A solid week in the markets again despite some miserable economic data. About the only major standout to the downside was oil. Crude oil prices briefly sank below $18 a barrel on Friday, the lowest level since 2002, as energy markets struggled to absorb a record glut created by the coronavirus pandemic.
Prices dropped this week despite a landmark US-backed deal by the OPEC+ group of producers to cut production by almost a tenth. But traders have judged that the collapse in demand is much greater — with up to a third of global consumption lost to measures to restrict the virus’s spread. You can read more on oil and commodity investing here.
The main economic reports this week were as follows:
Weekly Jobless Claims
Another rough jobless claims number. In the week ending April 11, initial claims were 5,245,000, a decrease of 1,370,000 from the previous week’s revised level (red dots in the chart below).
Since the crisis began roughly 22 million people have filed for unemployment benefits. This is almost certainly undercounting many people who can’t get through the busy phone lines and crashed state websites.
Retail sales nosedived 8.7% in March, dragged down by pretty much everything except grocery sales. This was by far the largest decline since we started collecting data 30 years ago.
One bright spot in the report was the +25.6% increase in food and beverage purchases, as you can see below.
The beverage component is playing an active role. Data through mid-March shows the following:
China’s economy shrank at the start of the year for the first time in more than 40 years. As the FT noted on Friday:
“Gross domestic product in the first quarter plunged 6.8 per cent year on year, the National Bureau of Statistics said on Friday. The Chinese government only began reporting quarterly economic growth estimates in 1992 but the last time it officially acknowledged a year-on-year fall in output was for 1976.”
As it turns out, Mao died in 1976 and that same year China was struck by the Tangshang earthquake. This magnitude 7.6 quite killed roughly a quarter of a million people.
But while the China report got a lot of press, more up-to-date data is painting a different picture. Starting in late February China started relaxing quarantine controls, and the economy is picking up. For example, the blue line below shows manufacturing activity. It is bounced back dramatically in March and early April.
Markets Are Forward Looking
This last point is key. None of the bad economic data is much of a surprise from a market perspective. We knew it was going to be bad a month ago. More importantly for the market is what happens going forward. Do we ultimately see a rebound similar to China’s sometime this fall? Key questions:
1) When will various countries move to ease restrictions?
2) As restrictions ease, do we see a resurgence of infections similar to what Singapore is going through (chart below)?
3) Do any of the current vaccine projects turn into something meaningful? The Milken Institute is now tracking 180 separate initiatives.
Only time will tell.
Some Charts We Are Watching
1) Hospitalization trends in New York are encouraging.
2) At least one positive byproduct of social distancing is that flu and cold cases have fallen to exceptionally low levels
3) The scope of the Fed’s bond purchases are simply staggering. At the peak they were buying $120bn a day. Now it is down to ‘just’ $70bn a day.
4) The S&P 500 is as concentrated in the top 5 stocks as it has been in a generation. Microsoft, Google, Facebook, Apple, and Amazon now make up over 21% of the index. You have to go back to the mid-70s to find a similar level of concentration.
Have a good weekend.
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