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Relatively Speaking.

"It's hard to get a straight answer from anyone right now".

I suppose it’s possible to argue that, at least in the context of the coronavirus crisis, it wasn’t a “bad” week for US equities.

After all, “bad” is an (extremely) relative term these days, and the S&P was “only” down around 1.6% for the week.

That’s not terrible considering the last five days witnessed a number of dubious milestones including, but certainly not limited to, a weekly jobless claims print 10 times higher than the pre-2020 crisis record, a monthly payrolls report that showed the US shed 701,000 jobs prior to the institution of stricter lockdown measures across the country, and the rapid spread of a deadly respiratory infection in New York, where a rising infection total helped push the worldwide case count past 1 million.

If one of your criteria for a “cheap” market is how many index constituents are trading above their 200-DMA, things are pretty “cheap”.

Of course, if you’re the type of person who finds it hard to invest in an environment where, for many firms, it is literally impossible to generate operating income by virtue of decrees mandating that businesses cannot operate, then this isn’t the environment for you.

There’s plenty of “stimulus”, but it’s not entirely clear if “stimulus” is the right word.

“We have to remember that the Fed response is about mitigating risks, and the fiscal package is about tiding vulnerable families and businesses over until the virus containment measures end and the economy can recover”, ING’s James Knightley reminds you. “They cannot compensate for the steep decline in demand through March and April” he went on to say, adding that “consumer spending outside of grocery and online retail has collapsed, business investment has ground to a halt, trade has also slowed dramatically [and] the oil and gas industry is being battered by Saudi Arabia and Russian tensions that is further worsening an already huge supply glut”.

That, in a nutshell, is why almost everyone now sees the US economy shrinking by at least an annualized 25% in the second quarter, with some figures pegging far larger contractions. BofA this week said the bank sees the economy contracting for three consecutive quarters.

Friday marked the third daily loss in four for the S&P, and although markets showed some signs of stabilizing this week, it’s obviously quite difficult navigate a scenario that finds the entire economy powering down.

It doesn’t help (from a market sentiment perspective) that the White House is now gently suggesting it wouldn’t be a terrible idea for everyone to wrap a scarf around their face when venturing outdoors to avoid contracting a virus that’s killed nearly 60,000 people around the world.

Donald Trump has spent a good amount of time over the past 48 hours trying to address one issue he actually can influence – namely the Saudi-Russia feud.

Although the president’s Thursday claims to having brokered the beginnings of a truce between Mohammed bin Salman and Vladimir Putin were met with skepticism (and, in some cases, sarcastic derision), Friday brought news of a planned OPEC+ virtual meeting on Monday.

Oil surged again Friday, bringing the weekly gains for WTI and Brent to a ridiculous 32% and 37%, respectively. Crude is, of course, coming off its worst quarter on record.

The Saudis want the US on board with any cut, and Trump convened a meeting with producers and refiners at the White House on Friday. Suffice to say there really is no cut large enough to “shock and awe” the market right now given the unprecedented nature of the demand destruction brought about by the global effort to contain the virus.

Putin suggested he’s open to participating in a cut of 10 million barrels per day, the same figure floated by Trump and unnamed OPEC delegates, but, again, that won’t be close to enough.

The dollar rose sharply on the week, even as some key measures of funding stress which sent the greenback “vertical” last month have calmed down.

The Fed on Friday said it would again slow the pace of its daily buying under the unlimited QE regime. Next week, the Fed will buy at a $50 billion/day clip, down from $60 billion over the past two days and $75 billion prior to that.

The balance sheet hit $5.8 trillion through Wednesday.

As far as the government’s bailout of Main Street goes, the rollout of the small business relief program was rocky, to say the least.

Among the big boys, only Bank of America and JPMorgan managed to get it together by lunchtime on Friday, the launch date that Steve Mnuchin stubbornly stuck to despite all indications that the nation’s banks simply weren’t ready to administer a $349 billion loan program (more here).

Halfway through Friday, BofA had received 58,000 requests from small businesses for $6 billion in loans. As of 11 AM in New York, nearly 2,000 loans from 245 lenders totaling $757 million were originated.

Anecdotal reporting suggests only BofA’s website is truly up to the task. The bank was the first to have an operational platform for the so-called “Paycheck Protection Program”, and it appears to be working for at least some folks, one of whom told Bloomberg the site was “so slick”.

Another BofA small business customer wasn’t so lucky, though. Wahid Nassar, a restaurant owner in Highlands, New Jersey, said he received only error messages while trying to apply.

“There’s so much confusion and it’s hard to get a straight answer from anyone right now”, he remarked.

I can only imagine.


As a Friday bonus, I’m going to leave you with a few amusing excerpts from the latest note by Kevin Muir, formerly head of equity derivatives at RBC Dominion, and better known for his exploits as “The Macro Tourist“. (Followers of Kevin’s know he employs lots of humorous memes in his work to break up the monotony.)

From “Forever Changing The Game”

There is a way for the government to simply print into existence the money it needs to deal with this crisis.

I can hear your groans already…

You tell me we can’t do this, but I ask you, why not?

You say it will ultimately make our dollar worth less and cause inflation. And maybe it eventually does (actually I take that back, not maybe – it will), but in the meantime, the economic system is able to survive this terrible coronavirus shock.

The alternative solution is that we let the whole system collapse inward in a blackhole type scenario. We get a 1930’s style depression and we start over with clean balance sheets after all the defaults.

Yup. Sure. That’ll go over well.


 

2 comments on “Relatively Speaking.

  1. Still waiting on promises from before the $2 trillion package. When does/did the federal reserve start the CPFF program? It’s only 10 billion backstop from the Treasury but there is no news of when they start buying IG paper. It wasn’t looking healthy on Friday

  2. $2 Trillion dollar coin every month might… might be enough to keep something resembling an economy functional until we have a vaccine. Expect hazard pay for people who have to keep working. Expect UBI. Expect nationalized healthcare and maybe some industries. Letting a Free Market decide the outcome would be like letting a fire decide to do with your kitchen, you don’t just lose the kitchen.

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