Axios Markets

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March 26, 2020

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Situational Awareness: Fed chair Jerome Powell says the central bank still has plenty of ammunition in an interview on NBC's "Today" show.

🎙"I have had dreams and I have had nightmares, but I have conquered my nightmares because of my dreams." - See who said it and why it matters at the bottom.

1 big thing: When $2.2 trillion is not enough

Illustration of question marks made of money pattern.

Illustration: Eniola Odetunde/Axios

Perhaps the most important thing about the $2.2 trillion stimulus bill the Senate passed late Wednesday night is that it is not a stimulus bill at all.

  • It is not intended to stimulate growth and spending to offset a potential downturn. It is designed to prevent mass homelessness, starvation and a wave of business closures not seen since the height of the Great Depression.

Why it matters: The bill's price tag is around 10% of U.S. GDP, and Congress is already bickering internally — as well as with various lobbyists and policy advocates — about whether it goes far enough in a plethora of directions. Even if the bill passes, the story won't be over:

  • We are likely to be in this same situation again, economists say — and soon.
  • Another stimulus bill will likely be necessary to get the economy running after the COVID-19 outbreak has been contained.
  • More immediately, it's entirely possible that a second massive spending bill will be needed just to stop further bleeding.

What it means: "This should not be thought of as a stimulus bill — this should be thought of as social insurance in a disaster state of the world for the most hard hit," Jonathan Parker, professor of finance at MIT, said during a virtual briefing with reporters Wednesday.

  • "The idea is to freeze time for a month or six weeks and let people emerge with not a huge amount of debt — not starving, not being evicted."
  • This would ideally produce "a V-shaped recovery where people find themselves roughly where they were when we went in."

State of play: The bill includes unprecedented direct payments to individuals — up to $1,200 a person and $500 per child, even for those who have no income, plus extended and upgraded unemployment insurance, even for gig workers.

  • But social service and human rights advocates say the one-time payment is too small and excludes too many.

The legislation includes $150 billion for state and local governments, which run the bulk of the nation’s overburdened public health services.

  • But as Axios Cities editor Kim Hart points out, that's the minimum requested by the National Governors Association with “maximum flexibility,” and $100 billion short of a request from the U.S. Conference of Mayors.

It includes $350 billion for small businesses and $500 billion for large companies in loans, loan guarantees and other investments.

  • But ratings agency Moody's warns that outright debt defaults and liquidations are still likely for many businesses, especially smaller firms and those with speculative grade credit ratings.

"Most companies can cope with a 15- to-30 day lockdown, but a few additional weeks would likely exhaust available resources for a significant number," Moody's said. "This crisis is beyond what they could have reasonably prepared for."

Bonus: Awaiting initial jobless claims

Data: U.S. Employment and Training Administration via Federal Reserve Bank of St. Louis; Chart: Andrew Witherspoon/Axios

Data: U.S. Employment and Training Administration via Federal Reserve Bank of St. Louis; Chart: Andrew Witherspoon/Axios

At 8:30 this morning, the Department of Labor is expected to announce that as many as 4 million people filed for unemployment insurance last week, jumping from the previous week's total of 281,000.

  • Even estimates at the bottom of the spectrum would mark the highest level in history, and 4 million would be nearly six times the highest level of claims seen during the Great Recession.
  • Further, this is likely just the first data point in a string of previously unfathomable reports on the U.S. economy to come.

Between the lines: "The market doesn’t seem to realize that this will get a lot worse before it gets better, that we’re still in the early stage of this," Gennadiy Goldberg, U.S. rates strategist at TD Securities, tells Axios.

  • "Once the market starts to see the just atrocious data that's coming there may be more concern about companies not being able to weather this storm."

What's next: In the next week, data will be released showing U.S. durable goods orders, two readings on the U.S. manufacturing sector, two consumer confidence surveys, and on Friday, April 3, the government's nonfarm payrolls report.

