THE DAILY EDGE: 29 JUNE 2020

• Deaths from the coronavirus surpassed 500,000 worldwide and confirmed cases exceeded 10 million as the World Health Organization reported the most infections for a single day. New clusters around the world indicate that the pandemic is far from over.
• The WHO reported another scary data point this weekend: the most global infections in a single day. It’s the nature of pandemics to speed up and march from town to town, city to city. And we’re seeing that with COVID. It took roughly three months to go from zero to 1 million infections. Now, we’re seeing roughly 1 million new cases per week. By the end of the summer, we’re on pace for the case load to double again. (Fortune)
• U.S. Coronavirus Cases Surge Amid Strains on Hospitals. As the rise in U.S. coronavirus cases continued over the weekend, parts of the country pulled back reopenings, some areas faced strains on hospital and testing capacity and President Trump came under bipartisan pressure to wear a face mask. Coronavirus cases in the U.S. increased by 42,735 from the same time Saturday to 2.53 million, according to data collected by Johns Hopkins University and Bloomberg News. The 1.7% increase was above the average daily rise of 1.5% over the past week. The total was less than the 45,450 reported on Saturday but above 40,000 for a third straight day. Fatalities rose 0.3% to 125,709.
• Texas’s Covid-19 positive-test rate surged to 14.31%, the highest for the second-most populous U.S. state since the pandemic emerged, underscoring the magnitude of the growing crisis facing America’s Sunbelt. The number has almost tripled since May 31, when Texas posted a 5.44% positive-test rate.
• Florida reported a total of 141,075 Covid-19 cases as of Sunday, up 6.4% from a day earlier, compared with an average increase of 5.1% in the previous seven days. The total number of new cases was 8,530 compared with the record 9,585 set Saturday.
• California cases rose by 2.5% to surpass 200,000, according to the state’s website. Deaths climbed 1.4% to 5,812.
• Arizona’s new cases increased by 3,858 to 73,908, a 5.5% increase that exceeded the prior week’s average of 4.4%, the state reported Sunday. Daily infections have exceeded the weekly average for four straight days.
• From NBF:

 

• Some 72% judged the administration “unprepared” against 28% who said it was “prepared,” according to the June 23-26 survey. Almost half, 49%, said the outbreak would get worse this summer. The remainder split between those who think it will get better and those who expect it to stay about the same. The CBS poll said assessments of how President Donald Trump has handled the outbreak continue to slip, to 41% now from 47% in mid-April and 53% in late March.
• ‘Window is closing’ to halt virus in US, says health secretary
• China put 400,000 residents of a northern county under lockdown at the weekend after at least a dozen coronavirus cases associated with the Beijing outbreak were reported there. In a sign that the resurgence of cases in the capital is proving difficult to stamp out even as officials say they’ve been largely contained, Hebei province’s Anxin county has been sealed off and each household can assign only one person to go out for necessities daily, state media reported. Vehicles cannot enter the county and only those with special passes can leave. The containment measures in Anxin, 140 kilometers (87 miles) from Beijing, are more severe than in the capital itself, where the cluster has grown to 311 people since it was first detected June 12.
• Covid-19 Exposes Russia’s Soviet-Era Regional Health System
• In Tokyo, cases surged to a seven-week high, with public broadcaster NHK reporting 57 new infections and the Australian state of Victoria reported another spike in new cases.
• Brazil reported 46,860 new cases, a 3.8% increase, for a total of 1.27 million, according to Health Ministry’s website. Fatalities rose by 990, to 55,961.

