Daily Markets: Record Pace of Job Losses At Start Of New Bull Market, Naturally

- Advertisement -

Today’s Big Picture

- Advertisement -
- Advertisement -
- Advertisement -

The biggest news this morning came from the weekly jobs report, which found 6.606 million new jobless claims this week and revised last week’s initial jobless claims up by 219k, from 6.648 million to 6.867 million. Over the past three weeks, 16.78 million people have filed for unemployment for the first time. The unemployment rate rose to 5.1%.

The largest increases in initial claims for the past week were in California, with 872.0k and New York with 286.6k. The biggest decreases were in Nevada, down 20.3k, and Rhode Island, down 8.0k. US equity futures pointed to little change after the open in the minutes after the jobless report. US markets are closed tomorrow for Good Friday.

As of midday trading, the major European equity indices were all in the green. The major equity indices in Asia closed mostly in the green as well today, with Australia’s ASX 200 up 3.5%, China’s Shanghai Composite relatively flat at 0.4%, Hong Kong’s Hang Seng rising 1.4%, South Korea’s Kospi up 1.6% while Japan’s Nikkei was the only one to close down, falling 0.6% on the day.

Today the world’s largest oil producers are in talks to cut production by 10 million barrels a day with the Group of 20 energy ministers to join tomorrow. President Trump is pushing OPEC+ to agree to cuts that will push up prices, saving the US shale industry from disaster. TBD if an agreement can be reached and just how much of an impact any cuts will have as world oil demand has fallen by around 35 million barrels a day.

Eurozone finance ministers are meeting again today after earlier talks this week failed to generate an agreement on mutual assistance. The most significant rift is between the Netherlands and Italy. Meanwhile, UK Prime Minister Boris Johnson has spent a third night in ICU, but reportedly his condition is improving.

Data Download

As of this morning, there were over 1.52 million confirmed coronavirus cases in the world with just under 90k deaths. The global death toll rose to 6,414, the second deadliest day since the outbreak began. The US now has over 435k confirmed cases, more than Spain, Italy, and Germany combined. While daily new cases in Europe look to be past their peak, Spain and Germany have seen new cases rising for 3 consecutive days and Germany’s new case count yesterday was the highest in five days. Spain and Italy have seen daily deaths remain below 750 for the past 5 days, and Italy’s daily new cases have been on a downward trend for two weeks.

Russia reported a fourth consecutive day or record daily increases with the number of infected now over 10,000. Russia has lagged well behind other European nations but appears to be now catching up.

The US has had 14.8k deaths, more than Spain, the nation with the second-highest number of cases, and only slightly below Italy, the nation with the highest number of deaths. New York, which had at one point accounted for over half of all US cases, now accounts for just 34.7%. California continues to be concerning as it has the 4th highest number of cases, but is the 44th state with respect to testing as a percent of the population.

Note – data pulled from www.worldometers.info, which cites its sources for each nation.

While much of the world is locked away at home, wishing we could do something as simple as to be with our loved ones, we can at least listen to something beautiful. Andrea Bocelli will hold an Easter Sunday concert in an empty Milan Duomo starting at 3pm EST. The tenor will be singing some “sacred music, the Duomo will be empty, but in streaming, we will regale the whole world with his voice”. Bocelli added, “I believe in the force of praying together.” Regardless of one’s spiritual leanings, this man’s voice can lift anyone’s spirits. We all could do with some of that.

International Economy

The UK has become the first nation to finance government spending directly with money printing. This allows the government to bypass the hassle of actually having to issue sovereign bonds, which would then simply be bought by the central bank anyways. The direct “monetary financing of government,” aka printing money to spend, would be “temporary and short-term,” according to a statement from the UK’s Treasury. The market was unresponsive, because hey, everyone is pretty much doing this in some form or another these days.

The UK’s Industrial Production contracted 2.8% YoY in January and February, has been in contraction for 11 consecutive months and negative for 17 of the past 18 months. Manufacturing Production declined 3.9% YoY in February, the biggest contraction since January 2013, having been in contraction for 11 consecutive months and declining for 16 of the past 18 months. The UK’s GDP grew by 0.1% during the three months ending February 2020, before the effects of the pandemic took effect. GDP has been flat for each of the three months periods ending January, December, and November.

