Markets declined last week on renewed fears of what a 2nd coronovirus wave portends.
Measures to contain the virus are gradually being eased in many developed economies.
May’s data suggested the worst of the contraction may be behind us, but we see a bumpy restart in coming months. We are tracking the interplay of containment measures and mobility changes on activity as economies have started to reopen.
The unprecedented policy response has boosted markets, leaving a potential second wave of infections and policy implementation as key risks. U.S. Congress is headed for a fiscal cliff as jobless benefits, state support and payroll protection measures are expiring soon.
Growing up as a teenager in Baltimore MD in the late 1980’s I was all over the initial rise of rap music. Not the horrible trash out in recent years, but the good stuff from Run DMC, Sugar Hill Gang, Eric B and Rakim and others. One famous song was “6 Minutes Doug E Fresh You’re On”….the stage to rap. All the kids starting using “fresh” to denote something awesome and cool. 2020’s Doug E Fresh is none other than Fed President Jerome Powell – and he was super fresh for 60 Minutes. His comments had the market up over 3% yesterday to open the week, following last week’s fade.
According to Blaine Rollins at 361 Capital: “Jerome Powell’s appearance on ’60 Minutes’ added $2.5 trillion in value to the global equity markets on Monday. That is the same value as 4.5 million pairs of Jordan-signed 1997 NBA Finals “Flu Game” sneakers which auctioned off at $560,000 this weekend. I fully expected the markets to open lower Sunday night as the White House’s saber rattling with China intensified during the Sunday morning talk shows. And, while market participants knew Powell’s thinking, and saw some of the “60 Minutes” text and sound bites, we didn’t anticipate his delivery to be so Jordanesque.
Of course, it did help that he appeared on the highest rated show on prime-time TV, thus getting one of the biggest soapboxes available to talk directly to the American public. With Scott Pelley slinging socially distanced questions at the Chairman, he answered confidently and truthfully about the potential difficulties ahead and the large cache of tools available to the Fed to keep the U.S. economy moving in the right direction. He also further put to rest the notion of using negative interest rates. So, let’s get Jay-Pow a ‘Big Air’ license plate to go with his incoming Nobel Prize, and Time Man of the Year award. The U.S. economy and our IRAs have already nominated him for every 2020 award.
Chairman Powell did note in his ’60 Minutes’ interview that at some point in the future when the economy is better, the U.S. will need to repay these emergency debts. This will be no small feat. Many trillions will need to be deposited back into the piggy bank when this is all done. Many top market seers are turning their attention toward how to remove trillions from the economy and become more cautious. They are entirely correct to do so. It is easy to create unlimited liquidity as we have done—which is a major reason why the credit and equity markets have stabilized and recovered. So, what do you think will happen when we try and put the trillion-dollar genies back into the lamp?
Fiscal and monetary policy action to bridge the economic impact of the coronavirus has taken shape – and now the key is policy execution to ensure households and businesses get the cash being promised.
Oil prices crashed last week amid plunging demand and a surging demand for oil storage, dragging down other risk assets such as stocks.
The U.S. launched an additional $484 billion relief package, including a $321 billion top-up of its funding for small businesses. That takes the fiscal support passed by Congress to nearly $3 trillion in the past two months.
Several large public companies, like Ruth’s Chris, came under withering media attack for taking Payroll Protection Plan funds intended supposedly for only “small” business. Used to only having their steaks crispy hot in the fire, and not themselves, they returned the funds.
Markets rallied hugely Monday, with the S&500 up 7.7%, on the glimmer of hope that peak coronavirus cases could be realized in the next few weeks.
Investors were encouraged by data that shows a slowing in the number of daily U.S. coronavirus cases, although it is still early to determine a lasting trend. There were about 30,000 new cases on Thursday, 32,100 cases on Friday, 33,260 cases on Saturday, and then a slowing to just 28,200 new cases Sunday, according to the latest data from Johns Hopkins.
Last week’s job report showed 701,000 jobs were lost, and the unemployment rate jumped to 4.4%. With plenty of more losses coming in the month ahead. Markets were volatile, yet down for the week, giving up some of the recent rally’s gains.
President Trump suggested Russia and OPEC would talk leading to a production agreement – which saw oil rally hugely too – yet tangible action has not been seen yet.