- Weekly global market focus
- Markets assess the expanding U.S. economic damage as pandemic leaps across the country
- Markets watch for any new systemic cracks in the financial systemÂ
- Plunge in the dollar is good news
- Attention shifts to next Washington rescue bill after $2 trillion bill was signed into law last Friday
Weekly global market focus — The global markets this week will focus on (1) a continued assessment of the extent of the global economic damage being done by the pandemic, (2) whether the Fed and other global central banks have fully extinguished the possibility of a financial crisis, and (3) whether oil prices continue to see weakness from the plunge in demand and the Saudi price war.
The U.S. markets this week have a busy economic calendar, capped by Friday’s March payroll report (expected -100,000). The consensus is for Wednesday’s March U.S. ISM manufacturing index to show a -5.1 point decline to 45.0. Europe has a busy economic calendar with PMIs, confidence reports, and inflation reports. China on Monday night (ET time) will release its March PMI reports, which are expected to show an upward rebound after Feb’s sharp losses.
Markets assess the expanding U.S. economic damage as pandemic leaps across the country — The markets are still trying to get a grip on the size of the pandemic problem facing the United States. Dr. Fauci on Sunday created a stir by saying that based on what he’s seeing, “We’re going to have millions of cases” of the coronavirus and that there could be 100,000-200,000 deaths. The U.S. has currently seen about 125,000 infections and 2,100 deaths.
There was some drama on Saturday when President Trump considered placing an enforceable quarantine around the New York City area and parts of neighboring states. However, New York Governor Cuomo said that would cause mayhem, and Mr. Trump eventually settled for a strong travel advisory from the CDC for that area.
White House economic advisor Kudlow last Friday said that President Trump this week would have “more to say” about his goal of getting the economy reopened. Mr. Kudlow said that the U.S. is facing a “temporary, short-lived contraction” and that the economy should be able to come back fast once the pandemic eases, “prayerfully” in 4-8 weeks. President Trump Sunday afternoon took a more cautious approach and said that distancing measures would go on until April 30.
The American Enterprise Institute on Sunday released an informative plan, authored by former head of the FDA Dr. Scott Gottlieb, about how to reopen the economy in stages once the pandemic has been brought under control in particular regions (“National coronavirus response: A road map to reopening” at aei.org).
Markets watch for any new systemic cracks in the financial system — The markets will be watching carefully this week to see if the Fed has extinguished the threat of a systemic financial crisis. The Fed has aggressively attacked the crisis from nearly all angles in the past several weeks, but not all of its programs are up and running yet.
There is still particular concern about corporate bonds, commercial paper, mortgage-backed bonds, muni bonds, asset-backed securities that depend on consumer repayments, and property REITs, among others. These are securities that depend on the ability of businesses, government entities, and consumers to make their loan payments on time.
Treasury Secretary Mnuchin on Sunday said that he expects the small business loan program to be up and running this week. He said the $1200 stimulus checks to the public should go out in about three weeks.
Last week’s upward rebound in the stock market was a relief. However, it is possible that the stock market could fall to new lows if the markets lose hope for a relatively quick end to the economic devastation being caused by the pandemic.
The S&P 500 index (SPX) fell by -3.37% last Friday, but still closed the week up +10.26%. SPX is currently +16.0% above the 3-1/4 year low of 2191.86 posted on March 23, where the index fell by a total of -35.4% from the mid-February record high.
The VIX last Friday rose by +4.54 to 65.54. That is sharply higher than the average of about 15 seen before the pandemic, but below the 1-1/2 year high of 85.47 posted on March 18. The record high for the VIX was 89.53 posted in October 2008.
Plunge in the dollar is good news — The dollar index last week fell sharply to a 1-1/2 week low and fell by a total of -4.6% from the 3-1/4 year high posted on March 20. The plunge in the dollar was good news since it indicates that the Fed has met the emergency demand for dollar liquidity that caused the dollar’s spike in mid-March up to the 3-1/4 year high. The Fed in the past two weeks has been blasting dollar liquidity out to the rest of the world through new and expanded dollar swap lines with most major foreign central banks.
Attention shifts to next Washington rescue bill after $2 trillion bill was signed into law last Friday — Congress is now on recess after the $2 trillion rescue package was signed into law last Friday. Congressional leaders will be offering their ideas in coming days as to what should be in the next package.
House Speaker Pelosi last Thursday said that she sees the next virus-relief package as focusing on recovery efforts, including job creation and infrastructure. However, the reality is that there is a great deal more that needs to be done simply to rescue the economy. Treasury Secretary Mnuchin on Sunday said that last Friday’s rescue package will provide economic relief to workers and businesses for only about 8-10 weeks.