Yesterday, François Villeroy de Galhau, the head of the French central bank who is also a member of the European Central Bank’s governing council, suggested that if there is a major risk to price stability, the central bank could print money and hand it directly to corporations. Germany is unlikely to be in favor, but in light of the enormous damage being done to the region’s economy, we suspect that in the end, everything will be on the table.

Research published this week by Unicredit expects Spain to see its economy contract the most of any European nation, with GDP falling 15.5% in 2020, creating a fiscal deficit of 12.5% of GDP. Other sources are looking for a roughly 10% decline in GDP with a 10% of GDP deficit. Unemployment was 14% before the pandemic hit, and last week alone, over 800k out of a labor force of around 19 million lost their jobs.

According to Germany’s top economic research institute, Ifo, the nation’s economy is expected to shrink by nearly 10% in Q2, the sharpest contraction since national accounts began and double the size of the biggest decline during the Great Financial Crisis. In support of this, German truck mileage, a key measure of economic activity, contracted at the fastest pace on record in March. Mileage fell by 5.9% MoM in March, compared to just 4.3% in the worst of the Great Financial Crisis.

Banque de France warned yesterday that for every two weeks of lockdown, GDP is reduced by 1.5%. French economic output is expected to have contracted at the fastest pace since WWII, with GDP contracting by 6% in Q1 alone.

Italy’s Industrial Production declined 2.4% YoY in February before the shutdowns even began. IP has been contracting YoY 17 of the past 20 months.

Last night the Swiss government warned that its economy could contracts as much as 10% in the next three months.

Japan’s Machine Tool Orders contracted 29.6% YoY in February and 40.8% YoY in March to sit at the lowest levels since 2013.

Yesterday the World Trade Organization (WTO) warned that world merchandise trade is likely to fall by 13% to 32% in 2020, with nearly all regions suffering double-digit declines. Exports from North America and Asia are expected to be hardest hit. Sectors with complex supply chains are likely to be hit the hardest, particularly electronics and automotive products. This comes after merchandise travel volume had already contracted by 0.1% and by 3% in dollar value terms in 2019 due to a combination of slowing economic growth and trade wars.

Domestic Economy

As for the $2.2 trillion stimulus plan, US banks are looking unenthusiastic about a rescue plan for small businesses, even as Senate Majority Leader McConnell tries to get an additional $250 billion small-business package passed today, expanding the program from $350 billion to $600 billion. The problems lie in legal ambiguities and unclear financing arrangements under the Paycheck Protection Program, which was formally launched last week for companies with up to 500 employees and is due to be extended tomorrow to independent contractors and the self-employed.

Similarly, state and city governments are pushing both the White House and the Fed to provide specific measures to support the municipal bond market, which has experienced extreme price swings since late February. Few details have been provided, and many municipalities have been forced to put off issuing much needed new debt as a result. All these shutdowns mean lower tax revenue, which is concerning muni bond investors. Moody’s recently gave both New York State and City negative outlooks, citing the hit to tax revenue from the shutdowns.

As for support for individuals, state governments are struggling to manage the historic spike in unemployment claims, which means those in need are having to wait for the much-needed aid. Michigan and New York assign specific days of the week to call their unemployment offices based on an individual’s last name. New Jersey is using social security numbers, and Texas has a bot answering some calls. Two weeks ago in Indiana, the number of people attempting to apply for unemployment benefits was four times the prior record high set in January 2009. The existing safety need simply doesn’t have the bandwidth to serve an unprecedented surge in those who need help. This gridlock means an even bigger hit to consumer spending as many unemployed cannot get the support they’ve been promised.

Yesterday’s Federal Reserve’s FOMC meeting minutes didn’t have anything particularly new to say. Participants expressed a desire to prevent markets from expecting negative rates in the US.

Today we will also get the Michigan Consumer Sentiment report, Wholesale Inventories, and the usual weekly EIA Natural Gas stock report.

