Daily Market Color

Rates Fall as Coronavirus Weighs on Corporate Earnings, Economic Data


New coronavirus cases rise 4.6%, but look to be slowing in the US. The 4.6% increase in US cases is lower than the 7% daily average seen over the past week- yet another sign that social distancing measures are working to contain the COVID-19 outbreak. Despite the optimism coming from the administration, infectious disease expert Anthony Fauci sounded a cautious tone yesterday, saying that the US is “not there yet” on testing capabilities- a prerequisite to the reopening of the economy. President Trump deflected blame from his own administration’s handling of the virus to the WHO, temporarily halting US funding until the WHO’s “role in severely mismanaging and covering up the spread of the coronavirus” is reviewed. Gold surged to its highest since 2012 while Treasury yields are 2-12 basis points lower across the curve this morning. Major stock indices are 1.6%-3% lower in the first half of the trading session as earnings season enters its second day.



Bank of America, Citigroup and Goldman Sachs report first quarter results. Bank of America and Citigroup both set aside significant reserves against loan losses- $7B and $4.75B respectively- mirroring the reserve builds of other large banks. Collectively, large banks have now reserved over $24B against loan losses- the highest provisions seen in over a decade. The anticipated loan losses contributed to a 40%+ decline in Q1 profits at each of these large banks, with the full impact of the virus on the banking industry far from certain.



International Energy Agency (IEA) forecasts 29 million barrel/day drop in April oil demand. These are levels not seen in over two decades, with IEA economists calling the production cut agreed during the last OPEC+ meeting on Sunday insufficient. IEA officials commended producers in their attempt to absorb the demand shock, but noted “There is no feasible agreement that could cut supply enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.” Reports show that nations like India and China are set to take advantage of the situation by boosting buying and planning to use strategic storage for the excess reserves. Crude oil prices declined following the report, with WTI briefly touching its lowest level since 2002 at $19.20/barrel.



G7 to help shield low-income countries from the virus impact. During their virtual meeting yesterday, G7 representatives confirmed their support of a plan by the International Monetary Fund (IMF) to suspend debt payments for poor nations over the course of the next year, pending acceptance and contribution from a larger collection of wealthier economies around the globe. The decision came after the IMF briefing on their World Economic Outlook was released yesterday, which reported predictions that the American economy will contract 5.9% and global GDP will shrink 3% this year. IMF Chief Economist Gita Gopinath compared the downturn to the Great Depression, adding, “Like a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”



Day ahead. US retail sales fell by 8.7%, the largest drop in three decades. Though retailers of essential items like grocery stores and pharmacies surged, it was outweighed by a drop in demand in other key sectors such as the gasoline and restaurant indutries. Industrial production for March experienced its steepest decline since 1946 by falling 5.4% from February, with manufacturing taking the largest hit. US business inventories for February are estimated to fall 0.4% from January’s figures. The National Association of Home Builders will report their housing market index for April, which is forecasted to fall to 55 from 72 last month (anything above 50 is considered positive). With the index’s three components of current sales conditions, traffic of prospective buyers, and sales expectations, economists predict the latter will be hardest hit.

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