THE DAILY EDGE: 21 APRIL 2020

Note: It seems that yesterday I forgot to push the send button . It is posted this a.m..

Virus Update

• Some areas of the U.S., including New York, the worst-hit state, have seen a slowdown in infection rates following tough restrictions on movement. New York, which has a total of more than 253,000 cases, according to Johns Hopkins, has begun tests aimed at more precisely measuring the rate of infection.
• Other states said they planned to relax restrictions. In Georgia, Gov. Brian Kemp said the state’s stay-at-home order would expire on April 30 and recommended more vulnerable residents stay at home until May 13. Tennessee’s stay-at-home orders will also expire at the end of the month, Gov. Bill Lee said, allowing the “vast majority” of affected businesses to reopen on May 1.
• Businesses Strive to Reopen From Coronavirus Shutdown As attention turns to restarting the American economy, companies are deploying a range of tactics to try to defend their workforces from the contagion.
• In Germany, stores are starting to reopen. Italy will present a plan this week to ease its lockdown, said Prime Minister Giuseppe Conte in a post on Facebook. “A reasonable forecast” is that a detailed restart program will be applied from May 4, Conte said.
• Serbia eased one of Europe’s strictest coronavirus lockdown regimes, allowing small businesses to reopen and relaxing a daily curfew that had kept most citizens indoors since mid-March. In Croatia, citizens can now move within their county of residence and Slovenia opened some businesses on Monday, while Greek Prime Minister Kyriakos Mitsotakis will next week provide details on a plan for a return to normalcy.
• Australia’s government said lockdown measures have led to a “sustained and consolidated” slowdown in new coronavirus cases, though cautioned there will be no easing of restrictions for at least three more weeks.
• Singapore’s lockdown—[a city of 5.7 million people] which began earlier this month and was intended to last four weeks—would be extended by four weeks beyond that, until June 1. (…) the government is now discovering thousands of cases among foreign workers, a sign that the virus ripped through crowded dormitories, probably for weeks, undetected. The list of essential services allowed to remain open would be pared down, he said, to further reduce the risk of transmission among workers who keep these going. Singapore’s experience shows how fragile control over the virus can be, and serves as a forewarning for the U.S. and others. New clusters of infection are inevitable as lockdowns ease and people start to mingle, experts say. The contagion can spread quickly if authorities aren’t able to pre-empt outbreaks, or catch them early, in spots that are likely pockets of rapid transmission.
• Japan reported the lowest percentage rise in the number of cases in more than a month.
• The U.K. reported its highest weekly death count in records going back to 2010, as the damage caused by the coronavirus epidemic continues to rise. The Office For National Statistics said Tuesday there were 18,516 deaths registered in the week ending April 10, 76% more than the average figure for the same week over the previous five years. The excess deaths are significantly more than the ONS officially attributed to the virus, suggesting the official count may miss many deaths caused by the epidemic.
• In Russia, confirmed coronavirus cases rose by 5,642 overnight to to 52,763 as the number of new daily cases stayed above 4,000 for the fifth consecutive day.
• More L.A. County Residents Infected With Coronavirus Than Thought Many more people in Los Angeles have likely been infected with the new coronavirus than previously known, according to preliminary blood test results released Monday. Some 863 adults in the county of about 10 million were tested for antibodies, and about 4.1% of the tests came back positive. (…) The new results echo other findings in the U.S. and Europe, and point to a lower hospitalization and mortality rate among the infected than current case counts suggest. Yet the results also suggest that Los Angeles county and other hot spots are still vulnerable, because most people still haven’t been infected. This means the virus could spread among the uninfected within communities if social-distancing measures are lifted too early. (…) The team plans to do a second round of testing in two to three weeks to see how the results have changed.
• So far, research seeking to ascertain the percentage of Americans and Europeans that have been exposed has delivered discouraging results that less than 10% of people have been infected even in hard-hit areas, the World Health Organization said Monday. (…) “We remain at critical risk for second waves.”
• In Washington, lawmakers and the Trump administration were nearing a $450 billion agreement to replenish a program for small businesses battered by shutdowns, after a weekslong impasse.
• Trump to Temporarily Halt Immigration Into the U.S. President Trump said Monday he plans to sign an executive order temporarily suspending immigration into the U.S., saying he was doing so to protect American jobs as the novel coronavirus has taken a sharp toll on the economy.

• (…) The full impact of the decision wasn’t clear, as the administration had all but halted nearly every form of immigration already. (…)

PANDENOMICS

CHINESE SALES MANAGERS REPORT RECOVERY OF SUPPLY, BUT LACK OF DEMAND

(…) One panellist summed up the situation in the first quarter as ‘orders without production capability“. But in April the reverse “capacity to deliver, but no new orders”. Other panelists pointed out continuing difficulties with supply chains both within and outside China. Another theme was the fact that many of the containers leaving China are long delayed shipments of orders placed in January and February. But the most consistent theme of panelists was that China really is back in business in many ways, but the global shutdown has deprived it of clients.

