THE DAILY EDGE: 6 MAY 2020

VIRUS UPDATE

• Trump Says U.S. Must Reopen Even If More Americans Get Sick and Die
• Most States Fall Short of White House Reopening Criteria
• This Chart Explains Why Reopening the Economy Is Still So Risky Most Americans still don’t know someone who’s had the disease, never mind died from it. But the numbers are still extraordinarily high.
• Coronavirus Timeline Is Upended as France Discovers December Case French doctors have discovered a case of the new coronavirus dating from late December in a man who was hospitalized near Paris, the earliest publicly identified Covid-19 infection outside China.
• Coronavirus tracked: has your country’s epidemic peaked? | Free to read
• Loosening lockdowns: tracking governments’ changing coronavirus responses | Free to read
• Eli Lilly and Shanghai Junshi Biosciences Co. Ltd. signed an agreement to develop new antibody therapies that could be used to treat and prevent the virus that causes Covid-19, the Hong-Kong-listed Chinese company said Monday. As part of the deal, Eli Lilly will be granted an exclusive license to “conduct research and development activities, make and sell Junshi SARS-CoV-2 Antibodies” outside China.
• Pfizer and BioNTech gave the first U.S. patients its experimental vaccines to fight Covid-19 as the companies race to have it ready for emergency use by fall. Meanwhile, Regeneron said an experimental antibody treatment for the disease could be available in the same time period. That drug is scheduled to be studied in humans for the first time in June.
• Bloomberg Businessweek reporter Stephanie Baker suspected she might have caught the new virus and was eager to find out if she was infected. A series of conflicting results left her even more anxious—and four antibody tests later, she’s still not sure. Scientists have cast doubt on the accuracy of rapid antibody test kits available on the market. And if they aren’t accurate, they can’t be used to let people safely go back to their workplaces.

PANDENOMICS

• “Altogether, stimulus programs could equate to 20% or more of U.S. GDP” – (BX) CEO Steve Schwarzman

Fed policymakers see slow, uneven U.S. recovery after coronavirus downturn

(…) Economists polled by Reuters estimate unemployment last month rose to 16%. Researchers at the Chicago Fed earlier Tuesday estimated a “U-Cov” jobless rate – a measure they created to capture unemployment in the COVID-19 era that takes account of people not counted in the official numbers, such as those skipping job hunts because of stay-at-home orders – of between 25.1% and 34.6% for April. (…)

“In many communities the ‘V’ recovery is going to be very difficult to achieve,” Bostic said, referring to a scenario with a swift economic rebound. (…)

In a conference call with reporters, Evans said he viewed efforts to reopen the economy, even as the coronavirus pandemic continues, to be a “bold decision with pretty high risks.” He added that “the pickup in activity will likely be slow at first.” (…) If all goes well, he said, unemployment could drop to 5% by the end of next year. A slower decline in the jobless rate could mean longer-lasting damage to the economy, Evan said. (…)

Layoffs Start Turning From Temporary to Permanent Across America

(…) Plenty of layoffs that just a month ago were labeled “temporary” are now tagged “indefinite” or “permanent.” Alongside announcements of sweeping staff cuts by major employers such as Boeing Co. and U.S. Steel Corp. and the accelerating pace of downsizing in brick-and-mortar retailing, such notices are a sign that even as businesses continue to hope for a speedy recovery, they are starting to plan for a slow one. (…)

• A clampdown on credit is coming and many lenders have already begun to tighten up, even as millions of Americans seek additional funds.
• U.S. Factories Face a Hitch in Reopening: Mexico’s Shutdown

ISM Collapse All Around

Rent poses small business challenge, as 40% of US small businesses are skipping rent this month.

Coronavirus Downturn Threatens to Break Up the Euro, EU Warns Officials warned that the crisis risks widening the gulf between northern and southern nations.

The European Union’s statistics agency said sales were 11.2% lower than in February, and 9.2% lower than in the same month a year earlier.

Jürgen Stackmann, board member in charge of sales at the Volkswagen brand car group, told reporters that sales in April had essentially already returned to pre-crisis levels in China. “It is clear that China is going through corona with a typical V-shaped recovery.” Mr. Stackmann said.

