Apr 29, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

Good morning! Was this email forwarded to you? (Today's Smart Brevity count: 1,290 words, 4.8 minutes.)

🚨 Situational Awareness: Today at 2pm ET, I’ll be answering your questions via a Twitter Video Q&A on how the coronavirus is impacting the markets. Tweet your questions using #AskAxios & #AskAxiosDion

🎙 “What makes comedy so effective is that if you're making them laugh along the way, they're going to listen to the deeper cut stuff.- See who said it and why it matters at the bottom.

1 big thing: Investors bullish on stocks as business confidence fades

Illustration: Aïda Amer/Axios

As the coronavirus pandemic persists, a divide is growing between stock investors and business owners.

  • Wealthy investors remain confident about the future and their stock portfolios, while business leaders are growing increasingly worried, new surveys show.

Driving the news: A study released today from asset manager UBS finds almost six in 10 wealthy U.S. investors (58%) plan to keep their stock allocation at the same level in the next six months, while 37% plan to invest more.

  • About 35% say they are bullish on U.S. stocks over the next six months, and 40% believe COVID-19's worst impact will be over by the end of June.
  • Just 58% think a global recession is highly likely in the next 12 months, despite expectations for the worst global downturn since the Great Depression from organizations like the IMF, World Bank, OECD and others.

What we're hearing: "Although the level of optimism over the near-term outlook has declined fairly sharply, those looking to increase their market exposure over the next six months outnumber those looking to reduce exposure by a ratio of more than 2 to 1,” Mike Ryan, Americas chief investment officer at UBS Global Wealth Management, tells Axios.

On the other side: The rosy views of investors run counter to a recent survey by PwC of American business leaders, who continue to downgrade expectations for their own companies and the broader economy.

Details: In its latest survey of top CFOs, the global accounting firm found 80% expect revenue/profit losses this year, while more than half (53%) expect losses will be greater than 10%, and about a quarter (24%) said they expect losses will be greater than 25%.

  • A third (32%) expect layoffs to occur in the next month, up from 26% two weeks ago and double the percentage who expected to lay off employees at the end of March.
  • 70% say they are considering deferring or canceling planned investments and 56% say they are changing company financing plans, up from 46% two weeks ago.

Between the lines: CEO expectations also have declined markedly, with the Conference Board's latest survey of chief executives showing confidence at its lowest since the height of the Great Recession.

  • “[W]hile CEOs see brighter days ahead, they also expect to experience major consequences from the current crisis," Conference Board chief economist Bart van Ark says.
  • "For example, workers, profits, sales, and investment activity will all take a hit, and such impacts could endure post-crisis.”

Methodology: UBS surveyed 908 investors in the U.S. with at least $1 million in investable assets, April 1-20, while PwC interviewed 305 CFOs at U.S. companies during the week ended April 22.

Bonus chart: The changing future of work
Data: PwC; Chart: Axios Visuals

Business leaders are using the pandemic to reimagine the workplace for a post-COVID-19 world.

What they're saying: "If there is some relative upside here for companies, it's that despite the fact that the crisis may be accelerating disruption across many industries, we’re seeing many companies using this crisis to think differently about remote working, to grow into their technology and digital strategies, and to digitize not only the workforce experience but also the customer experience," Amity Millhiser, PwC's chief clients officer, said during a recent media briefing.

By the numbers: 49% of companies say they’re planning to make remote work a permanent option for some roles.

  • 40% say they plan to accelerate automation and "new ways of working."
  • 26% say they plan to "reduce their real estate footprint."
2. Catch up quick

Today's Fed policy meeting is “more important than you think,” Morgan Stanley strategists warn. (Bloomberg)

The Commerce Department is expected to report U.S. GDP shrank at an annual rate of 5% in the first quarter. (AP)

Alphabet's stock jumped 10% after hours following its earnings report that showed an “abrupt” decline in ad revenues in March that did not worsen in April. (CNBC)

The "sharing economy" — embodied by Uber, Airbnb and WeWork — is in critical condition, thanks to the coronavirus pandemic. (Axios)

3. 14 million Americans may be missing out on unemployment benefits
Data: Economic Policy Institute; Chart: Axios Visuals

The number of new unemployment claims filed by Americans over the past five weeks has been record-shattering, and the shock has overwhelmed states' ability to process claims, likely leaving millions more newly jobless people without benefits.

