- Reopening plans have slowed in Louisiana, where Gov. John Bel Edwards said the state wouldn’t move into its third phase of reopening by the end of the week as planned due to increased infections and hospitalizations. Mr. Edwards said 630 people were in hospitals for the coronavirus, an increase of almost 90 over the past 10 days. The state passed two milestones Monday, with more than 50,000 total cases and 3,000 total deaths.
- Texas: Gov. Greg Abbott said the virus was “now spreading at an unacceptable rate” after two weeks of record hospitalizations and as the rate of positive coronavirus tests roughly doubled since late May. Mr. Abbott emphasized that he doesn’t want to backtrack on his opening of Texas and said residents need to take it upon themselves to wear masks and practice social distancing.
Meanwhile, Goldman Sachs points out
With reopening under way, regular hospital occupancy is increasing as patients resume elective procedures and seek non-Covid medical care for illnesses and trauma. Exhibit 3 below, shows the share of inpatient hospital beds that are occupied. Occupancy has risen by about 15pp to 60-65% in California, Florida, and Texas. In Arizona, occupancy is even higher, and only about 30% of capacity is available, just 5-10pp below the levels reached in New York and New Jersey at the peak of the outbreak.
Exhibit 3: States with High Rates of Case Growth Also Have Less Hospital Capacity Available
Notably, Covid patients currently make up only a small fraction of this occupancy. (…) only about 5% of patients hospitalized in California, Florida, and Texas are Covid patients. In New York and New Jersey, Covid patients occupied over 40% of hospital beds at the peak.
The upshot is that without lockdowns in place, a smaller increase in hospitalizations could overwhelm capacity. For example, in Arizona, a doubling in COVID-19 patients would increase occupancy to 80%, reducing available capacity to the minimum recommended limit for any degree of reopening. At the moment, state officials have opened the door for local governments to impose mask requirements but have not entertained reversing the reopening or imposing stricter social distancing requirements. If hospital capacity becomes problematic in a state, officials could be forced to limit certain elective procedures requiring inpatient care. Back in March, many states limited medical procedures before imposing broader lockdown orders.
Pence Warns of Young People Testing Positive as Hot Spots Worsen
Vice President Mike Pence told governors Monday that government health experts were worried that more young people are testing positive for the coronavirus around the country. (…)
The mayor of Miami, Francis Suarez, meanwhile delayed the reopening of movie theaters, nightclubs and other large venues because of the spike in coronavirus cases. He and the mayors of neighboring cities in Florida’s Miami-Dade County also said they were mandating the wearing of masks in public upon the advice of state health officials.
“This is a real spike,” Miami Beach Mayor Dan Gelber said at a news conference. “Nobody can argue with the fact that more people are being hospitalized.”
California saw its third-biggest daily increase in new cases, 4,230, a 2.4% rise to 178,054, according to state data. And new signs emerged that recent protests against police brutality may have helped spread the virus.
Anthony Fauci Doesn’t See Covid Summer Lull as Sun Belt Cases Swell
Asymptomatic patients may shed virus for longer than others, study says
Beijing Outbreak Shows Covid-19’s Insidious Ability to Hide
(…) Now, more than 200 people have tested positive across Beijing, schools are shut and thousands of domestic flights canceled. The resurgence offers a stark warning to countries that appear to have cut chains of transmission: The coronavirus’s ability to cause little or no symptoms in a large proportion of people enables it to spread silently for weeks — even months — creating viral reservoirs that can remain hidden until someone becomes sick enough to warrant testing. (…)
Some countries and cities that appeared to have tamed the virus are seeing cases start to increase again. Victoria, Australia’s second-most populous state, tightened control measures Monday after a spike in cases. New Zealand appointed a military leader last week to oversee the quarantining of citizens returning from abroad to head off fresh outbreaks. The country earlier this month removed physical distancing requirements after reporting zero active Covid-19 cases, indicating it had achieved its aim of eliminating the virus.
