NOTE: It seems that Mailchimp failed to send yesterday’s Daily Edge to subscribers. You will find it right below today’s.
- Russia, Mexico, Brazil all see alarming jump in cases, deaths
- Hong Kong sees another alarming cluster
- Florida reports most new cases since April for 2nd straight day. Payback for recent beach parties?
Instagram founders launch COVID-19 spread tracker Rt.live
Rt.live is an up-to-date tracker of how fast COVID-19 is spreading in each state. “Rt” measures the average number of people who become infected by an infectious person. The higher above the number 1, the faster COVID-19 races through a population, while a number below one shows the virus receding. For example, Rt.live displays that Georgia has the highest, most dangerous Rt score of 1.5 while New York is down to 0.54 thanks to aggressive shelter-in-place orders. (…)
Rt.live shows that as of yesterday, Texas and California are at or just under 1 and Vermont has the best score at 0.33.
Rice: Bank of America says the staple food for half of the world’s population has jumped 70% since January, on a COVID-19 labor supply chain hit and stockpiling. (Axios)
The Goldman Sachs Analyst Index (GSAI) rebounded by 5.5pt to 29.2 in May. The composition of the rebound was mixed, as the sales and orders components increased but the employment component pulled back. The levels of all three components continued to indicate widespread contraction. The inventories, output prices, material prices, and wages components rose, while the exports component declined.
Hotels: Occupancy Rate Declined 43.2% Year-over-year, Seventh Consecutive Week of Higher Demand
The next big problem for the economy: Businesses can’t pay their rent Nearly half of commercial retail rents were not paid in April and May
The problem for the broader U.S. economy is that when businesses like Ross Stores and T.J. Maxx stop paying rent, it sets off an alarming chain reaction. Landlords are now at risk of bankruptcy, too. Commercial real estate prices are falling. Jobs at property management companies and landscapers face cuts. Banks and private investors are unwilling to lend to most commercial real estate projects anymore, and cash-strapped city and local governments are realizing the property taxes they usually rely on from business properties are unlikely to be paid this summer and fall. (…)
Lawmakers are trying to figure out how to prevent businesses — as well as their landlords — from going out of business, but government leaders are struggling to figure out how to help.
Some landlords are asking local governments to delay property tax collections, but many municipalities are already financially strained as tax proceeds plunge and costs skyrocket during the pandemic. (…)
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Mall Landlord Simon Property Suing Retailer Gap Over Missed Rent Simon Property Group, the country’s largest mall owner, filed a lawsuit against Gap Inc., one of its largest U.S. store tenants, seeking unpaid rents and charges it says amount to $66 million.
This Time, Europe Hasn’t Thrown Away Its Shot Common borrowing is a historic step that would address a critical flaw in the single currency zone’s architecture.
(…) Germany, whose determination to maintain fiscal austerity is at the center of the euro zone’s problems, is now moving ahead with a 130 billion euro stimulus program, which chancellor Angela Merkel described as “courageous and decisive.” These measures give Europe a more coherent response to the pandemic than many thought possible. (…)
Another strong case in favor comes from Anatole Kaletsky of Gavekal Economics. First, he points out, the bonds will be issued by the EU in its own name, avoiding any confusion of joint guarantees. Second, and perhaps most important, this implies tax-raising power for the EU, beyond its current income from customs duties and a small share of value added taxes. Kaletsky suggests that this will need to be raised from “economic activities which transcend national boundaries” — so maybe a tax on carbon, financial transactions or digital activities. Finally, he points out, the proposal allows the EU to leverage itself. Interest rates are at rock bottom, so this could soon become a mechanism for dealing with far more than coronavirus relief. (…)
CMHC to tighten lending standards for home buyers Canada Mortgage and Housing Corp. is toughening up its rules to make it harder to get mortgage insurance, a move that would reduce demand from riskier borrowers and keep prices in check at a time of economic uncertainty.
Trump’s Re-Election Hopes Grow Shakier With Biden Gains A shifting battlefield map is imperiling Donald Trump’s re-election.