What's happening: A new study from left-leaning think tank EPI finds that there are likely as many as 14 million people who have lost their jobs since March 15 but have been unable to apply for unemployment benefits.

Why it matters: "These findings imply the official count of unemployment insurance claims likely drastically understates the extent of employment reductions and the need for economic relief during the coronavirus crisis," EPI economist Ben Zipperer and senior economist Elise Gould write.

What they're saying: While the $2.2 trillion CARES Act increased workers’ unemployment eligibility and benefits during the coronavirus pandemic, "widespread reports indicate that long-neglected state UI systems are unable to handle the volume of applications, preventing laid-off or furloughed workers from receiving necessary unemployment benefits."

Details: EPI's study used a survey of 25,000 people and extrapolated results based on the number of people who have successfully filed unemployment insurance claims over the past five weeks. The results showed that for every 10 people who successfully filed:

  • Three to four additional people tried to apply but could not get through the system to make a claim.
  • Two additional people did not try to apply because it was too difficult to do so.
  • Therefore they estimate an additional 8.9 million to 13.9 million people could have filed for benefits had the process been easier.

Where it stands: The results track with analyst Lou Brien's calculation of jobless claims and unemployment that projects somewhere between 32 million and 70 million people are currently unemployed.

4. Nearly a third of U.S. debt is now distressed

Adapted from S&P Global; Chart: Axios Visuals

More than 30% of debt from U.S. companies is trading at distressed levels, ratings agency S&P Global reports.

State of play: "The U.S. distress ratio grew considerably to 30.2% as of April 10 from 24.9% as of March 16, with the highest proportion of distressed credits held by oil and gas issuers and financial institutions," analysts said in a recent note to clients.

  • Almost 70% of all debt in the oil and gas sector is trading at distressed levels and four other sectors have a distress ratio higher than 35%, including retail and restaurants (44.6%), transportation (43.2%), automotive (36.7%) and midstream and merchant power (36.5%).
  • Bond spreads for U.S. companies have "widened at unprecedented levels, especially at the speculative-grade level, where issuance has all but disappeared," S&P notes.

What it means: Distressed debt refers to bonds trading at significant discounts because a company has or is likely to file for bankruptcy or default.

5. Bank of Nook rate cut is the latest to spark outcry
Screenshot of a tweet showing user IcyPoptart's unhappy reaction to the interest rate cut.

The war on savers has gone virtual, the Financial Times' Robin Wigglesworth and Leo Lewis write, with savers at the Bank of Nook "being driven to speculate on turnips and tarantulas, as the most popular video game of the coronavirus era mimics global central bankers by making steep cuts in interest rates."

What happened: Players found a glitch in the game that allowed them to deposit large sums of the game's bell currency in savings accounts and then “time travel” into the future by tweaking the console’s internal clock.

  • The bank would then pay decades of compounded interest, making them bell millionaires.

The inside scoop: "People familiar with the situation said the Bank of Nook rate cut was an attempt to curb that practice," Lewis and Wigglesworth write. "Nintendo has made no official comment on the matter."

  • Players have now been reduced to earning money through the game’s "stalk" market — "a bourse in which the only commodity is turnips, sold to investors during a single session on Sundays. The root vegetables rot and their value drops to zero after a week."

What's next: “Now that the [Bank of Nook] has cut interest rates to near zero, their next logical step is quantitative easing," Albert Edwards, a strategist at Société Générale, joked.

  • "It’s essential that players try to hook their game up to their printers as it might start churning out money."
Dion Rabouin

Thanks for reading! See you on Twitter at 2.

Quote: "What makes comedy so effective is that if you're making them laugh along the way, they're going to listen to the deeper cut stuff.”

Why it matters: The quote comes from Negin Farsad, a comedian, actress, writer and filmmaker who directed the documentary "The Muslims Are Coming!" in 2013 about a group of Muslim comedians who put on free shows during South by Southwest.