• GB Davis

Month End Mark-ups will Expire Eventually - 4/30/20

CHINA

  • New export orders component of CHN PMI: Down to 33.5, indicative of pain outside China

  • Top Chinese scientists believe the coronavirus could come back each year like the flu 

  •  "81% of execs say they’re worried abt a #coronavirus resurgence next 3mos. 69% say April’s tepid pace may be “as good as it gets” into the fall" This has enormous implications. A far cry from what Beijing is spoon feeding analysts right now   

EUROPE

  • U.K. ONS SAYS 66% OF BUSINESSES APPLIED FOR GOVT WAGE SUBSIDY 

  • Shell Cuts Dividend for First Time Since World War II.  SHELL CEO SAYS WE ARE BEING APPROACHED BY NATIONAL OIL COMPANIES, COUNTRIES IN OPEC+ TO CURTAIL PRODUCTION SHELL CEO SAYS WE DO NOT COLLABORATE WITH GOVERNMENTS ON THIS 

  • SWEDEN LAUNCHES SUPPORT TO COMPANIES, TOTAL WORTH SEK39B - BBG *SWEDEN SUPPORT TO COMPANIES BASED ON REVENUE DECLINE RATE *SWEDEN SUPPORT FOR COMPANIES THAT LOST AT LEAST 30% OF SALES 

  • NORWAY DELAYS TAX PAYMENTS TO IMPROVE #OIL COMPANY LIQUIDITY - BBG 

  • Nordea on EU data: The Euro-area economy shrank 3.8% q/q in Q1, as containment measures shut down large parts of activity in the region in mid-March. Crash in energy prices is pulling down headline inflation. Most of the corona effect will come in Q2.

  • Euro-area GDP declined by 3.8% q/q and 3.3% y/y in the first quarter of 2020

  • French and Italian economies shrank by 5.8% and 5.2% q/q respectively

  • Everything points to much bigger hit in Q2

  • The labour market is deteriorating rapidly, but the statistics are misleading

  • Crash in energy prices is pulling down headline inflation

  • Riksbank had to say that the door is still open for rate cuts depending on what happens, but the message was clearly that other measures, such as liquidity provisions and QE, will be the way forward


U.S.

  • Equity Valuations You Say?  Dow now pacing for best month since January 1987. * S&P 500, best since October 1974.  "First, Bear Market 2000-02. Rather mild recession due to burst of IT-bubble (somewhat confined) despite extreme Market Cap. to GDP of ~141%. Monetary stimulus had effect as Fed Funds rate >6% at entry of crisis. Still Bear Market for ~638 days and decline of ~50% before bottom.   Second, Great Recession 2007-09. Strong recession. Close to Financial World collapse driven by Housing bubble bust. Market Cap. to GDP only at 109%. Monetary stimulus opp. were stretched - QE was introduced. Yet Bear Market for ~517 days with a ~57% decline in stock market value.  Third, The Everything Bubble (trigger: Corona). Severe recession? Monetary stimulus tool useless to real economy? Complete economic collapse widespread! Market Cap. to GDP ~151%. You think the Bear Market will only last for 72 days - with equity decline of 35%?" (via Henrik Zeberg)                    

  • U.S. in the Oil Markets?  U.S. TREASURY SECRETARY MNUCHIN SAYS ADMINISTRATION EXPLORING HAVING THE ABILITY TO STORE ANOTHER SEVERAL HUNDRED MILLION BARRELS OF OIL.  9 companies can store up to 23mb of crude in the SPR: Atlantic Trading, Alon USA, Chevron, Energy Transfer, Equinor, Exxon Mobil, Mercuria, MVP Holdings and Vitol.   Blackstone just reported a 6.9% in Energy Transfer $ET.  The Energy Secretary at another press conference said that it will be decided within days, whether financial aid will come to the oil and gas industry (read: fiscal help will come).  WE WILL BE EYEING LONGS HERE.

  • Microsoft revenue beats as remote work boosts Teams 

  • DR. REDDY"S: US BASED GILEAD SCIENCES IS LIKELY TO ANNOUNCE VOLUNTARY LICENCE AGREEMENTS WITH DR REDDYS TO PRODUCE GENERIC VERSIONS OF REMDESIVIR TO TREAT COVID19 PATIENTS 

  • Bodies found in unrefrigerated trucks in New York during COVID-19 pandemic (Reuters) 

  • JBS reopens U.S. pork plant to put down pigs, dispose of carcasses, not produce meat (Reuters)

  • No Beach 4 You!  CA GOVERNOR NEWSOM WILL ANNOUNCE THE CLOSURE OF ALL BEACHES AND STATE PARKS EFFECTIVE MAY 1 IN RESPONSE TO RECENT BEACH CROWDS IN ORANGE COUNTY: BULLETIN SENT TO ALL LAW ENFORCEMENT AGENCIES - FOXLA 

  • Alcohol-to-go sales can continue after May 1 in State of Texas - and may become policy going forward - which would be great, would see continued private label beverages as a differentiator in food offerings -collect them all!

  • VOLKSWAGEN INDEFINITELY DELAYING RESTART OF U.S. PRODUCTION THAT WAS SET FOR MAY 3 -- STATEMENT 

  • US MACRO via Nordea: US Q1 came in at -4.8% q/q annualized. This was well below consensus (-4.0%) as well as the GDP Nowcast estimate from NY Atlanta (-1%), but slightly higher than our estimate of -5%. Today’s number marks the first decline in quarterly GDP since 2014 and the biggest in magnitude since Q4 2008.  