Democrat Joe Biden has pulled further ahead in the industrial Midwestern states that Trump won in 2016, as Trump’s handling of the coronavirus and the resulting job losses prompted a precipitous slide in his support.
Trump summoned top political advisers to the White House Thursday for a meeting to reverse the decline. (…)
Biden’s average lead in national polls has inched up 2 points over the last week, and he is now ahead of Trump by almost 8 points, his largest lead since December.
But it’s the Electoral College that chooses presidents, and Biden’s standing in battleground states has begun to repair the so-called “blue wall” of loyally Democratic states that Trump toppled in 2016. The former vice president now has consistent leads of 4 points in Pennsylvania, 4.2 points in Michigan and 3.4 points in Wisconsin.
(…) Biden’s hill to climb remains steep, with little room for error. If the rest of the map stays the same as 2016, Biden would need all three states to reach the 270 electoral votes necessary to claim the White House.
But the 2020 map so far looks significantly different in ways that could help Biden. He holds a substantial lead in Arizona, for example, a state that Trump won by more than 5 points in 2016. The former vice president believes he could be competitive or even win in Florida, North Carolina, Ohio and even Texas– all states that Trump comfortably won on his way to the White House. (…)
“If the election were held today, Donald Trump would lose,” said Republican strategist Terry Sullivan. “But the election isn’t today, it’s in five months. If we’ve learned anything over the last three-and-a-half years, it’s that five months out is a lifetime.” (…)
The president’s average approval rating in the RealClearPolitics average fell to 42.8% Thursday, its lowest point since November (…)
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Trump’s Promised Farm Bonanza From China Deal Far From Fulfilled President Donald Trump’s promise that his phase one trade deal with China would provide a $36.5 billion election-year bonanza for his rural base was always a stretch. Now it looks like it may never be fulfilled.
(…) “There’s absolutely zero chance” of reaching the purchase commitment announced in January when the deal was reached, said Joe Glauber, the U.S. Department of Agriculture’s former chief economist. “They’re just so far behind.” (…)
The U.S. Agriculture Department last week lowered its forecast for exports of farm goods to China by $1 billion, based on reduced demand. (…)
But the USDA forecast amounts to $8 billion in sales to China for the first nine months of this year, meaning another $28.5 billion would be required in the last quarter to fulfill Trump’s promise of $36.5 billion for the year. The last-quarter total would be more than double the largest exports on record for that time period, $12.4 billion in 2013.
China bought $4.65 billion in U.S. farm-related products in the first four months of the year, only slightly higher than $4.3 billion in the same period last year, which came in the middle of a trade war.
A Peterson Institute analysis concluded that U.S exports to China of agricultural products are running at only 38% of the pace set in the trade deal. (…)
Trump’s answer has been another bailout for farmers. After the president authorized back-to-back trade bailouts totaling $28 billion over two years, the administration in April announced a $19 billion rescue for farmers, using money Congress appropriated in its last coronavirus relief package. More aid is widely anticipated in the next virus spending bill Congress considers. (…)
Lawmakers in Eight Countries Form New Alliance to Counter China
A group of senior lawmakers from eight democracies including the U.S. have launched a new cross-parliamentary alliance to help counter what they say is the threat China’s growing influence poses to global trade, security and human rights.
The Inter-Parliamentary Alliance on China, which launched Friday, comes as the U.S. struggles to muster a cohesive alliance to take on China’s growing economic and diplomatic clout and as it leads foreign governments in condemning Beijing’s move to impose national security legislation on Hong Kong that threatens the city’s autonomy. (…)
The alliance said China’s economic rise is putting the global, rules-based order under pressure and that countries that have tried to stand up to Beijing have mostly done so alone — and “often at great cost.” The list of participating nations includes the U.S., Germany, U.K., Japan, Australia, Canada, Sweden, Norway, as well as members of the European parliament. (…)
“The time has come for democratic countries to unite in a common defense of our shared values,” Smith, the U.K. lawmaker, said on Twitter.
