Monday, April 6, 2020

Markets surge on hopes coronavirus is slowing

Dow skyrocketed a whopping 1627 (at session highs), advancers over decliners 10-1 & NAZ soared a staggering 540.  The MLP index rose 12+ to the 95s & the REIT index shot up 19 to 303s.  Junk bond funds had nice gains while Treasuries were in heavy demand.  Oil sank 2+ to the 26s on concerns about production cuts (more below) & gold jumped up 67 to 1713 (near multi year highs).

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The Trump administration & Congress have begun deliberations on a 4th aid plan intended to alleviate economic pain caused by the coronavirus pandemic.  In recent days, White House officials have discussed pitching a payroll-tax cut, a capital-gains tax cut, creating 50-year Treasury bonds & a waiver that would clear businesses of liability from workers who contract COVID-19, the respiratory illness caused by the novel coronavirus, on the job, a senior administration official confirmed.  But the proposals are very preliminary & do not reflect any sort of presidential direction beyond what Pres Trump has already mentioned.  Last week, Trump called for a $2T infrastructure bill focused on jobs & rebuilding the nation's crumbling bridges & roads that he said would serve as "phase 4."  Trump's chief economic adviser Larry Kudlow told reporters at the White House that he's discussed the possibility of a coronavirus-related Treasury bond to raise cash for relief efforts.  "We’re just looking at it,” he said.  “Let’s see where it leads."  Dems have pushed for another round of aid, as well, with House Speaker Nancy Pelosi pushing for more money for states, free coronavirus treatment, worker protections & expanded paid family & sick leave.  But Pelosi is publicly at odds with Senate Majority Leader Mitch McConnell & other Senate Reps, who have taken a wait-&-see approach to additional legislative help.  "I think we’ll have to wait and see," McConnell said last week.  "Remember, this bill was only signed into law last Friday. So it’s only been law for about four days. And the Speaker is already talking about another bill." 

What could be included in fourth coronavirus stimulus package

Russia is ready to reduce its production very substantially to prop up weak oil, according to 2 Russian source, without giving precise numbers.  They spoke as OPEC & other producers, known as OPEC+, plan to hold a video conference on Thurs to discuss how to support the oil market.  The Russian energy ministry did not respond immediately to a request for comment.  Kremlin spokesman Dmitry Peskov told reporters earlier today that Moscow was ready to work with other leading oil exporting countries.  A gov & an industry source, speaking on condition of anonymity, also said total cuts of 10M barrels per day proposed so far might not be enough to steady the global oil market given the weakness of demand following lockdowns to curb the spread of the new coronavirus.  Last week, Russian Pres Vladimir Putin said OPEC+ cuts could amount to around 10M barrels per day (bpd), or some 10% of global output.  Russian production reached 11.3M bpd in Mar.

Russia ready to cut oil output

Pres Trump's chief economic adviser Larry Kudlow suggested the US economy could bounce back from the coronavirus pandemic within 4-8 weeks, as the federal gov commits Ts of $ to protect workers & businesses from the health crisis.  "I still believe, given our assistance package, and hope and maybe pray that we're at a four- to eight-week period, we can get a pretty good snapback. A good snapback," Kudlow told reporters.  "That's my hope."  The US has the highest number of confirmed cases of COVID-19, the respiratory illness caused by the novel coronavirus, with over 337K infected, according to Johns Hopkins University data.  More than 9600 people in the country have died from the virus.  The depth of the economic downturn is still unknown, but early data indicates it will be severe: In the final 2 weeks of the month, a record-shattering 10M Americans applied for unemployment benefits, surging past the levels seen during the worst of the 2008 financial crisis.  Restaurants, bars, hotels, airlines, cruise lines, automakers & entertainment venues have been hit hard by the pandemic as a growing number of jurisdictions have ordered the closure of nonessential businesses & directed residents to stay at home.  Estimates vary drastically for how high unemployment will climb, but economists broadly agree that it will be grim.  An analysis published by the Federal Reserve Bank of St Louis last week projected that unemployment could hit 32% in Q2 as more than 47M  workers are laid off because of the pandemic.  That would exceed the 25% peak during the Great Depression.  "The sooner we begin to reopen, the faster that snapback is going to be," Kudlow added.  "We came into this with a very strong economy. It got interrupted by the virus, if that's the right word. if this thing can be stabilized fairly soon, yes I do think we'll snap back. It may be more of a prayer than I hope, I understand that, but I'm an optimist."

