Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: April 2020

THE DAILY EDGE: 30 APRIL 2020: R20 Strategy Raising Cash

Gilead CEO Says Over 50,000 Remdesivir Courses Ready to Ship

Gilead Sciences Inc. Chief Executive Officer Daniel O’Day said there are more than 50,000 courses of the company’s experimental Covid-19 therapy, packed in vials and ready to ship as soon as the drug is authorized for emergency use by U.S. regulators.

He made the comments in an interview hours after the National Institute of Allergy and Infectious Diseases director Anthony Fauci said a U.S.-run trial of the drug, remdesivir, met its overall target, helping patients recover faster. The potential for the first effective coronavirus treatment sent stock markets soaring on Wednesday. (…)

The Foster City, California-based company has been working for months to increase the supply of the hard-to-manufacture drug, and has said it hopes to make enough for at least a million patients by the end of the year.

The company also shared results from a trial Wednesday showing that treating severe Covid patients for five days with remdesivir was as good as a 10-day course. The shorter course would be easier on patients and should allow the company to stretch the supply further.

The current version of the drug is infused, which would make it less convenient to use in milder patients who are not hospitalized. O’Day said Gilead scientists are devising an inhaled formulation of the drug that would allow patients to breathe the medicine directly into their lungs.

Despite the excitement, the remdesivir data is still highly preliminary. Data from the U.S.-run trial has only been shown in a press release, and none of the details have been published in a scientific journal.

Pointing up And confusingly, also on Wednesday, a second smaller trial from China was published in The Lancet, showing remdesivir didn’t help patients get better, faster. That trial was stopped early after it failed to enroll enough patients. (Bloomberg)

More on this in the open FT:

(…) Anthony Fauci, director of the NIAID, told reporters remdesivir was not a “knockout” but that he was “very optimistic”. Establishing that a drug can target a replication mechanism inside the virus can lead to other breakthroughs, he said. (…)

  • AstraZeneca Plc agreed to make and distribute the a potential vaccine against the coronavirus pandemic that Oxford University scientists are working on. The experimental shot is already in early clinical tests and could reach late-stage trials by the middle of the year, ranking as one of the most advanced vaccine projects. Astra said in an email on Thursday it would pick up the development as well as manufacture and distribute the product.

The FT adds this: Partnership aims to build capacity to produce 100m doses by the end of the year and prioritise UK supply

1 in 6 nursing homes across nation report an outbreak The number of nursing homes publicly reporting cases of covid-19 has doubled in the past week, with more than 1 in 6 acknowledging infections among residents or staff, a Washington Post analysis found.
U.S. Social-Distancing Guidelines Set to Expire After 45 days, the federal campaign to slow the spread of the coronavirus is expected to fade away.
What if immunity to covid-19 doesn’t last? Researchers say people can catch mild, cold-causing coronaviruses twice in the same year.

(…) What the Columbia researchers now describe in a preliminary report is cause for concern. They found that people frequently got reinfected with the same coronavirus, even in the same year, and sometimes more than once. Over a year and a half, a dozen of the volunteers tested positive two or three times for the same virus, in one case with just four weeks between positive results. (…)

For the coronaviruses “immunity seems to wane quickly,” says Jeffrey Shaman, who carried out the research with Marta Galanti, a postdoctoral researcher.

Whether covid-19 will follow the same pattern is unknown, but the Columbia results suggest one way that much of the public discussion about the pandemic could be misleading. (…)

“We really don’t understand whether it is a change in the virus over time or antibodies that don’t protect from infection,” he says. (…)

Early evidence points to at least temporary protection against reinfection. Since the first cases were described in China in December, there has been no cut-and-dried case of someone being infected twice. While some people, including in South Korea, have tested positive a second time, that could be due to testing errors or persistence of the virus in their bodies. (…)

Researchers in China also tested directly whether macaque monkeys resisted a second exposure to the new coronavirus. They infected the monkeys with the virus, and then four weeks later, after they recovered, tried again. The second time, the monkeys didn’t develop symptoms, and researchers couldn’t find any virus in their throats.

