THE DAILY EDGE: 7 APRIL 2020

Virus Update

(Morgan Stanley Research)

• Cases world-wide topped 1,360,000, while the death toll near 76,000.
• Cases in the U.S. exceeded 368,000. New York state, the hardest-hit, had more than 132,000 cases.
• Spain reported an increase in its daily coronavirus death toll and a bigger gain in the number of confirmed cases, suggesting the government has yet to bring the disease under control. There were 5,478 new infections in the 24 hours through Tuesday, taking the total to 140,510, according to Health Ministry data. The death toll rose by 743 to 13,798, a larger gain than Monday’s 637. That data come as Italy and Norway look to ease their lockdowns, following Denmark and Austria. Paris, though, will tighten lockdown measures.
• For the first time since January, China said there were no new coronavirus deaths in the country with the toll remaining at 3,331. The National Health Commission said there were 32 new cases, with all of them imported.
• Singapore is considering new laws that would ban both public and private gatherings of any size as the city-state ramps up social distancing measures, Today Online reported. The city-state defended its decision not to close its schools earlier as the Southeast Asian country goes into a partial lockdown from today.
• Iran reported 2,089 new cases on Tuesday, down from 2,274, taking the total number of cases to 62,589. Total fatalities rose to 3,872 after the country reported 133 more deaths, down from 136 on Monday.
• Japanese Prime Minister Shinzo Abe declared an emergency for Tokyo and its surrounding regions, after a recent surge in the number of confirmed coronavirus cases in the metropolis sparked alarm.
• Russia reported 1,154 new cases overnight, its biggest increase so far, bringing the total number of infected to 7,497, consumer health watchdog Rospotrebnadzor said. Fatalities rose by 11 to 58.
• More than 140 experimental drug treatments and vaccines against the coronavirus are in development world-wide, but for most it will be midsummer before human testing reveals whether they are safe to take.
•   Trump Eases Covid-19 Export Ban Amid Backlash Around World “So the 3M saga ends very happily,” Trump said at a White House news conference.
• India partially lifted its ban on exports of malaria drug after Donald Trump sought supplies for the U.S., according to government officials with knowledge of the matter. Exports of hydroxychloroquine and paracetamol will be allowed depending on availability of stock after meeting domestic requirements and existing orders, said the government officials, who asked not to be identified citing rules.

PANDENOMICS

• Income of 73% in US hit by outbreak — FT-Peterson poll Survey shows high and lower earners have felt financial impact of lockdowns
• Germany’s leading economic research institutes expect Europe’s biggest economy to shrink by 4.2% this year, before rebounding by 5.8% next year, Reuters reported, citing unidentified people familiar with the matter.
• Africa’s GDP May Shrink as Much as 1.1% Gross domestic product growth for the continent was forecast to average 3.4% in 2020 prior to outbreak of Covid-19, the African Union said. Goods exported and imported by African countries are projected to fall by 35%, equivalent to about $270 billion.
• The GS China team has jointly put together an aggregated China demand tracker, composed of 58 real-time demand inputs (with the current level as a percentage of last year’s) across over 20 sectors. (…) The aggregated demand level for all sectors is at 73% of last year’s level for the week ending March 27, marginally improved WoW, up from 55% in February, and below the 92% in January.

OPEC Seeks to Rally Producers Over Fears of Filled Storage As coronavirus pandemic lockdowns lead to lower oil consumption, traders and producers are pressed for places to store unsold crude

(…) “If there is no deal, we will have some nice number of floating tankers going nowhere,” an official in the kingdom said.

Moscow appears to share that view. All oil storage facilities in the world could be filled, Kremlin spokesman Dmitry Peskov said Friday, blaming the situation on the Saudis. “Tankers are already used not for shipping oil but as floating canisters,” he said. (…)

• Global Oil Powers Close In on Historic Deal to Curb Output

Saudi Arabia and Russia are closing in on an agreement to curb output, which could drain some of the oil surplus threatening to overwhelm storage tanks and force a wave of abrupt production shutdowns, according to delegates involved in the talks. (…)

“Nobody’s asked me, so if they ask I’ll make a decision,” Trump said on whether the U.S. would participate in cutbacks. U.S. producers are “already cutting back and they’re cutting back very seriously. I think it’s happening automatically.” (…)

SENTIMENT WATCH

Stocks Rally Suggests Turning Point in Virus Fight John Authers

(…) This slide from Cuomo was probably what sparked the market enthusiasm:

