Dentalfloss
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Good Morning: The Long & the Short of it and The Bigger Picture - 3 April 2020 - ADM ISI
- Services PMIs in focus ahead of untimely US March labour report; Trump
meeting with oil execs also in view, oil market understandably sceptical
- US March labour data: modest fall seen due to data collection timing;
unprecedented galactic surge seen in April
- Trump would do well to heed Tillerson comments on the (non-)predictablity
of oil prices
- Charts: S&P500 dividend vs. UST yields; Lipper US HY Bond fund flows;
USD and EUR credit spreads
..........................................................................
********************
** EVENTS PREVIEW **
********************
The scale of the abrupt halt in developed world economies is now coming through in surveys and hard data, above all the tragic record of yesterday's 6.648 Mln rise in US weekly jobless claims, and also likely above all to show up in today's run of Services PMIs, above all in Spain and Italy. The US March labour report is in effect very historical, given that the establishment survey is conducted in the second week, in which jobless claims 'only' rose to 282K, which suggests that the median guesstimate of 100K may be too pessimistic. However the estimates for April's Payrolls contraction are already in the range of -15 Mln to -20 Mln, and may rise higher if the latest tragic numbers are repeated in the next two Claims reporting weeks. By way of comparison, the prior record was 1.959 Mln in September 1945 as World War II ended. A further perspective point and a lens through which to judge the efficacy of the the Fed and the US govt measures to ensure the flow of credit and mitigate the volume of layoffs and the damage to US business, is: the US has 30.7 Mln small businesses, which created around 1.5 Mln jobs last year or ca. 2/3 of total job creation, and this is where the acutest pain will inevitably be felt. No wonder that there is expected to be a colossal rush for the $350 Bln of 'forgivable' loans under the 'Small Business Administration’s Paycheck Protection Program' on offer from today as part of the $2.0 Trln fiscal package, though banks are said to be struggling to understand how to make the loans eligible for govt guarantees. Norway's Unemployment Rate is also due and is forecast to skyrocket to 13.0% from a prior 2.3%, taking a colossal hit from Covid-19 and oil price war.
The other talking point remains the oil market, with Trump set to meet with US Oil company executives today, following yesterday's verbal intervention suggesting that Russia and Saudi Arabia were looking at a cut of 10 to 15 mln bbls to daily production. One is reminded of former Exxon CEO and US Secretary of State Tillerson comment about industry oil price forecasts "We’ve never been good at predicting these (price) cycles, neither when they occur nor their duration. We don’t spend a lot of time even trying." The US president would do well to bear that comment in mind, as well as the other observations yesterday from Russian Energy Minister Novak 'Global demand may drop by 20 Mln Bbls in the next few weeks' and Trafigura's co-head of oil trading said consumption may currently be down about 35m b/d due to coronavirus. In other words even 10-15 Mln of cuts could prove to be tilting at windmills, and perhaps the more salient point is storage constraints in some countries (particularly Russia, and parts of North America, as well as elsewhere) may be a rather more immediate consideration. WoodMac estimates that the US storage capacity will be fully utilized by July at current rates. It would also suggest that any production cut agreement would need to involve the like of Norway and Brazil, and of course the US, if it is to really get any traction.
In market terms, the latest Lipper data showing record inflows into US HY bonds would appear to suggest that there is clearly some 'bargain hunting' going on above all in US HY Energy, as well as the likelihood that the rout in credit is prompting 'reach for yield' at far more attractive yields. The modest drop in volatility would appear to be doing the same in equities, though it has to be added that dividends are set on a sharp downward path in many cases. The point remains that with the spread of Covid-19 still escalating above all in the US, and in a number of countries in Europe, there remains no visibility on what the long-term damage to revenues, earnings and the economy in broad terms will be, both in size and length of economic downturn terms - therefore it is nigh on impossible to judge whether current risk premia prove to be adequate, even if averaging in type strategies will have some appeal.