What’s unknown is how long immunity lasts—and only five months into the outbreak, there is no way to know. If it’s for life, then every survivor will add to a permanent bulwark against the pathogen’s spread. But if immunity is short, as it is for the common coronaviruses, covid-19 could set itself up as a seasonal superflu with a high fatality rate—one that emerges in a nasty wave winter after winter. (…)

Big studies of immunity are already under way to try to answer those questions. Germany has plans to survey its population for antibodies to the virus, and in North America, 10,000 players and other employees of Major League Baseball are giving pinprick blood samples for study. In April, the US National Institutes of Health launched the COVID-19 Pandemic Serum Sampling Study, which it says will collect blood from 10,000 people, too. (…)

To Frieman, at the University of Maryland, all this uncertainty about immune response to coronaviruses means there’s still little chance of predicting when, or how, the outbreak ends. “I don’t know when this goes away, and if anyone says they know, they don’t know what they are talking about,” he says.

Children Don’t Pass Covid-19 to Adults, Report Indicates

Children contract the coronavirus less often and with less severity than the general population, and there doesn’t appear to be cases of a child passing Covid-19 to an adult, according to a new report.

Many infected children may stay asymptomatic, but cases of them becoming critically ill with Covid-19 remain rare, according to an analysis of global virus studies compiled by the Don’t Forget the Bubbles pediatric blog.

  • A China/World Health Organization joint commission couldn’t find a single case of a child passing the virus to an adult.
  • Low case rates among children may be due more to higher numbers remaining asymptomatic, rather than a lower infection rate.
  • Analysis of Chinese data in confirmed and suspected cases showed that 32% of affected children aged 6-10 years were asymptomatic. (…)
  • German officials signaled there won’t be a significant further easing of restrictions on public life for at least another week as data showed coronavirus infections in Europe’s biggest economy rose the most in four days.
  • About a third of patients in U.K. hospitals with Covid-19 died from the disease, according to the findings of a study of more than 16,000 people with the virus. The research, which hasn’t been peer-reviewed and has yet to appear in a scientific journal, is an early insight into the deadliness of the virus in the U.K., which has one of the highest tolls from the pandemic in Europe
  • South Korea reports no new local coronavirus cases
  • Singapore struggles to slash coronavirus infections
  • In Russia, the number of confirmed cases rose by 7,099, the largest single-day increase to date, to 106,498. The pace of increase quickened to 7.1% from 6.2% on Wednesday.
  • Los Angeles will offer free Covid-19 tests to all residents of the county regardless of their symptoms, becoming the first major U.S. city to make wide-scale tests available.
  • Doctors Investigate Link Between Rare Childhood Disease and Covid-19 Doctors in Italy and the U.K. have raised the alarm over a small but growing number of children displaying symptoms of a rare blood-vessel condition known as Kawasaki disease that may be linked to Covid-19.
PANDENOMICS
China Manufacturing PMI: Operating conditions deteriorate slightly as COVID-19 pandemic weighs on demand

After broadly stabilising in March, operating conditions across China’s manufacturing sector weakened slightly in April. The recent easing of measures to halt the spread of the coronavirus disease 2019 (COVID-19) pandemic underpinned a further rise in output. However, the impact of the virus globally led to a substantial drop in export sales, which drove a further decline in total new work.

Weaker demand conditions prompted firms to reduce their staff numbers and input buying. At the same time, companies reported moderate falls in both input costs and selling prices.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) slipped from 50.1 in March to 49.4 in April, to indicate a renewed deterioration in operating conditions. That said, the decline was marginal and much softer than the record pace seen in February when many firms closed down to stem the spread of the virus.

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Chinese manufacturers signalled a back-to-back monthly rise in production after a record decline in February, as more firms reopened and were able to increase capacity. That said, the rate of expansion remained marginal overall.

Meanwhile, total new orders fell for the third month running at the start of the second quarter. The modest drop in overall new business was largely driven by weaker foreign demand, according to underlying data. New export business fell at the steepest rate since December 2008, as the COVID-19 pandemic led to temporary lockdowns and business closures across the globe.

