Weekly Market Update: More stimulus bazookas are fired off as conronavirus lockdowns expand
Fri, 27 Mar 04:14 PM EST/09:14 PM GMT
The coronavirus pandemic continued to intensify this week as the hotspots spread to new locations, most notably NYC. By Friday, the number of infections in both Italy and the US had surpassed that of China with only marginal signs that the stringent mitigation measures being implemented in western economies were beginning to bend infection rate curves. The US Federal reserve unleashed one of the largest weapons in its arsenal on Monday when it stated categorically that the central bank could buy “unlimited” amounts of US treasuries and mortgage backed securities. Worries of growing global financial contagion were somewhat assuaged by the audacious move and similar subsequent announcements by the ECB and central banks. Fiscal stimulus plans were also advanced by various governments, most notably the $2.2T package passed by the US Congress on Friday.
Helped by the firehouse of both fiscal and monetary policy stimulus, stock markets mounted an historic bear market rally that started on Tuesday. US indices surged some 20% in a three day rally, the likes of which had not been seen since 1929. The S&P 500 first three day rally in more than a month resulted in a litany of market followers opining that the bottom may very well be in. Treasury yields moved lower amid signs of better functioning in some lending markets which had been viewed as hotspots of dysfunction. The US dollar rolled over too, providing further comfort that dollar funding pressures were subsiding. On the other hand, oil prices remained a flashing waring signal. Anecdotal reports suggesting global storage has been maxed out, supporting a narrative that the supply and demand imbalance is on the verge of pushing crude prices even lower. Amid the historic volatility, the S&P surged 10.2% in its biggest weekly gain since 2009, while the DJIA gained 12.8% and the Nasdaq added 9%.
In corporate news this week, a further flood of companies withdrew full-year outlooks and cut dividends or stock buybacks as the coronavirus obscures any visibility for businesses around the globe. Some companies did release earnings, however. Nike revenue came in higher than anticipated while its gross margins took a hit, though it said 80% of its stores in China have reopened post-coronavirus. Micron beat on its top and bottom line, noting strong demand in its cloud data and personal computing units. Target withdrew its guidance, though said its March month to date comp sales were up over 20% y/y (likely attributable to hoarding of home staples). Yum China said its restaurant traffic is recovering slowly but is still heavily impacted as people continue to implement social distancing measures. Facebook reported seeing some weakening in its ad business due to coronavirus, though it is also posting new usage records almost every day. Chevron cut its capex outlook by 20% along with some other actions to protect its dividend. GE announced it would cut 10% of the workforce in its aviation unit. US Steel cut production, drew down its credit lines, and reduced its FY20 capex by $125M. Caterpillar also withdrew its FY20 outlook, but noted its financial position remains strong, and it plans to continue to run the majority of its U.S. domestic operations. Boeing’s stock had perhaps the most dramatic move of the week, nearly doubling off a 7-year low as the US stimulus package was confirmed to include grants to rescue airlines, though Boeing said it won’t take any direct government aid.
