Jun 10, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙 "I've learned by living and watching that there is only eighteen inches between a pat on the back and a kick in the seat of the pants." - See who said it and why it matters at the bottom.

1 big thing: Central banks say $25 trillion is not enough

Illustration: Aïda Amer/Axios

Having unloaded a historic arsenal of stimulus measures over the past three months, the world's central banks are doubling and tripling down on bond buying and policy easing even as the stock market booms and unemployment improves.

Why it matters: Many have credited the unprecedented surge of liquidity from central banks for the exceptionally fast rebound in capital markets.

  • But with millions of workers and small business owners still struggling and unable to take direct advantage of their programs, more central bank action could further exacerbate the chasm between financial assets and the real economy.

What’s happening: The Fed is meeting today. It has yet to fire up many of its newly created lending and bond-buying programs, which are budgeted for hundreds of billions of dollars each and to which it has widely expanded access.

  • Analysts at Goldman Sachs and other major investment banks also expect it to announce a yield curve control program in the coming months that would see the Fed buying as many U.S. government bonds as necessary to keep Treasury yields at its desired level.

Keep it 💯: “[Fed chair] Jay Powell has said he will expand the balance sheet to infinity if need be,” DoubleLine CEO Jeffrey Gundlach said during a webcast on Tuesday, predicting the Fed would institute the policy if yields continue to rise.

Elsewhere, the People's Bank of China continues its reverse repo program to provide capital to banks and announced in late May it will introduce 11 financial reforms, including more incentives for commercial banks to provide financing to smaller businesses.

  • The European Central Bank has increased its bond buying program to about 1.1 trillion euros and last week expanded its Pandemic Emergency Purchase Program (PEPP) to 1.35 trillion euros, extending it through at least June 2021.
  • The Bank of Japan has increased its purchases of ETFs and other risky assets, including corporate bonds, and is creating a new program to extend zero-rate loans to financial institutions.
  • Central banks in Indonesia, Poland, Romania and South Africa are among those in emerging markets that have started to buy government debt and initiate quantitative easing programs.

The big picture: In total, the world's four largest central banks — the Fed, ECB, BOJ and PBOC — hold $23.3 trillion on their balance sheets, according to data from Haver Analytics and Yardeni Research.

  • When including major central banks from England, Australia and Canada, that number rises to around $25 trillion, data from Bank of America show.

Of note: Fiscal policy also is expected to ramp up this year, even after measures in the past three months that Fitch Ratings estimates totaled 7% of global GDP, or around twice the total expended during the global financial crisis.

2. Catch up quick

Facebook, Apple, Amazon and Microsoft all hit new all-time highs Tuesday and their combined market value is now close to $5 trillion, with Apple claiming the top spot at nearly $1.5 trillion. (CNBC)

China is still allowing the yuan to weaken after hitting its lowest in five months against a basket of major currencies because of deteriorating relations with the U.S. and a challenging economic outlook. (SCMP)

A record high 25,000 U.S. retailers could close by year-end, according to tracking from Coresight Research. (CNBC)

Apple plans to announce it will be replacing Intel's processors with its own internally developed chips in new Mac computers at this year's WWDC event, being held virtually the week of June 22. (Bloomberg)

3. Investment grade bond issuance has doubled 2019's pace

Data: Fitch Ratings, Bloomberg; Chart: Axios Visuals

The corporate bond bonanza continues in the U.S., as non-financial investment grade corporate bond issuance reached $584 billion through May, ratings agency Fitch said Tuesday.

  • That was more than double the amount registered over the same time frame in 2019 and is fast approaching the entire amount issued that year, which was the second highest full-year issuance on record.
  • "If issuance continues at the same pace going forward, it will easily top the previous high of $644 billion in 2017," Fitch said in a statement.

By the numbers: The total investment-grade bond universe ended May at $4.4 trillion, up from $4.0 trillion at the end of 2019. The average par weighted coupon was 3.4% compared with 4.1% in 2019 and 5.9% during the 2008 financial crisis, Fitch said.

  • Roughly 85% of this year’s bond volume was issued in March, April and May.
  • Debt in the BBB category, which represents 57% of outstanding investment-grade bonds, made up more than half of the new volume.
  • More than half of the issuance came from the technology, transportation, energy, health/pharmaceutical and utility/power/gas sectors.
4. New York Fed's weekly economic index falls after 4-week gain
Data: New York Fed; Chart: Axios Visuals

The New York Fed's new index designed to more quickly capture the state of the economy declined in the week of June 6 for the first time in more than a month.

  • The retreat was driven by a falling retail sales report that more than offset a small increase in consumer sentiment, the New York Fed said.

What happened: The Census Bureau's quarterly financial report released Monday for Q1 found seasonally adjusted after-tax profits for U.S. retail companies with assets of $50 million or more fell more than expected, dropping by $5.6 billion quarter over quarter and by $3.9 billion year over year.

  • Without seasonal adjustment, the decline was $8.7 billion quarter over quarter and $3.9 billion year over year.

Of note: Seasonal adjustment has become a contentious issue since the coronavirus pandemic hit. The practice has been altering reported findings by millions or even billions and in some cases turning net gains into net losses and vice versa.

5. U.S. saw lowest number of new hires ever in April
Data: U.S. Bureau of Labor Statistics; Chart: Axios Visuals

There were 5.05 million job openings at U.S. companies at the end of April — the lowest total since December 2014, according to the latest Job Openings and Labor Turnover Survey (JOLTS).

By the numbers: The number of hires during the month was 3.52 million, the lowest in the history of the report, dating back to 2000, and the first time the number of hires has been below 4 million since early 2010.

  • The 9.89 million total separations (including layoffs, quits, retirements and other reasons individuals left their jobs) was the second highest on record, trailing only the 14.63 million separations in March.
  • The quits rate, a gauge of worker confidence in finding another job, fell to 1.4%, the lowest since April 2011.
Dion Rabouin

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Quote: "I've learned by living and watching that there is only 18 inches between a pat on the back and a kick in the seat of the pants."

Why it matters: Hattie McDaniel, the first black actor to ever win an Academy Award, was born on June 10, 1895. Her Oscar win was bittersweet, as the Oscars dinner was held at the Cocoanut Grove nightclub in the segregated Ambassador Hotel.