China Says It Will Take ‘Necessary Measures’ on U.S. Blacklist The Chinese government said it will take “necessary measures” to safeguard the interests of domestic companies, after fresh U.S. restrictions on a blacklist of 33 companies took effect Friday.
SENTIMENT WATCH
The Bulls Have Taken Back the Stock Market The S&P 500 is up nearly 40% in just the past 50 trading days, the largest such rally since 1957
(…) It has been a long time since anyone has called Boeing a winner, but the company’s stock staged a big rebound this week. Shares were up about 26% through Thursday, far and away the biggest move among the 30 Dow components. (…)
Boeing sits in the middle of many of the swirling issues in the markets. Its primary customers are airlines, which are under duress. They need business people and tourists to resume traveling. And for that to happen, the economy needs to recover, and progress needs to be made toward a coronavirus vaccine.
If those things don’t happen, it is hard to see how Boeing grows. (…)
Streetwise: Why Mr. Market Ignores a World in Turmoil
(…) Today’s question for the audience is: Why is the market rising even as U.S. cities burn, Hong Kong becomes a flashpoint in China relations with the West and the prospect of a second round of coronavirus infections remains real? (…)
The bullish story is that none of these problems matter nearly as much for stock prices as the good news for investors. Businesses are reopening while the Fed is providing unprecedented support and governments are subsidizing the economy to the tune of 11% of GDP in developed countries, Fitch Ratings calculates. (…)
The unrest and Donald Trump’s response have increased the chance of Joe Biden winning the presidency in November according to betting odds. But it is too early to be sure whether a message of “law and order” will help or hinder Mr. Trump in the polls. Aside from specific sectors, it’s also hard to know if the market as a whole would do worse from a president (Trump) threatening more tariffs, or a president (Biden) threatening more taxes. Higher taxes hurt more, but since they depend on Congress, investors might prefer to bet on gridlock. (…)
Meanwhile, there has been mixed news on the risks of a second round of infections as lockdowns end. Sporadic coronavirus outbreaks continue in South Korea despite a well-run test-and-trace system, while Israel has closed some schools again after infections spread; in many other countries the reopening has gone smoothly. Big rallies and widespread arrests raise the risk of a surge of infections in the U.S. both among protesters and police, but it will be weeks before we know. (…)
The market is probably ignoring incremental bad news because momentum has control. All those who missed the rally are buying in now that lockdown is easing, pushing up prices. The S&P 500 had its best-ever 50-day gain from the March lows to Wednesday. The prospect of a new high helps too: the Nasdaq-100 index dominated by big technology stocks briefly broke to a new high on Wednesday, while the S&P 500 is down only 3% this year (and less than 8% below its high).
(…) Easy money makes up for a lot of lost earnings. But market momentum always breaks eventually.
A big difference between this market and that of 2009 is that this one is trading on hope(s) whereas the 2009 upturn was fighting widespread despair and disbelief. Both trends were fueled by central bank easing and momentum. In 2009, “normalized” earnings were anathema. In 2020, the “V” recovery is expected to take care of everything. Like if nothing really happened…
Moody’s illustrates this Victory mentality with this next chart:
Core profits apply to all U.S. corporation s, as opposed to just the member companies of the S&P 500.Core profits exclude extraordinary gains and losses and changes in inventory valuations, while also employing economic depreciation instead of accounting depreciation.
Ordinarily, deep year-over-year declines by core after-tax profits are accompanied by year-to-year declines for the market value of U.S. common stock. For example, when calendar-year 2008’s core aftertax profits sank by 9.8% annually, year-end 2008’s market value of U.S. common stock closed 38.7%
under its year-end 2007 mark.
Next Twelve Months P/E: Mega-Cap Growth Stocks vs. S&P 500 ex Mega-Cap Growth
The Institutional Investor Fear Index: No Business-as-Usual Anytime Soon
Investors pump record $22.5bn into US bond funds Cash infusion over past week is the highest since 2007, when EPFR started tracking