  • Personal consumption unsurprisingly collapsed by 7.7% q/q ann. in line with recent data from retail sales and auto sales. This is the biggest decline since 1980. Services were by far the biggest negative contributor, being responsible for around 95% of the decline in personal consumption 

  • Investments also declined despite residential investments being a positive contributor (in line with the trend since mid-2019) which could be attributed to low mortgage rates. This trend will, however, reverse in Q2. Non-residential investments, on the other hand, tanked. The hit to non-residential investments in Q2 will be exacerbated by the collapse in oil prices (see chart 3) as well as corporate profits declining. 


  • Net exports was an even bigger positive contributor to GDP. However, this was simply due to imports tanking relatively more than exports, ie this was by no means a positive signal (this was by the way same pattern in Q4 which was linked to the trade war). If one excludes net exports and inventories from overall GDP, one gets final sales to domestic purchases. This can be viewed as a more accurate view of the underlying demand in the economy. This gauge declined by 5.4%. 

  • Looking ahead,we project Q2 GDP at -31% q/q ann., thereby ending the longest expansion in US history. Our Q2 forecast is based on the latest high-frequency data (see chart 5) as well as the newest social distancing and lockdown guidelines provided by the Trump Administration and Governors, respectively. Based on our US contacts, we assume that a gradual and partial opening should not be expected before around 1 June.

  • There is, however, hope of a recovery in the second half of the year with the Fed doing “whatever it takes” (Fed Watch: Unlimited QE), Congress injecting unprecedented fiscal stimulus and most importantly a (hopefully) return to somewhat of a non-corona normalisation. Still, we expect the output gap to remain large due to second round effects, bankruptcies and lingering uncertainty. Overall, we expect a U-shaped recovery with 2020 GDP growth at -5%

  • In our worst case scenario, we assume that the partial lockdown continues throughout June and that the recovery rate is slow in H2. This would take Q2 and 2020 GDP to -46% q/q ann. and -9% y/y, respectively. In our best case, we still do not think a recession is unavoidable with Q2 GDP hitting -13% q/q ann., but we assume a faster recovery in especially Q3. The risk picture is skewed towards our worst case scenario rather than our best case scenario. 

  • a recent survey showed that only 15% of businesses most hurt by the coronavirus have received funding during the first PPP round

  • US GDP data for Q1 came in at -4.8 q/q AR and remember that two and a half months out of three had activity at normal levels. French Q1 GDP was -5.4% y/y and much worse than expected. Retail sales data out of Europe for March started to show up with Spain at -14.1% y/y. Business survey indicators published this week included very weak Swedish business sentiment and a German IFO that fell through the floor, indicating that equity analysts’ EPS estimates still are way too high.rgue equals the end of the world as we know it. So pick one market that suits your own scenario. We lean towards Fixed Income- and Commodity space, but the jury is certainly still out. 

  • The present situation part of US consumer sentiment tanked from 167.7 to 76.4. At the same time, the expectations component increased. The same phenomenon is true for a growing number of business surveys such as ZEW, Philly Fed and Chinese PMI. The reason for this, in our view, is that the starting point in April is close to zero activity (slight exaggeration), which basically means that expectations components almost automatically will rise. It can’t get worse than no activity and expectations components will look V-shaped even with only marginal improvements in activity. There is, thus, a strong possibility that there will be a breakdown of the correlation between expectations parts of surveys and actual growth numbers y/y as activity starts to return.  

  • FOMC.  only $195 bn out of the $454 bn emergency backstop lending allocated by Congress have been used.  He specifically said that this “Treasury equity” will be used and that more (easing) is needed. Quite a rare statement from a Fed chair.

  • Nordea Cross-Currents and Reading through to Valuation Levels.  We remain puzzled when we watch price action in various asset classes these days. Different markets seem to signal different paths out of the current recession. With 12-month forward P/E for S&P 500 at a (very) high 21, extremely far from any recessionary multiple, it looks like a V-shaped scenario is discounted. High yield bond spreads are still elevated, even though not as bad as during the financial crisis, and they could be seen to be in line with a more dragged out U-shaped comeback. 

  • One of our favourite global bellwethers, the trade-weighted USD, weakened slightly over the past week but has not dropped in the way it usually does towards the end of a crisis. In our mind it still signals a severe recession. Fixed income markets are basically trading an L-shaped scenario, where a 1-year EUR swap in 5 years’ time is at -0.1%. Also, emerging markets’ bond spreads remain in recession territory.

  • Heading into May, we ponder about three things – hard data, a gradual easing of lockdowns and increasing risks of bankruptcies. First, April hard data will look horrendous and much worse than March especially in the western world. Whether we look at Google’s community mobility tracker or US credit card data, new negative economic data records are likely to be set. Maybe not that strange since lockdowns were fully imposed only towards the latter half of March, but it might still be eye-popping enough to reverse some of the equity market FOMO tendencies of April. 

  • price effect, at least for now, will be deflationary through falling commodity prices and lower wage growth.

  • We struggle to see why companies would rehire all employees this late in a cycle and believe unemployment will get stuck at a higher level

  • Voluntary social distancing is also unlikely to stop. So far data out of China also indicate that things will not go back to normal just because lockdowns are ended. Broad activity measures are still 20 to 40% below normal levels.

  • According to the NFIB survey, less than 50% of US small businesses will be able to operate under the current conditions another month from here (15-20% less than a month), and help may simply arrive too late due to bureaucracy in processing of applications. 

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