Apr 3, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙"Gratitude is riches, complaint is poverty." - See who said it and why it matters at the bottom.

1 big thing: Where do we go from here?

Illustration: Aïda Amer/Axios

Thursday's initial jobless claims reading has made clear that the scope of U.S. job losses as a result of the COVID-19 outbreak will be significant, but what comes next is still very uncertain.

Driving the news: Lawmakers are divided on whether to push forward immediately with a "phase 4" relief bill to back up the $2.2 trillion CARES Act, and concern already is growing about provisions in that legislation.

  • A day before the Small Business Administration's $350 billion program to provide capital to small businesses was set to launch, many banks and lenders tasked with funding the loans and approving applicants — including JPMorgan, the biggest U.S. bank — said they still didn't have the necessary information to participate on time.
  • This could significantly delay funding to small firms and mean the difference between staying in business and shutting their doors.

Threat level: Small businesses have led the way in layoffs, and more than 6.6 million people filed initial jobless claims last week, doubling the record for claims that was set the previous week.

In addition to an unemployment rate that economists estimate has reached 10% and could more than double by the end of the month, conditions are consistently worsening in credit markets.

  • This has been the fastest two-week pace of downgrades on record, dating back to 2002, Bank of America Global Research notes, with net downgrades totaling $560 billion in March.
  • S&P Global said in a note it expects a "surge in the corporate speculative-grade default rate to above 10% in the U.S."

What we're hearing: Claudia Sahm, a former Treasury Department official and senior economist at the Fed, tells Axios she "firmly expects" job losses to continue on their current trajectory through the end of April.

  • "It’s going to be important in the decisions Congress makes in the coming weeks that they commit to stay the course through the recovery," says Sahm, who now serves as director of macroeconomic policy at the Washington Center for Equitable Growth.
  • "One relief package isn’t [enough], and there’s so many things they need to do in the next round."

State of play: "This has been an amazing policy response from many countries, both on the monetary and fiscal front," Laurence Boone, chief economist for the OECD, said during a teleconference Thursday.

  • Yet, she warns, "they have lacked coordination on many fronts."
Bonus: Job losses have been worse than in a natural disaster

Data: U.S. Department of Labor; Chart: Danielle Alberti/Axios

Over the past two weeks, 10 million Americans have filed for unemployment, with millions more to come. The previous record high for weekly initial claims was 695,000, or roughly 1/10th of the number reported Thursday.

Why it matters: The jobless hits right now are like a natural disaster slamming every state at the same time.

Between the lines: Economic Policy Institute director of policy Heidi Shierholz points out in a tweet that the increase from claims filed for the week ending March 7 to the week ending March 28 is more than 3,000%.

  • "What an unbelievable upending of the labor market."
  • "Today's [unemployment insurance] claims, as extraordinary as they are, leave out many who are out of work due to the virus, including independent contractors, those who don’t have long enough work histories, those who had to quit work to care for a child whose school closed," she adds.
2. Catch up quick

Growth in the eurozone has likely declined by 10%, IHS Markit said, and with new business, confidence and employment all down, there is “worse inevitably to come in the near future." (Bloomberg)

The IRS estimates less than half of the roughly 150 million Americans eligible for direct payments as part of the $2.2 trillion coronavirus relief package have direct deposit information on file, and may not receive payments until August. (Axios)

The SBA increased the interest rate banks can charge small businesses under the $350 billion U.S. relief program after lenders complained that the previous approved rate of 0.5% was below their own cost of funds. (Bloomberg)

Tesla stock rose more than 17% in after-hours trading after the company said it delivered approximately 88,400 vehicles in the first quarter, handily beating expectations. (CNBC)

3. Professional investors keep piling into money market funds

Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

The divergence between professional money managers and retail investors continued this week, as the pros again flocked to cash at a record pace.

What happened: Data from the Investment Company Institute shows institutional asset managers moved $163 billion into money market funds in the week ending April 1, the second largest move to cash ever recorded, dating back to January 2007.

  • Retail investors, on the other hand, went to cash at a much lower rate, allocating just $13 billion to money market funds, which barely registered among the 50 largest weekly inflows.

Why it matters: The contrast suggests sophisticated investors remain extremely cautious about the outlook for investment and are still seeking the ultimate safe haven, while retail investors are less bearish.

Flashback: Last week, data showed that investment pros were retreating from risky assets while so-called mom and pop investors bought the dip.

The big picture: A record $4.4 trillion is now held in money market funds. That's nearly $500 billion more than the peak level seen during the 2007–2009 global financial crisis.

4. Online grocery delivery hits a snag

Reproduced from CivicScience, margin of error ±7 percentage points; Chart: Axios Visuals

The COVID-19 outbreak has encouraged many cooped-up households to try online shopping, but the growth rate has plateaued as many report bad experiences.

What's happening: After rising consistently, the number of people who say they are doing more online grocery shopping declined last week, data from CivicScience show, retreating 5 percentage points from its level the week before.

  • That decrease is happening even as 61% of Americans report that they are very concerned about being in public spaces, up from 54% last week.

The bottom line: Online grocery services like those provided by Amazon, Walmart and Instacart will need to improve their services if they want to take advantage of the accelerated demand they are now seeing, CivicScience analysts say.

  • "It won’t be a sustainable practice if placing an order is like pulling teeth or if wait time is days, if not weeks, away."
  • "Companies likely need to hire more workers and pay them more to keep them happy."
Dion Rabouin

Quote: "Gratitude is riches, complaint is poverty."

Why it matters: Singer and Academy Award-nominated actor Doris Day was born on April 3, 1922.