Elsewhere, countries from South Korea to Germany are battling new clusters, trying to stamp out sparks before they become raging fires. (…)
- Gilead Sciences Inc. said it will soon begin clinical studies of an inhaled form of remdesivir with the aim of expanding the drug’s use to healthier, nonhospitalized Covid-19 patients. Remdesivir, used to treat seriously ill coronavirus patients, is currently given via daily intravenous infusions, limiting its use to patients in the hospital. An inhaled formulation could allow the drug to be used by patients with symptoms that aren’t severe enough to require hospitalization.
- Health authorities said the Seoul metropolitan area is experiencing a second wave of coronavirus infections, with most of the new cases this month occurring in the area. South Korea added 46 new cases, bringing the nation’s total to 12,484. Thirty of the new cases were imported and 16 of them were linked to a Russian-flagged ship with 21 crew members that has been docked in Busan since Sunday. The crew members were tested on Monday after the captain, who disembarked in Russia a week ago, tested positive. Port workers who came into contact with the crew members have been quarantined.
- Australia-New Zealand: Health authorities might start testing asymptomatic people in a handful of Melbourne suburbs that have become coronavirus hot spots, the premier of Victoria state said. Meanwhile, New Zealand said it will start testing asymptomatic border-control workers and aircrews as thousands of citizens return from global hot spots. The number of people returning to the country from overseas doubled since last month, with some 4,200 people in quarantine—close to the limits of government-run facilities.
PANDENOMICS
Key Support for the Economy May Be About to Buckle Government stimulus programs have helped support spending by lower-income Americans, but the money could soon run out
(…) An analysis conducted by nonpartisan research group Opportunity Insights of credit- and debit-card data collected by Affinity Solutions shows that by early April, spending by U.S. consumers had fallen 33% from January levels. Then starting in mid-April, when many Americans began receiving stimulus payments, things started picking up. As of June 10, spending was off by just 11.3%. (…)
But with many stimulus checks already spent, and with unemployed Americans scheduled to stop receiving the extra $600 a week in jobless benefits on July 31, poorer Americans’ wherewithal to spend is in danger of collapsing. (…)
The Senate, where some Republicans are balking at additional stimulus, won’t take up deliberations until mid-July, and hammering out a plan could take time. For investors who have pinned their hopes on a strong economic recovery, the next several weeks could be fraught.
Trump tells aides he backs new round of stimulus, but some in GOP are skeptical President Trump has told aides he is largely supportive of sending Americans another round of stimulus checks, believing the payments will boost the economy and help his chances of reelection in November, according to three people aware of internal administration deliberations.
Chicago Fed National Index Signals Easing in Recession in May
Hundreds of cash-strapped cities halt plans to repair roads, water systems
FLASH PMIs
Eurozone downturn slows markedly for second month running in June
The eurozone economic downturn eased markedly for a second successive month in June as lockdowns to prevent the spread of the coronavirus disease 2019 (COVID-19) outbreak were further relaxed, according to provisional PMI® survey data. The month also saw a continued strong improvement in business expectations for the year ahead.
The flash IHS Markit Eurozone Composite PMI rose further from an all-time low of 13.6 seen back in April, surging to 47.5 in June from 31.9 in May. The 15.6-point rise was by far the largest in the survey history with the exception of May’s record increase. The latest gain took the PMI to its highest since February, though still indicated an overall decline in business output.
Output fell again in both manufacturing and services, the latter showing the slightly steeper rate of decline. Both sectors nevertheless reported markedly reduced rates of contraction for a second month running.
The ongoing downturn in output was linked to a fourth consecutive monthly deterioration of inflows of new business, which in turn contributed to a further steep decline in backlogs of orders for companies to work through. However, rates of decline of both new orders and order book backlogs moderated considerably during the month.
For those companies continuing to report falling output and order books, the pandemic was again by far the most commonly cited cause. The persistent closure of non-essential business, notably in hotels, restaurants, travel and tourism and other consumer-facing sectors, continued to be widely reported as many social distancing measures remained in place. Many other companies reported weakened demand as business and consumer customers remained cautious with respect to spending.
However, COVID-19 containment measures eased considerably across the eurozone during the month, helping many firms reopen and driving improved demand for many goods and services.
The relaxation of some lockdown measures, and planned further easing in coming months, also helped propel business sentiment for the coming year to its highest since February. The number of optimists exceeded pessimists for the first time in four months. Sentiment improved markedly in both manufacturing and services, resulting in the second-largest rise in the output expectations index since comparable data were first available in 2012.