The Coronavirus Surge in Florida, Arizona, Texas Isn’t the Same as New York’s Crisis. Younger people are getting sick in states like Texas and Arizona, where some took the end of stay-home orders as permission to live their lives again

(…) Hospitals are filling with medically-vulnerable elderly—but also 20-somethings and patients in their 30s and 40s. (…) “I’m a young, active, healthy person with no previous conditions,” he said. “I didn’t take it seriously for myself. I was not practicing the social-distancing guidelines. I didn’t wear a mask. I thought I was invincible.” Mr. Flores said he went from not knowing anyone with Covid-19 to knowing 15 victims. After eight days’ hospitalization, he is recovering at home. (…) But younger people in Texas and Arizona are taking hospital beds and straining the health-care system, (…)

Arizona’s Covid-19 hospitalizations since it reopened May 15 have grown from 789 to 2,110, according to state data Thursday. Nine of 10 hospital ICU beds were full this week, state data show.In Texas, nearly 6,000 tested positive for Covid-19 Thursday, versus just over 600 new diagnoses on Memorial Day, state data show; hospitalizations rose to more than 4,700 from just over 1,500 in that period. (…)

The percentage of tests coming back positive is rising around America, which epidemiologists said indicates the disease is spreading. And the percentage of positive tests is now higher in the 18-to-49 age group than among older brackets, CDC data show—a departure from earlier patterns. (…)

Because younger people are more likely to have better Covid-19 outcomes, the new surge in cases might not result in as many deaths as before. Still, “there’s a bit of a false narrative out there that because you’re young, you’re OK if you get infected,” Dr. McDeavitt said. “We see people in their 20s and 30s in our ICUs gasping for air because they have Covid-19.”

The more the virus spreads, he said, the harder it is to keep from vulnerable populations. (…)

• “You have an individual responsibility to yourself but you have a societal responsibility, because if we want to end this outbreak, we’ve got to realize that we are part of the process,” Fauci said.

(CalculatedRisk)

• Prevalence of symptoms, daily new cases, and the positive test rate are still increasing nationally. 4 states representing 8% of the population– including Arizona, South Carolina, and Georgia—are meeting none of the federal criteria for reopening, and only 5 states representing 5% of the population are meeting all 4 criteria. Available hospital capacity has diminished further in Arizona to just over 20%. Texas and Florida have slightly more than 30% of hospital capacity available but fall short of the other three benchmarks. 15% of the population are now in a state that has begun to reimpose stricter policies and 11% are in a state that has explicitly placed reopening on hold. (…) Recent trends could be pressuring other state governors to slow down the pace of their state’s reopening even if they have not stated so explicitly.(GS)

This is a note from Patrick, long time Irish friend and reader:

CDC data here https://www.cdc.gov/coronavirus/2019-ncov/covid-data/forecasting-us.html Eyeballing the chart, there were 110,000 cumulative deaths on June 15 and consensus of 20 forecasts predicting 133,000 by July 15. The difference of 23,000 over 30 days averages 767 deaths a day.

(…) VP Pence (Irish parents from the west of Ireland) is claiming that the virus has become less lethal, with deaths falling despite more testing, a Trump self serving argument. (…)

This should be a good source from the EU https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases. Scroll down to deaths and click to enlarge. US deaths have revisited higher levels of early June in late June, with the peak opposite an unexplained number of about 5,000.

Looks like Americans are getting careless about social distancing. Brits and Irish are too. Brits were jampacked in Bournemouth beach on a recent sunny day while Dubliners thronged canals.

A tip for the end of lockdowns-avoid restaurants and pubs. An analysis mentioned on Bloomberg of use of 20 million credit cards showed that restaurant patrons were the most vulnerable to Coronavirus. I assume mobile phone tracking linked traffic in restaurants to hospitalisations but Bloomberg didn’t say so.

PANDENOMICS

May Consumer Spending Rebounded Americans increased spending at a record pace in May, helping the economy dig out of a severe recession, but a new rise in virus infections threatens the nascent recovery.

