Half of Beijing districts report new coronavirus cases Life in the Chinese capital had returned to normal before mass testing revealed outbreak

Macron lifts most coronavirus restrictions French president vows to focus on rebuilding economy during final two years of mandate

Cuomo Threatens Fresh Coronavirus Restrictions in New York Over Safety Breaches New York Gov. Andrew Cuomo threatened to reverse reopening in parts of the state that aren’t following or enforcing coronavirus safety rules, while a new cluster of nearly 80 infections linked to a food market in Beijing led authorities to shut parts of the Chinese capital.

In the US, roughly half of the states are seeing new cases rise, many alongside hospitalizations. Texas has seen hospitalizations hit record highs, while Florida, NC, SC, Arizona, Nevada and many other states are seeing an increase in new cases reported daily.

Even Georgia, which was heralded for its ability to reopen aggressively without sparking a massive resurgence in new cases, has reported a discomfiting spike over the past few days, according to the NYT.

Goldman Sachs has a different view:

Virus spread appears to remain mostly under control, even in the states where mobility has increased the most since lockdowns ended. Both test-confirmed case counts and timelier measures of virus symptoms declined in the Tri-state area and were stable in the rest of the country over the last week.

Emerging markets: costs of lockdown begin to bite

When it comes to imposing lockdowns that halt all economic activity, some countries have it easier than others. The UK government tapped financial markets to borrow £62bn in April alone, the ECB has ensured that all euro area ten-year bond yields are below 2%, and the Federal Reserve has committed to unlimited amounts of QE. This allowed developed nations to replace people’s incomes, effectively paying them to stay at home. Emerging markets such as Brazil, India and Mexico have less fiscal space. The trade-off between economic and physical health is steeper. By the end of March however, many developing economies had followed the lead of the advanced ones, imposing strict lockdowns despite having lower prevalence of the virus.

As the economic damage begins to bite, emerging market governments are easing restrictions despite increasing infection rates. Higher borrowing costs, lower tax revenues and a large informal sector with minimal state contact make it harder for these countries to replace income streams and provide grants to businesses as is being done elsewhere. Policy rates have been cut to below inflation, contributing to the capital flight that began when the crisis hit the West, as investors now receive negative real rates of return. In particular, President Bolsonaro’s lackadaisical approach to handling the crisis has been painful for the Brazilian real. (Fathom Consulting)

PANDENOMICS

• White House says jobless benefits ‘disincentive’ for work Trump administration will stop issuing $600 cheques in July even as coronavirus cases rise in some states

Federal Tax Receipts Show A Record Plunge in May: Raising More Doubts About the Employment Data

The Monthly Treasury Statement for May showed federal withheld income tax receipts falling a record 33% from the comparable period one year ago. The decline in May tax receipts exceeds the 30% decline in April.

Federal withheld tax receipts are directly related to workers paychecks. The scale of the decline in tax receipts is nearly three times the decline in reported household and payroll employment. The unprecedented gap raises questions about the accuracy of the April and May employment reports.

(…) So the logical conclusion is that the sharp drop in withheld income tax receipts is directly related to a plunge in wage and salary income.

Without question, the tax data raises doubts over the scale of reported job loss as well as industries that experienced the largest declines. Tax receipts are off over 30%, while employment levels are off roughly 13%. How can tax receipts fall three times more than employment? As puzzling as that appears to be what is equally puzzling is that the vast majority of job loss was concentrated in lower-wage industries, such as leisure and hospitality and retail trade. If job loss was concentrated in low wage industries one would not expect tax receipts to fall three times as fast as overall employment.

In my recent article, BLS Failed Its Mandate: “Fearless Publication of the Facts” published on June 8, I made the argument that the Bureau of Labor Statistics (BLS) statistical methodology failed to ensure an accurate account of the employment situation. The tax data for April and May offers strong evidence that the employment data is inaccurate.

(…) BLS statistical methodology did fail; not once, but twice in reporting grossly inaccurate employment statistics. The US statistical system is the “gold standard” of the world, producing the most accurate, and always operating with the mandate, “Fearless Publication of the Facts”. But the employment reports for April and May show that no statistical methodology is perfect, and its the responsibility of BLS to ensure the accuracy of the data. The scale of the error in April was so large it should have set alarm bells so to avoid another “accidental” report of bad data.

