Thursday, April 9, 2020

9/4/20: Updated: US vs EU28 Covid Cases and Deaths

US vs EU28 Covid cases and deaths update:

Note 1: adjusting for the onset of the Covid cases, US is lagging EU by 7 days. 
Note 2: Any comparatives between the U.S. and EU28 across the disease progression time line (with lags as noted in the Note 1 above) is hazardous, due to differences in methodologies of accounting for death rates earlier on in the pandemic as opposed to the current methodologies.

Currently, the U.S. is not on a trajectory/trend to catch up with the EU28 in terms of deaths within the next 10-12 days. Given the uncertainties in the rates of change in both new cases detection and death cases, there is no feasible accuracy in attempting to predict the rates of deaths convergence for the US at this point in time. That said, U.S. deaths have increased at an average rate of 16% daily in the last 5 days, while EU28 deaths increased at an average rate of 7% daily.

9/4/20: Ifo Eurozone Forecast Q1-Q3 2020: Covid19 Impacts

Germany's ifo Institute joint forecasts for Eurozone growth are out today. Bleak reading. The forecasts below assume that Covid-19 restrictions will be gradually lifted over the summer 2020.

Seasonally and working-day adjusted GDP growth:

From ifo forecast: "The economy in the euro area is expected to slide into a deep recession in the first half of 2020:

  • GDP growth is forecast to be -2% in Q1 and -10% in Q2, followed by a recovery in Q3 with +8%. 
  • Due to the lack of comparable events in the last decades and the unpredictable course of the pandemic, these estimates are subject to substantial uncertainty."
  • "Gross fixed capital formation is also certain to decline, with -2% in Q1 and -10% in Q2, due to supply disruptions, planning uncertainty and a preference for liquidity."
  • "Foreign demand is likely to contribute negatively to growth, as a result of the euro area’s exposure to recessive international trade and a struggling global economy."

Inflation environment:

Headwinds and risks: 

  • "A more unfavorable course of the pandemic would require longer and possibly stricter containment measures...
  • "Despite massive liquidity provision by governments and central banks, a prolonged downturn would then lead to liquidity strains in the economy. 
  • Increased debt levels associated with low income flows and asset devaluations are likely to lead to solvency issues for thinly capitalized corporations and private households.
  • An ensuing rise in loan defaults could in turn lead to problems in the banking sector." 
  • "A resurgence of the European debt crisis on a large scale thus constitutes a non-negligible risk to the forecast."

Wednesday, April 8, 2020

8/4/20: Ifo Institute Germany Forecast for 2020

A surprisingly 'positive' forecast for Germany from ifo Institute this morning:

While GDP contraction for 2020 looks sharp at -4.2 percent y/y, unemployment figures appear rather robust and employment levels seem to be only weakly impacted. Forecast for current account implies subdued global demand shocks. The swing in the fiscal position is roughly 6.5 percent of GDP, reflecting emergency supports measures. This is significant, and underpins shallower expected effects on employment and unemployment, as well as no deflationary dynamics in labour costs.

My view: Germany entered the pandemic crisis with already weak economy. 2019 growth at 0.6 percent was shockingly weak, with the economy skirting recession. Massive strength in the current account was reflective of weak domestic demand and the economy dependent on growth momentum globally. This momentum is now severely disrupted, and I do not expect robust global recovery outside domestic demand. In other words, my view is that worldwide exports are unlikely to rebound robustly in H2 2020, putting severe pressure on net exporting economies, like Germany and Italy.

So, whilst 4+ percent drop in full year GDP might be fine, I would expect closer to 5-5.5 percent decline (reflective of weaker prices), and much more pronounced impact on unemployment and employment levels.

Tuesday, April 7, 2020

6/4/20: Mexican and Canadian Perceptions of the U.S.: Leadership With a Negative Exponent

Here is an extraordinary snapshot of Canadian and Mexican perceptions of the U.S. via Pew Research:

Pew Research own summary is less damming than my inserts above suggest:

But think of this, for a second: these are two of the U.S. closest trading and cultural and social partners. And their positive perceptions of the U.S. are now at 6% and 11%. What, pray, position of leadership can the U.S. claim with this sort of the numbers coming from its closest neighbours?

