THE DAILY EDGE: 7 MAY 2020

Daily Coronavirus-Case Count Surges. The world recorded its highest daily number of new coronavirus cases in almost two weeks, even as the U.S. and a host of other nations relax restrictions that kept businesses closed and people off the streets.

New confirmed infections on May 6 topped 92,700, the most since April 24 and the fourth-highest daily total ever, according to data compiled by Johns Hopkins University. The U.S. accounted for more than a quarter of them, around 24,300—an elevated number but much lower than the 36,000 one-day peak it logged in April.

Other countries reporting daily totals of more than 10,000 included Russia and Brazil, whose outbreaks had seemed mild at first but where the spread of the virus has accelerated sharply. (…)

China’s National Health Commission reported eight new cases, only two with symptoms. The South Korean government reported four new confirmed cases, marking four straight days in single digits. Both countries have been slowly lifting curbs on business operations and movements outside the home. (…) (WSJ)

Data: The Center for Systems Science and Engineering at Johns Hopkins. Chart: Naema Ahmed/Axios

PANDENOMICS

BlackRock’s Fink Delivers Grim Outlook With Tax Hikes for Corporate America

BlackRock Inc. Chief Executive Officer Larry Fink had a stark message for a private audience: As bad as things have been for corporate America in recent weeks, they’re likely to get worse. (…)

Fink said on the call with clients of a wealth advisory firm that bankers have told him they expect a cascade of bankruptcies to hit the American economy, and he wondered if the Fed needed to do more to provide support, according to a person with knowledge of the remarks.

Even as the U.S. is plunged into deepening economic gloom, it will have to raise taxes to pay for emergency efforts to rescue sectors grappling with a difficult recovery, he warned on the call.

Among his predictions: lifting the 21% corporate rate signed into law as part of 2017’s tax overhaul to about 28% or 29% next year, according to the person. Fink also said he sees tax rates for individuals going up. (…)]

Fink also said he was concerned the worsening economic duress could further fan the flames of nationalism. The devastating impact from the coronavirus could make it a bigger threat to the global order, he said.

With a critical election in 6 months, I expect Trump and Biden to promise no tax increases, at least in 2021. Remember “read my lips” … (See The Day After…)

• Jobless Claims Are Slowing, Suggesting Layoffs Have Peaked The number of U.S. workers filing for unemployment benefits weekly during the coronavirus pandemic has remained in record territory, but in recent weeks has dropped to about half the peak of 6.9 million touched in late March.
• Another 3.2 million Americans filed for unemployment last week. Jobless claims have swelled to more than 33.5 million in the past seven weeks since coronavirus-driven lockdowns began.
• Restaurants Reopen, but Not Everyone Is Coming Back to Work The pandemic forced millions of low-wage food-service workers out of jobs. Restaurants want some of them to return, but it’s unclear how much workers can earn if customers don’t come back too.

(…) The expanded unemployment benefit signed into law in March provides laid-off or furloughed workers an extra $600 a week through July 31. Combined with state unemployment, the money is more than what the majority of restaurant workers earned before the shutdowns. Nationally, median hourly pay in food-service occupations was $11.65 in 2019, or $466 for a 40-hour week. (…)

Ed Doherty, a franchisee of 146 Applebee’s and Panera Bread Co. locations across four states, said about 30% of the workers he has contacted have said they can’t return, often citing lack of child or elderly care, but he hasn’t reported them to unemployment agencies. (…)

China Counters Coronavirus Crunch With a Surprise Rise in Exports Outbound shipments rise 3.5% in April compared with a year earlier

China’s outbound shipments rose 3.5% in April compared with a year earlier, better than the 6.6% year-over-year decline in March, data from the General Administration of Customs showed Thursday. The result was far better than an 18.8% year-over-year drop expected by economists polled by The Wall Street Journal.

China’s April export figure reflected a clearing of backlogs of delayed orders from earlier this year due to the coronavirus outbreak, economists said. Southeast Asia, which as a bloc surpassed the European Union and the U.S. as China’s largest export destination earlier this year, continued to offset losses from more advanced Western economies.

Chinese officials also highlighted increased demand from countries that signed on to Beijing’s infrastructure-and-trade project, the Belt and Road Initiative, which are primarily clustered in Central Asia, Africa and the Middle East.

Chinese imports, meantime, fell 14.2% last month, far sharper than March’s 0.9% drop and the biggest decline since February 2016, indicating rapidly weakening demand at home. (…)

Major exporters surveyed by the commerce ministry are still facing order cancellations and delays, or are having difficulties winning new orders and delivering products to their customers, Mr. Gao said. (…)

As new coronavirus cases have ebbed in China, where the first outbreak emerged late last year, Beijing has moved to restart its economy by reopening factories and businesses, resuming construction projects and handing out consumer vouchers to boost spending.

