Monday Morning Reads
- Futures pare losses; S&P 500 still off 3%
- Apple cancels restrictions on iPhone buyers
- Tom Barrack warns on collapse of commercial mortgage market
- Automakers get green light for ventilators
- Goldman looks to pick the bottom in Boeing
- Royal Dutch Shell plc cuts capex, suspends share buybacks
- Bezos asks laid-off workers to come work for Amazon
- SocGen cuts view on AbbVie in premarket analyst action
- Ford halts production in other nations
- "What's wrong with America" - Ashford's Bennett on the hotel industry collapse
- Companies continue to step up during Covid-19 outbreak
- Finding a bottom during coronavirus?
Open Interest Changes
Following a big turnaround on Friday that resumed a selloff on Wall Street, markets went into another tailspin overnight as a Senate vote on a coronavirus rescue package failed to gain sufficient traction. In the words of Chuck Schumer, the $1.8T package was a "large corporate bailout with no protections for workers and virtually no oversight" and the decision (47-47) came up short of the required 60 votes. Futures have now trimmed their losses, with the S&P 500 down 2.8%, as Schumer said "disagreements over the bill could be overcome in the next 24 hours." The U.S.'s inability to move things forwards stands in contrast to many of its now free-spending peers, though equities are still selling off across most of the globe.
"The market for commercial real estate mortgage loans in the U.S. stands on the brink of collapse," according to Colony Capital (NYSE:CLNY) Chairman Tom Barrack, with banks, mortgage REITs and other non-bank lenders now "at a precarious juncture." A meltdown of this magnitude "would have catastrophic follow-on effects across the American economy" if lenders and the government don't take prompt action. Echoes of '08? Mortgage bond sales on Sunday included at least $1.25B of securities by (Morningstar's five-star rated) AlphaCentric Income Opportunities Fund, which lost more than 30% of its value last week (the fund's lead portfolio manager is a 20-year Lehman Brothers structured finance veteran).
Go deeper: 'From Bad To Worse For REITs' by Hoya Capital Real Estate.
The difference between a fast or a prolonged recovery in the stock market will come down to three factors: How quickly the virus is contained, whether businesses will have "access to enough capital and liquidity to last the 90 to 180 days," and whether fiscal stimulus can stabilize growth forecasts, according to David Kostin, chief U.S. equity strategist at Goldman Sachs. With that being said, Goldman forecasts the S&P 500 could be in for a 41% fall from peak to trough, Bank of America believes the selloff might not ease until the index tumbles 47%, while Credit Suisse estimates the benchmark could be in for a 35% drop overall.
Go deeper: Negative sentiment ahead of earnings season.
As the U.S. grapples with the coronavirus pandemic, St. Louis Fed President James Bullard expects an unprecedented 50% plunge in GDP and sees the unemployment rate hitting 30% in the coming months. If the projection proves to be true, unemployment would be worse than it was during the Great Depression and three times worse than the global financial crisis. "Everything is on the table," he said, referring to additional lending programs from the Fed. "There is probably much more in the months ahead depending on where Congress wants to go."
Go deeper: 'Mnuchin And Kudlow Say No Recession' by Lance Roberts.
"Across the world, people are feeling the economic effects of this crisis, and I'm sad to tell you I predict things are going to get worse before they get better," Amazon (NASDAQ:AMZN) CEO Jeff Bezos wrote on Instagram. "We hope people who've been laid off will come to work with us until they're able to go back to the jobs they had. We're hiring for 100,000 new roles and raising wages for our hourly workers who are fulfilling orders and delivering to customers during this period of stress and turmoil."
Go deeper: Walmart ups warehouse minimum wage by $2.
New York state now has more coronavirus cases than France or South Korea, with NYC the "new epicenter" of the COVID-19 outbreak in the U.S. The number of confirmed infections has soared to 15,168 (about half of newly reported cases in America), according to data released by Gov. Andrew Cuomo, who said the state "is testing, per capita, more than any country in the globe." Cuomo has also asked the federal government to nationalize the purchase of medical equipment as NYC Mayor Bill de Blasio warned the city was just 10 days away from running out of essential equipment.
Go deeper: Trump approves New York, California national disaster declaration requests.
"Ford (NYSE:F), General Motors (NYSE:GM) and Tesla (NASDAQ:TSLA) are being given the go ahead to make ventilators and other metal products, FAST! Go for it auto execs, lets see how good you are?" President Trump tweeted, after invoking the Defense Production Act last week. Carmakers have already shuttered their operations, but the statement suggests they could be back at work to help the country with a potential health crisis. While it could be difficult to retool an auto assembly line, the companies have 3D printers for components, "clean rooms" in some plants that could meet FDA standards and Tyvek suits used in paint shops that could be re-purposed.
Go deeper: FDA relaxes oversight of ventilators to boost supply.
IBM (NYSE:IBM) is collaborating with the White House Office of Science and Technology Policy and the Department of Energy to launch the COVID-19 High Performance Computing Consortium. "16 systems with more than 330 petaflops, 775,000 CPU cores, 34,000 GPUs, and counting" will be provided to develop predictive models to analyze the coronavirus progression and identify potential treatments. Researchers from around the world can submit proposals, and the Consortium will select the projects that could have the most immediate impact.
While European telecoms operators have been able to cope with the data traffic rise so far, there are fears of network congestion as more people work at home. EU industry chief Thierry Breton has also urged streaming platforms to free up bandwidth for healthcare needs and distance learning. Facebook (NASDAQ:FB) is the latest to "reduce bit rates for videos on Facebook and Instagram in Europe," joining Netflix (NASDAQ:NFLX), YouTube (GOOG, GOOGL), Amazon (AMZN) and Disney (NYSE:DIS) in downgrading their video quality.
Rattled by a plunge in its stock price, SoftBank (OTCPK:SFTBY) is offloading up to ¥4.5T ($41B) in assets so it can buy back shares and redeem debt. Combined with a previously announced ¥500B share buyback program, the company said it could end up repurchasing 45% of its shares outstanding, prompting shares to climb 17% in Tokyo overnight. Other tensions are brewing... Reports last week suggested SoftBank wanted to back away from part of its WeWork (WE) bailout, while the latter said it's preparing for a fight.
What else is happening...
Cash grants for airlines look set to fail.
Trump goes all-in on malaria drug for coronavirus infection.
The Germans abandon fiscal restraint in pandemic relief.
In Asia, Japan +2%. Hong Kong -4.9%. China -3.1%. India -13.2%.
In Europe, at midday, London -3.8%. Paris -2.6%. Frankfurt -2.9%.
Futures at 6:20, Dow -2.8%. S&P -2.8%. Nasdaq -2.4%. Crude -1.1% to $22.38. Gold +0.9% to $1497.80. Bitcoin -7.1% to $5842.
Ten-year Treasury Yield -1 bps to 0.82%Today's Economic Calendar
8:30 Chicago Fed National Activity Index