Summary and Price Action Rundown
Global risk assets are mixed and price action is moderate this morning as investors remain focused on the prospective transition from pandemic containment to economic recovery, while monitoring the ongoing impact of key stimulus programs. S&P 500 futures indicate a 0.5% gain at the open after the index struggled yesterday to maintain Monday’s upward momentum, surrendering gains of around 3.5% to close slightly lower. This put year-to-date downside for the index at 17.7% and the decline from February’s record high at 21.5%. Though last month’s acute volatility has subsided somewhat amid supportive monetary and fiscal policy measures, persistent uncertainty over pandemic containment and doubts over economic recovery prospects continue to hold back investor sentiment. EU and Asian equities posted divergent performance overnight. Treasury yields are edging higher, with the 10-year yield at 0.74%, while EU sovereign bond yields are mixed. The dollar is fluctuating mildly below its mid-March multi-year peak. Meanwhile, oil prices are steadying after yesterday’s sharp downside reversal as traders position ahead of tomorrow’s pivotal OPEC meeting.
Policymakers Rush to Re-Up Small Business Loan Program
Small business owners are seeking support in droves as conditions worsen, while questions reverberate over the size of the program and issues regarding access. Only days after last Friday’s official launch of the $349 billion small business support program, the Paycheck Protection Plan (PPP), which was established as part of the $2.2 trillion CARES Act, the Trump administration is working to augment the program with additional funds amid a flood of applications. Specifically, the Treasury Department is preparing to ask Congress to commit another $250 billion to replenish the PPP, with reports suggesting that the request could come as soon as today, not even a week into the program. Banks and the Small Business Administration have been overwhelmed by applications, which some analysts are estimating could need as much as $1 trillion to fulfil the demand. Senate Majority Leader McConnell stated that he would work with Treasury Secretary Mnuchin and Senate Minority Leader Schumer to “approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday.” Meanwhile, financial sector participation in the program is widening, as Secretary Mnuchin indicated that 3,000 banks and other lenders are accepting applications, up from 2,400 on Monday.
Economic Distress Intensifies as Containment Efforts Continue
The urgent need for support at the small business level and for workers suddenly out of a job could hardly be more obvious and is validated by incoming data. Yesterday’s reading of the NFIB Small Business Optimism gauge plummeted by an unprecedented degree in March. It is now at 96.4, almost a five-year low, while its collapse from 104.5 in February to 96.4 constituted the largest net change (8.1) on record. The small business outlook for six months from now fell 17 points from 22 to 5, the worst since November 2012. Sales expectations had the largest ever decrease, while uncertainty increased to three-year highs. In February, US job openings (JOLTS) fell 130k from 7.012m (4.4%) in January to 6.882m (4.3%). Expectations for job openings were as low as 6.50m, likely a forward projection as some participants over-anticipated early effects of the virus. Job openings contractions were focused in real estate and health services. Professional and business services constituted the largest contraction in hiring, followed by construction. Analysts agree that US job openings were elevated before the virus spurred layoffs. Given the rebound in January and general resiliency in February, the labor market was solid at the beginning of the year – before the coronavirus began to drag on the economy. President Trump and White House officials continue to reference ongoing plans to restart portions of the economy, although the data used to inform such decisions in various countries overseas, like symptom tracking and contact tracing, is not yet available in the US.
EU Lacks Consensus on Broader Virus Response – A meeting of EU finance chiefs failed to settle on a unified €500 billion regional economic support package to offset the depression-like contraction induced by mass isolation and social distancing. The key sticking points were said to be aspects of the program that would force the various countries to accept a degree of fiscal burden sharing, including the potential issuance of pan-EU debt. Talks are continuing.
Fed Minutes Precede Chair Powell Tomorrow – Analysts are awaiting this afternoon’s release of the minutes from the emergency March 15 Fed meeting, at which the FOMC cut interest rates by 100 basis points to effectively zero and announced a $700 billion asset purchase program (quantitative easing), which was later upped to unlimited purchases, alongside an array of other facilities to support liquidity in domestic markets and dollar availability overseas. This will set the stage for Chair Powell’s webcast economic update at 10am tomorrow.