Kudlow says US economy could 'snap back' from coronavirus crisis

Americans' outlook on the economy deteriorated significantly in Mar as the coronavirus pandemic took hold in the US, forcing cities and states to take unprecedented measures to contain the outbreak.  The Federal Reserve Bank of New York said in its latest Survey of Consumer Expectations that among Americans, the perceived probability of losing unemployment jumped to 18.5%, the highest level recorded since the survey started in 2013.  A majority of those surveyed said they expect unemployment to rise over the next year.  The probability of finding a new job over the same time period fell to 53%, from Feb's 58.7%.  According to the bank, “the drop was broad-based across age, education and income groups.”  The survey also included a sharp decline in expectations for growth in income & spending, while expectations for home price gains fell to just 1.3%, another record low.  The report was conducted between Mar 2 & Mar 31, when jurisdictions across the country directed Ms to stay at home & forced nonessential businesses to shut down to mitigate the spread of COVID-19, the respiratory illness caused by the novel coronavirus.   Altogether, about 250M Americans (75% of the country) are under strict orders to stay at home.  Consumer confidence has nosedived as the 11-year economic expansion abruptly came to an end.  The depth of the economic downturn is still unknown, but early data indicates it will be severe: In the final 2 weeks of the month, a record-shattering 10M Americans applied for unemployment benefits, surging past the levels seen during the worst of the 2008 financial crisis.  The jobless rate rose to 4.4% from 3.5% in Mar, the fastest one-month pace since 1975 & could rise as high as 10% in Apr, some economists have suggested.

Consumer expectations plunge as coronavirus drags on economy

Oil futures settled with a loss, with US prices down for the first time in 3 sessions.  A key meeting of major oil producers that was originally expected today was pushed to Thurs, contributing to uncertainty in the market as traders await news potential crude production cuts.  May West Texas Intermediate oil fell $2.26 (8%) to settle at $26.08 a barrel following 2 consecutive sessions of gains.

U.S. oil prices mark first loss in 3 sessions

As has become common in recent weeks, stocks had another wild day.  This time buyers came out in force, bidding up stock prices & never looked back.  Investors hope for good news on fighting coronavbirus.  However, news on winning this war will take time.  NY has been the hardest in the US.  While everybody hopes its data is reaching an apex, that is still a big unknown.  Even if this turns out to be the high point for the virus, dreary numbers will be around for some time.  Given the enormous gains today, profit taking can be expected tomorrow & potentially after.  Meanwhile gold soared.  Investors with negative thinking about the recovery are buying gold.  Stocks & gold were not meant to surge simultaneously.

Dow Jones Industrials

Markets rally on hopes the pandemic may be peaking

Dow jumped up 991, advancers over decliners a very big 12-1 & NAZ advanced 146.  The MLP index added 2+ to the 95s &  the REIT index surged 15+ to 301.  Junk bond funds rose in price along with stocks & Treasuries remained in strong demand.  Oil dropped 1+ to the 26s (more below) & gold surged 43 to 1688.

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stock chart

CL=FCrude Oil26.97   -1.37 -4.8%

GC=FGold  1,690.50

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The economic pain caused by the COVID-19 pandemic is just starting to be felt by the world's largest economy & it will be the most severe of the post-war era.  US employers shed 701K jobs in Mar & the unemployment rate climbed to 4.4%, the Labor Dept said Fri, as non-essential businesses were forced to temporarily close their doors to help slow the spread of COVID-19.  The virus has infected 1.1M people worldwide & led to more than 60K deaths, according to Johns Hopkins University & Medicine.  The dismal jobs report snapped the streak of monthly gains that had been in place since 2010 & was just a preview of what's ahead.  COVID-19 has forced states across the country to issue "stay-at-home" orders, limiting customer traffic even for businesses deemed essential & allowed to stay open.  The full extent of the economic damage caused by the pandemic remains unknown, but economists expect the fallout to be severe as the jobs report did not include the roughly 10M Americans who filed for first-time unemployment benefits over the past 2 weeks. 