The gauge for new export orders dropped back sharply to a level lower than that in February, pointing to a sharp contraction in foreign demand amid the coronavirus pandemic. The subindex for total new orders worsened slightly from a relatively low level the previous month, amid shrinking overseas demand compounded by limited recovery in domestic consumption.

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Reduced amounts of new work led firms to cut their staff numbers again in April. Furthermore, the rate of job shedding quickened from March. Backlogs of work meanwhile rose further as firms continued to process orders from previous months, though the rate of accumulation eased for the second month in a row.

The weaker order book trend also prompted firms to reduce their purchasing activity. Greater usage of current stocks meanwhile led to a further decline in inventories of inputs, though the rate of contraction was only fractional.

Although the time taken for inputs to be delivered to manufacturers continued to lengthen in April, the rate at which vendor performance deteriorated was only modest. Where delays were recorded, they were generally attributed to shortages at suppliers and virus-related travel restrictions.

A combination of increased production and difficulties in delivering products to clients led to a further rise in stocks of finished goods. That said, the rate of expansion remained marginal.

Average input costs fell at the quickest rate in over four years in April amid reports of lower raw material prices. Output charges also declined as firms sought to remain competitive and attract sales. (…)

Optimism regarding the 12-month outlook for output dipped to a four-month low in April. The economic shock may be greater than previously
thought, and it may take longer for the economy to recover.

U.S. Economy Shrank at 4.8% Pace in First Quarter The U.S. economy shrank at a 4.8% pace in the first quarter as the coronavirus spread, the steepest contraction since the last recession.

(…) Personal consumption, the economy’s bulwark, fell at a 7.6% rate, the steepest drop since the second quarter of 1980. Spending on services—from haircuts to legal advice—accounts for nearly half of total GDP. It fell at a seasonally adjusted annual rate of 10.2%, the largest decline since the agency began compiling quarterly statistics in 1947, led by a decrease in health care services.

Goods spending fell by 1.3%, as lower spending on new cars was offset by stockpiling on items such as food and household essentials as people stocked up for the pandemic.

In a sign of consumer caution, the personal saving rate was 9.6% in the first quarter, up from 7.6% in the fourth quarter.

Business spending on software, research and development, equipment and structures fell at an 8.6% annual rate.

(…) Federal Chairman Jerome Powell said the U.S. economy would need additional spending from Congress and the White House to ensure that a robust recovery could take hold following a broad and deep deterioration from the pandemic. (…)

Data company IHS Markit expects GDP to decline at a 37% annual rate from April to June, which would represent the biggest drop since quarterly records began in 1947. (…)

Why the Economy Was Even Worse Than the GDP Report

(…) Earlier Commerce Department data showed that through February consumer spending was up an annualized 1.1% from its fourth-quarter levels. But the GDP report showed spending declined at a 7.6% rate in the first quarter. That implies that spending fell 6.7% in March alone. (…)

Also, net exports added 1.3 percentage points to growth as an 8.7% decline (-2.9% YoY) in exports was outpaced by a 15.3% drop (-5.8% YoY) in imports.

  • In the US, we [GS] expect -34% qoq annualized real GDP growth in Q2 before a gradual recovery in H2 in which a bit more than half the near-term output decline is made up by year end, leaving full-year 2020 growth at -6%. We see unemployment reaching 15% in Q3 and expect a decline in core PCE inflation to 1¼% by year-end 2020.
  • In the Euro area, we [GS] expect that the coronavirus outbreak will lead to a 9% yoy decline in real GDP in 2020 owing to a large H1 contraction, and see risks to this forecast as tilted to the downside. Looking across countries, we expect larger contractions, higher unemployment rates, and slower normalizations of activity in Italy and Spain than in northern Europe. We expect deficits of more than 11% of GDP in Italy and Spain, and roughly 8% in France and Germany this year.
  • In China, after a 6.8% yoy decline in real GDP growth in Q1, we [GS] expect a rebound in the remainder of the year driven by easing of virus restrictions and robust policy stimulus. Our full-year real GDP growth estimate of 3% for 2020 assumes the virus comes broadly under control in most major economies by Q3 and accommodative monetary and fiscal policies generate positive growth impulses globally.