Markets

Both the Dow and the S&P 500 are now in new bull markets, up over 20% from prior lows. If that seemed fast, it was. Large-cap US stocks just experienced the shortest bear market on record, which took just 12 trading days for a 20% rally on a close-to-close basis. This comes after a record-breaking 23 days to drop into bear market territory, slightly more than half the time it took to enter into the prior fastest bear market. On the day that the S&P 500 ended its shortest bear market on record, Real Estate, Energy, Materials, and Utilities (the safety trade) all outperformed. We live in novel times.

Does this reversal make sense? As of yesterday’s close, the S&P 500 Shiller cyclically adjusted PE ratio is in the 90th percentile of data going back to 1871. The US total market capitalization is in the 86th percentile of data going back to 1970. So far, 16 of the S&P 500 companies have already suspended their dividends, and buybacks will be cut by at least 50%. We are in some of the most expensive markets ever seen at a time of unprecedented uncertainty facing generational levels of economic contraction. How is this possible? We have entities (central banks) that have been given unlimited buying power buying everything they can regardless of the fundamentals. Price discovery is nearly impossible.

Stocks to Watch

Amidst all the brutal stories of layoffs and furloughs as the economic shutdowns push many companies to the brink, there are some that warrant attention for taking actions that are uplifting. This morning Canada Goose (GOOS) announced its plans to ramp up domestic production of personal protective equipment for frontline healthcare workers across Canada.

It joins the growing list of companies including General Motors (GM)Ford (F)Tesla (TSLA)3M (MMM)Apple (AAPL)Hanesbrands (HBI)DysonPernod Ricard SA (RF:FP), and others pitching in to make ventilators, face masks and shields, protective gear, sanitizers and other equipment to help fend off the coronavirus and protect medical workers as they treat those infected with the virus.

Walgreens Boots Alliance (WBA) has expanded its COVID-19 drive through testing capabilities that will use testing kits from Abbott Laboratories (ABT).

Peloton (PTON) announced it will cover the cost of two months of membership fees for those in need and is extending its Comeback program by donating 100 additional bikes to hospitals and healthcare professionals across the US.

Sephora, a subsidiary of LVMH (LVMHY) has let go of a portion of its part-time and seasonal employee base but has offered them severance is resources to help find new employment. For the remaining 9,000+ US store employees, the company will provide 100% compensation based on average hours worked and existing health benefits through late May, or until stores re-open, whichever comes first. The company is also expanding its Sephora Stands Together Fund to provide emergency financial assistance to employees in need.

Shares of Vapotherm (VAPO) are moving higher in pre-market trading following the FDA granting Breakthrough Device Designation for the company’s Oxygen Assist Module (OAM).

iBio (IBIO) shares are jumping in pre-market trading following the company’s announcement it inked two Master Services Agreements and a Memorandum of Understanding (MoU) with the Infectious Disease Research Institute (IDRI) aimed at advancing its SARS-CoV-2 Virus-Like Particle vaccine candidate.

Costco Wholesale’s (COST) March same-store sales rose 12.3%, excluding the impact of foreign exchange and gas. Comparable stores rose 12.1% in the US, 7.2% in Canada, and 19.2% in other international markets while the company’s e-commerce sales soared 50% for the month.

Citing record bookings, Microchip (MCHP) boosted its March quarter revenue forecast to $1.33 billion vs. the $1.29 billion consensus.

Chip packaging company ChipMOS (IMOSreported its March revenue rose more than 24% YoY, bringing its March quarter revenue to almost $185 million, up 25% YoY. Pockets of strength included flash memory, 5G, gaming, and network infrastructure markets.

Fertilizer and mineral producer Itronics (ITRO) saw its March quarter revenue jump 76% YoY led by a 68% increase in fertilizer sales.

Shares of Walt Disney (DIS) moved higher in aftermarket trading last night following the news the company’s Disney+ streaming service now has more than 50 million subscribers. By comparison, on February 4, the service had 26.5 million subscribers. In recent weeks, Disney rolled out the service in the UK, France, Germany, Italy, Spain, Austria, and Switzerland, and last week did so in India. For context, when Netflix (NFLX) launched its streaming service in 2007, it passed the 50 million subscriber mark in 2014. We’ve long said consumers will move for the quality content they want, and Disney+ confirms that view.

