Buckle up! We are in for quite a day. Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,321 words, 5 minutes.)
Situational Awareness: The N.Y. Fed announced it is increasing the amount offered in daily overnight repo auctions to $150 billion from $100 billion and the amount offered in two-week term repos to at least $45 billion in an action that is definitely not quantitative easing. (NY Fed)
🎙"[T]he only thing we have to fear is fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” - See who said it and why it matters at the bottom.
Illustration: Aïda Amer/Axios
Somewhat forgotten in the evaluation of the current state of the U.S. economy is the ongoing debacle at Boeing, a flagship American company whose production shutdown led to the New York Fed estimating it would shave 20% off of 2020's GDP growth — and this was before the coronavirus outbreak.
Driving the news: A new report is due this week from airline safety investigators to coincide with the one-year anniversary of the Ethiopian Airlines crash that was the second in six months for Boeing's 737 MAX jets.
Why it matters: Boeing is the largest manufacturing exporter in the U.S. and a major employer. Its products cost hundreds of millions of dollars and require thousands of suppliers, some of whom count Boeing as their sole client.
What's happening: Friday’s congressional report detailed Boeing’s efforts to avoid putting pilots through flight-simulator training to save money, and alleged that the company's penny-pinching was pervasive, stretching across engineering, marketing and management.
The bottom line: The U.S. economy needs Boeing to get back on its feet, but the widespread malfeasance detailed in the report could mean it stays grounded for even longer as a further spate of government hearings and investigations unfold.
Benchmark U.S. 10-year Treasury yields fell to under 0.5% with the 30-year below 1% for the first time ever, oil plummeted by as much as 31%, Australia's ASX index lost 7.3% (its worst day since the financial crisis) and markets in Asia and Europe cratered.
What happened: The economic shock of the coronavirus looks set to worsen as more places around the world, including the U.S., may institute quarantine measures that would severely reduce consumer activity.
Further, Saudi Arabia, the world’s top oil exporter, slashed its official selling price and plans to increase production significantly after a deal with Russia to coordinate a widespread reduction collapsed, Reuters reported. The actions were reminiscent of a move in 2014 that caused prices to fall by around two-thirds.
What it means: Economic data shows that parts of China's economy suffered a shock from the COVID-19 outbreak greater than at any time during the great financial crisis, and market participants are beginning to factor in the possibility that more countries will face a similar hit.
The bottom line: Multiple countries are likely already in recession.
Already struggling with mounting debt and falling market valuations, energy companies are at serious risk for mass bond defaults, especially those rated below investment grade, as oil prices now have fallen by more than 50% from their early January peak.
What's happening: Oil explorers and producers have around $86 billion of debt maturing over the next four years and companies with junk-rated debt were expected to have a hard time getting new financing this year, even before the COVID-19 and the weekend's OPEC fallout.
Plus, the ratings agency said in a separate note in early February that the spike in energy junk-bond defaults last year was a “stalled not finished” cycle of fallout from the commodity crisis.
The big picture: Energy companies are the biggest issuers of junk bonds, accounting for more than 11% of the U.S. high-yield market.
Coronavirus is not the only plague threatening the world. In East Africa, the Middle East and South Asia, traveling swarms of locusts the size of Manhattan are putting potentially hundreds of millions at risk of starvation in what the UN has called the worst outbreak in a quarter of a century.
What it means: "Millions will starve because clouds of approximately 80 million desert locusts per square kilometre are voracious," writes Robert Rotberg, founding director of the Harvard Kennedy School’s Program on Intrastate Conflict.
What's happening: The outbreak had been mostly confined to Kenya, Ethiopia and Somalia initially, but the UN Food and Agriculture Organization (FAO) says it’s now tracking 15 countries in Africa, the Middle East and South Asia affected by the locusts, Scientific American reports.
What's next: Authorities in East Africa are already undertaking a coordinated campaign of aerial pesticide spraying, "but experts say the scale of the infestation is beyond local capacity as desert locusts can travel up to 150 km (95 miles) in a day," the World Economic Forum notes.
Quote: "[T]he only thing we have to fear is fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”
Why it matters: On March 9, 1933, President Franklin Delano Roosevelt called the U.S. Congress into a special session beginning its "100 days," a precedent for presidential agenda setting that has been followed (or at least attempted) by just about every American president since.