SUN 3/22 *(NZ) RESERVE BANK OF NEW ZEALAND (RBNZ) ANNOUNCES NZ$30B ASSET PURCHASE PROGRAM TARGETED AT GOVT BONDS, across all range of maturities
MON 3/23 (DE) German Cabinet said to have adopted package of €750B in measures to to cushion the fallout from COVID-19 outbreak in an emergency meeting - press *(US) FED TO BUY UNLIMITED AMOUNTS OF TREASURYS AND MORTGAGE SECURITIES - Statement AA Asset-backed 30-Day Commercial Paper rates ticked LOWER to 1.84% v 1.98% yesterday; 90-day HIGHER 2.36 v n.a yesterday (1.67% prior) - NY Fed BA To temporarily suspend Puget Sound production operations for 14-days in response to escalating COVID-19 pandemic
TUES 3/24 *(EU) EURO ZONE MAR PRELIMINARY PMI MANUFACTURING: 44.8 V 39.0E (14th straight month and lowest since Jul 2012) *(UK) MAR PRELIMINARY PMI MANUFACTURING: 48.0 V 45.0E (1st contraction in 3 months) F To collaborate with 3M, GE, UAW to speed production of respirators for healthcare workers, ventilators for Coronavirus patients *(JP) JAPAN PM ABE CONFIRMS THAT TOKYO OLYMPIC GAMES TO BE POSTPONED FOR ONE YEAR (US) CNBC's Javers: agreement said to be reached on oversight of Treasury Sec fund as part of potential stimulus pact - CNBC *(US) MAR PRELIMINARY MARKIT PMI MANUFACTURING: 49.2 V 43.5E (lowest since 2009) AA Asset-backed 30-Day Commercial Paper rates ticked higher to 2.37% v 1.84% prior; 90-day n/a v 2.36% prior - NY Fed (US) MAR RICHMOND FED MANUFACTURING INDEX: +2 V -15E *(US) FEB NEW HOME SALES: 765K V 750KE NKE Reports Q3 $0.53 v $0.55e, Rev $10.1B v $9.87Be FB Seeing some weakening in ad business due to coronavirus; seeing new usage records almost every day WWE CEO McMahon entered into a variable prepaid forward contract with an unaffiliated bank covering approximately 3.5 million shares of the Company’s Class B common stock - filing (US) Federal Reserve to temporarily reduce bank exam activities, with the greatest reduction in activities occurring at the smallest banks; large banks should still submit CCAR capital plans by April 6th CME To Launch New Gold Futures Contract with Expanded, Flexible Delivery in 100-ounce, 400-ounce or 1-kilo Bars; notes growing demand for broader range of delivery needs for clients; the new contract will provide customers with maximum flexibility in managing physical delivery
WEDS 3/25 BLK To execute bond buying for Federal Reserve - US financial press *(US) SENATE SAID TO HAVE REACHED A BIPARTISAN AGREEMENT ON VIRUS STIMULUS PLAN - financial press *(US) FEB PRELIMINARY DURABLE GOODS ORDERS: +1.2% V -0.9%E; DURABLES (EX-TRANSPORTATION): -0.6% V -0.4%E AA Asset-backed 30-Day Commercial Paper rates ticked lower to 1.71% v 2.37% prior; 90-day 2.50% v n/a prior - NY Fed MU Reports Q2 $0.45 v $0.38e, Rev $4.80B v $4.66Be F S&P cuts rating to junk status; cuts one notch to BB+ from BBB-; outlook to Watch Negative from Stable *(US) SENATE UNANIMOUSLY VOTES TO PASS $2.0T CORONAVIRUS STIMULUS BILL; AS EXPECTED
THURS 3/26 (EU) ECB clarifies that self-imposed issuer 33% limit used in QE will not apply to pandemic emergency purchase program *(DE) GERMANY APR GFK CONSUMER CONFIDENCE: 2.7 V 7.5E (lowest since May 2009) *(UK) FEB RETAIL SALES (EX-AUTO/FUEL) M/M: -0.5% V -0.2%E; Y/Y: 0.6% V 1.1%E *(EU) ECB ECONOMIC BULLETIN: Council decided on a comprehensive package of monetary policy measures *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATE UNCHANGED AT 0.10%; AS EXPECTED; vote was unanimous (9-0) *(US) WEEKLY INITIAL JOBLESS CLAIMS: 3.28M (record level) V 1.64ME; CONTINUING CLAIMS: 1.803M V 1.791ME *(US) Q4 FINAL GDP PRICE INDEX: 1.3% V 1.3%E; CORE PCE Q/Q: 1.3% V 1.2%E (US) Nevada reports Feb casino gaming Rev $1.04B, +3.1% y/y; Las Vegas strip Rev $596.2M, +0.8% y/y AA Asset-backed 30-Day Commercial Paper rates remained at 1.71% v 1.71% prior; 90-day 1.52% v 2.50% prior - NY Fed
FRI 3/27 *(IN) INDIA CENTRAL BANK (RBI) CUTS REPURCHASE RATE BY BY 75BPS TO 4.40%; widens rate corridor (intra-policy move) 3328.HK Reports FY19 (CNY) Net 77.28B v 73.6B y/y, NII 144.08B v 130.9B y/y (UK) PM Johnson has tested positive for COVID-19; to isolate himself at 10 Downing Street - BBC *(CA) BANK OF CANADA (BOC) CUTS INTEREST RATES BY 50BPS TO 0.25%; Third cut this month