Positives
1)Signs of curve flattening/bending are taking place in Europe and certainly in most areas of Asia. We hope we are only weeks away from seeing that in the parts of the US that got hit first like NY and CA. We are seeing more shutdowns, slowing the spread. More test kits are being shipped, some that will give a result in 15 minutes. Broader serological testing is about to begin. More and more companies are producing ventilators, masks, gowns and hospital beds. More Dr’s are seeing success with hydroxychloroquine.
2)Thanks to the Fed’s attempt to compress the spread between mortgage rates and Treasury yields (notwithstanding the negative side effects to the actual functioning of the mortgage market), the average 30 yr mortgage rate fell to 3.47% from 3.82% and that is a record low. It helped to drive a 25.5% w/o/w increase in refi’s after last week’s 34% decline. Versus last year they are up 168%.
3)The Conference Board’s consumer confidence index in March fell to 120 from 132.6 but that was 10 pts above the estimate. It’s the lowest since July 2017. Almost all of the decline was in the Expectations component which fell to 88.2 from 108.1 while the Present Situation was lower by just 1.6 pts m/o/m. One year inflation expectations held at 4.5%. The decline in confidence is broad based in terms of the factors causing it, our health, our jobs, and our money (the stock market). The Conference Board said “March’s decline in confidence is more in line with a severe contraction, rather than a temporary shock, and further declines are sure to follow.”
4)The private sector focused Caixin said its manufacturing index rose to 50.1 from 40.3 and that was better than the estimate of 45. Again, this is ONLY measuring the direction of change, not the degree as things start to reopen. The challenge though remains as “the pandemic continued to weigh on demand conditions and supply chains, with total new work falling for the 2nd month running and delivery times lengthening sharply.” Their services index rose to 43 from 26.5, 4 pts above the estimate as more things reopen.
5)Again reflecting the direction of change, not the degree, the Chinese manufacturing PMI rose to 52 from 35.7 and the services sector saw a jump to 52.3 from 29.6. The National Bureau of Statistics said “The number above 50 doesn’t mean that economic activity is fully resumed. We need to fully understand the unprecedented austerity and complexity, and should pay great attention to the virus shocks on production and demand.”
6)Because of the different employment system in Germany where employers are encouraged to hold on to employees with the financial help of the state, unemployment in March only rose by 1k, well better than the estimate of up 25k. The unemployment rate held at 5%, staying at the lowest since reunification. The big caveat to this figure is that its only thru March 12th.
7)Where a low cost of living is needed more than ever right now, the Eurozone March CPI figure saw the headline gain .5% y/o/y and the core rate was higher by 1%, both one tenth less than expected and down from February. Lower energy prices weighed on the headline.
8)Economic confidence in March in the Eurozone fell to 94.5 from 103.4 but that was actually 3 pts above the estimate though still the weakest since August 2013. While manufacturing was weak again, the main downdrafts came from services, the consumer and retail.
Negatives
1)The virus just keeps on spreading and the stories are heartbreaking.
2)March payrolls shrunk by 701k, well more than the throw the dart consensus estimate of -100k. Of this, 459k was shed in the leisure and hospitality sector, “mainly in food services and drinking places” (417k) according to the BLS. Jobs of note were also lost in health care/social assistance, professional and business services, retail and construction. Manufacturing shed 18k jobs. The unemployment rate jumped by 9 tenths m/o/m to 4.4% and that was 6 tenths more than expected. That is the biggest m/o/m rise since January 1975 as there was a 3mm person decline in jobs with a 1.6mm decline in the size of the labor force. The all in U6 rate jumped to 8.7% from 7%. Along with the slowdown, hours worked slowed to 34.2 from 34.4 but for each hour worked, wages rose by .4% m/o/m, twice the estimate. Combining the two though saw a .2% m/o/m drop in average weekly earnings and a 2.2% y/o/y gain vs 3% in February and 2.5% in January. As part of this both the participation rate and employment to population ratios fell.
3)Initial jobless claims totaled 6.65mm and for a 2nd week was well more than expectations, this week being 3.76mm and follows the 3.3mm print last week which was about twice the consensus. Delayed by a week, continuing claims totaled 3mm which was about 2mm below expectations but that will shift higher.