Unemployment filing tips during coronavirus pandemic

Oil prices fell , reversing earlier gains after the CEO of Russian sovereign wealth fund RDIF said that Moscow & Riyadh were “very close” to an oil deal.  Intl benchmark Brent crude futures traded 2.7% lower at $33.20 per barrel, while US West Texas Intermediate futures fell 5.6% to trade at $26.75 per barrel.  “I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Kirill Dmitriev of the Russian Direct Investment Fund said.  Oil prices edged into positive territory shortly after Dmitriev's optimistic comments, but have since pared those gains.  The Dept of Energy said that Secretary Brouillette participated in a “productive discussion” with Saudi Arabia's energy minister about the “ongoing challenges and instability in global oil markets” & the 2 energy ministers agreed to “continue this dialogue through a G20 Energy Ministers meeting in the near future.”  Earlier, US crude futures fell more than 10% after a meeting between OPEC & its allies, initially scheduled for today, was delayed.  The postponement stoked fears that a production cut might face hurdles.  Oil surged last week — WTI & Brent are both coming off their best week on record — as Saudi Arabia called a meeting between OPEC & its allies (OPEC+), signaling there could be progress on a production cut.  The organization's Mar meeting ended with no deal after Russia rejected the 1.5M barrels per day cut that Saudi Arabia had proposed in a bid to prop up falling oil prices as the coronavirus outbreak sapped demand.  This kicked off a price war between the 2 powerhouse producers.

Oil prices turn lower despite hints Russia and Saudi Arabia are ‘very close’ to a deal

US Surgeon General Jerome Adams said that this upcoming week is going to be the most difficult moment of the coronavirus epidemic.  "This is going to be the hardest and saddest week of most American's lives," Adams said.  "This is going to be our Pearl Harbor moment, our 9/11 moment, only it's not going to be localized. It's going to be happening all over the country."  Adams pointed out, however, that the public, along with the state & the federal govt, has the power to "change the trajectory of this epidemic" as long as they follow the administration's social distancing guidelines, which Pres Trump has now extended until Apr 30.  "As hard as this week is going to be, there is a light at the end of the tunnel if everyone does their part for the next 30 days," he said.  It was noted that the director of the National Institute of Allergy & Infectious Diseases & member of the Trump administration's coronavirus task force Dr Anthony Fauci supports invoking a national stay-at-home order to help mitigate the spread of the virus, but so far Pres Trump has been reluctant to do so.  Currently, 9 states have not yet issued a stay-at-home order: Arkansas, Iowa, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Utah & Wyoming.   Adams argues that people across the country are already doing the right thing, even without a national stay-at-home order.  "It's important to understand that most people across the country are doing the right thing," he said.  "Over 90 percent of the country is staying at home and a good proportion, more than average, are staying home even in those nine states."  Adams added the national social distancing guidelines put out by the administration to slow the spread of the coronavirus are "essentially our national stay at home order" & that the administration is working with governors to figure out how to best serve their individual needs.

Surgeon general: This will be 'hardest and saddest week' for most Americans

Optimism is high by investors with hopes that the fight against coronavirus is going better.  Even if that turns out to be the case, more dreary numbers are coming & lock-down conditions will largely remain in place for some time.  For example, the unemployment claims for jobs on Thurs is all but guaranteed to be dreadful.  Oil, key in the global economy, has a ton of problems with excess production while demand is falling.  The bulls will have major challenges to keep this rally going & negative thinking investors are buying a lot of gold & Treasuries.

Dow Jones Industrials

Friday, April 3, 2020

Markets pull back after March jobs report disappoints

Dow sank 360 (not far from session lows), decliners over advancers 5-1 & NAZ fell 114.  The MLP index was even at 93 & the REIT index dropped 8+ to the 282s.  Junk bond funds continued weak & Treasuries rose in price, bringing lower yields.  Oil surged 3+ to the 28s on prospects of production cuts & gold went up 12 to 1650 (more on both below).