The Sales Managers Indexes all show the economy remains deep in the doldrums.

• The crucial Market Growth Index (reporting on growth in panellists’ own market) fell again in April to a new all-time low, from an already low March figure.
• The Sales Growth Index (reporting on sales in April compared with March) was below the 50 “no growth “ line
• The Staffing Index fell to a new all-time low
• The All Sector Headline Index derived from the sector indexes fell once again

CHINA: SALES MANAGERS ALL-SECTOR MARKET GROWTH INDEX

• Companies Warn of Dire Disruptions
• CEOs also urge nations to co-ordinate competing requests and to avoid repeat of Ebola failure

(…) “If industry does not know if there will be a market in 18 months, [it] cannot carry all [the costs]. Industry alone can’t provide all the investment needed now for billions of doses,” David Loew, executive vice-president of Sanofi Pasteur, the vaccine producer, said in an interview. (…)

THE OIL SLICK

Oil Crash Accelerates, Rippling to Currencies, Stocks Global oil prices continued to plunge, while the pain spread to currencies of major exporters and shares in energy producers. The June WTI futures contract, now the most actively traded, dropped 41% to $11.95 a barrel.

The big surprise here is that everybody seems surprised, including those actually flooding an already saturated and almost dead market:

• OPEC Considers Moving Up Output Cuts Other OPEC members also looking at possibility of lowering production sooner than May date set out in agreement with U.S., Russia

(…) “Something has to be done about this bloodbath,” said a Saudi official familiar with the matter. “But it might be a little bit too late.” (…)

Don’t make too much of the negative WTI prices yesterday. Probably some day-traders got caught with expiring contracts without enough 5-gallons in their garage to accept delivery. (Brent contracts have no physical delivery). Hopefully, they have learned so this won’t happen with the May contracts. 

Canadian banks face earnings hit as analysts predict rising loan-loss provisions

(…) The four largest banks in the United States – JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. – reported a combined US$24-billion in provisions for credit losses, which are the funds set aside by banks to cover loans at risk of going bad. That was an increase of roughly 350 per cent in provisions compared with a year earlier, far exceeding most analysts’ predictions.

(…) In the most pessimistic cases published this week, provisions would eat deep into [Canadian] banks’ capital reserves, but not threaten their stability, analysts say. (…)

Mr. Holden at CIBC also considered a far more dire scenario in which adjusted earnings for the group fall 63 per cent and return on equity dips to 6 per cent, based on GDP falling by 4.9 per cent and unemployment at 9.8 per cent. Provisions for loan losses would soar to 161 basis points, reaching their worst level since the early 1990s.

In that case, banks’ capital levels – as measured by their common equity Tier 1 (CET1) ratio, a key measure of a bank’s resilience – would fall 130 basis points, swallowing most of their current 170 basis-point buffer, Mr. Holden said.

At that level, banks’ earnings would not cover current dividend payouts, but “we still think dividend cuts are unlikely as long as there is light at the end of the tunnel,” he said. (…)

U.S. banks are more exposed to wholesale corporate loans, which can perform poorly in a recession as businesses struggle with reduced cash flow. They also have a higher proportion of unsecured consumer loans on their books. Credit card loans, for instance, represent 13 per cent of U.S. bank loans compared with only 3 per cent for Canadian banks, Mr. Dechaine wrote.

Canadian banks also benefit from a “shock absorber” provided by mortgage insurance, Mr. Dechaine added. Mortgages make up a larger percentage of overall Canadian bank loans, but around a third of all Canadian mortgages are guaranteed by insurers backed by the federal government. (…)

• United Airlines Holdings Inc. said it expects to report a pretax loss of $2.1 billion in the first quarter, as air travel came to a near halt.
• Virgin Australia Holdings Ltd., Australia’s second-largest airline, said Tuesday that it was entering voluntary administration, becoming one of the first major airlines to seek bankruptcy protection since the pandemic began disrupting global travel.
• Peugeot Warns of Severe Damage to Global Car Market

Beijing puts strings on approval for Nvidia’s $6.9 billion deal for Isreali tech firm

After running a review that lasted almost a year, China’s monopoly watchdog decided to approve U.S. chipmaking giant Nvidia’s $6.9 billion deal to buy Israeli network-equipment maker Mellanox, though not without demands of its own.

The State Administration for Market Regulation (SAMR) posed seven conditions for the acquisition to proceed on the grounds that the merger of the two market leaders could diminish competition in the domestic and overseas markets for graphic processing units (GPUs), network gear and high-speed Ethernet adapters, the administration said in an announcement posted late Thursday on its website.