On Friday's we Pause and Reflect - 4/24/20
Remember when we distilled truth about Jan Frietag's horrific RevPAR forecasts predicated on a ridiculous Moody's U.S. GDP Macro Outlook?, "Jan Frietag on the tape on Friday (4/3/20) using merely -0.2% GDP decline to base STRs REVPAR forecasting for the Lodging Industry is a joke. Even Jan was hedging indicating a -2.6% bear case - his bear case would be golden sunlight compared to what is already happening under the economic hood." (email commentary of April 4, 2020). Fitch expects eurozone GDP to decline by 7%, US GDP by 5.6%, and UK GDP by 6.3% in 2020. (4/22/20) YES, I ENJOY POINTING OUT PERCEIVED EXPERTISE PROFFERED TO THE MASSES THAT IN ACTUALITY IS STUPIDITY. INTELLECTS DESERVE TO BE TIIMELY* CHASTISED WHEN INCORRECT, DISINGENUOUS OR FLAT WRONG. (at the same time we are wrong too, we are not great a MoMo - take $ZM - now being added to the QQQ index - some unicorn dreams will, however, end in dot com tears)
Remember Bear Stearns? Remember the Housing Crisis? Remember Ninja Loans? S&P this week downgraded lower rated tranches of a 2004 (not a typo) Vintage Alt-A Resi Loan Trust - do you think those Alt-As will fare better or worse than lower rated more current resi non-agency backed debt? (rhetorical). Meanwhile, Americans in the Mortgage Forbearance camp still accelerating week-over-week and now stand at 6.4% of mortgages.
Lots of Structured Finance getting hit w/ downgrades.
Luxembourg bonds - AAA - a true AAA
Will today's Open in the U.S. be faded over the day once ECRI's US GDP FWD prints a HORRIFIC number continued a TREND of the WORST ever tracked? how about when the NY Fed 2Q20 / 3Q20 US GDP Nowcast is updated this morning? These seem bearish enough to me.
$AMZN is unable to sell "non-essential" items in FRA - so they respond by not selling anything in FRA while the court battle ensues
At the same time physical Retail in Europe (and will be similar in the U.S.) - HIT (Fitch Report attached):
Fitch believes that EMEA retail rental growth will be subdued or rents may even decline for property companies in 2021 and 2022, on the top of weak income statements in 2020 which include low rent-collection rates in the second quarter. Retail rents were already under pressure before the pandemic, especially in the UK. Rising ecommerce penetration and changing consumer expectations have caused retailers to question the size, location and cost of their physical retail space. Even after lockdowns are eased, the social-distancing measures aimed to contain the coronavirus spread will impair shopping centre footfall and the productivity of retailers' stores.
Fitch has reassessed property companies' ratings that were dependent on future rental growth or disposals. Retail property companies with short-dated lease maturity profiles, which gave them the flexibility to change tenant mix and raise rents in a competitive retail environment, are now likely to see those maturing leases reset at subdued rental levels. In considering rating actions, we have focused less on property companies' 2020 income statements and more on their 2021 and 2022 financial profiles.
Rent collection has been adversely affected this year based on end-March 2020 data (when UK property companies normally collect quarterly rents-in-advance) although we understand that these collection rates have since improved. Some property companies have announced that rents have been deferred or renegotiated into monthly instalments.
Sovereign Impact (Fitch) The rating implications of this year's global worsening of public finances are more severe than the 2008-2009 financial crisis. Fitch's SRM highlights nearly 60 notches of rating downgrades in 2020, split proportionately between the 119 Fitch-rated developed and emerging market sovereigns. Of these sovereigns, 25 are on Negative Outlook and seven on Positive Outlook. There have been 23 downgrades and three upgrades so far in 2020. The record number of annual downgrades was 24 in 2016 (see attached)
China as a Bellwether from Lockdown (via Fitch). Industrial Resumption Stagnates at High Level; Retail Ramps Up High-frequency data on electricity consumption and logistics reveal a fast recovery in China’s industrial activity, although still some distance from 2019 levels. The consumer sector is rapidly returning to normal levels, although the pace of each sub-sector varies. Offline retail and leisure industries are likely to recover at a slower pace, as intra-city traffic data remain subdued. Recovery in Industrial Activity Stagnates: The resumption of industrial activity flattened in April, probably due to lower overseas demand and some supply disruption. The combined daily coal consumption by China’s six key power utilities averaged at 87% of 2019 levels from 1 to 24 April, while internet giant, Baidu, Inc. (A/Stable), estimates that 20% of the working population had not returned to work as of 7 April, based on big-data analysis on its platforms. Steel tyre production rates recovered to around 60% of capacity as of mid-April, up from 40% in early March, versus 72% in the same period last year. The blast furnace operating rate had also recovered to 68% of capacity as of 24 April, up from 64% in early-March, to be on par with April 2019. Large Corporates Recover Faster: Large corporates have recovered faster than SMEs according to logistics data from a leading trucking platform, G7. Full-vehicle trucking volume is already on par with November 2019, a high season for Chinese retail, while less-than-truck-load transport used by smaller corporates has recovered to 90%-95%. This is in line with the Chinese government’s estimate that 99% of large enterprises and 84% of SMEs had resumed operation as of mid-April.