Mar 24, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙“I knew, as everyone knows, that the easiest way to attract a crowd is to let it be known that at a given time and a given place someone is going to attempt something that in the event of failure will mean sudden death.” - See who said it and why it matters at the bottom.

1 big thing: The Fed goes to war with coronavirus

Photo illustration: Sarah Grillo/Axios. Photo: Scott Olson/Getty Images

On Thursday President Trump said the country was going to war with COVID-19. He all but abandoned that war yesterday, saying at a news conference, “At some point, we’re going to open up our country, and it’s going to be fairly soon."

What's happening: While Trump has waffled and the U.S. Senate and House of Representatives have bickered over how best to deploy a fiscal response, the Federal Reserve has unleashed an onslaught of monetary policy power.

  • Having fired the full arsenal it deployed during the 2007–2009 global financial crisis in a matter of weeks, the Fed has committed to trillions in buying.
  • And, it now promises unlimited purchases of U.S. government debt and mortgage-backed securities as well as municipal and corporate bond buys.

Why it matters: Central banks had surpassed the traditional confines of monetary policy long before the virus outbreak.

  • The Fed's already unprecedented action is far from finished and the world will now get to see just how much central banks can do to help the economy.

Where it stands: "The Fed knows they need to be aggressive, need to be creative and need to do everything in their power to keep the economy going through this really difficult time," Michelle Meyer, head of U.S. economics at Bank of America, tells Axios.

  • Meyer points out that even with the Fed's balance sheet at a record $4.7 trillion as of March 18, that is still less than 25% of U.S. GDP. The Bank of Japan, by contrast, holds assets worth more than 100% of the country's GDP on its balance sheet, including corporate bonds and ETFs.
  • "So there’s capacity to buy," she adds.

The big picture: Having already stepped in for the country's politicians, the Fed on Monday greenlit vehicles to provide aid to employers, municipalities and households, and is expected to soon announce a Main Street Business Lending Program for small and medium-sized businesses.

  • "This is another essential step forward in providing a floor for risk markets but, unfortunately, it is not sufficient,” Seema Shah, chief strategist at Principal Global Investors, says in a note to clients.

Reality check: "The Fed is acting as the plumber," Oxford Economics' chief U.S. economist Gregory Daco tells Axios. "It’s ensuring the pipes don’t burst, but there is little it can do to control the water pressure."

2. Catch up quick

The coronavirus outbreak caused the largest collapse in business activity ever recorded in the eurozone, even before widespread lockdown measures. (IHS Markit)

Senate Minority Leader Chuck Schumer and Treasury Secretary Steven Mnuchin are close to a deal for a massive coronavirus stimulus package. (The Hill)

Finance ministers and central bankers from the world’s 20 largest economies agreed to develop an “action plan” to respond to the coronavirus pandemic, but offered no details. (Reuters)

President Trump signed an executive order to prevent hoarding and price gouging of crucial medical supplies and the Justice Department announced it had already launched hoarding investigations to carry out the order. (Bloomberg)

The 2020 Tokyo Olympics will be postponed until 2021 due to the coronavirus crisis, International Olympic Committee senior member Dick Pound said. (Reuters)

3. More Americans have trouble meeting basic needs

Data: Axios/Ipsos survey, margin of error of ±3.3 percentage points; Chart: Naema Ahmed/Axios

Nearly two-thirds of Americans say their access to household goods has worsened in the past week, a new poll from Ipsos and Axios shows.

  • The second installment of the Axios-Ipsos Coronavirus Index also finds that nearly a quarter of all respondents say their ability to afford food and household needs has worsened, up from 15% last week.

What's happening: Goods like toilet paper, hand sanitizer and basic foods have gone missing for an increasing number of people as the COVID-19 outbreak hits home and shoppers look to stock up on needed items.

What they're saying: "We are starting to see more dramatic strains on the supply chain," Chris Jackson, public polling lead at Ipsos, says in an email.

  • "As people realize the severity of the outbreak through bigger impacts — being asked to work from home, not eating out or seeing friends, etc. — they may be trying to get their hands on basic household goods to prepare and can’t."

Watch this space: Americans are losing their jobs at an unprecedented rate, with 22% of poll respondents reporting that they had been furloughed, suspended or told not to return to work.

  • Just 10% reported job separations last week.

Methodology: The poll was conducted March 20-23 by Ipsos' KnowledgePanel, based on a nationally representative probability sample of 998 general population adults age 18 or older.

  • The margin of sampling error is +/-3.3 percentage points at the 95% confidence level, for results based on the entire sample of adults.
4. U.S. yields go negative again
Data:; Chart: Axios Visuals

U.S. Treasury yields on one-, two- and three-month maturities all turned negative late Monday, as investors continued to favor short-term debt that functions like cash.

What it means: “What you are seeing today is an example of a flight-to-safety on a massive scale,” Kathy Jones, chief fixed-income strategist at Charles Schwab, told FT on Wednesday when yields first fell below zero.

  • Short-dated Treasury bills are seen as more like cash because they are easier to trade than their longer-dated counterparts, Jones said, adding, “People are desperate for cash.”

Major key: The U.S. is the first major economy in which government bond yields have turned negative before the country's central bank announced it would enact policy to push them below zero.

5. Freight disruptions significantly delay vital supplies

The backup in global supply chains plus a manufacturing and transportation sector already weakened by the U.S.-China trade war are combining to slow the rate of goods deliveries to nearly double their normal times.

What's happening: "Freight carriers are struggling to deliver goods by land, sea or air as the coronavirus pandemic forces Western governments to impose lockdowns, threatening supplies of vital products including medicines into the most affected areas, such as Italy," Reuters reports.

  • "Problems ranging from finding enough truck drivers to restrictions on seafarers and a lack of air freight are hitting the smooth flow of goods, freight logistics operators say."
  • "Stockpiling and panic buying by consumers are also adding to strains."

The big picture: Air cargo shipments had been declining since early 2019, and 75% of U.S. companies surveyed by the Institute for Supply Management said two weeks ago their supply chains already had been upended, with most expecting disruptions to continue.

  • The COVID-19 outbreak that moved from China at the beginning of the year to Europe and then the Americas has meant significant delays transporting key goods such as medicines and perishable foods.

What they're saying: “Supply chain disruption has moved rapidly from east to west,” Mohammed Esa, chief commercial officer for Europe with global logistics group Agility, told Reuters.

  • “What you could normally move in two or three days is going to take twice as long — you have to still get it through the airport, you have put it on a truck and get it through borders."

What's next: Boeing announced a full work stoppage in Seattle and GE laid off employees making jet engines, per the Wall Street Journal, while major U.S. airlines are discussing putting a stop to all passenger flights.

Dion Rabouin

Quote: "I knew, as everyone knows, that the easiest way to attract a crowd is to let it be known that at a given time and a given place some one is going to attempt something that in the event of failure will mean sudden death."

Why it matters: Magician Harry Houdini, who became the most famous vaudeville act in America in the 1920s, was born on March 24, 1874, in Budapest.