It would seem staying at home and streaming isn’t the only thing people are doing in the current COVID-19 world. Consumer fitness company Nautilus (NLS) upsized its March quarter revenue guidance to $94 million vs. the $75 million consensus as demand for its home fitness products, including dumbbells and bikes, surged during the quarter.

We are starting to see the impact of the coronavirus and efforts to contain it reflected in the restaurant industry sales. Yesterday, McDonald’s (MCD) said that while its January and February global comparable sales were strong in most countries, it saw a significant decline in many markets beginning in mid-March that led global comparable sales to fall 22% in March on a global basis. As a result, McDonald’s global comparable sales fell -3.4% for the March quarter.

Later in the day, Starbucks (SBUXshared its US same-store sales fell 3% during the March quarter and said it expects June quarter earnings to be cut in nearly in half to $0.32 per share. To give a sense as to how sharp the fall off in Starbucks US traffic was in the last three weeks of March, Starbucks’ quarter to date same-store sales in the US were up 8% as of March 11. Also yesterday, El Pollo Loco (LOCO) said system-wide comparable restaurant sales for its March quarter fell 1.5%; through the end of February, system-wide comparable restaurant sales at El Pollo Loco were up 3.7%.

Yelp (YELPannounced a restructuring plan following the sharp drop in its business during March. The company shared page views for restaurants, its most trafficked category, dropped approximately 60% by the end of March compared to the beginning of the month, metrics for its services category, which generate the bulk of Yelp’s revenue, dropped approximately 40% over the same period.

Last night SAP (SAPreduced its 2020 outlook after reporting its software license revenue fell 31% YoY in the March quarter. Similar to the dynamics with March quarter restaurant comp sales discussed above, SAP shared the coronavirus led to a “significant amount” of business being postponed at the end of the quarter, which offset “healthy activity” during the first two months of its March quarter.

Specialty retailer Buckle (BKE) reported its net sales fell 50.2% YoY in March.

According to data released by the China Passenger Car Association, passenger car sales in China fell 41% YoY in March to 1.08M units. Included in those figures for the month were 47.1k electric vehicles, of which 10,160 were Tesla (TSLA) vehicles. Auto companies that could feel some sting associated with this data include Honda Motor (HMC)General Motors (GM)Ford (F), and Toyota (TM).

Despite equities trending higher this week, we will close this shortened trading week with a fresh round of rescinded 2020 guidance from:

  • Diageo plc (DEO)
  • PGT Inc, (PGTI)
  • Starbucks (SBUX)
  • Curo Group (CURO)
  • O-I Glass (OI)
  • El Pollo Loco (LOCO)
  • Stitch Fix (SFIX)
  • Dorman Products (DORM)
  • CareDX (CDNA)
  • Visteon (VC)
  • Matrix Service (MTRX)

The odds are jobless claims will remain at elevated levels next week follow fresh furlough announcements from:

  • Ulta Beauty (ULTA)
  • Carmax (KMX)
  • At Home Group (HOME)
  • Revolve Group (RVLV)
  • Choice Hotels (CHH)
  • Boyd Gaming (BYD)
  • Sleep Number (SNBR)
Home of Science
Follow me

- Advertisement -

Discover

Sponsor

Latest

NBC’s Peacock still plans July launch, though with fewer original series than planned

NBCUniversal says its video-streaming service Peacock will launch nationally in July as planned, even though just a handful of its original series will be...

Casual Business Dress

Casual Business DressBusiness casual clothing offers a practical solution to those of us who feel uncomfortable in business suits and tuxedos. A great...

Shazir Mucklai Shares Insights On Why a Recession May Be Imminent

The NBER, a private economic research organization, defines an economic recession as: a significant decline in economic activity spread across the economy, lasting more than...

Harvard prof rides 17,000% return in a single stock to become a billionaire

Moderna MRNA, +6.45% went public in late 2018, bursting onto the Wall Street scene as the biggest biotech IPO in history. Timothy Springer, a Harvard medical-school professor,...

Starting a Business – How to Prepare for Starting a Business With a Business Plan

It's never too early to start a business. If you're ready to get started, start with an idea. Be certain that the idea you...
Home of Science
Follow me