Gates’s willingness to use his voice and celebrity to offer an alternative to the White House.
“In a vacuum, then, people like Bill [resonate more] if we don’t have that clarity of voice from our political leaders,” said Jeff Raikes, who ran the Gates Foundation for a decade and remains a close collaborator of the Microsoft co-founder.
Offering sober, apolitical analysis, Gates has been on a ceaseless media tour, preaching a stay-the-course message when it comes to social distancing and full steam ahead when it comes to coronavirus treatment and vaccine development. Though after he suggested last week that he was spending “billions” on the construction of multiple factories for the production of potential coronavirus vaccines, the Gates Foundation seemed to backtrack, telling Recode on Tuesday that it was merely “exploring” this idea.
“The foundation is exploring using its catalytic funding to get the process moving, recognizing that any large-scale projects will require multilateral and/or government funding,” the foundation said in a statement.
While Gates has been burnishing his legacy as the country’s leading philanthropist for a while now, the coronavirus crisis has served as a reminder of just how revered Gates has become — which is a far cry from the Gates of the 1990s.
Larry Ellison
By the end of all of this, it’s possible no tech billionaire will have had a bigger impact on the world’s response to coronavirus than Ellison, Gates’s longtime rival. Ellison’s political influence could have altered the course of history.
The founder of Oracle has fostered an unusually close relationship with the Trump administration, including hosting a fundraiser for the president this February that raised $7 million for his campaign. A month later, Ellison was pitching Trump on an unproven drug to treat the coronavirus — hydroxychloroquine — and then Trump began pitching that to the nation before television cameras in the White House briefing room.
Putting this bug in Trump’s ear is a textbook example of how a billionaire’s political influence can far outstrip the influence of any charitable work. (Nevertheless, an official at Ellison’s charitable foundation declined to comment on any work on coronavirus.)
Marc Benioff
Benioff has been among the most visible Silicon Valley leaders in trying to solve the crisis — if not with his wallet then with his platform at Salesforce. Not all of the people on this list currently run companies, which removes a lever from how they can help.
The Salesforce founder has helped organize deliveries of personal protective equipment for the Bay Area, New York, India, and France. Benioff and Salesforce have sourced about 50 million pieces of equipment — such as face masks, gowns, face shields — so far.
And Benioff has also been among the most visible tech leaders when it comes to using his megaphone. He has called on other CEOs to sign a commitment to not do major layoffs for the next 90 days. And he has encouraged officials in other cities to institute lockdowns.
Laurene Powell Jobs
Powell Jobs, whose Emerson Collective LLC does not typically disclose details of its grants, is giving a few million dollars to America’s Food Fund, a group focused on hunger that Dorsey has backed. She teamed up with Leonardo DiCaprio for the donation, which amounted to $5 million in total — Powell Jobs didn’t specifically share how much she committed herself.
She has been tweeting supportive things about the need for “a collective sense of humanity to spread faster than the virus” but has been very light on details. A spokesperson didn’t return a request for comment on any other Covid-related donations. Given that she has pledged to spend almost all of her money at some point, now would seem like a prime opportunity for Powell Jobs to make a dent in that fortune.
Larry Page and Sergey Brin
Google’s two founders, who oversee $100 billion between them, have long been criticized for being basically AWOL in the world of serious philanthropy. Page’s charitable foundation is among the country’s most prolific users of donor-advised funds, vehicles that allow a donor to avoid disclosing information about their giving.
So it should be no surprise that representatives of Page’s and Brin’s charitable foundations didn’t return repeated requests for comment. Neither foundation even has a website. The pair represents Silicon Valley’s untapped potential — or what billionaires could do if they changed their posture.
Jeff Bezos
Bezos had until recently avoided making major charitable gifts, but over the last two years, as he became the richest person in the world and a tabloid star to boot, Bezos has pledged his three largest commitments to date. That included one of the single-largest charitable gifts of the entire Covid-19 response: Bezos last week said he was donating $100 million of his money to Feeding America, one of the country’s largest charities that operates 200 food banks around the country.
But for all his generosity, Bezos’s legacy during the Covid-19 crisis may be defined primarily by how he handles his day job. The Amazon founder and CEO has found himself under fire for how his company is treating its lowest-level workers, criticism that has come from some of the people who matter most: his employees.
Steve Ballmer
The net worth of Ballmer has quietly skyrocketed over the last two years, making him now the sixth-richest person in the world. Ballmer has put $25 million into Covid-19 efforts, much of which is focused on areas where he and his family have personal connections: Seattle, Los Angeles, and Detroit. The Ballmers have tried to be realistic about the limited role that they feel the nonprofit sector can play.
“Philanthropic dollars can never take the place of government funding, but during this crisis grantmakers can fund emergency needs and provide potential bridge funding before the public dollars flow,” Connie Ballmer told Recode.
Ballmer said that she and her husband would be considering possible advocacy efforts to “shore up funding for children and families which may be trimmed during the recovery.” That could mean some political fights ahead.
Michael Dell
Computer mogul Michael Dell has put $100 million toward coronavirus philanthropy, he announced last week. Of that sum, $20 million is going to the Gates Foundation for its treatment discovery work, and the other $80 million is still to be handed out but will go toward increasing medical capacity, among other things.
The country’s 18th-richest person, Dell’s commitment is among the philanthropy world’s largest pools of cash earmarked for the response. Dell, who lives in Texas, has receded from the public limelight, but he serves as a reminder that there are many billionaires who aren’t top of mind but who still control enormous amounts of money and influence.
Eric Schmidt
Some billionaires have been playing a behind-the-scenes role in organizing other tech funders to try and finance new scientific research. Schmidt’s aides last month organized a call with about 150 other philanthropists, venture capitalists, and tech figures to explore possible research projects, Recode previously reported
Schmidt is among the country’s most politically connected billionaires, so it makes sense that one Schmidt Futures official has said his team is focusing on public-private partnerships, too. An aide to Schmidt to declined to share what else he is working on.
Dustin Moskovitz
One of Silicon Valley’s most thoughtful philanthropists, Moskovitz is a leader in a movement called effective altruism, which seeks to donate money to causes that are proven to make the greatest statistical impact. One of the Democratic Party’s biggest donors, there has yet to be a significant million-dollar donation to Covid-19 work from him, although he has long been among the few billionaires focused on preparing for a global pandemic. In just the last few weeks, Moskovitz gave another $300,000 for pandemic preparedness work.
But more symbolically, Moskovitz is a good person to follow if you’re curious about the thinking of the youngest generation and the newest tech wealth.
“Philanthropy is taking on a greater portion of the responsibility for response than anyone expected,” Moskovitz told Recode, “And unfortunately I think it’s clear to anyone closely following the situation today that philanthropy simply can’t solve this crisis on its own.”