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Institutional Balm for Markets, But Demand Destruction Deepens

White House Watch looks at declaration of national emergency accompanied by new testing regime.

From the White House to Ottawa and Germany and beyond, governments Friday applied massive reinforcement of economies and health care mechanisms while the relentless spread of the coronavirus and its erosion of demand continued, its destructive force still unbounded.

US stock markets registered huge relief that leaders seemed to finally be catching up to the reality that private sector experts have been describing in great detail all week. So the Dow industrials closed up 9.4%, a 1,985 point eruption that earlier in the day seemed out of reach. The S&P and Nasdaq did the same, helping the week to do no worse than a loss in the neighborhood of 9%.

The trend of market improvement began late in the morning when the tight-fisted German finance ministry did the unexpected and said it really is ready with whatever it takes to support business with $610 billion available to start – along with tax deferment. The European Commission lifted country deficit caps, to meet the “unprecedented challenge”. Spain declared a state of emergency. Switzerland launched a business aid program. Denmark closed its borders.

US stocks at first ebbed when word spread president Trump was also going to declare a national emergency but took off as he confirmed later in the afternoon that he was using those “two very big words”. The VIX so-called fear index subsequently calmed by 23%, from its heights above 70 down to the mid 50s.

Trump had a long list of things that can now happen with the invocation of the Stafford Act, which funnels many more billions to states as emergency federal cost sharing. Interest on student loans was waived. Perhaps the most significant health-care enhancement was an improved coronavirus testing regime that will begin as soon as Sunday night.

“No resource will be spared,” Trump said. He warned the next eight weeks are critically important in the effort to tamp down the ultimate peak of the infection curve.

It also became more clear, with remarks from the NIH’s Tony Fauci during the Rose Garden event, that the nation is weeks late with mass testing when delay could have a steep cost in lives.

Trump himself blamed the Centers for Disease Control for the failure. “For decades the @CDCgov looked at, and studied its testing system, but did nothing about it,” he tweeted. “It would always be inadequate and slow for a large-scale pandemic,” adding more blame again directed at the Obama administration for engineering inadequacies in the testing system, a claim that fact-checkers have discredited.

In his news conference, Trump said the previous administration’s response to the H1-91 virus was a “full-scale disaster”, also not supported by the historical record.

“The system was not designed for what we need now,” Fauci said. “Looking forward, the system will take care of it.”

Trump did concede he’ll probably be tested for the coronavirus after shaking hands with a Brazilian official visiting Mar a Lago last week with the country’s president who, Trump emphasised, has not tested positive.

The CEOs at the top of Walmart, Target, CVS, Quest labs and other firms were summoned to the podium and told of their agreement to be part of the new testing regime. In all, there were 18 people accompanying Trump.

Walmart’s parking lots will start to host drive-in testing stations. Target will keep its stores open to serve consumers stocking up on essentials. Quest and LabCorp will use automated equipment to speed up test analysis for a 24- to 36-hour turnaround and Basel-based Hoffman-La Roche, which developed an improved test kit, thanked the FDA for its quick approval.

The admiral heading the Public Health Service was made responsible for the new testing system.

Trump implied he would not be signing the House of Representative’s version of a virus response bill, saying Democrats were not “giving enough”. Both parties had nixed his payroll tax “holiday”, which he was again pushing on Twitter earlier in the day.

Yet his Treasury Secretary Stephen Mnuchin kept negotiating with House Speaker Nancy Pelosi even after Trump’s news conference, part of the day’s more than a dozen calls he held with the Speaker.

Finally it came together Friday evening, an agreement between Pelosi and Mnuchin for the president’s signature on a virus response package that includes two weeks of paid sick leave, up to three months of paid family/medical leave and enhanced unemployment insurance.

At one point Trump bristled at what he called a “nasty question” about his administration’s ill-advised past phase-out of the pandemic coordination office in the White House, saying he knows nothing about it. Of the delay in testing, “I don’t take responsibility at all,” he said.

In the credit markets Friday, Treasury yields definitively stopped what many analysts had said earlier in the week seemed to be a march toward negative territory, even as Trump one more time tweeted his criticism of the Fed for not taking the administered rate still lower.

The Fed’s massive injection of a trillion-and-a-half dollars into the money markets Thursday and Friday, with more big totals coming next week, seemed to accomplish its intended liquidity lubrication of the financial system where the sale of Treasury securities to raise cash has turned usual relationships with equities on its head. At the end of the day, the benchmark Treasury 10-year had a yield close to 1% again, at 0.981%, up 187 basis points on the day.

Still, the day’s return of institutional relevance as finance ministries and central banks acted did little to attack the heart of the crisis, the general public’s reaction of fear of infection that has already deprived sports franchises of games and revenue, spread gloom throughout the entertainment and theme park industries – the rest of Disney’s parks were closed Friday – and has left sportscasters wondering how they will fill the time. The Boston Marathon and the April 9 Masters Tournament were two more casualties Friday.

The State Department’s Dr Deborah Birx, also a participant in Trump’s event, had some good news, that the infection rate suggested by US testing so far is lower than that being found in South Korea’s intensive testing program, one or two out of a hundred rather than three or four.

Friday night’s virus-caused hiatus for some of the late night entertainment talk shows, while others had their audiences extracted, leaves some holes in the comedy universe that will be followed by delays in all the television productions being shut. That ensures fresh TV will be harder to find later in the season.

Worldwide, the steepening virus death toll by Friday evening had reached 5,416; 434 more than Thursday, which had 332 more than Wednesday.

Denny Gulino

Julie Ros

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