========================== ** THE DAY AHEAD ** ===========================
| Inbox | x |
| 08:45 (1 hour ago) |
|
- Services PMIs in focus ahead of untimely US March labour report; Trump
meeting with oil execs also in view, oil market understandably sceptical
- US March labour data: modest fall seen due to data collection timing;
unprecedented galactic surge seen in April
- Trump would do well to heed Tillerson comments on the (non-)predictablity
of oil prices
- Charts: S&P500 dividend vs. UST yields; Lipper US HY Bond fund flows;
USD and EUR credit spreads
..........................................................................
********************
** EVENTS PREVIEW **
********************
The scale of the abrupt halt in developed world economies is now coming through in surveys and hard data, above all the tragic record of yesterday's 6.648 Mln rise in US weekly jobless claims, and also likely above all to show up in today's run of Services PMIs, above all in Spain and Italy. The US March labour report is in effect very historical, given that the establishment survey is conducted in the second week, in which jobless claims 'only' rose to 282K, which suggests that the median guesstimate of 100K may be too pessimistic. However the estimates for April's Payrolls contraction are already in the range of -15 Mln to -20 Mln, and may rise higher if the latest tragic numbers are repeated in the next two Claims reporting weeks. By way of comparison, the prior record was 1.959 Mln in September 1945 as World War II ended. A further perspective point and a lens through which to judge the efficacy of the the Fed and the US govt measures to ensure the flow of credit and mitigate the volume of layoffs and the damage to US business, is: the US has 30.7 Mln small businesses, which created around 1.5 Mln jobs last year or ca. 2/3 of total job creation, and this is where the acutest pain will inevitably be felt. No wonder that there is expected to be a colossal rush for the $350 Bln of 'forgivable' loans under the 'Small Business Administration’s Paycheck Protection Program' on offer from today as part of the $2.0 Trln fiscal package, though banks are said to be struggling to understand how to make the loans eligible for govt guarantees. Norway's Unemployment Rate is also due and is forecast to skyrocket to 13.0% from a prior 2.3%, taking a colossal hit from Covid-19 and oil price war.
The other talking point remains the oil market, with Trump set to meet with US Oil company executives today, following yesterday's verbal intervention suggesting that Russia and Saudi Arabia were looking at a cut of 10 to 15 mln bbls to daily production. One is reminded of former Exxon CEO and US Secretary of State Tillerson comment about industry oil price forecasts "We’ve never been good at predicting these (price) cycles, neither when they occur nor their duration. We don’t spend a lot of time even trying." The US president would do well to bear that comment in mind, as well as the other observations yesterday from Russian Energy Minister Novak 'Global demand may drop by 20 Mln Bbls in the next few weeks' and Trafigura's co-head of oil trading said consumption may currently be down about 35m b/d due to coronavirus. In other words even 10-15 Mln of cuts could prove to be tilting at windmills, and perhaps the more salient point is storage constraints in some countries (particularly Russia, and parts of North America, as well as elsewhere) may be a rather more immediate consideration. WoodMac estimates that the US storage capacity will be fully utilized by July at current rates. It would also suggest that any production cut agreement would need to involve the like of Norway and Brazil, and of course the US, if it is to really get any traction.
In market terms, the latest Lipper data showing record inflows into US HY bonds would appear to suggest that there is clearly some 'bargain hunting' going on above all in US HY Energy, as well as the likelihood that the rout in credit is prompting 'reach for yield' at far more attractive yields. The modest drop in volatility would appear to be doing the same in equities, though it has to be added that dividends are set on a sharp downward path in many cases. The point remains that with the spread of Covid-19 still escalating above all in the US, and in a number of countries in Europe, there remains no visibility on what the long-term damage to revenues, earnings and the economy in broad terms will be, both in size and length of economic downturn terms - therefore it is nigh on impossible to judge whether current risk premia prove to be adequate, even if averaging in type strategies will have some appeal.
========================== ** THE DAY AHEAD ** ===========================
