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Market Fear Peaks Too Early? Infection Rate Higher

White House Watch updates on investigational drugs, therapies and markets.

US stock indices started flapping in what seemed to be a changing wind Thursday, improving even in the face of rapidly worsening counts of coronavirus infection combined with surging oil prices.

The day’s charts showed the oscillating path of trading as stocks erratically sketched a 1,230-point range that ultimately avoided the plummeting dives of recent days, with the Dow ending back above 20,000 for a week in which losses have been only 3% so far. Early after-hours trading was not as kind, with stock futures negative by almost 2% again.

The money markets seemed to respond positively to the Federal Reserve’s latest remedies, including the first day of the Money Market Mutual Fund Liquidity Facility.

The usual pace of congressional legislative sausage making is being tightly compressed by the urgency of a national crisis, yet still seems plodding and disorganised under the rare microscope of intense public attention. The transparency of the effort would have been hampered if lawmakers switched to remote voting as many petitioned to do, no longer having as easy access to the news media. But Senate majority leader Mitch McConnell ruled that out saying lawmakers will have to keep their distance.

McConnell described what he and the White House have in mind for the legislative response package No. 3, seen exceeding $1 trillion. Until he negotiates with Democratic leader Chuck Schumer and until Democrats controlling the House negotiate their priorities the shape of the legislation is still very preliminary. Capitol Hill work will likely go on through the weekend.

Both parties are being careful to place help to small business and jobless individuals front and centre and to downplay the massive aid to the Fortune 500. McConnell tried to preempt criticism of bailouts by another name, saying this time around, “No one is alleging moral hazard here.”

Former UN Ambassador Nikki Haley did not agree, resigning from the Boeing board because she said she opposes any bailout. American Airlines took out a billion dollar loan and its CEO told CNBC his industry’s crisis is far worse than during the 2008 Great Recession.

NPR broadcast a recording of Republican senator Richard Burr telling some well-heeled constituents a far more negative projection of the virus path than he has said publicly – from three weeks ago.

One of the most sobering developments of the day was federal Corona Virus Task Force’s Deborah Birx disclosing that in the expanding pool of Americans being tested, the percentage of those found to be infected is climbing past 10%.

Second was the morning’s report on initial claims for jobless benefits, showing companies a week ago were not heeding the White House advice to keep wage earners on the payroll while the delivery of government subsidies is prepared. Weekly claims jumped 70,000 to a September 2017 level. The monthly jobs report snapshot was taken last week so won’t reflect in April the sudden mid-March increase in joblessness underway.

The State Department went another step in its travel warnings as expected, saying it advises “no travel” outside the United States. If that advice is ignored, the department said travelers may not get back in the country any time soon.

Trump, in the Task Force briefing, said investigational drugs under study by the FDA could be “game changers” and can be made available “quickly” only to be followed by the FDA chief who said approvals at best could be months away. Yet one of the drugs, the decade-old anti-malarial chloroquine, can be used, he said, under the “compassionate care” rubric that allows critically ill patients to be administered unapproved medicine.

He also introduced the concept of “convalescent plasma”, transfusing the blood of a recovered virus patient to another person who might benefit from the fresh antibodies.

Trump did agree that the huge stock buybacks of recent years and CEO bonuses were a bad idea as Democrats push for a ban that would apply to any firm getting taxpayer funds. More surprising, Trump said, “I do” support the government buying shares of some distressed companies as done to save GM in 2009. That move earned the firm the nickname “Government Motors” and ultimately cost the Treasury more than $10 billion of the $49.5 billion invested.

In a not unusual mixture of optimism and vitriol, Trump again dismissed the possibility of a 20% unemployment rate while piling vitriol on China for what he said was its late alert of the virus spread. A Washington Post photo showed him crossing out “corona” and replacing it with “China” in his prepared remarks.

He also again pilloried the news media for “corrupt” reporting that does not give him enough credit.

He and other Task Force members emphasised again the importance of following the federal guidelines to lower the height of the curve of serious illness that already has seen medical supplies running out at some hospitals in New York and Washington State. Carnival Cruises offered the use of its ships as medical isolation housing and some hotel chains were designating some sites of their own.

Traders were processing rivers of crosscurrents, like comments from noted hedge fund guru, Ray Dalio, who told CNBC he sees $4 trillion in coming corporate losses, a dauntingly large figure until it is put in the context of the $9 trillion lost already in stock market capitalisation.

US Treasury Secretary Steven Mnuchin, in a Fox Business News interview, appeared to lean favourably toward the issuance of government 50-year bonds to finance all the congressional spending passed and under consideration.

“I can assure you we’re going to take advantage of lower interest rates,” he said. “The good news is we can refinance a lot of our debt at low levels and we have no problem issuing more debt.”

New York Governor Andrew Cuomo, whose fireside chats are becoming national cable TV staples, told viewers Thursday that, “No one can tell you how long this will last.” He blasted millennials packing spring break beaches as “totally irresponsible”. Surgeon General Jerome Adams made a public appeal to social media influencers like Kylie Jenner to rein in their generation.

New York Mayor Bill de Blasio said the president is “missing every opportunity to be bold”.

In addition to the initial claims spike, the Philly Fed manufacturing index dropped from a three-year high last month to the lowest reading since July 2012. Leading economic indicators from the Conference Board, showing an increase, was totally ignored in trading rooms.

Most ominous, Italy’s virus death count reached 3,405 – higher than China, which for the first time reported no new virus infections Thursday. Pictures of long lines of Italian trucks carrying caskets to be cremated popped up on many news websites.

Several members of Congress and the FAA administrator were self-quarantining after two of their colleagues tested positive, a finding that covered several more prominent names including Monaco’s Prince Albert II – and 10,248 Americans so far.

The day’s marked improvement in oil prices was unexpected and some analysts puzzled over how the beleaguered industry was in any better shape on a day when Moody’s downgraded Occidental’s debt to junk status. Nevertheless, West Texas Intermediate was up 23% late in the day, to $25.08 as Russian President Vladimir Putin indicated he was willing to engage in talks with production-increase competitor Saudi Arabia.

The day’s Bank of England 15 bps rate cut buoyed the pound and the euro only briefly. The Fed’s latest facility was getting good reviews from the money markets. “The Board launched the Money Market Mutual Fund Liquidity Facility, or MMLF, yesterday to enhance the liquidity and functioning of money markets and to support the economy,” the Fed said. Financial institutions now receive credit for the low risk of their liquidity facility activities “reflecting the fact that institutions would be taking no credit or market risk”.

The Fed also extended $30 billion – to $60 billion – dollar swap lines with a number of foreign central banks.

The Festival de Cannes, filmdom’s glittering showcase set for May, Prince Harry’s Invictus Games and the G-7 summer meeting at Camp David were the latest high-profile events to be put off.

Melania Trump and preeminent virus expert Tony Fauci are teaming up to produce public service announcements promoting adherence to federal virus mitigation guidelines.

Denny Gulino



Julie Ros

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