Elsewhere

  • Across the 19 countries that use the euro as their currency, gross domestic product was 3.8% lower than in the final three months of 2019. On an annualized basis, the economy shrank by 14.4%, exceeding the 4.8% contraction in the U.S. economy over the same period. That largely reflects the fact that Europe’s lockdown started earlier and has been more widespread.
  • On an annualized basis, the French economy contracted 21%.
  • German businesses could soon furlough more than 10 million workers, or almost a quarter of the nation’s entire workforce, the labor agency said, as firms slash costs to survive the coronavirus pandemic. Three-quarters of a million businesses have so far signaled that they will place 10.1 million workers on state-subsidized short-time work schemes, Germany’s labor agency said Thursday. That is three times the number of workers that were furloughed at the depths of the financial crisis in 2009, when 3.3 million workers were furloughed, the agency said.
  • China and South Korea agreed to ease quarantine requirements for some business travelers, Beijing’s first such move to revive essential economic activities disrupted by the coronavirus pandemic.
‘W-shaped’ recovery may be too optimistic, Fed’s Powell suggests

Federal Reserve Chair Jerome Powell has sketched out an altogether bumpier ride for the U.S. economy than many are predicting – one that sees business activity stop and start for months to come, until an effective treatment or vaccine for the novel coronavirus can be found. (…)

Just under half of 45 economists responding to a Reuters poll earlier this month said the U.S. economic recovery would be “U” shaped. Ten of those polled said it would be “V” shaped, and five said it would be “W” shaped.

In comments on Wednesday, Powell indicated he sees even more disruption than the “W” camp. (…)

Aviation’s Crisis Just Became Permanent The airline industry has moved from temporary freezes to long-term downsizing as years of depressed demand loom

(…) Boeing said Monday that it would reopen its North Charleston, South Carolina 787 Dreamliner facility next week. However, on Wednesday it gave a longer-term picture: The 787’s production rate will be gradually reduced to seven a month by 2022, from 14 now. Rates for the 777 will also be cut, and the 737 MAX ramp-up will be slower than previously expected—adding an extra $1 billion to expected production costs.

Airbus didn’t provide new details, but has said rates would be cut by about a third across its aircraft portfolio. (…)

For engine manufacturers and companies that make money repairing aircraft, history suggests that the trough will be even deeper. General Electric said Wednesday that it would need to cut $2 billion in costs after reporting a whopping 40% drop in profits for its aviation division. (…)

  • U.S. Borders to Remain Shut to Foreign Travelers as States Reopen The Trump administration has no immediate plans to reopen the country’s borders after imposing a ban on foreign travelers from the European Union and the U.K. last month to slow the spread of the coronavirus, Secretary of State Mike Pompeo said.
  • Norway has for the first time in almost two decades joined international efforts to cut oil production, in the context of the historic oversupply and price plunge that is taking place. Europe’s biggest oil producer said it would cut production by 250,000 barrels a day in June and 134,000 barrels in H2.
CHANGE TO THE RULE OF 20 STRATEGY

At yesterday’s close of 2957, the Rule of 20 P/E was 20.8 on trailing EPS of $158.01 and 2.1% inflation. As a result, the Rule of 20 Strategy dictates a 30% cash level. However, this is doubled to 60% because the Rule of 20 Fair Value (yellow line), currently 2828, is in free fall as profits are collapsing.

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Never before has the R20 P/E been so volatile: the swing was from 22.9 to 15.9 back to 20.8, all within 10 weeks.

The same can be said of the conventional P/E which, on trailing EPS, peaked at 20.6 in February, cratered to 13.5 in March and bounced back to 18.7 yesterday.

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On forward earnings, for the forecaster in you, the P/E peaked at 19.3 in February, dropped to 13.9 in March and is now 21.7.

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Forward EPS are currently $136.17 per Refinitiv/IBES, down 22.3% from their February level and still in free fall. Using 2021 full year estimates of $168.62, the P/E is 17.4, where the red line above stands.