However, high-frequency data shows the recovery’s pace remains slow. Restrictions on human movement remain in place, tens of millions of workers have lost their jobs and a cloud of uncertainty hovers over the economic outlook.

In one recent indicator, official data showed economic activity during a recent five-day holiday, from May 1 to May 5, fell well short of last year’s levels, despite being a day longer. (…)

• This is due to exports of medical supplies to the rest of the world. Medical equipment exports rose by 11% year-on-year, year to date in April from -3.4% in March. Another growth item was 5G infrastructure parts and processors, which is driven by government policy rather than by market demand. Other than these two special items, we find that exports of consumer goods, including clothing and footwear, continued to contract, which signals weak global demand. (ING)
• Goldman’s consumer activity tracker shows a gradual rebound. (The Daily Shot)

• China’s Recovery From Coronavirus Epidemic Better Than Expected, PBOC Chief Says China’s rebound from the Covid-19 epidemic has so far been better than expected and economic growth in the second half of the year will continue to gradually improve to “more or less the potential growth rate,” central bank Governor Yi Gang said, although he cautioned that much will depend on how the rest of the world recovers.

Weak Labor Day spending shows tourism hasn’t recovered from Covid-19

Domestic tourists made tens of millions of trips and spent tens of billions of yuan during the first public holiday in China after the most serious coronavirus lockdowns were lifted, but those numbers still pale in comparison to those from last year’s Labor Day weekend.

During this year’s five-day holiday, the number of domestic trips was down 41% to 115 million and the amount of tourist spending plunged 60% to 47.6 billion yuan ($6.7 billion), compared with the shorter holiday period in 2019, according to data from the Ministry of Culture and Tourism. During this year’s Labor Day holiday, average daily tourism spending was just a third of last year’s, according to Caixin calculations based on government data. Still, the numbers do show a positive trend emerging over the past few weeks.

Jack Ma’s online bank plans $282 billion lending spree

With China’s economy in free fall and millions of small businesses running low on cash, the online lending platform backed by billionaire Jack Ma entered crisis mode. MYbank is now on track to issue a record 2 trillion yuan ($282 billion) of new loans to small and medium-sized companies this year, up nearly 18% from 2019. “In face of the virus outbreak, we have not lowered our business targets,” Jin Xiaolong, the company’s president, said in an interview. While the lending surge aligns with Chinese government efforts to revive the world’s second-largest economy from its pandemic-induced slump, it comes with plenty of risk for MYbank and its biggest shareholder, Ma’s Ant Financial. This year’s crisis marks the first major stress test of MYbank’s loan algorithms.

• China’s Auto Market Rumbles Back to Growth. China’s auto sales reached around 2 million vehicles last month, showing growth for the first time in nearly two years, said the government-backed China Association of Automobile Manufacturers.
• ArcelorMittal, the world’s largest steel maker, posted a loss of $1.1 billion in the first quarter and said demand for the metal fell by a third in North America and Europe as the pandemic crushed car production, among other factors.
• International Consolidated Airlines Group, which owns British Airways, is planning a “meaningful return to service” in July, after cutting capacity across its network by 94% since late March due to the coronavirus pandemic. IAG expects to cut total capacity this year by about 50%. It cautioned that its plans are “highly uncertain” and largely rely on the easing of travel restrictions across the world. The group warned that it doesn’t expect a recovery in passenger demand to 2019 levels until 2023 and will defer delivery of 68 aircraft due in that period.
• The Bank of England expects the U.K. economy to shrink by around 25% in the second quarter as the economy reels from the effects of the new coronavirus. The bank expects a gradual recovery in the second half of the year as businesses reopen and people return to work, though the economy won’t recover all the ground lost to Covid-19 until next year.
• In the US, we [GS] expect -34% qoq annualized real GDP growth in Q2 before a gradual recovery in 2H in which a bit more than half the near-term output decline is made up by year end, leaving full-year 2020 growth at -6%. We see unemployment reaching 15% in Q3 and expect a decline in core PCE inflation to 1¼% by year-end 2020.
• In China, after a 6.8% yoy decline in real GDP growth in Q1, we expect a rebound in the rest of the year driven by easing virus restrictions and robust stimulus. Our full-year real GDP growth estimate of 3% for 2020 assumes the virus comes broadly under control in most major economies by Q3 and accommodative monetary and fiscal policies generate positive growth impulses in China and globally.
• Gloom Grips U.S. Small Businesses, With 52% Predicting Failure That’s according to a new survey from the Society for Human Resource Management which found that 52% expect to be out of business within six months. The survey of 375 firms was conducted between April 15-21 and doesn’t account for improved business conditions as some U.S. states reopen this month.
  