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Bank of America (BAC) said that about ½ way through its first day administering a small business relief program, more than 5K customers applied for $6B in loans.  The bank was the first major lender to get its web portal for the Paycheck Protection Program up and running & it was soon inundated with requests.  “That is an astounding number of applications to take in such a short period of time and considering we just launched the site this morning at 8:45 a.m.,” a Bank of America manager said in a staff email.  As of mid-morning, none of the websites of the 3 other big US banks were accepting applications for the program, which was supposed to go live shortly after midnight.  In fact, Wells Fargo (WFC) announced that it will be unable to accept applications today.  BAC's portal went live at about 9 AM.  Within an hour, the bank had 10K applications for loans.  The chaotic launch heightened fears among business owners that they could miss out on the historic program if lenders manage to disburse all $350B of the money.  Treasury Secretary Steve Mnuchin has said he would request more money if that happened, but that would require Congressional approval.  The US gov has asked banks to help it dole out at least $350B in loans to small businesses, part of the $2T coronavirus stimulus bill signed last week.  But banks & industry groups have complained that they lacked the guidance to get online systems up & running until just hours before the deadline.  That guidance was finally issued by Treasury last evening, leaving banks scrambling to get their systems to accept loan applications.  “Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient,” Richard Hunt, head of the Consumer Bankers Association, said late yesterday.  He added that the organization's members would “move heaven and earth to get a system in place and running to help America's small businesses and the millions of men and women who work at them.”  Even at BAC, there was confusion among customers about the program.  The bank is prioritizing existing customers with online accounts who are active borrowers as of last month, meaning that even longtime customers are being initially shut out of the application process.  Moynihan said that bank would initially focus on “borrowing clients” before turning to other small business customers & then ultimately new clients.  “We have to focus on the borrowing clients to make sure we can take care of them,” he added.

Bank of America says 58,000 small businesses have asked for $6 billion in loans since 9 a.m

The gov's survey of establishments painted a grim picture of the US employment situation thru early Mar, but its poll of households was far worse.  The household survey, which asks individual residents how many people are working there, showed a stunning drop of almost 3M workers for the month.  That compares with the nonfarm payrolls decline of 701K reported in the establishment survey & gives another perspective to just how bad the situation has gotten since the economy has all but shut down to protect against the coronavirus spread.  When releasing its headline nonfarm payroll numbers, the gov focuses on the establishment survey as it captures a larger sample size & is considered less volatile than the household count.  The establishment survey captures about 145K businesses & work sites, while its counterpart focuses on 60K eligible households & includes agricultural workers.  Both use the week up to the 12th of the month for sampling, which in this case was before the worst of the job losses began.  The Labor Dept uses the household survey to calculate the headline unemployment rate, which jumped from 3.5% to 4.4%.  In the Mar survey, the household survey's numbers are stunning.  They show a decline of employment from 158.8M in Feb to 155.8 in Mar.  That came amid a drop of 1.6M in the civilian labor force & a 1.1 percentage point tumble in the employment-population ratio to 60%.  The labor force participation rate contracted 0.7 percentage point to 62.7%.  Those counted as not in the labor force rose nearly 1.8M to 96.8M.  Other numbers showed a 1.2M increase in job losers or those who completed temporary jobs.  Those unemployed for less than 5 weeks surged by 1.5M  while those at work part time for economic reasons jumped by more than 1.4M. 

Another figure in the jobs report paints an even gloomier picture of the coronavirus damage

Gold futures ended higher after a report on US employment in Mar indicated that the damage from coronavirus related business shutdowns is already having a big impact on the labor market.  Jun gold rose $8 (0.5%) to settle at $1645 an ounce.  It tacked on 2.9% yesterday, marking its first gain in 5 sessions.  The most-active contract registered a loss of 0.5% for the week.  The nonfarm-payrolls report from the Bureau of Labor Statistics showed that the US. lost 701K jobs last month, representing the biggest monthly decline in 11 years & one of the largest ever, but it’s likely only a harbinger of what is ahead in coming months.  The unemployment figures far exceeded estimates for job losses of 83K.  The unemployment rate, meanwhile, rose to 4.4% from a 50-year low of 3.5% in Feb.  The huge increase in weekly new jobless claims reported yesterday, however, suggests the rate has actually surged to around 10%.  The grim jobs figures hardly reflect the full extent of the state of the labor market, which likely seen around 10M put out of work in the past few weeks alone, as personal & business activity has come to a halt in an effort to prevent the spread of the COVID-19 pandemic that has infected more than 1M people world-wide.