  • Facebook Shares Soar as Ad Sales Stabilize Facebook said ad sales stabilized in recent weeks, part of a strong earnings report that sent shares soaring as the social-media giant benefits from a swell in homebound users.
  • Shell Cuts Dividend for First Time Since World War II Royal Dutch Shell cut its dividend after first-quarter profit fell by nearly half as nationwide lockdowns caused by the coronavirus restrict travel and hit economic growth.
  • WeWork Troubles Take Deeper Bite Out of SoftBank SoftBank said steeper-than-expected losses on office-share firm WeWork pushed its net loss for the latest fiscal year to around $8.4 billion—$1.4 billion more than it announced just two weeks ago.
  • Oil and gas giant Chesapeake Energy has held discussions with creditors about a possible $1 billion loan while it prepares a potential bankruptcy filing. (Reuters)
TECHNICALS WATCH

13/34–Week EMA Trend Chart (CMG Wealth)

The 50-d m.a. was put behind yesterday, 2 more to go…

spy

All clear?

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  • TD Ameritrade said last week that retail clients opened a record 608,000 new funded accounts in the quarter ended March 31, with more than two-thirds of those opened in March. E*Trade saw a net gain of 363,000 accounts in the quarter—a company record—around 90% of which were retail. Charles Schwab Corp. reported a record 609,000 new brokerage accounts in the quarter, including individuals’ self-directed accounts and those managed by financial advisers. (WSJ)

Axios explains

Retail traders, especially those using the stock trading app Robinhood, have shown unusual buying patterns, pursuing cheap and particularly volatile stocks, DataTrek Research co-founder Jessica Rabe points out in a note to clients.

  • “The rush of retail investors into U.S. equities is at least partly a function of a world with no casinos, no sports betting to speak of (horses and ping-pong aside), and little to do outside the home.”
Aides present Trump with grim internal polling showing a loss to Biden Advisers showed the data to the president in hopes of curtailing his reliance on contentious daily coronavirus briefings.

Trump says China wants him to lose his bid for re-election

President Donald Trump said on Wednesday he believes China’s handling of the coronavirus is proof that Beijing “will do anything they can” to make him lose his re-election bid in November.

In an interview with Reuters in the Oval Office, Trump talked tough on China and said he was looking at different options in terms of consequences for Beijing over the virus. “I can do a lot,” he said. (…)

THE DAILY EDGE: 29 APRIL 2020

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Coronavirus Lingers in Air of Crowded Spaces, New Study Finds

At two hospitals in Wuhan, China, researchers found bits of the virus’s genetic material floating in the air of hospital toilets, an indoor space housing large crowds, and rooms where medical staff take off protective gear. The study, published Monday in the journal Nature Research, didn’t seek to establish whether the airborne particles could cause infections.

The question of how readily the new virus can spread through the air has been a matter of debate. The World Health Organization has said the risk is limited to specific circumstances, pointing to an analysis of more than 75,000 cases in China in which no airborne transmission was reported. (…)

The researchers, led by Ke Lan of Wuhan University, set up so-called aerosol traps in and around two hospitals in the city that was home to the pandemic’s first steps.

They found few aerosols in patient wards, supermarkets and residential buildings. Many more were detected in toilets and two areas that had large crowds passing through, including an indoor space near one of the hospitals.

Especially high concentrations appeared in the rooms where medical staff doff protective equipment, which may suggest that particles contaminating their gear became airborne again when masks, gloves and gowns are removed.

The findings highlight the importance of ventilation, limiting crowds and careful sanitation efforts, the researchers said.

More on this from the South China Morning Post

(…) While they noted low concentrations of coronavirus in the air of well-ventilated or open public spaces, this was not the case in areas which drew crowds, including a busy entryway outside the hospital and a thoroughfare. This finding emphasised the importance of avoiding crowded areas, the researchers said. (…)

Coronavirus Testing Capacity Is Going Unused Many commercial and academic laboratories in the U.S. are processing coronavirus diagnostic tests far below their daily capacity, leaving tools crucial to slowing the virus’s spread unused.

(…) Lab executives and public-health officials blame barriers including fragmented supply chains, relatively strict test guidelines, incompatible electronic systems and a lack of centralized data on where capacity exists.