(…) This suggests the peak may not even be half the revised estimate, and that hospitals may be able to cope. (…)

Other fragments of data suggest that social distancing is working. Academic studies of what happened in China also indicate — with caveats for the distrust of the official Chinese data — that aggressive moves to enforce social distancing had a hugely positive effect. (…)

But the countries of the West still have to deal with peak hospital usage ahead, and in the case of the U.S. there are many parts that may yet face outbreaks as severe as in New York. (…)

Finally, there is the issue of the emerging world, where the virus has yet to make great inroads. Societies where people do not have jobs that can easily be done from home, where populations are tightly packed, and where health systems are already stretched, could yet face a disaster that the West avoids. (…)

An instant financial crisis has been averted, and it looks like an extreme public health crisis in the U.S. has also been avoided. We appear now to have a consensus that lockdowns are a necessary evil that can help limit long-term economic damage. Stock markets have therefore retraced somewhat less than half of their losses since February.

Great for NYC. But the curving is not yet obvious in the USA as the 2 charts at the top show.

And the Rule of 20 P/E is suddenly back to 19.3 (at 2730)!

Major buyers are on the sidelines for a while:

• Stock buybacks expected to halve as companies bolster defences S&P 500 groups will purchase $371bn of their own shares this year, Goldman estimates

TECHNICALS WATCH

Lowry’s Buying Power vs Selling Pressure analysis seems to suggest that selling has not been exhausted yet:

Nasdaq stocks have led the charge and are about to bump against their flattened 200-d m.a. while small caps keep struggling:

SentimenTrader tries to help us read something solidly positive from the recent actions:

Few stocks within the S&P 500 have managed to climb above their 200-day moving averages. While that has typically meant the worst of the selling is over, it can also be early in the “puke” phase of a decline. If we optimize the parameters, we see that a good compromise is waiting until there is a modest sign of recovery.

ST also notes that

The financial sector hasn’t done much to confirm the idea that stocks are near a bottom. On a relative basis, they continue to reach lower lows. But a look at past bottoms shows that this is not unusual behavior, as the group rarely leads out of major declines.

JPMorgan CEO Dimon Says He Is Expecting ‘a Bad Recession’ JPMorgan Chase CEO James Dimon said his bank hasn’t sought looser regulations to help it handle the economic collapse caused by the virus, detailing instead its ability to keep lending in even more dire circumstances.

In his annual letter published Monday, Mr. Dimon said the work preparing JPMorgan to be a “port in the storm”—a long obsession of his—means the bank can handle what he expects to be a “bad recession.”

In internal stress testing, he said the nation’s biggest bank would be able to increase lending to clients even if U.S. gross domestic product were to drop 35% in the second quarter and stay there for the remainder of the year. Only then would the bank consider cutting its dividend, he wrote. JPMorgan and other big U.S. banks have already suspended buybacks. (…)

Companies have already drawn down more than $50 billion in credit lines to prepare for the crisis, which Mr. Dimon said “dramatically exceeds what happened in the global financial crisis.” The bank approved more than $25 billion in new credit extensions in March. (…)

Banks Need to Put Dividends on Hold The Fed shouldn’t allow them to deplete their loss-absorbing capital.

By Narayana Kocherlakota, a Bloomberg Opinion columnist, is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

Bank executives naturally want to keep their shareholders happy. So amid what promises to be one of the deepest economic downturns ever, the largest U.S. financial institutions are planning to keep paying dividends — a practice that depletes the loss-absorbing capital they will need to get through the crisis. (…)

The Federal Reserve has made the mistake of allowing such behavior before. It shouldn’t do so again.

(…) the recession is sharper and deeper than the Fed could have imagined only two months ago. Banks will suffer surprisingly large losses as millions of Americans miss payments on loans. This will eat into capital, further threatening an already fragile financial system and economy. (…)

Samsung Profit Forecast Indicates Limited Coronavirus Impact Samsung Electronics provided hope that the slowdown spurred by the coronavirus pandemic might only moderately dent one of the world’s largest tech companies, delivering a profit forecast above analysts’ expectations.

(…) The South Korean giant’s projected 2.7% rise in first-quarter operating profits provides one of the first corporate indicators of how large an impact the coronavirus will have both on the global technology market and the broader economy. The global shift to remote working lifted demand for Samsung-made memory chips that power data centers and cloud computing, analysts say. (…)