• U.S. airlines burn through $10 billion a month as traffic plummets
• Taiwan keeps its borders shut despite virus success Taipei says foreign visitors will be allowed to enter once a vaccine is discovered
• Suncor Energy deepens spending cuts, slashes quarterly dividend
• Occidental posts $2.2-billion loss on charges, deepens spending cuts
• Harvard is forecasting a revenue shortfall of nearly $1.2 billion over two academic years. The university faces a decline of $415 million in anticipated income for the year ending June 30, and a further $750 million drop for the following period. Colleges are already dealing with lost revenue, with refunds for room and board, endowment declines and summer program cancellations all contributing. They face the likelihood of fewer students—with more financial need—showing up for the new academic year. (Fortune)

CONSUMER WATCH

Consumer Spending Pullback Similar to 2009-2010

(…) One difference between now and the last time a majority of Americans said they were spending less is that those who are pulling back are more inclined to think it will be a temporary change in their spending patterns. Currently, 47% of those who report they are spending less expect it to be a temporary change compared with 33% who said the same in 2010. Now, 53% say the reductions will become their “new, normal pattern for years ahead,” whereas 67% said so in 2010. (…)

• Recent surveys say that between 59% (Ipsos), 61% (U. of Mich.) and 70% (Gallup) of consumers are going to “wait to see what happens with the spread of the virus before resuming activity.”
• The AARP reports that 53% of American households have no “emergency savings”.
• A McKinsey survey found that 40% of Chinese consumers are planning to boost their savings at the expense of spending; a poll ratified by research out of the PBOC where the results showed 53% of depositors intend to save more and just 22% said they will go back and spend like before. Spending is still some 30% below normal levels.
• Between 20 and 30 percent of respondents suggest they will continue to be cautious, either consuming slightly less or, in a few cases, a lot less across consumer goods categories.
• “In China, approximately 25% of restaurants were closed in early February. By the end of March, substantially all restaurants had reopened. However, the market continues to experience a reduced level of demand as consumers have not fully returned to their pre-COVID routines” – (MCD) CFO Kevin Ozan

PANDEMONIUM

• US weighs matching anti-China rhetoric with economic action As relations deteriorate over virus, Washington looks at steps to curb supply chains and investment flows
• Demographics, economy and death tolls boost Biden in polls Polls give snapshot of shifting battlegrounds ahead of November’s presidential election

SENTIMENT WATCH

Listen to the Numbers, Not the Spin Executives are withdrawing guidance at a record pace, but the stock market is responding to the happy talk.

Great piece from John Authers. It seems this is the mirror image of 2009 when everything was seen gloomy and hopeless.

(…) Why are markets this positive? My guess is that investors are drawing the best possible conclusions from what clues companies are giving them during earnings calls. There are numerous attempts to quantify guidance these days, and BofA’s suggests that executives become far more negative in their Q&A sessions with investors than they have been in the officially drawn up management guidance, which tends to be far more positive.

(…) an exhaustive subjective analysis by the quantitative team of Bankim Chadha at Deutsche Bank AG found that executives were spinning a positive story about the issues that most worried investors. In particular, they found that companies were trying to avoid their mistake of 2009 in not being ready for recovery, while those exposed to China made positive noises about the speed of the return to normality there. (…) But it appears the market is hearing what it wants to hear.

A few charts from Authers’ article:

Prospective earnings multiples haven’t been this high since 2001:

The S&P 500 Index troughed at 15.8 times forward EPS in September 2002 and 12.1 in March 2009.

(SentimenTrader)

Other recent corporate quotes:

• “One is the early demand patterns, which we see coming out of the China market, some European markets clearly point toward the U-shape. And it’s very different from financial recession because the depth of the crisis is more severe than financial crisis” – (WHR) CEO Marc Bitzer
• “…we’re seeing some early signs at this point that users are returning to more commercial behavior” – (GOOG) CFO Ruth Porat
• “For the month of April, comparable store sales in China were down approximately 35%, marking strong improvement from a weekly low of minus 90% in mid-February.” – (SBUX) CEO Kevin Johnson
• “…we’re starting to see a little bit of that stabilization impact come through, for example, in markets like Italy, Germany, Poland, Australia – Austria.” – (…) “…let’s stick to the idea of with China being in more in the normalization phase than the rest of us. There is a long journey for China through that phase. It’s not done, they’ve just begun. But their local travel has begun.” – (M) CFO Sachin
• “We are already seeing green shoots suggesting that economies and industries around the world are either rebooting or preparing to reboot in the coming weeks.” – (SWK) President & CEO James M. Loree
• “…the crisis did trigger a sharp strengthening of the US dollar against key foreign currencies, creating a much larger than expected negative impact on our reported results.” – (K) Senior VP & CFO Amit Banati

Elon Musk and Grimes had their baby. Musk tweeted a photo of the newborn boy with a tattoo filter over the face, before adding a more natural shot of father and son together. He said both mother and child are doing well. As for the name, we’re worried this one isn’t a joke: X Æ A-12 Musk. If it works for Tesla models … (Fortune)

Posted yesterday: The Day After…