The result is a disorganized system that isn’t matching the limited testing supply with the demand, and some public-health experts are calling for national coordination to scale up quickly. (…)

Many companies say widespread worker testing is part of their return-to-work plans.

Last week, the Trump administration provided governors with lists of sites with unused testing capacity. States, cities and organizations have started coordinating to expand and work through the logistical barriers. (…)

With the full potential of U.S. hospital, commercial and academic labs unlocked, testing could scale from roughly 1.5 million to 3 million weekly tests within eight weeks, says Rajiv Shah, president of the Rockefeller Foundation.

But then jumping to 30 million weekly tests—the next phase in the foundation’s plan—would likely require new tech, such as quality rapid tests and at-home testing, he said. The Defense Production Act would also likely need to be invoked, according to the foundation’s report. (…)

When will we get the Covid-19 vaccine? By the time the jab arrives, we might not even need it

PANDENOMICS
Coronavirus Prompts Record Souring of Consumers’ Outlook—and Hope Pain Will Be Short-Lived The coronavirus pandemic prompted a record souring of consumers’ views on the U.S. economy in April surveys, but people remain hopeful the gloom will be short term.

The Conference Board, a private research group, on Tuesday said its index of consumer confidence sank to 86.9 in April from a revised 118.8 in March. The index of current conditions drove the decline, falling in April by a record change to 76.4, from 166.7 in March. Despite this unprecedented drop, a measure of consumer expectations rose slightly—signaling an increase in the share of respondents who think business conditions will have improved six months from now.

The University of Michigan survey of consumer sentiment released Friday registered a similar gap, as the index of current conditions plunged 29.4 points in April, compared with a 9.6-point fall in the expectations index.

On the cusp of past recessions, current conditions typically peaked while expectations bottomed out, said Richard Curtin, the University of Michigan survey’s chief economist. “Now we have the opposite,” he said. “The whole situation is completely unique in the history of our surveys, and we go back to the early 1950s.” (…)

The share of respondents in the consumer-sentiment survey saying they anticipate “bad times” in the year ahead hit 68% in April—more than double the share in February.

Consumers see glimmer of hope for economy but not for their own incomes
Manufacturers Hit a Wall as Coronavirus Saps Demand Caterpillar, Harley and 3M are among companies idling production and cutting costs

(…) Caterpillar and 3M said a quarter of their factories are offline. Harley, which idled assembly plants in mid-March, said it is restarting some production. The Milwaukee-based company also said, though, that the worsening economic outlook has prompted it to reconsider when to introduce some new models it is counting on to draw new customers. Nearly two-thirds of its U.S. dealers remain closed. (…) Caterpillar said it was considering closing plants in Germany. (…)

Simon Property to Reopen 49 Malls

China office vacancy rates surge, rents drop amid pandemic headwinds Office rents continue to be battered by the novel coronavirus pandemic, and vacancy rates are on the rise in mainland China.

(…) “The basic operations of most companies have not been affected, but some might suspend or delay their expansion plans … thus new [office space] supply in the market will not be digested [fast enough],” said Martin Wong, research and consultancy associate director for Greater China at real estate consultancy Knight Frank. (…)

As a result, in the January to March period, vacancy rates for Grade A office buildings in Shenzhen and Shanghai rose to 22.3 per cent and 21.1 per cent, respectively. In Beijing, 12.6 per cent of office space was unoccupied, while Guangzhou was more resilient, with only 4.8 per cent of its offices vacant. (…)

Office real estate in Chinese cities that had a higher proportion of multinational firms, such as Shanghai, will recover slower than other cities, as a result, he said.

The Four Seasons Hotels and Resorts announced this month to cease operating its Shanghai hotel and residences from May 15. Starbucks said it had decided to halt new shop openings in China, with some postponed until the next financial year. Luxury brand Kering, which owns Gucci, Saint Laurent and Balenciaga, has also suspended plans for new openings in China. (…)

Rents in tier 1 cities are expected to decline 3 per cent to 5 per cent, Knight Frank’s Wong added. (…)

Chinese homebuyers go on ‘revenge spending’ binge as cities emerge from coronavirus lockdowns