Gold ends higher after U.S. jobs report, but posts a loss for the week

US services & other non-manufacturing companies reported continued growth in Mar, but at the slowest pace since 2016, the Institute for Supply Management (ISM) said.  The ISM services index was 52.5% in Mar after a 57.3% reading in the prior month.  Readings above 50% indicate expansion.  The forecast expected a 43 reading.  ISM reported that its gauge of new orders for non-manufacturers fell 10.2 points to 52.9% in Mar & the gauge of business activity fell 9.8 points to 48%.  This is the first contraction since 2009.  Meanwhile the employment barometer fell 8.6 points to 47%.  Only 5 of 17 industries tracked by ISM reported growth in business activity: Health care, food service, construction, public administration & finance/insurance.  A similar survey by IHS Markit reported a steep decline in service-sector activity in Mar.  The Markit index dropped to 39.8 from 49.4 in the prior month.  This was the deepest decline in the history of the index.

U.S. service sector continued to expand in March but at slower rate, ISM says

Community banks have processed hundreds of small-business loans intended to address the economic calamity caused by the coronavirus pandemic, even as some of the biggest banks in the country say they're not ready to process applications.  A senior Treasury official said that more than 6K loans worth more than $2B had been processed by 2:30 PM, dominated by community banks.  The $349B Payroll Protection Program, part of the $2T stimulus package that Pres Trump signed into law last week, is designed to get cash in the hands of struggling small businesses & incentivize them to keep staff on payroll, or re-hire workers who have already been laid off.  To receive the aid, businesses must have been operational by at least Feb 15.  Companies may borrow up to 2.5 times their payroll (up to $10M)  which can be used for payroll & other expenses, like insurance premiums, mortgages, rent or utilities through Jun 30.  The loans, which are guaranteed by the federal gov, will be fully forgiven if 75% of the money goes toward keeping workers employed, according to the SBA.  "As long as you hire those people, your loan will be forgiven," Mnuchin said.  "This keeps 50 percent of American workers at work."  Some large lenders said they’re ready to go.  Although JPMorgan Chase initially said it will not accept applications, citing lack of guidance from the Treasury Dept, the nation's largest bank reversed course ijn the PM & said it will begin processing applications.  Bank of America said it's received 28K applications so far -- but its decision to process applications from current loan holders first frustrated some.  “Unfortunately even as a small business client who has banked with @bankofamerica since day 1, I cannot apply because we do not have a lending relationship,” tweeted Liinsey Johnson, the CEO of Weezie Towels.  "We have never required debt until now! This loan is make or break for our business and employees and we are unable to apply.”  The program is expected to run out of cash quickly, but Mnuchin said last week that officials could ask Congress to approve more money if that happens.

Mnuchin reveals how much money small banks have already processed for small biz relief

Oil prices surged again on the hope that a production cut deal will soon be reached after OPEC & its allies announced they will hold a virtual meeting Mon & after Russian Pres Vladimir Putin reportedly said that the county wanted to see global action on cuts of around 10M barrels per day.  US West Texas Intermediate crude jumped 11.9% ($3.02) to settle at $28.34 per barrel.  At the session high, WTI gained more than 12% to trade at $28.56.  For the week WTI rose 31.7% in its best week on record back to the contract's inception in 1983.  Intel benchmark Brent crude rose 13.9% to settle at $34.11 per barrel.  Russia initially rejected additional cuts proposed by OPEC in early Mar, but a report today that Putin said production needs to be cut by around 10M barrels per day, but that the US must also take action.  Yesterday WTI & Brent posted their best day on record after Pres Trump said that he expected Russian Pres Vladimir Putin & Saudi Crown Prince Mohammed bin Salman to announce a deal to cut oil production 10-15M barrels, although the exact details of the cut remained unclear.  WTI gained 24.7% to settle at $25.32, while Brent rose 21% to settle at $29.94.

Oil jumps 12%, posts best week in history as traders expect big production cuts

About 6 weeks ago, the Dow was humming along & the bulls were looking at 30K.  Then the market crashed (shown below).  While the last couple of weeks were wild, the Dow has settle around 21K, a good 8K below where it had been.  Apr looks to be a grim month with more depressing news.  Hopefully news on fighting coronavirus will improve later in the month which will allow for more time to be spent on repairing the economy (which is broken).  Try to get some rest over the weekend!!

Dow Jones Industrials