Jobs were cut on balance, however, for a fourth successive month in June as firms continued to worry about the lack of demand. While rates of job losses moderated in both sectors for a second month in a row, taking the rate of job shedding to its lowest in the current sequence, factory headcounts continued to be reduced at an especially marked rate as producers scaled-back operating capacity.
Average prices charged for goods and services meanwhile fell for a fourth month running as firms once again reported widespread discounting to boost sales, though the rate of deflation continued to cool from April’s near-11-year record as some companies reported improved pricing power. The resulting overall fall in prices was the smallest seen over the past four months.
Average input prices across manufacturing and services increased for the first time since February, driven principally by rising wage pressures. Average prices paid for inputs in manufacturing continued to fall sharply amid weak demand, albeit dropping to the least extent since February.
By region, France led the improvement with output returning to growth for the first time since February, fueled by a surge in manufacturing production. Germany lagged behind, reporting a steeper fall in output than the rest of the region outside of France and Germany. However, over the past four months Germany has seen the shallowest downturn, followed by France, with the rest of the region trailing behind.
(…) We therefore continue to expect GDP to slump by over 8% in 2020 and, while the recovery may start in the third quarter, momentum could soon fade meaning it will likely take up to three years before the eurozone regains its pre-pandemic level of GDP.
Japan: Downturn eases sharply as state of emergency lifted
- Flash Composite Output Index, Jun: 37.9 (May Final: 27.8)
- Flash Services Business Activity Index, Jun: 42.3 (May Final: 26.5)
- Flash Manufacturing Output Index, Jun: 28.9 (May Final: 30.3)
Flash PMI data for June show us that economic activity in some parts of Japan has picked up at the back-end of the second quarter. Crucially, however, a sub-50.0 reading in the Composite Output Index indicates that the underlying picture remains bleak and many firms are yet to see a rise in output volumes. Nevertheless, a 10-point rise is an encouraging sign that parts of the economy are recovering and should provide some momentum for a more broad-based uptick as we head into the second half of the year.
Still, there are some disconcerting signs when we look at the sector splits. While the service sector downturn eased noticeably, goods production fell at an accelerated pace in June. The rate of decline in manufacturing order books remained severe, hinting that the shape of the recoveries in the services and manufacturing sectors could be very different. A two-speed recovery would undermine a sustainable return to pre-COVID-19 levels of economic activity.
China in Recession and Heading for Full-Year Decline: Beige Book
Key metrics including manufacturing profits, capital expenditures and retail sales volumes remained at historically low levels and barely improved from those in the first quarter, CBB International said in a quarterly report based on a survey of more than 3,300 firms. (…)
Sluggish global demand remained a key drag on growth, with regions more internationally exposed performing worse, while interior regions received a boost from a marked rebound in domestic orders, according to the report.
“The eventual return to growth does not mean a return to anything approaching the old levels of growth,” the firm said in its quarterly report on China’s economy. “Until and unless global demand recovers more forcefully, the incremental quarterly improvement just seen will make for a contraction for full-year 2020.” (…)
VEHICLES
As expected, North American light vehicle production saw a significant
increase M/M in May, up ~24x to 248,602 vehicles versus 10,247 vehicles in
April, according to Wards. April auto production ground to a halt as OEMs
and suppliers idled facilities as lockdown measures were introduced to
combat the spread of COVID-19. That said, light vehicle production was still down 83.2% when compared to May 2019. On a YTD basis, volumes are down 42.8% Y/Y to 4,028,697 vehicles.Within North America for the month of May, U.S. light vehicle production
increased ~30x M/M but was down 79.1% Y/Y to 196,839 units. In Canada,
output fell 82.9% Y/Y to 31,411 vehicles, but this compares to nil production
in April. Mexican production was down 94.2% Y/Y to 20,352 vehicles, but
this compares to just 3,722 units produced in April.While North American auto sales are expected to take years to recover, over
the near term this segment should continue to provide a sequential boost to
freight volumes as it bounces off its April lows, which we view as the silver
lining. Wards’ North American production schedule forecast has June down
22.5% Y/Y, July down 11.3% Y/Y, August down 16.9% Y/Y, and September
down 7.9% Y/Y. We would also note that truck demand remains healthy in
North America (SUV/CUV/pickups) and OEMs are looking to ramp-up
production given low inventory levels.Looking at the weekly rail data, we have seen a significant improvement in
auto carload trends, which have been down 30%-40% Y/Y the last couple of
weeks versus down 85+% Y/Y back in April. Auto sales should continue to
benefit from the reopening theme as states and municipalities ease
lockdown measures. With expectations that U.S. light vehicles sales will
continue to improve through the balance of the year, we would expect auto
freight volumes to follow a similar trajectory. (CIBC)
Magna International:
The plants in China were the first to come offline and the first to ramp
back up and are now operating at ~85%-90% capacity. Operations in
Europe were the next to shut down and are now operating at nearly 80%
capacity. And North America, while it was the last to come offline, its
ramp-up is being driven by healthy demand and the plants are now
operating at just above 80% capacity.