Household spending on goods and services rose a record 8.2% in May, the government said Friday. That was more than double the prior all-time high on records dating from 1959. Americans spent big on long-lasting items like cars, refrigerators and sofas. (…) Consumer spending remained down 12% from February, when state and city officials ordered businesses to shut to prevent the virus’s spread. (…)

Last month’s spending increase was fueled by stimulus money—one-time checks of up to $1,200 for individuals and $2,400 for couples—along with enhanced unemployment benefits, set to expire this summer. Research shows that low-income families were among the quickest to spend that money. (…)

Fresher data suggest consumer spending has lost momentum. Credit-card spending rose in May but slipped in the first half of June compared with a year ago, according to Earnest Research. (…)

Disposable income, boosted by stimulus money, is up 5.3% from February and 8.8% YoY in May.

The important stats are actual labor income (wages and salaries) and consumption.

• May’s labor income (BEA, blue line) declined 8.6% from February and 5.7% YoY.
• That stat fits perfectly with the Index of weekly payrolls (employment x hours x wages) (BLS, black line)
• Note that the number of employed persons declined 12.8% from February and 13.7% YoY.
• Income declined less than employment because more lower income people lost their jobs.
• Consumption expenditures declined 11.7% from February and 9.3% YoY.

In effect, Americans cut their spending more than their labor income declined. This is unusual, even in recessions when people normally dip into their savings to sustain consumption. This certainly reflects the widespread lockdowns but it also likely results from the high level of anxiety on future income.

The savings rate shot up from 8.4% in February to 23.2% in May. But savings dropped $1.9B from April to May so the apparent $2.7 billion in remaining spending ammo will disappear by the end of July unless Congress enacts another stimulus program.

Given recent difficult trends in unemployment claims, labor income is highly unlikely to recover enough to sustain spending at a level sufficient to keep the economy solidly afloat. Twenty million Americans remained unemployed as of June 13, 13.5 million more than at the worst point in 2009., not counting the large number of small businesses unable to open fully.

• Majority Who Received Stimulus Payments Spending Most of It on Household Expenses

About 85.5% of respondents to the U.S. Census Bureau’s experimental Household Pulse Survey said they had received or expected someone in the household to receive an Economic Impact Payment or stimulus check.

The majority of adults in households that received a stimulus check from the federal government say they used it or planned to use most of it on household expenses.

The responses were collected June 11-16, week 7 of the survey sent to 1,172,900 households by email and SMS text messages; 73,472 households responded.

According to the latest survey results released today, 15.7% used their stimulus check to pay off debt and 14.1% planned to mostly save it.

That is 29.8% in effect “saving” their stimulus check, roughly corresponding to the 30.8% of respondents expecting a loss of employment income in the next 4 weeks.

The following chart displays U.S. retail sales and U.S. retail sales excluding restaurants and bars. The 3.2% drop in sales ex-restaurants and bars, the latters being mostly closed during the period between February and May, looks surprisingly low and may be interpreted as rather strong spending during such a tough environment.

But recall that many other retailers were also closed in March/April and their reopening in May likely made many consumers take care of pent-up demand/needs. The average of April and May (stand-alone dots) may be a more realistic number, in which case, the decline in sales ex-restaurants and bars becomes -10.2%, more in line with the decline in total consumption (-11.7%) and in labor income (-8.6%).

Delta Warns Pilots of Possible Furloughs Delta Air Lines said it would send notices next week to over 2,500 pilots warning of potential furloughs as travel demand is still languishing due to the coronavirus pandemic.

American Airlines CEO sees up to 20 percent extra staff in July, 2021, ‘hard’ to avoid furloughs

WestJet cuts 3,333 jobs with goal of survival

Airbus sees output down 40% for two years as job cuts loom

More Renters Becoming Second-Home Owners

Some Businesses Slowly Reopen, While Many Permanently Close

(…) As of June 15, there were nearly 140,000 total business closures on Yelp since March 1. In April we reported more than 175,000 business closures, indicating that more than 20% of businesses closed in April have reopened. (…) Of all business closures on Yelp since March 1, 41% are permanent closures. Our data shows the largest spikes of permanent closures occurred in March, followed by May and June, indicating that the businesses that were already struggling had to permanently close right away and the businesses that were trying to hold on, but unable to weather the COVID-19 storm, were forced to shutter in recent months. (…)

In early June, we’ve seen diners seated come back substantially – now down 57% compared to pre-pandemic levels. (…)

The earliest that US hotels return to pre-COVID-19 revenues might be 2022 And that’s in the more optimistic of the two crisis-recovery scenarios that global executives view as most likely (A3), after revenue per available hotel room falls by 53 percent in 2020. In the more dire scenario (A1), recovery doesn’t happen until beyond 2023.

