- Texas paused reopening plans Thursday, as new coronavirus cases and hospitalizations increased in many U.S. states, and a government estimate showed more than 20 million Americans may have contracted the virus, far exceeding diagnosed infections. The Centers for Disease Control and Prevention estimates that only about 1 in every 10 Covid-19 cases in the U.S. has been identified, Director Robert Redfield said during a briefing with reporters Thursday. He also noted that most Americans are still susceptible to the virus. “This outbreak is not over. This pandemic is not over,” Dr. Redfield said. “Greater than 90% of the American public hasn’t experienced this virus yet.”
- California Gov. Gavin Newsom warned a potential influx of coronavirus-related hospitalizations could impact reopening plans. Coronavirus-related hospitalizations in the state increased by 32% in the last 14 days, with more than 4,200 people in hospitals, he said Thursday. As testing expands across the state, the rate of positive tests has increased to 5.6% in the last seven days, the Democratic governor said.
- In South Carolina, 16.9% of people tested for the new coronavirus Wednesday had positive results—up from 7% on May 28, according to the state’s Department of Health and Environmental Control.
From NBF:
This chart from Jefferies will need follow ups in coming weeks. Will the lower death rates spike as recent cases get worse or will death rates stay low suggesting diminishing virulence?
Here’s the trend in death rates across the world courtesy of Fathom Consulting. It is still high and rising except in Asia and Germany.
Once the Center of the Virus Crisis, Europe Now Looks Ahead With Hope When the coronavirus first hit Europe, the continent was ill-equipped to detect or contain it. Now, many governments and health experts believe so much has changed that a crisis on the scale of this spring probably won’t be repeated.
(…) Much of Europe has used the lockdown period to build up new systems for testing, tracking down and isolating virus carriers. Millions of Europeans have made social distancing and mask wearing part of their daily routine. (…) “Testing, tracing, isolating—that’s going to be the most important thing.” (…)
The older cases “very probably are no longer able to transmit the virus,” Vittorio Demicheli, an epidemiologist and scientific adviser to Italy’s government, told reporters recently. “The weakly positive cases have a viral load that probably can’t cause a new infection.” (…)
U.S. Initial Unemployment Benefits Steady at 1.5 Million in June The number of workers seeking jobless benefits has held steady at about 1.5 million each week so far in June, signaling a slow recovery for the job market as states face new infections that could impede getting people back to work.
(…) Meanwhile, the number of people receiving benefits, an indicator for overall layoffs, totaled 19.5 million in the week ended June 13, down slightly from previous weeks. (…)
- The total continuing claims are stuck near 30 million, which is almost 15% of the nation’s working-age population. (The Daily Shot)
Source: EPI, @hshierholz
Since March, 47.3 million workers in the United States have now filed for unemployment benefits.
The U.S. Census Bureau is now conducting a weekly survey of small businesses. Consisting of 16 questions, this 5-minute survey reaches close to 1 million businesses split across a 9-week rotation to reduce burden and lessen survey fatigue. You can access the web site using the link in the RESOURCES section on the sidebar.
The survey shows that there are still more businesses reducing head counts and employee hours than there are increasing them.
The Philly Fed is also doing a weekly survey of businesses in its district on COVID-19 impacts on aspects of firm demand, production, and employment (also in RESOURCES tab).
During the second and third weeks of May, ING conducted a short survey of 5,000 people across five European countries (Germany, Romania, Poland, Spain, and Turkey) to learn more about this.
We asked consumers in the five countries whether they were already seeing or anticipating any change in their savings in the next three months. Clearly, the pandemic has not impacted everyone equally. We found:
- Almost a third of consumers (31%) seem to be unaffected
- 43% of people say the amount of money saved is falling
- Remarkably, 25% of consumers are still growing their nest egg.
If we calculate the net impact, that is the percentage of respondents seeing a decrease in their savings minus the percentage of respondents seeing an increase, we arrive at a discouraging result (-25%) suggesting that for the majority of people the amount of savings is decreasing due to the pandemic. (…)
As incomes have declined and mobility is still far from what it used to be, most categories across countries still show net reduced expenditures. However, as expected, the industries with the sharpest declines are those related to travel and eating out. Consumers aren’t showing a lot of optimism just yet about returning to restaurants, travelling or vacations. (…)
In our survey, we find a striking 48% of consumers reporting to be shopping online more than before the pandemic, especially in Poland, Turkey and Spain. Unsurprisingly, 51% say they spend less in-store (…).