Sunday, April 5, 2020

5/4/20: US vs EU Coronavirus Update

Here is a visual comparing incidences of (officially reported) and deaths from (officially reported) Novel Coronavirus 2019 or Covid-19 in the EU27 and the US:

Data through 04/04/2020

5/4/20: Effective Corporate Tax Rates in the U.S.: 1980-2019

Evolution of effective corporate tax rates in the U.S. from 1980 through 2019:

Source: Yardeni Research, with my annotations

Effective tax cuts rates rankings by Presidential Administration:
Bush Jr (largest cuts)
Bush Sr (second largest cuts)
Trump (third largest cuts)
Clinton (fourth largest cuts)
Obama (net change approximately zero)
Reagan (net change positive)

Taxes and tax burdens are complicated, folks...

Thursday, April 2, 2020

2/4/20: US Record in Covid Response To-Date

Much of the rhetoric coming out of the Washington on COVID19 pandemic is centred around the claims that the U.S. response to the pandemic has been adequately scaled up, with some claims even referencing allegedly 'highest rates of testing' in the world. Here are two charts putting the U.S. Covid pandemic responses to comparatives:

Now, most current data:

Not only the U.S. number of cases has now exceeded double that of Italy, but the U.S. death toll is currently on track to exceed Italy's massive death tool within 4 days, should the trend to-date persist.

'World class' track record this is...

2/4/20: COVID19 in three charts

#COVID2019 economy in three pics:

U.S. unemployment claims, week 2 of filings:

Irish unemployment claims, first month of filings:

 World GDP forecast after one month of Covid pandemic:
FUGLY! All around. 

Thursday, March 26, 2020

26/3/20: Why "Families First Coronavirus Response Act" Can't Fix America

I have written extensively about the fact that U.S. public has severely restricted access to healthcare and other basic services, primarily because of the illusion of insurance: the fact that many people in the U.S., even when covered pro-forma by insurance contracts, have no cash to cover the massive deductibles carried by these contracts.

Here is some recent (2018) evidence on the fact, via

"AARP's latest study tracking U.S. household savings is based on a “yes” or “no” response to the following question: “Does your household have an emergency savings account?” ... A majority of respondents answered "no," and even respondents who answered "yes" may not have a significant amount saved."

  • "...researchers note, "A broad interpretation of the question could count any plan for coping with an emergency, including borrowing from family and friends, as having an emergency savings account. Under this interpretation, even a household without savings in cash or a bank account may still answer 'yes' to the survey question."
  • "Fed data shows that 40% of US households would not be able to come up with $400 for an emergency expense," Deutsche Bank Securities chief economist Torsten Sløk notes.
Now, average deductible for U.S. healthcare insurance plan is now in excess of $1700 per person per annum. That is more than 4 times the $400 amount referenced in the Fed study.

Look at  higher earners in this:

A full quarter of those with household incomes in excess of $150,000 have no emergency savings. These families are  not covered by the Congressional aid passed yesterday. For those who are covered, the entire package will not cover average health insurance deductibles for two people in a household, let alone leave any money to help with rents, mortgages, utility and credit cards payments. 

Wednesday, March 25, 2020

25/3/20: More than €3bn: The Need for Stimulus in Ireland

"€3bn a month or more – the cost of offsetting the Covid-19 shock" my article for @thecurrency on the size of the fiscal/monetary stimulus required for Ireland. Available atr:

24/3/20: Q2 2020 S&P 500 Earnings Outlook: Not As Ugly as It Will Be

Per Factset March 23 report, "the aggregate earnings growth rate for Q2 2020 changed from slight year-over-year earnings growth on March 12 (+0.8%) to a slight year-over-year earnings decline on March 13 (-0.7%)." Note: back at the end of January 2020, the expectation was for y/y growth of 5.9 percent. Worse, "expectations for earnings growth for Q2 2020 have been falling over the past few months. On September 30, the estimated earnings growth rate for Q2 2020 was 8.0%. By December 31, the estimated earnings growth rate had fallen to 5.7%. Today, the estimated earnings decline is -3.9%."

"Four of the 11 sectors are now projected to report a year-over-year decrease in earnings for the second quarter: Energy (-68.4%), Consumer Discretionary (-14.4%), Industrials (-9.9%), and Financials (-7.4%)."

All of that, before the second half of March kicked in...

Monday, March 23, 2020

23/3/20: Private Consumption Gets the Virus. Heads to an ICU...