The sharp drop in withheld income tax receipts strongly suggests that the “error” term of the household employment could even be larger than what BLS has stated. BLS said that the number of households entering in their survey for the first and second time was 30 percent below the average of the past 12 months. As a result, BLS was compelled to use a historically low number of responses to estimate household employment for April and May. So its highly possible that the number of people misclassified as employed instead of temporarily unemployed could be far larger than the 8.4 million for April and the 5.4 million in May.

Household employment data is based on a sample of 60,000 households out of a total household population of 125 million. Federal tax receipts are unambiguous. They reflect withheld income taxes taken directly from 30 million business establishments employing over 150 million workers before the pandemic. Which data series—reported household employment or withheld taxes—do think offers a more accurate picture of the current employment situation?

• As of May, 94% of layoffs since February are deemed temporary, though only 69% of new layoffs in California in the month of May were temporary. (GS)

• Consumer spending measures rose by 2.9pp to 90.4% of the pre-virus level over the last week, up from an April bottom of 74%. Of the highly-impacted consumer services industries, the dining sector has recovered the most, with foot traffic now back to 75% of the pre-virus level, while the entertainment and leisure industry remains the most depressed, now only back to 38% of the pre-virus level. (GS)

Chinese Consumers Add Fuel to Factory-Led Economic Recovery Chinese consumers stepped up to make big-ticket purchases, pushing up home prices and auto-sales numbers and prompting economists to increase their growth outlook for the world’s second-largest economy.

(…) An official gauge of unemployment in Chinese cities showed a slight fall to 5.9% in May, a tick down from April’s 6.0% figure and a further improvement after the national surveyed unemployment rate surged to a record 6.2% in February.

Value-added industrial production, a measure of output in manufacturing, mining and utilities, grew 4.4% in May from a year earlier, following a 3.9% year-over-year expansion in April, the National Bureau of Statistics said Monday. (…)

Retail sales slipped 2.8% in May from a year earlier, official data showed, much narrower than April’s 7.5% year-over-year decline. The improved reading was fueled by a 3.5% increase in auto sales from a year earlier, the best month by this metric in more than two years.

Home sales in China also fell by less in the January-to-May period from a year earlier as easier credit gave some home buyers more confidence to invest. Monday’s data release showed average new-home prices in major Chinese cities continuing to rise in May from the previous month. Purchases of home appliances and furniture also returned to growth in May alongside the improvement in sentiment around homebuying, said Zhang Min, an official with the statistics bureau, in a statement accompanying the data release.

Separately, an infrastructure-construction binge helped to support nonrural fixed-asset investment—a measure that captures investment in factories, railroads and new homes. That indicator fell by 6.3% for the January-May period compared with a year earlier; during the first four months, fixed-asset investment had plunged 10.3% from the previous year.

After Monday’s data release, Louis Kuijs, a Hong Kong-based economist for Oxford Economics, revised his full-year forecast for China’s gross domestic product to growth of 2.0% to 2.5% from last year, from a previous prediction of 0.8% growth. (…)

• China’s Slow Recovery Points to Hard Road Back for Global Economy

(…) “China’s experience so far suggests that it will be a hard road back for the global economy,” said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings, who notes that confidence among Chinese consumers and privately-owned firms remains low. “We still expect a rebound in the second half, but expectations for a surge in pent-up demand may be disappointed.” (…)

Persistent weakness in China’s private sector investment and the clear wariness among consumers reflects both weak domestic conditions and the absence of robust global appetite for Chinese-made goods.

“The lack of demand is the main problem for the Chinese economy right now,” Shen Jianguang, online retailer JD.com Inc.’s chief economist, told Bloomberg Television. (…)

“May data showed further improvement, although the magnitude may not be as strong as we and the market were expecting,” said Helen Qiao, chief Greater China economist at Bank of America. “The virus outbreak in Beijing highlights the lingering risks of economic activities being affected again.”

These charts are from ZeroHedge:

Germany Will Borrow $246 Billion This Year to Pay for Stimulus

Wall Street Journal

H&M says recovery uneven after March-May sales tumble 50% H&M , the world’s second-biggest fashion retailer, on Monday reported a sharp but slightly smaller than expected drop in second-quarter sales as measures to slow the COVID-19 pandemic slammed the sector.