The results of our survey suggest that most people are still feeling quite pessimistic about travelling abroad. They are either cancelling plans made before Covid-19 or are simply not making any new plans due to the uncertainty.
Durable Goods Orders Rebounded in May though Remain Depressed
Credit Suisse says that retail auto/truck sales are
tracking down high single digits y/y for June, and assuming fleet sales down ~70% y/y (vs. down ~80% in May), it would imply June SAAR in the high 13mn / low 14mn range, and total industry unit sales down high teen / low 20% y/y. While still quite negative, this would be a significant improvement from May, which saw SAAR of 12.2mn and unit sales -30% y/y.
We believe June US SAAR is on track to be in the high 13mn/low 14mn range, down high teen / low 20% y/y.
Wholesale auction sales were +9% vs. JDP’s pre-virus forecast for the week ending June 21. Wholesale auction prices have recovered 20 pts over the past nine weeks and are now 5% higher than at the beginning of March (pre-virus).
(…) it remains to be seen how quickly Hertz will need to dispose its vehicles. With a glut of off-lease vehicles that have yet to hit the market, Hertz will need to be careful with its disposals to avoid overloading the market with supply.
U.S. GDP Decline in Q1’20 Is Unrevised; Corporate Profits Plunge
U.S. GDP declined an unrevised 5.0% (SAAR) during Q1’20, as expected in the Action Economics Forecast Survey. It followed a 2.1% Q4’19 rise. The Q1 decline remained the first since Q1’14 and the largest since an 8.4% drop in Q4’08. Forecasters are calling for a much larger decline in Q2’20 due to business shutdowns.
After-tax corporate profits without IVA & CCA declined a slightly lessened 14.1% (-9.1% y/y) with the decline in business activity. Profits with IVA & CCA fell 12.3% (-6.9% y/y). Nonfinancial sector profits fell 15.4% (-9.0% y/y), which was more than estimated last month. Financial profits declined sharply, but the 8.0% fall in foreign sector profits (-0.2% y/y) was less than estimated last month. (…)
Surging Number of Americans Looking to Move to Smaller Cities, Report Finds 27% of Redfin users searched for homes outside their metro area in April and May, according to the online property portal
(…) “The pandemic and the work-from-home opportunities that come with it [are] accelerating migration patterns that were already in place toward relatively affordable parts of the country.” (…)
ECB’s Lagarde warns on ‘restrained’ recovery
Fed Sets Caps on Bank Payouts Amid $700 Billion Loss Threat The Federal Reserve said a prolonged economic downturn could saddle the nation’s biggest banks with up to $700 billion in losses on soured loans and ordered them to cap dividends and suspend share buybacks to conserve funds.
In a worst-case scenario, where unemployment remains high and the economy doesn’t bounce back for a few quarters, the 33 largest U.S. banks would suffer heavy loan losses that would erode the capital buffers meant to keep them on stable financial footing, the Fed said when it announced the results of its annual stress tests. (…)
Banks, which will announce their dividend plans for next quarter as soon as Monday, won’t be able to make payouts that are greater than their average quarterly profit from the four most recent quarters.
