May 5, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

Good morning! Was this email forwarded to you? (Today's Smart Brevity count: 1,180 words, 4.5 minutes )

🎙 "Pack it up, pack it in, let me begin. I came to win, battle me, that's a sin." See who said it and why it matters at the bottom.

1 big thing: Axios-Ipsos coronavirus poll shows worries are fading

Data: Ipsos/Axios survey, margin of error of ±3.2 percentage points; Chart: Naema Ahmed/Axios

Americans say they are getting less concerned about leaving their homes and taking part in large group activities, according to the latest installment of the Axios-Ipsos Coronavirus Index.

Why it matters: As states start to relax shelter-in-place orders and allow more businesses to open, data show there is increasing appetite for the kind of activities that could help spur the economy down the road to recovery.

  • Though pollsters caution the responses may be more a reflection of cabin fever than confidence.

By the numbers: In week 8 of the poll, which took place May 1–May 4, 36% said they viewed attending a gathering of friends and family outside the house as a large risk, down significantly from 53% three weeks ago.

  • The number of people who said they viewed attending a concert or event, or traveling on an airplane or other form of mass transit as a large risk, also has declined notably in recent weeks.

Details: Only 33% of respondents said they perceived returning to their "normal pre-coronavirus" routine as a large risk to their health or well-being.

  • That was the lowest reading to date and well below the 38% of respondents who saw it as a large risk just two weeks ago.

The intrigue: There was a clear split along political lines, as Democrats were twice as likely as Republicans to see gatherings as risky.

  • Black and Hispanic respondents also were much more likely to perceive a high risk of engaging in activities.
  • Infection rates have been shown to be five times higher in majority-minority ZIP codes than in ZIP codes with less than 10% nonwhite population, and Northeastern states with Democratic governors have seen far more infections and deaths than states with Republican governors.

Between the lines: The decline in worry has moved largely in concert with an increase in respondents' ability to find items like toilet paper, soap and hand sanitizer, which were in short supply early in the coronavirus pandemic.

Driving the news: At least 12 countries loosened quarantine restrictions on Monday, as did several U.S. states, including California, which will allow some retailers to reopen as it scales up its tracing program.

What it means: "With fewer people reporting shortages or the inability to find essential items, there is a sense that things are on the upswing," Chris Jackson, public polling lead at Ipsos, tells Axios.

  • "It remains to be seen if this is the start of the recovery or a momentary blip before more challenges."
Bonus chart: Forbearance requests start to plateau
Data: Mortgage Bankers Association; Chart: Axios Visuals

The number of U.S. mortgages in forbearance increased again in the last full week of April, but new requests slowed significantly from the pace earlier this year, data released Monday by the Mortgage Bankers Association showed.

  • A total of 3.8 million homeowners are now in forbearance plans, accounting for 7.54% of all mortgages, but that may actually be a good thing.

What's happening: Forbearance requests as a percentage of servicing portfolio volume fell for the third consecutive week, from 1.14% to 0.63%, and calls about forbearance accounted for the lowest percentage of total calls since the survey began in early March.

  • MBA said forbearance requests grew by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30.

How it works: The decline in requests and approvals for forbearance suggests that homeowners are still largely able to pay their mortgages, Jaret Seiberg, a researcher at financial services company Cowen Inc., says in a recent note.

  • "We believe Washington is confident that mortgage servicers can handle the current level of forbearance. Absent a surge, we do not see the Federal Reserve establishing a facility to provide additional liquidity as it won't be needed."
  • And the current $6.3 billion in savings is available to "be spent elsewhere in the economy."

Between the lines: "Forbearance is not forgiveness, so homeowners know that they are going to have to pay this money some day," Tendayi Kapfidze, chief economist at LendingTree, tells Axios.

  • "Typically if you own a house you’re financially savvy enough to know that a foreclosure process can take years, so you know you have some protection."
2. Catch up quick

Germany's top court ruled the European Central Bank's quantitative easing program was unconstitutional and gave the ECB three months to comply with German law. (Bloomberg)

The Trump administration privately projected a steady rise in the number of coronavirus cases and deaths over the next several weeks, reaching about 3,000 daily deaths on June 1. (Washington Post)

An internal Chinese report finds backlash over its handling of the coronavirus outbreak has pushed global anti-China sentiment to its highest since the 1989 Tiananmen Square crackdown. (Reuters)

U.S. factory orders posted a record drop in March with new orders for manufactured goods down 10.3%, a seasonally adjusted $445.8 billion, the biggest month-to-month fall in records dating to 1992. (WSJ)

3. J. Crew bankruptcy is likely the first of many

Data: Moody's Investors Service; Table: Axios Visuals

Retailer J. Crew's Chapter 11 bankruptcy filing Monday "is likely the first of many companies to restructure in- or out-of-court in the next one to two years," S&P Global Ratings analysts warn in a new report.

Driving the news: J. Crew is the eighth debt-issuing retail and restaurant company to default on its debt this year, equaling the total from all of 2019 in just over four months, S&P notes.

  • "We expect the economic shutdown and lingering social distancing behaviors to trigger a broad shakeout of retail," S&P Global Ratings analyst Sarah E. Wyeth writes in the report.
  • "The industry needs to meaningfully reduce its physical footprint and rapidly evolve to reach the post-pandemic consumer."

What's happening: Ratings agencies S&P, Fitch and Moody's have been slashing retail companies' credit ratings as their debt levels rise and income streams dry up because of the coronavirus pandemic.

  • About 30% of the approximately 125 issuers S&P rates in the retail and restaurant sectors now hold credit ratings that imply at least a 1-in-2 chance of default.

It gets deeper: A record high 412 companies are now rated B3-negative or lower by Moody's, a rating equivalent to B- by S&P and Fitch, and well-below investment grade.

  • That number is up from 311 last month and more than double the number of companies rated this low in 2019.
  • It's also 42% above the high of 291 touched during the financial crisis, Moody's says.
4. American concern about tariffs hits new record high
Data: CivicScience; Chart: Axios Visuals

Concern about President Trump's tariffs on U.S. imports of Chinese goods hit its highest level on record in April, as the coronavirus pandemic caused more Americans to fear the tariffs' impact on household finances, according to the latest survey from CivicScience.

Where it stands: The tariffs remain a massive tax on American businesses and individuals at a time when Congress and the Fed are expending trillions of dollars to offset the negative economic shock of the virus.

  • Trump said in an interview Sunday that he was considering adding further duties, which he called the “ultimate punishment,” and threatened to walk away from the "phase one" trade deal with China.

Reality check: The tariffs have wiped out the lion's share of average American households' savings from the 2017 tax cut, as Bloomberg noted in June.

  • And the president’s tariffs rank "as one of the biggest tax increases in decades," CNBC reported in May, citing data from the Treasury Department.
Dion Rabouin

Thanks for reading!

Quote: "Pack it up, pack it in, let me begin. I came to win, battle me, that's a sin."

Why it matters: Boston rapper Everlast, who fronted rap group House of Pain, converted to Islam in 1996.