2. Catch up quick

Governments have wasted precious time in the fight against COVID-19, WHO Director-General Tedros Adhanom Ghebreyesus said. "The time to act was actually more than a month ago or two months ago.” (Bloomberg)

The Senate passed the stimulus plan with a 96-0 vote and the bill now heads to the House, which is scheduled to hold a voice vote on Friday. (Politico)

Chinese Finance Minister Liu Kun said the country will increase fiscal stimulus to support the expansion of domestic demand. (Xinhua)

AMC Entertainment, the world’s largest theater operator, placed its CEO and all of its corporate employees on furlough to preserve cash during the coronavirus outbreak. (Reuters)

3. G7 statement scrapped after U.S. insists on "Wuhan virus" name

Axios' Dave Lawler writes: Foreign ministers of the G7 countries failed to agree to a joint statement following a video conference Wednesday in part because the Trump administration insisted the statement refer to the COVID-19 outbreak as the "Wuhan virus," Der Spiegel first reported and multiple U.S. outlets have confirmed.

Why it matters: The world's two most powerful countries are in a battle of narratives over the pandemic, with some in Beijing spreading disinformation about its origins and U.S. officials like Secretary of State Mike Pompeo increasingly blaming the Chinese government.

  • The phrase "Wuhan virus" has not been adopted by other countries, and G7 members considered it needlessly antagonistic.
  • The countries ultimately agreed on a common set of principles and actions to confront the coronavirus, and each released their own statements after the video conference.

4. Coronavirus could start sea change for grocery delivery

Data: Civic Science survey over four weeks; 7,606 total respondents; MOE ± 3%; Chart: Axios Visuals

Data: Civic Science survey over four weeks; 7,606 total respondents; MOE ± 3%; Chart: Axios Visuals

Online grocery shopping has had a renaissance over the past month as the COVID-19 outbreak has sequestered more people indoors.

  • The number of people who say they are doing more grocery shopping online has risen from 11% on March 1 to 41% on March 22, fresh data from CivicScience shows.

Why it matters: This could mark a sea change for companies like Amazon, Instacart and Walmart that have been investing heavily in grocery delivery

5. Last week's record stock and bond fund outflows trounced 2008

Investors pulled $153 billion out of mutual funds and ETFs for the week ending March 18, the largest outflows ever, data from the Investment Company Institute showed.

  • The outflows were more than eight times higher than the previous week when investors pulled $19 billion from mutual funds and ETFs that included bond, equity, hybrid and commodity funds.

The intrigue: Investors pulled more money out of bond funds than out of stock funds by a magnitude of 10 to one, the data shows.

By the numbers: For mutual funds specifically, bonds saw their largest outflows ever, with investors pulling 1.9% of total January 2020 assets out of funds, ICI senior director of industry and financial analysis Shelly Antoniewicz tells Axios.

  • That was nearly double the previous high in percentage terms seen in October 2008 (1.1%) during the financial crisis.
  • The dollar value ($93 billion) pulled from bond mutual funds last week was more than five times the 2008 total ($18 billion).
  • Including bond ETFs, $114 billion was pulled out of bond funds during the week, according to ICI's data.

Quick take: The outflows from bonds likely reflect the fact that investors have loaded up on bond funds over the past two years. While equity funds saw their largest outflows on record in 2019, despite the S&P 500 gaining 30%, bond funds saw near record inflows.

6. Bond market returns to normalcy, traders ignore stock gains

The Treasury market is getting back to normal after the Fed's massive bond-buying announcement earlier this week.

What to watch: Yields on Treasury bills were negative out to three months, closing in the red late Wednesday, as traders continued to favor paying to loan the government money over buying longer-dated bonds.

  • The Fed's QE program and investor pessimism kept Treasury prices rising and yields falling despite hearty gains for U.S., European and Asian stocks.

Major key: Treasuries have seen a significant decline in the bid-ask spread on prices for notes and bonds since the Fed took action.

  • "The bid-ask spread on benchmark U.S. 10-year Treasury notes had widened as much as 200 basis points on March 20, but narrowed to within a range of six basis points or less on Wednesday, according to Refinitiv data," Reuters' Gertrude Chavez-Dreyfuss and Ross Kerber noted.

Quote: "I have had dreams and I have had nightmares, but I have conquered my nightmares because of my dreams."

Why it matters: On March 26, 1953, Dr. Jonas Salk announced on a national radio show that he had successfully tested a vaccine against the virus that caused polio.

  • There were 58,000 new cases of polio reported in the U.S. the prior year, and more than 3,000 died from the disease.