Mar 19, 2020

Axios Markets

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🎙“I'm waiting for the date for the man who demands respect because he was great. I'm on the one mission to get a politician to honor or he's a goner by the time I get to Arizona.” - See who said it and why it matters at the bottom.

1 big thing: On the verge of something much worse than recession

Illustration: Eniola Odetunde/Axios

In its latest repricing of the economy, the market sees the now-expected global recession caused by the COVID-19 outbreak morphing into an economic depression unlike any the world has seen in generations.

  • Bankers and traders are looking to sell everything that isn't nailed down to boost cash positions and hunker down for the worst.

What they're saying: JPMorgan wrote down its expectations for global GDP to -1.1% in 2020, expecting the world's economic growth will reverse for the full year, including a second quarter contraction of -14% in the U.S. and -22% in the eurozone.

  • Deutsche Bank economists foresee a "severe global recession occurring in the first half of 2020 ... quarterly declines in GDP growth we anticipate substantially exceed anything previously recorded going back to at least World War II."
  • Both banks noted their forecasts are based on governments putting in place massive, yet-to-be-passed fiscal stimulus programs and fairly swift containment of the outbreak.
  • "It is easy to imagine a still worse outcome," DB analysts, led by head of economics research Peter Hooper and seven chief economists, wrote.

The most dire warning came from Pershing Square Capital Management CEO Bill Ackman, who went on CNBC to beg President Trump to shut down the U.S. economy for 30 days and put the country in a nationwide lockdown.

  • "Until a vaccine is manufactured, distributed and injected we will go through a Depression-era period in the country," Ackman said. "America will end as we know it unless we take this option."

What's happening: Even traditional safe havens were not seen as safe enough during Wednesday's selling.

  • Gold dropped by 3% and U.S. and German government debt, viewed as the safest bonds on earth, were sold despite a 5% decline on the S&P 500 and a rout that saw WTI crude oil prices fall 14% and crash below $22 a barrel.

The last word: “What people are doing is looking at things that they can sell to raise cash, and that’s part of the crisis market situation," Jim Caron, head of fixed income global macro strategies for Morgan Stanley Investment Management, told CNBC. "When these things happen, people sell what they can sell, not what they want to sell.”

2. Catch up quick

The growing excess of crude and the price war between Russia and Saudi Arabia could see oil prices turn negative, Mizuho Securities managing director Paul Sankey warned. (Fox Business)

The NYSE will close its trading floor after two traders tested positive for coronavirus. (WSJ)

Tesla CEO Elon Musk volunteered to join Ford and GM in making medical equipment including ventilators that could help combat the COVID-19 outbreak. (Axios)

Walmart stock rose to a new all-time high Wednesday thanks to its booming grocery delivery business. (Investor's Business Daily)

3. Dollar rises to record highs as businesses prepare for disaster

Data: FactSet; Chart: Andrew Witherspoon/Axios

Panic in financial markets has grown to the point that many now believe the only safe asset is the U.S. dollar.

Driving the news: The value of the dollar index rose to near its highest level in 18 years, as banks, traders and businesses made a rush for cash, fearful they could run out as the economy sinks into recession.

  • "We're seeing a global liquidity squeeze, with every major government, business and financial institution poised to borrow unprecedented amounts in the world's deepest funding markets — American markets," Karl Schamotta, chief market strategist at Cambridge Global Payments, tells Axios.

What it means: The worried wave of dollar demand has pushed the greenback to new record highs against high-risk currencies like the Mexican peso and Norwegian krone, its highest since 2003 against the Australian dollar, and highest against the British pound since the 1980s.

  • "Dollar is safe and no one will change that, but the urgent flight to safety is a sign that we have no guidance," Juan Perez, senior FX trader and strategist at Tempus Inc., says, noting a lack of policy action from governments.

Be smart: The run on dollars is happening despite the Federal Reserve providing literally trillions of dollars in liquidity in just the past two weeks and slashing interest rates to zero.