• In China, hotel occupancy remains very low well into reopening (McKinsey):

Australians say they’ll continue the digital habits they’ve picked up during the crisis The country’s consumers—who have lagged their US, European, and Indo-Pacific peers—intend to continue using digital technologies for services like fitness, groceries, and telemedicine.

Banks Have No Idea Who’s Creditworthy Anymore Lenders have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore.

ECB’s Schnabel Warns Euro-Area Inflation Could Dip Below Zero

EARNINGS WATCH

The Q2’20 earnings season is about to begin and the number of surprises is likely to be higher than normal, one way or the other. At today’s pre-opening of 3025, the Rule of 20 P/E is 20.3, almost neutral or fairly valued. However, we know that trailing EPS will soon take a dive from their current $158.59. Based on current estimates, trailing EPS will decline to $140 by the end of the season around mid-August. With this number, the R20 P/E rises to 22.8 with inflation at 1.2%.

Coronavirus Erases Guidance From 40% of S&P 500 Companies that have pulled their outlook have collectively underperformed the broader market; ‘there are still many unknown factors’

(…) Many companies that have pulled their guidance represent the industries most affected by the coronavirus pandemic and most damaged in the stock market. On average, shares for the companies that have withdrawn or withheld guidance are down 18.2% year to date. By comparison, the S&P 500 is down 6.9%. (…) The list also includes stocks, like Kroger’s, that are seen as benefiting from the effects of the pandemic. Those companies frequently cited uncertainty about how long their tailwinds may last for not providing an outlook. (…)

Between Jan. 15 and June 25, at least 154 S&P 500 companies lowered at least parts of their guidance as a result of the pandemic, while at least 28 companies raised expectations, according to the Dow Jones data. (…)

• 54% FEWER S&P 500 COMPANIES ISSUING EPS GUIDANCE FOR Q2 THAN AVERAGE

As of today, more than one third of S&P 500 companies (183) have withdrawn EPS guidance for CY 2020. Most of these companies cited uncertainty around the impact of COVID-19 as the reason for not providing annual EPS guidance. (…) To date, 49 S&P 500 companies have issued EPS guidance for Q2 2020, which is 53.8% below the five-year average of 106. (…) Of the 49 companies that have issued EPS guidance for Q2 2020, 22 have issued positive EPS guidance and 27 have issued negative EPS guidance. The number of companies issuing positive EPS guidance for Q2 2020 (22) is 33.3% below the five-year average of 33.0, while the number of companies issuing negative EPS guidance for Q2 2020 (27) is 63.1% below the five-year average of 73. (…)

SENTIMENT WATCH

Markets Bombed, Investors Carried On It’s going to take a lot more than a single market meltdown for small investors to chicken out of stocks

(…) The popular belief that stocks will always bounce back has acquired the force of religious faith. Only a bear market lasting for years is likely to be powerful enough to prod investors into questioning that faith.

Almost 95% of the 5 million investors in 401(k) and similar retirement plans run by Vanguard Group didn’t make a single trade in the first four months of 2020. Fewer than 1% moved their money entirely out of stocks.

All told, including 8 million households with individual accounts, only 12% of Vanguard’s investors traded between late February and early May, says Karin Risi, managing director of Vanguard’s retail investor group. Among those who did trade, two-thirds bought stocks rather than selling.