4)The March ISM services index fell to 52.5 from 57.3 and while that was well better than the estimate of 43, it was not for the right reasons with the spike in supplier deliveries. In terms of industry breadth, 9 of 18 industries saw growth vs 16 in February and 12 in January. Seven saw a contraction vs just 2 in February. The ISM said simply “Respondents are concerned about the coronavirus impact on the supply chain, operational capacity, human resources and finances, as well as the ramifications for the overall economy.”
5)The Markit services PMI, which covers many small and medium sized businesses, fell to 39.8 from 49.4 in February. “Business activity slumped to the greatest extent for more than a decade in March as efforts to contain the spread of the virus pandemic intensified.”
6)The March ISM manufacturing index surprised to the upside at 49.1 vs the estimate of 44.5 and down only 1 pt from February. But, much has to do with a jump in Supplier Deliveries which is reflecting broken down supply chains rather than a jump in demand. This component rose 7.7 pts to 65 vs 52.9 back in January. Reflecting the true weakness in manufacturing, new orders fell to 42.2 from 49.8, backlogs dropped by 4.4 pts to 45.9, export orders contracted a further 4.6 pts to 46.6, imports are at 42.1 and employment is down to 43.8 from 46.9 in February. Inventories remained below 50 and prices paid fell below 40 at 37.4. Of those 18 industries surveyed, 10 saw growth vs 14 last month. The bottom line as stated by ISM was obvious, “Comments from the panel were negative regarding the near term outlook, with sentiment clearly impacted by the coronavirus pandemic and energy market volatility.”
7)The Markit manufacturing US index fell to 48.5 from 50.7.
8)Purchase applications dropped almost 11% after last weeks 15% decline and they are down 24% y/o/y.
9)Auto sales in March fell all the way down to 11.4mm at a SAAR vs 16.8mm in February.
10)The Fed’s balance sheet spiked another $557b on the week and is higher by $1.5 Trillion over the past 3 weeks.
11)In Spain, their March jump in unemployment was alarming, rising by 302k, 10 times the estimate and with most from the services sector.
12)The Eurozone manufacturing PMI final read fell to 44.5 from 49.2 in February and slightly below the initial read of 44.8. Historically “supply delays are normally seen as a sign of rising demand, but at the moment near record delays are an indication of global supply chains being decimated by factory closures around the world” according to Markit.
13)The March Eurozone services PMI was revised to 26.4 from the 1st print of 28.4 and that is down from 52.6 in February with Italy in particular falling to just 17.4.
14)The final UK manufacturing PMI for March was 47.8 vs the first print of 48 and down from 51.7. Here, “supplier delivery times lengthened to the greatest extent in the 28 yr survey history as shortages grew more widespread…The effects were felt across most of manufacturing, with output falling sharply in all major sectors except food production and pharmaceuticals. The transport sector, which includes already beleaguered car makers, suffered the steepest downturn.”
15)The UK services PMI fell to 34.5 from 53.2.
16)Here are some PMI’s out of Asia: South Korea 44.2 vs 48.7, Japan 44.8 vs 47.8, Thailand 46.7 vs 49.5, Indonesia 45.3 vs 51.9, Malaysia 48.4 vs 48.5, and the Philippines 39.7 vs 52.3. Taiwan saw a slight gain to 50.4 from 49.9 but that was all due to supply chain delays which drives higher the ‘supplier delivery’ category. India (now in lockdown) said its manufacturing PMI fell to 51.8 from 54.5 and that’s the lowest since November. Australia’s services index dropped to 38.5 from 49. Hong Kong’s PMI just remained bad at 34.9, up slightly from the 33.1 print in February while Singapore’s plunged to 33.3 from 47. Japan’s services index came in at 33.8 from 46.8.
17)The quarterly Japanese Tankan report reflected the deteriorating economic situation as the headline manufacturing component fell to -8 from 0. The outlook fell to -11 also from 0 while the services side for both declined as well. More profound weakness was seen for smaller companies both in manufacturing and services. The only bright spot was the capital spending plans which remained up, albeit modestly, by 1.8% y/o/y.
18)South Korea’s exports and imports in March turned negative vs expectations of modest gains.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.