• Costco Wholesale’s monthly sales fell for the first time since the recession, as stay-at home orders and social-distancing restrictions reduced shopper traffic and some parts of stores offered limited service. Comparable sales, those from stores and digital channels operating for at least 12 months, fell 0.5%, excluding the impact of gasoline and currency fluctuations, for the four weeks ended May 3. Including those items, sales fell 4.7% as low gas prices further pushed sales down.
• ECB Offers to Pay Banks to Keep Credit Flowing, but Lenders Say ‘No’ The European Central Bank has offered to pay eurozone banks if they keep loans flowing to eurozone businesses, but many banks—still struggling with bad loans left over from the last crisis—have turned the ECB down.
• World Economy Plummeted 4.8% in April, Bloomberg Tracker Shows
• World food prices fall sharply in April because of coronavirus: U.N. The Food and Agriculture Organization (FAO) food priceindex, which measures monthly changes for a basket of cereals,oilseeds, dairy products, meat and sugar, averaged 165.5 points last month, down 3.4% on March.
• Investors fear Italy is heading for ‘junk’ borrower status Coveted top-quality rating hanging by a thread as Moody’s decision looms

PANDEMONIUM

Coronavirus Casts Deep Chill Over U.S.-China Relations

The Trump administration has moved to involve much of the U.S. government in a campaign that includes investigations, prosecutions and export restrictions. Nearly every cabinet and cabinet-level official either has adopted adversarial positions or jettisoned past cooperative programs with Beijing, an analysis of their policies showed.

Chinese officials, for their part, are following through on President Xi Jinping’s call last fall to resist anything they perceive as standing in the way of China’s rise. They have stepped up military activities in the contested South China Sea and intimidation of Taiwan, a U.S. ally, and state media has issued extraordinary public denunciations of Secretary of State Mike Pompeo.

The coronavirus pandemic has deepened the rancor, bringing relations between the two to a modern-day nadir. Both governments are forgoing cooperation and trying to outmaneuver each other to shape events in the post-pandemic world order.

President Trump, who has sharply criticized China for its handling of the outbreak, has said he is considering using tariffs and other ways to collect compensation for it from Beijing, though senior officials signaled this week that the administration is holding off on punishing China economically. (…)

About two-thirds of Americans have an unfavorable view of China, according to a Pew Research Center survey of 1,000 Americans conducted in March. That is the most negative assessment since Pew began asking the question in 2005, and a nearly 20 percentage point increase since the Trump administration began. Positive views of China’s Mr. Xi also are at new lows.

Members of Mr. Trump’s re-election campaign want to make his tough China policy a central issue. They believe it appeals to working-class supporters and ties his presumed Democratic opponent, former Vice President Joe Biden, to what many in Washington characterize as the Obama administration’s more accommodating posture to Beijing. (…)

Domestic pressures in both the U.S. and China are likely to aggravate the already strained relations. Supporters of Mr. Biden also have produced attack ads focused on China.

Mr. Xi, too, has faced criticism at home over the coronavirus, and his administration has sought to project a sense of strength in dealing with the U.S. as he tries to revitalize an economy stalled by the pandemic, manage high unemployment and quash persistent antigovernment unrest in Hong Kong. (…)

• U.S., China Trade Chiefs to Speak as Trump Threatens Deal

Top Chinese and U.S. trade negotiators will speak as soon as next week on progress in implementing a phase-one deal after President Donald Trump threatened to “terminate” the agreement if Beijing wasn’t adhering to the terms. (…)

The purchases so far have been behind the pace needed to reach the target of the first year’s $76.7 billion increase, as imports from the U.S. declined by 5.9% in the first four months of 2020 from a year ago due to the coronavirus outbreak. Given that the imports in 2019 were smaller than 2017, the pressure to catch up is mounting. (…)

• The Wuhan Lab Theory If China covered up, as Trump and Pompeo say, release the evidence. The WSJ Editorial Board
• Most Americans trust governors over Trump on reopening, poll shows FT-Peterson survey finds 71% back states as support slips for president’s economic stewardship
• Speaking of Trump, Joe Biden leads the president 50%-41% among registered voters, a Monmouth University poll found. Sexual-assault claims don’t seem to have hurt Biden, nor has Justin Amash’s possible third-party bid. Trump’s disapproval rating rose to 53% from 50% last month, and his favorable numbers fell to 40% from 42%. (Fortune)
• EU and China clash over article mentioning origin of coronavirus Beijing censors European opinion piece published in Chinese state-controlled media

SENTIMENT WATCH

Hundreds of Earnings Calls Show Companies More Scared Than 2008

A new study by Federal Reserve researchers used a machine-reading program to sift through more than 600 earnings calls last month in order to map out the virus-induced fallout.

Some 42% of American non-financial public companies are discussing slashing investments, 27% are talking about equity payouts and 17% are focused on drawing down on credit lines, conclude economists Andrew Y. Chen and Jie Yang. At the peak of the last recession the figures were 25%, 11% and 7%, respectively. (…)

Based on trends in 2008, sentiment won’t normalize for a year, according to the Fed researchers.

TECHNICALS WATCH

13/34–Week EMA Trend Chart (CMG Wealth)