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 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
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)