(…) “The demand was only deferred [by the lockdowns] and did not disappear. With new homes flooding the market, and developers wooing homebuyers with measures such as online viewings [during the outbreak] and discounts, we expect another jump in the coming months,” said Lu Wenxi, analyst at Hong Kong-based Centaline Property Agency. (…)

In Shanghai, Shenzhen and Beijing, for instance, residential property purchases rose 37 per cent in the week ending April 20, compared with the previous week. (…)

“The rebound in sales is fragile. Demand remains highly dependent on consumer [and investor] confidence, which is not a sure thing given the global economic downturn. For now, we maintain our base case view, which is that national contracted sales will drop 5 per cent to 10 per cent in 2020,” said Christopher Yip, senior director at S&P Global Ratings. (…)

  • Alibaba-backed online bank lends to over 20 million small and micro firms
  • Europe’s $2 trillion tourism industry is in dire straits, due not only to a lack of visitors from outside the continent, but also the chaotic re-imposition of national borders that have been effectively invisible for the last 35 years. European Tourism Association CEO Tom Jenkins: “We are in the unique position of there being no demand and no product. You could not devise anything worse.” Fortune
  • Companies Are Suspending Dividends at Fastest Pace in Years Nearly 200 companies have cut, suspended or eliminated their dividend payments this year—the most since 2009. The number one calendar year on record for the highest number of dividend reductions was in 2009, with 316 such announcements. But 2020 is still young, and the crisis has just begun. All dividend actions so far this year through Monday amount to a cut in payouts of about $22.8 billion, according to S&P Dow Jones Indices, cited by the Wall Street Journal. (ZeroHedge)

The Coming GOP Spending Split Trump risks dividing his party in the Senate with another $1 trillion bill.

Australia defies China with renewed calls for coronavirus inquiry Diplomatic skirmish alarms business as Canberra accuses Beijing of ‘economic coercion’

Canada’s inflation rate plunges to lowest in almost five years in March

  • Statistics Canada reported Wednesday that the consumer price index rose 0.9 per cent year over year in March, down sharply from 2.2 per cent in February and the lowest reading since April, 2015. It was the biggest drop in more than 13 years.

    On a month-over-month basis, seasonally adjusted, the CPI fell 0.9 per cent – the sharpest one-month drop since the inception of the current gauge in 1992. (…)

    Excluding energy costs, inflation fell to 1.7 per cent in March from 2 per cent in February. The Bank of Canada’s three preferred measures of “core” inflation – designed to filter out short-term volatility in pockets of the CPI in order to better reflect underlying inflation trends across the broader economy – averaged 1.8 per cent, down from 2 per cent in February. (…)

  • German inflation dropped to 0.8% YoY in April, the lowest reading since November 2016. In March, inflation was still at 1.4% YoY. This first estimate is based on the results of regional states data, according to which the drop in headline inflation was mainly driven by the sharp fall in oil and other energy prices. (ING)
SENTIMENT WATCH
World’s Richest Are Waiting for New Dip in Stocks Before Buying Many fear worst is yet to come, a new survey from UBS finds.

Among the surveyed investors and business owners with at least $1 million in investable assets or in annual revenue, 61% want to see equities fall another 5% to 20% before buying, while 23% say it’s already a good time to do so. Some 16% say that now is not the time to load up on stocks as it’s a bear market.

High net-worth individuals are cautious on risk assets as 60% say a global recession is highly likely to occur in the next 12 months, the April poll by UBS showed. Still, they remain largely positive about the long-term outlook. (…)

Axios adds:

(…) those looking to increase their market exposure over the next six months outnumber those looking to reduce exposure by a ratio of more than 2 to 1,” Mike Ryan, Americas chief investment officer at UBS Global Wealth Management, tells Axios.

The rosy views of investors run counter to a recent survey by PwC of American business leaders, who continue to downgrade expectations for their own companies and the broader economy.

In its latest survey of top CFOs, the global accounting firm found 80% expect revenue/profit losses this year, while more than half (53%) expect losses will be greater than 10%, and about a quarter (24%) said they expect losses will be greater than 25%.