(…) H&M, which began gradually reopening stores in late April after about 80% were shuttered by the pandemic, said local-currency sales in the first 13 days of June were down 30%.

“The pace of the sales recovery varies largely between markets,” it said. (…)

H&Ms’ biggest rival Inditex (ITX.MC), the owner of Zara, recorded a 44% sales drop for the February-April period, with constant-currency sales down 34% over June 2-8.

Morgan Stanley Economists Double Down on V-Shape Global Recovery

The global economy is in a new expansion cycle and output will return to pre-coronavirus crisis levels by the fourth quarter, according to Morgan Stanley economists.

“We have greater confidence in our call for a V-shaped recovery, given recent upside surprises in growth data and policy action,” economists led by Chetan Ahya wrote in a mid-year outlook research note on June 14. (…)

Morgan Stanley noted three reasons for why the recession will be short:

• This is not an endogenous shock triggered by huge imbalances
• Deleveraging pressures will be more moderate
• Policy support has been decisive, sizable and will be effective in boosting the recovery (…)

Economists at JPMorgan Chase & Co. led by Bruce Kasman highlighted a risk that surging debt and deficits may force governments to wind back their massive fiscal stimulus.

“This turn in fiscal policy, together with the limited steps expected from central banks, is an important factor underlying our forecast for an incomplete recovery through 2021,” JPMorgan economists said in a note.

TECHNICALS WATCH

Lowry’s Research sees little change in its bullish readings although it warns that “until
sellers are fully exhausted and enthusiastic buyers return, patience is warranted.”

More on that tomorrow.

The Rule of 20 P/E is back to 20.2

FYI:

The Looming Bank Collapse: The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it. (The Atlantic)

 Travelling this week, posting sporadically and with limited time and equipment.

Coronavirus Continues to Weigh on U.S. Consumer Prices

The consumer-price index, which measures what Americans pay for everything from alcohol to lawn mowers, fell 0.1% in May after declining a seasonally adjusted 0.8% in April, the Labor Department said Wednesday.

Excluding the volatile food and energy categories, so-called core prices fell 0.1%, compared with a 0.4% decline in April. (…) Consumer inflation by that measure rose 1.2% from the prior year, the smallest advance since 2011, following 1.4% in April.

The cost of food purchased for preparing at home rose 1.0% in May, following a 2.6% increase in the prior month. (…)

China’s Factory-Gate Deflation Accelerates Industrial prices fell at their fastest pace in more than four years as the coronavirus pandemic crushed global demand for commodities.

(…) The country’s producer-price index dropped 3.7% in May from a year earlier, China’s National Bureau of Statistics said Wednesday. May’s fall was bigger than April’s 3.1% decline and slightly sharper than economists had expected. (…)

Meanwhile, China’s consumer inflation dropped to a 14-month low in May because of easing food inflation. The consumer-price index rose 2.4% from a year earlier, slowing from April’s 3.3% growth and a tad lower than economists had expected.

Food prices rose 10.6% last month, retreating from a 14.8% increase in April, while nonfood prices increased 0.4%, the same as in April. Of the nonfood items, fuel costs dropped 22% in May compared with April’s 20.5% decrease.

Pork-price inflation in China continued to moderate from the effects of swine fever in May. Pork prices climbed 81.7%, slowing from a 96.9% increase in April. Still, pork prices, boosted the headline index by nearly 2 percentage points. (…)

Hassett Sees Another Stimulus Bill From Congress Before August Recess

Shoppers Surprise Retailers by Returning to Stores Executives at Macy’s and Kohl’s had anticipated steeper sales declines than they have so far seen during the coronavirus pandemic, as both companies continue to reopen locations across the country.

Macy’s Inc. M -7.12% Chief Executive Jeff Gennette said sales at reopened stores are down by about half compared with before the pandemic, which is better than the 85% decline the company had predicted. At Kohl’s Corp., KSS -6.97% stores are doing about three-quarters of their pre-pandemic sales volume, up from about two-thirds in late May, Chief Executive Michelle Gass said.

Starbucks sees up to $2.2 billion hit to third-quarter operating income from COVID-19

Starbucks Corp (SBUX.O) said on Wednesday it expected current-quarter operating income to plunge by up to $2.2 billion, with sales declines for the rest of the year even as stores reopen following easing of coronavirus lockdowns.