The Fed also barred them from buying back shares in the third quarter. Most of the largest banks had previously agreed to halt buybacks during the second quarter. (…)
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Wells Fargo Gets Dinged, but Others Might Follow Most banks fared well in Federal Reserve stress tests, but dividends may come under pressure anyway
(…) With respect to the stress tests themselves, most major banks performed as expected, with the possible exception of Goldman Sachs. GS 4.59% In the Fed’s severely adverse scenario, the Wall Street firm saw its common equity Tier 1 capital ratio—the key measure of how much loss-absorbing capital a bank holds—fall rather sharply to 6.9% from 13.3%. (…)
Yet the Fed’s new formula would automatically put pressure on dividends, if the economy fails to recover. The longer the Covid-19 crisis drags on, the more quarters there will be with low or even negative earnings for banks. Such a scenario would drag their 4-quarter average ever lower, limiting what they can pay out in the form of dividends to shareholders. (…)
J.P. Morgan:
High yield bonds LTM default rate jumped to the highest level since 2009 at
6.02%, and leveraged loans default rate also rose to 3.58%. YTD defaults have been led by energy and retail sectors, plus two large TMT companies – some of these were in trouble prior to the pandemic. Defaults are low thus far in other sectors hit hard by the pandemic. A further rise in defaults is likely – JPM High Yield and Leveraged Loan Research projects default rates of 8% and 5% on high yield bonds and leveraged loans for FY20. Not surprisingly, default rates vary materially depending on rating. High yield spreads rose with the pandemic but have retraced about 65% of the peak widening – spreads currently up most in transportation sector.About 18% of BBB- bonds downgraded to junk YTD. And a larger proportion,
about 28%, of existing high yield bonds and leveraged loans have been downgraded. In total, about $960 bil of corporate bonds and leveraged loans have been downgraded YTD, which is about 17% of the total $5.7 tril in outstandings. Leveraged loan downgrades are much higher in leisure sector, with over 11% of issuers downgraded, versus 4-6% in some other hard hit sectors.
Net high-yield downgrades equal the difference between the number of high-yield downgrades and upgrades. An unofficial tally of U.S. company credit rating revisions showed 29 net high-yield downgrades for the first 23 days of June. A rough estimate suggests that net high-yield downgrades may approximate 50 in June.
The second quarter’s declining trend for net high-yield downgrades complements the change in the direction of high-yield credit spreads. In terms of still preliminary estimates, the number of U.S. high-yield net downgrades had previously dropped from April’s 216 to May’s 90. (Because of an extraordinarily large number of COVID-19-driven downgrades, net downgrades will probably be revised higher.)
During 2020’s first quarter, U.S. high-yield net downgrades rose from January’s -1 to February’s very manageable 19 and then soared to March’s 176 largely in response to the destructive force of COVID-19. (…) The average number of net high yield downgrades per month were 17 for calendar-year 2019, 1 for 2018, and 2 for 2017.
(…) The path taken by the high-yield bond spread during the COVID-19 recession more closely resemble its behavior during 2015-2016’s profits recession compared to the broad economic recessions of 2008-2009 and 2001.
Moreover, the high-yield bond issuance recession lasted just one month, for now. After plunging by 84% from a year earlier in March (to $6 billion), second-quarter 2020’s worldwide offerings of US$- denominated high-yield bonds posted a year-over-year advance of at least 36%, to $147 billion. The latter is very close to 2014’s second-quarter record high of $154 billion. By contrast, such high-yield bond issuance incurred a year-over-year plunge of 57% during 2008’s Great Recession year.
The high-yield bond market has performed remarkably well given the record-high incidence of net high yield downgrades. For 2008-2009’s Great Recession, after averaging 10 per month in 2017, the average number of net high-yield downgrades per month jumped up to 42 in 2008 and 37 in 2009.
During the Great Recession, the average number of net high-yield downgrades per month peaked at the 76 of 2009’s first quarter. For 2020’s second quarter, net high-yield downgrades may average a record high 119 per month.
However, as a percent of the number of U.S. high-yield issuers, the prospective net high-yield downgrades of the two quarters ended June falls short of the 32.9% record high of the two quarters ended March 2009. More specifically, net high-yield downgrades are likely to approximate 30.2% of the number of high-yield issuers during 2020’s first half. In view of how a composite high-yield bond spread averaged a record-high 1,678 in 2008’s final quarter and 1,604 bp in 2009’s first quarter, the spread’s 744 bp average of the second quarter to date (never mind the recent 629 bp) seems unsustainably thin.
However, the high-yield bond market may be assuming a stabilization of net high-yield downgrades, while also recognizing the degree to which high-yield downgrades have been skewed toward high-yield issuers having only loan debt outstanding. Nevertheless, a recent leveraged loan spread of 620 bp was well under its 1,527-bp average of October 2008 through March 2009.
Hmmm…John, the math actually is that you are 23% below where you started.