SENTIMENT WATCH
‘Everything Is Expensive’ as Global Stock Valuation Debate Rages
Bank of America Corp. clients are sounding the alarm on stock prices like never before — nearly 80% of them said in a survey the market is overvalued even as they sink cash into the market in droves. Bears are finding new reasons to bristle at forward price-to-earnings ratios at historic extremes, while bulls hit back with more reasonable interpretations of multiples, often relative to other asset classes. (…)
Via Axios:
A report from BCA Research published Monday finds Robinhood users are moving into speculative bets at an incredible rate, radically increasing holdings in three groups of stocks — airlines, cruise ships and mortgage REITs. (…)
Retail investors may be leading the charge, but the recent surges in many of the stocks BCA examined suggest that “algorithms, hedge-funds and other fast-money pools of capital may be amplifying the momentum that retail activity has set in motion.”
Which was my point in last week’s THE PROS AND THE CONS.
China Trade Deal ‘Fully Intact,’ Trump Says, as Top Adviser Stirs Confusion President Trump said the U.S.-China trade deal remains in place shortly after a senior aide appeared to say on national television that the agreement was over, prompting confusion among investors.
“The China Trade Deal is fully intact,” Mr. Trump wrote on Twitter at 10:22 p.m. on Monday. “Hopefully they will continue to live up to the terms of the Agreement!”
In a Monday night interview on Fox News, White House trade adviser Peter Navarro was asked about the trade deal, with anchor Martha MacCallum noting that the president wanted to maintain the agreement and ensure that China made good on its commitments. “But given everything that’s happened and all the things you just listed, is that over?” she asked.
“It’s over. Yes,” Mr. Navarro, a vocal critic of China, responded.
As stock futures dropped, Mr. Navarro quickly sought to clarify his comments, telling The Wall Street Journal they had been “taken wildly out of context.”
(…) “I was simply speaking to the lack of trust we now have of the Chinese Communist Party after they lied about the origins of the China virus and foisted a pandemic upon the world.” (…)
Wondering what exactly has been taken wildly out of context. Between 9:05pm and 9:39pm yesterday, E-Mini S&P 500 futures sank 1.8% before recovering.
Following talks [last week] by U.S. Secretary of State Michael Pompeo and China’s top foreign policy official Yang Jiechi, China pledged again that it would buy US$36.5B worth of American agriculture products under the phase one deal, up from US$24B in 2017 before the trade war. But we note that China has bought only US$4.65B in the first four months of the year, which is only 13% of the annual goal set in the trade deal and almost 40% below the same period in 2017. (CIBC)
U.S. Set to Announce Aluminum Tariffs on Canada by End of Week
U.S. Temporarily Suspends New H-1B and Other Job Visas President Trump signed an order temporarily barring new immigrants on a slate of employment-based visas, including the H-1B for high-skilled workers, from coming to the U.S. amid the coronavirus pandemic.722
More House Republicans Come Out Against Trump’s Troop Cut in Germany Six members of the Foreign Affairs Committee said the U.S. should ‘lead by example’ in a letter warning President Trump that his plan is ill-advised and would imperil American interests in the region.
Trump’s Polls Are Plunging But It’s Too Early to Count Him Out
EU urges Xi: drop Hong Kong security law or risk ‘negative consequences’