  • A third (32%) expect layoffs to occur in the next month, up from 26% two weeks ago and double the percentage who expected to lay off employees at the end of March.
  • 70% say they are considering deferring or canceling planned investments and 56% say they are changing company financing plans, up from 46% two weeks ago.

CEO expectations also have declined markedly, with the Conference Board’s latest survey of chief executives showing confidence at its lowest since the height of the Great Recession.

  • “[W]hile CEOs see brighter days ahead, they also expect to experience major consequences from the current crisis,” Conference Board chief economist Bart van Ark says.
  • “For example, workers, profits, sales, and investment activity will all take a hit, and such impacts could endure post-crisis.”

    • 49% of companies say they’re planning to make remote work a permanent option for some roles.

    • 40% say they plan to accelerate automation and “new ways of working.”
    • 26% say they plan to “reduce their real estate footprint.”

Data: PwC; Chart: Axios Visuals

  • More than 30% of debt from U.S. companies is trading at distressed levels, ratings agency S&P Global reports. “The U.S. distress ratio grew considerably to 30.2% as of April 10 from 24.9% as of March 16.  Almost 70% of all debt in the oil and gas sector is trading at distressed levels and four other sectors have a distress ratio higher than 35%, including retail and restaurants (44.6%), transportation (43.2%), automotive (36.7%) and midstream and merchant power (36.5%). (Axios)
EARNINGS WATCH

After 157 releases, the beat rate is 67% and the surprise factor –1.8% with only 2 sectors showing a negative surprise factor, Energy and Financials. Aggregate earnings for the companies having reported are down 17.8% on a 2.0% gain in revenues.

Q1 EPS are now seen down 14.8% (-12.8% ex-E), worsening to –35.1% (-29.5%) in Q2 as revenues are seen dropping 9.7% (-6.7% ex-E) following –0.2% (+1.1%) in Q1.

Trailing EPS are $158.03 and their forward 12-m estimate is $137.27.

  • Google Revenue Climbs, but Company Warns of ‘Tale of Two Quarters’ The online search giant’s parent posted a sustained rise in revenue in the first quarter, but executives said that company performance fell off as the pandemic accelerated and signaled uncertainty about the months ahead.

  • (…) March produced “a significant and sudden slowdown in ad revenues.” Alphabet reported total revenue of $41.2 billion for the first quarter, up 13% compared with a year earlier. (…) Advertising revenue on the company’s traditional properties like search—its longtime flagship franchise—was tracking down more than 10% year over year by the end of March, Ms. Porat said, a possible indicator for advertising rivals Amazon and Facebook. New hardware activations of devices fell in the first quarter, a potentially discouraging sign for Apple.

    Snap Inc. reported another tech surprise to the upside last week, when it posted growth in users and revenue, sending its shares up more than 30%. (…)

  • Michael Levine of Pivotal Research Group estimates that half or more of Google’s advertising base comes from small-to-midsize businesses and that travel is the company’s largest vertical segment. He noted that he would be stunned if the latter didn’t take years to fully recover.
Nervous Republicans See Trump Sinking, and Taking Senate With Him The election is still six months away, but a rash of ominous new polls and the president’s erratic briefings have the G.O.P. worried about a Democratic takeover.

President Trump’s erratic handling of the coronavirus outbreak, the worsening economy and a cascade of ominous public and private polling have Republicans increasingly nervous that they are at risk of losing the presidency and the Senate if Mr. Trump does not put the nation on a radically improved course. (…)

The surveys also showed Republican senators in Arizona, Colorado, North Carolina and Maine trailing or locked in a dead heat with potential Democratic rivals — in part because their fate is linked to Mr. Trump’s job performance. If incumbents in those states lose, and Republicans pick up only the Senate seat in Alabama, Democrats would take control of the chamber should Mr. Biden win the presidency. (…)

Republicans were taken aback this past week by the results of a 17-state survey commissioned by the Republican National Committee. It found the president struggling in the Electoral College battlegrounds and likely to lose without signs of an economic rebound this fall, according to a party strategist outside the R.N.C. who is familiar with the poll’s results.

The Trump campaign’s own surveys have also shown an erosion of support, according to four people familiar with the data, as the coronavirus remains the No. 1 issue worrying voters. (…)