Submitted by Michael Every of Rabobank
Several things cratered yesterday.
The first was global stocks. The S&P dropped 3.4%, which once upon a time was just a normal bad day in the office, but in our new normal of central banks tacitly and US presidents openly targeting stock prices as the key driver of the global ‘economy’, that kind of decline in plutocratic wealth is both rare and a nasty shock. Regardless, more and more companies are now reporting that either earnings or supply chains are going to be impacted by this crisis – as we had feared would be inevitable. Asia this morning has seen follow-on equity selling, with the Japanese Nikkei -3.3% at time of writing and even China, where all is now close to being closer to normal again (or so we are told) -1.6%. However, US futures are rising as I type. It is, after all, cheaper to buy, and our underlying asset-pumping infrastructure is still intact, even if global supply chains and the real economy aren’t. But who cares about them anyway? Indeed, “Please hold the panic” says the Wall Street Journal, and US Treasury Secretary Mnuchin yesterday happily overstepped his boundaries to tell us that central banks will of course cut rates if the virus impact grows.
The second to crater was global bond yields. In this case, 10-year US Treasuries hit a low of under 1.36%, although we are back up to 1.39% along with US equity futures, with the 2-year at 1.28%. The market is now expecting the Fed to cut again later this year, which should be no real surprise to anyone except the Fed. (Not so much over the risk to life, perhaps, or to growth – just to equities.) In the meantime, we got ‘just’ around USD40bn in new Fed repo madness to tide us over for a few days…or perhaps hours. Who knows?
The third to crater was arguably the credibility of China’s virus-collection statistics. The foreign press have published several stories during this crisis that have questioned the accuracy of the data being presented: now the Chinese press has too. Caixin newspaper is alleging that COVID-19 deaths being hugely under-reported at old people’s and nursing homes, with this being a key demographic hit by the virus. The sample is very small, just one home, but in it 19 deaths have occurred recently, of which just one was recorded as being due to COVID-19, which seems highly irregular. If true, this could mean that the virus’s fatality rate is significantly higher than being reported, even as deaths rose ‘just’ 71 yesterday in China. That higher mortality rate, especially for the elderly, would also be more in line with the shock of 50 deaths that Iran reported yesterday (though there is confusion over that number too) and most all of the recorded deaths seen in Italy so far.
The fourth to crater must...