From late February through the end of March, fewer than 3% of the 2.2 million participants in retirement plans run by T. Rowe Price Group Inc. made any changes to their portfolios. (…)

“Now, when the market goes up, I’m grateful for every penny I still have in. And when it goes down, I’m glad I took some out.” (…)

Hedge Funds Are Rushing to Get Out of Bearish U.S. Stock Bets

(…) Short interest as a percentage of shares outstanding in the $266 billion SPDR S&P 500 ETF Trust had fallen to 4.9% Friday from 6.7% at the end of May, according to data from IHS Markit.

Meanwhile, the beta of the Hedge Fund Research Macro/CTA Index — which tracks funds synonymous with trend-following quant strategies — to the S&P 500, is back above zero for the first time since March. That suggests CTA funds have been boosting their exposure to U.S. equities and closing short positions. (…)

From Barron’s

US banks’ credit losses from COVID-19 could exceed those from the global financial crisis Most of the losses will come from commercial and industrial loans to the sectors most affected by lockdowns. The extent of estimated losses depends on whether the virus recurs later in the year (scenario A1) or is contained (scenario A3).

What’s remarkable is there are more human beings being affected by the disease today than on March 21 when markets were 40% lower” – (BLK) CEO Larry Fink

Big-Tech Investors Need to Start Watching Brussels More Closely Proposals for new powers could arm enforcers to push through more fundamental changes to how the likes of Apple and Google operate in Europe

(…) Two mooted changes in particular have the potential to upend the European operations and profitability of U.S. tech companies, including Google, Apple and Amazon, that operate so-called gatekeeper platforms.

The first is a new tool for antitrust enforcers designed to “address certain structural competition problems that the existing competition framework cannot tackle.” With it the EU will be able to investigate any market it thinks might be tipping in favor of one company and force changes without having to prove anyone behaved illegally. Britain has a similar tool and is using it to scrutinize online platforms and digital advertising. (…) Veteran antitrust lawyers worry the new powers are too broad and leave big companies with few options to fight back.

The second change is a new regulation called the Digital Services Act that is separate from the antitrust division. It would create an EU-level regulator to police the gatekeepers and outright ban some common behaviors, such as companies giving preferential treatment to their own services. (…)

Europe is an important region for Silicon Valley, accounting for roughly 23% of Apple’s revenues last year and 31% of Google-owner Alphabet’s, for example. Moreover, since European antitrust authorities have been a trendsetter for many other national enforcers, its new approach could have an impact globally. (…)

PANDEMONIUM

China Message to U.S.: Crossing ‘Red Lines’ Could Put Trade Deal at Risk Beijing has begun quietly delivering a message to Washington: U.S. pressure over matters China considers off limits could jeopardize Chinese purchases of farm goods and other U.S. exports under the “Phase One” trade deal

(…) On Wednesday, national security adviser Robert O’Brien excoriated Mr. Xi, the Chinese leader, calling him an heir to Joseph Stalin whose Communist party seeks “total control” over its people’s lives and tries to spread its influence globally. (…) Mr. O’Brien said in his Arizona speech that others in the administration will shortly be making the case why China should be opposed. (…)

U.S. Is Vulnerable to China’s Dominance in Rare Earths, Report Finds China sees its dominance in strategic rare-earth minerals as leverage that can be used against the West—including in trade disputes with the U.S., according to a new report by U.S.-based researchers.

U.S. Presses Europe to Uproot Chinese Security-Screening Company Amid a global anti-Huawei effort that has seen mixed results, the U.S. sets another Chinese tech company in its crosshairs: Nuctech, a state-controlled firm that is quietly dominating Europe’s cargo and airport screening market.

Russian Spy Unit Paid Taliban to Attack U.S. Troops, Intelligence Assessment Finds Bounties were paid by Russia’s military intelligence agency, the GRU, but it couldn’t be determined whether the actions resulted in any American combat deaths in Afghanistan.

Squeezed on All Sides, Trudeau Won’t Bend on China Prisoner Swap

“MAKE NOISE!!!”

Doing video calls these days? This might interest you (H/T Danny): https://www.youtube.com/watch?v=1q61B8zdSV0&feature=youtu.be