The world’s largest coffee chain said it would permanently close about 400 stores in the Americas over the next 18 months and would cut the number of planned new store openings by half, to about 300 this fiscal year.

VALUATIONS

The Rule of 20 P/E is now 21.4 on trailing EPS of $158.71 and inflation of 1.24%.

The S&P 500 is still tracking the 2009 recovery analog. (Fidelity Investments)

VIRUS UPDATE

• Covid Pandemic Is Far From Over, Anthony Fauci Warns
• Re-opening, however, has come at different stages of the COVID-19 trajectory in different parts of the country. According to rt.live, the estimated reproduction number (R) is above 1 in 13 states. Rising cases in Arizona, Florida and Texas are a particular worry. And there remains a higher risk in the US than almost any other advanced economy that rising infections could either prompt a return to lockdown or cap the economic recovery due to fears about the virus. (Fathom Consulting)

Coronavirus hospitalizations rise sharply in several states The spikes generally began in the past couple of weeks — after Memorial Day — and are trending higher in most of the affected states.

(…) In Texas, North and South Carolina, California, Oregon, Arkansas, Mississippi, Utah and Arizona, there are an increasing number of patients under supervised care since the holiday weekend because of coronavirus infections. The spikes generally began in the past couple weeks and in most states are trending higher.

Data from states that are reporting some of their highest seven-day averages of new cases is disproving the notion that the country is seeing such a spike in cases solely because of the continued increase in testing, according to data tracked by The Washington Post.

Many of these states that have experienced an increase in cases have also had an increase in hospitalizations, with a handful of states also nearing bed capacity. (…)

Texas has reported 75,616 cases since the pandemic began, and in 10 of the past 15 days, the state’s seven-day average of new cases has increased.

As of Tuesday, it has reported two consecutive days of record-breaking coronavirus hospitalizations. The state has seen a 36 percent increase in new cases since Memorial Day, with a record 2,056 current hospitalizations as of early Tuesday afternoon. It was up from a high of 1,935 hospitalizations on Monday.

Texas was one of the first states to relax their stay-at-home order. Businesses started to open up in early May.(…)

In Arizona, 28,296 cases have been reported as of Tuesday, and in 13 of the past 15 days the state’s seven-day average of new cases has increased. There have been a record number of hospitalizations in the state over the past few days. As of Tuesday, Arizona reported 1,243 current hospitalizations, a 49 percent increase since Memorial Day, when there were 833 hospitalizations.

Arizona has also been struggling with its bed capacity. On Friday, Banner Health, one of the largest health-care systems in the country, confirmed that ICUs in Arizona were nearing capacity. Roughly 50 percent of all those hospitalized are in Banner Health facilities. As of Monday, 76 percent of all ICU beds in Arizona were in use, according to data from the state health department.

Arkansas has reported 10,080 cases, and in 11 of the past 15 days the state’s seven-day average of new cases has increased. It has had an 88 percent increase in hospitalizations since Memorial Day. Arkansas had 173 hospitalizations reported on Tuesday, compared with 92 on May 25.

According to local reports, hospitals statewide remained below capacity on Monday, and none of the new coronavirus cases had been linked to recent protests in the state.

The Carolinas have also seen a rise in hospitalizations, with North Carolina experiencing the second-largest spike in the nation behind Texas. North Carolina’s upward trend began after Memorial Day. On May 26, the state reported 621 hospitalizations but two weeks later, that number has climbed to 774. (…)

Mississippi has reported 18,109 cases since the pandemic begin. On Tuesday, it recorded 671 hospitalizations, a new daily high. It has seen an 17 percent increase in hospitalizations since Memorial Day, with 573 reported on May 25.

In Utah, new covid-19 cases are on the rise and as a result, so are hospitalizations. Utah’s coronavirus task force tweeted that the state has seen a spike in coronavirus cases, and it wasn’t because of testing or a lone outbreak.

Similar to other regions, Utah’s numbers have climbed steadily since Memorial Day, as the seven-day average of new cases has increased 12 of the past 15 days. Over that two-week span, Utah’s current hospitalizations more than doubled, and as of Tuesday afternoon, 230 patients were hospitalized with covid-19. (…)

PANDEMONIUM

U.S. Sends Aircraft Carriers as China Makes Waves in the Pacific The deployments of the USS Ronald Reagan and USS Nimitz boost the U.S. naval presence as China’s military steps up its activity in the region.