Between the lines: Without a clear idea of whether or not the world's largest economy will pass a major stimulus package or lead a coordinated global rescue effort, confidence is fading fast in spite of the Fed's actions, Schamotta says.

  • "But we're also seeing these moves because of, and not in spite of, the Trump administration's perceived incompetence."
  • "Markets think Trump is failing to heed advice from experts and lessons learned in other countries — focusing on xenophobic characterizations of the problem and small handouts to citizens."

Don't sleep: For the week ending March 17, government money market funds drew $195.5 billion of inflows, according to Crane Data.

  • "This week is by far the largest inflow ever," Crane president and publisher Peter G. Crane tells Axios. "Nothing else even comes close."
  • Prime money market funds saw $66 billion in outflows for the week and on Wednesday night the Fed announced it would backstop the $4 trillion market.

The last word: The zealous demand for dollars was perhaps best illustrated by a report from the Wall Street Journal that "Some branches of U.S. banks and credit unions have run low on cash as customers make big withdrawals," largely in wealthy neighborhoods, sometimes reaching $100,000 or more.

  • In response, the Federal Deposit Insurance Corp. issued a press release Wednesday, reminding Americans in bold letters: “Since 1933, no depositor has ever lost a penny of FDIC-insured funds.”
4. The coronavirus could hit every sector of the economy

Reproduced from Moody's Investors Service; Chart: Axios Visuals

A major part of the worry in markets is that so many industries could be affected by the coronavirus outbreak.

Driving the news: President Trump has pledged to help the airline industry, and the administration’s $1 trillion proposed rescue plan includes $300 billion for small businesses, $50 billion for the airline industry and $150 billion to prop up hotels and other sectors.

  • But a deepening mass of industries, from malls to local transit systems, have been clamoring for their share of government aid in recent days.

Who's asking now:

  • Manufacturing: The National Association of Manufacturers is seeking $1.4 trillion in loans for manufacturers and small businesses, per a statement on Wednesday.
  • Restaurants: The National Restaurant Association said Wednesday it is seeking more than $350 billion in block grants, loans and insurance.
  • Malls: U.S. shopping centers are asking the federal government to cover business interruptions so the industry's repayment of up to $1 trillion in unsecured and secured debt is not at risk, the International Council of Shopping Centers said in a memo to Congress on Tuesday.
  • New York City's transit system: The New York Times reports that the MTA is looking for $4 billion.
5. The first test of coronavirus' impact on the U.S. jobs market

Investors will get their first look at how the coronavirus outbreak in the U.S. has impacted the labor market when the government releases its latest initial jobless claims report today.

Why it matters: There have been widespread reports of layoffs over the past two weeks, as municipalities began shutting down restaurants, bars and large public gatherings.

  • The initial jobless claims report will show how many losses the nation suffered as a whole.

What they're saying: "Given the job destruction that we are witnessing, policymakers and investors should anticipate first-time claims to soar toward the five-year moving average of 242,300 in the next few weeks," Joe Brusuelas, chief economist at tax advisory firm RSM, says in a note to clients.

Yes, but: While economists at the left-leaning Economic Policy Institute expect the economy to lose 3 million jobs by this summer, they point out that there is often a lag between when people are laid off and when they apply for benefits.

  • "This means that we should look at the numbers that come out tomorrow as just the leading edge of the labor market impact of the coronavirus shock, " EPI's senior economist and director of policy Heidi Shierholz says. "No one should take comfort if these numbers are relatively modest."

Quote: "I'm waiting for the date for the man who demands respect because he was great. I'm on the one mission to get a politician to honor or he's a goner by the time I get to Arizona.”

Why it matters: Those lyrics are from Public Enemy's seminal protest anthem, "By the time I get to Arizona." On March 19, 1991, NFL owners stripped Phoenix of the 1993 Super Bowl due to Arizona's refusal to recognize Martin Luther King Day.