Via @bkollmeyer, Deutsche Bank's Research chart on discretionary spending across the global economy:

I have no access to the primary data on this, but if the chart is true, the global economy is 'borked'. 

One notable line here is for Ireland. Ireland's economy is heavily dependent on personal consumption expenditure. Here are the latest data:
    PC as % of
        PC as %          of GNI*
201958.7               NA

My estimate is that 2019 Personal Consumption to GNI* ratio was around 55.2%. If true, coupled with the above-cited DB research, Irish economy has taken a nosedive of around 4 percentage points for FY 2020 just on personal consumption side of economic activity. Investment and private sector production will be the other contributors to that decline.

$5.9 trillion and counting: the scale of Monetary Easing

Updating my previous post: listing all measures monetary authorities around the world have unleashed in response to the Covid19 crisis:

  • 23/3/2020 Federal Reserve Bank of the U.S.: 
  1. Commitment to continue asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy”. Basically, an open-ended pledge, with no USD amount. This does not move the needle on its prior commitment if USD 700 billion in purchasing, for 2020. But it does expand the program, should the crisis continue unabated, and probably allows for bringing the committed purchases forward
  2. The Fed also will be buying corporate bonds, crucially the investment-grade securities in primary and secondary markets and through exchange-traded funds. Again, this has been pre-committed to, but 'primary' markets operations are something that is truly unprecedented.
  3. An unspecified lending program for Main Street businesses and the Term Asset-Backed Loan Facility implemented during the financial crisis
  4. There will be a program worth $300 billion “supporting the flow of credit” to employers, consumers and businesses 
  5. Two facilities set up to provide credit to large employers
  6. Issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets
  7. Expanding Commercial Paper Funding Facility. The program now will include “high-quality, tax-exempt commercial paper” and the pricing will be reduced.
  8. Lower the interest rate on its repo operations to 0% from 0.1%.
  9. My estimate of the 1H 2020 net impact of new measures is in the region of USD200-400 billion.

  • 22/3/2020 Chancellor Angela Merkel’s government plans to increase borrowing up to EUR 150 billion in 2020 and pass a EUR 156 billion supplementary budget. Germany is also planning to set up a bailout fund for critical industries of about EUR 500 billion. While the measures are fiscal in nature, they require monetary policy supports to sustain low borrowing costs and demand for these securities.

These measures moves the needle for global measures from USD4.6 trillion to USD 5.9 trillion.

22/3/20: COVID2019 in Numbers

Updating numbers for Corona Virus infections and related deaths:

Next up, comparing Italy and U.S. numbers in terms of their dynamics from the start of the infection detections in each country (date 30) to today:

Note, while the U.S. infections dynamics have overtaken Italy already, U.S. death rates remain well below those in Italy. This is due to a range of factors, none of which are particularly satisfactory for the U.S. healthcare system assessment:

  1. Italian demographics and deaths cases suggest that Italian patients were more likely to die from the disease earlier on after the detection than the U.S. patients.
  2. Higher population density and concentration of the virus cases in Italy mean greater strain on healthcare resources in specific locations in Italy than in the U.S.
  3. rates of detection and treatment are most likely much higher in Italy than in the U.S. due to more severe restrictions in the U.S. in accessing healthcare. 
I covered some of these earlier here: But here is an added kicker not mentioned in the linked post: the U.S. is now facing a massive wave of ongoing layoffs. As workers lose their jobs, they also lose access to health insurance (the continuity coverage program, COBRA, is excruciatingly expensive).

Saturday, March 21, 2020

21/3/20: Updated: Markets Impact of #Covid19

Updated markets impact: DJIA
% change on close, down% change on close, up

20/3/20: $4.6 trillion and counting: the scale of Monetary Easing

The monetary largesses to-date: Central Banks across the world have slashed interest rates in the past few weeks, provided additional emergency liquidity supports for the markets, ranging from equity markets to bond markets to municipal debt markets and money markets. They also announced trillions worth of direct asset purchasing and debt monetization programs. Ex-international / multinational lines and direct swaps lines, total amounts of monetary and financial channels supports deployed so far is around USD 4.582 trillion. This number also excludes open-ended (unbounded) measures, such as programs to purchase securities to guarantee specific price/yield ranges.

Here is the summary of these (and direct Government lending) programs to-date:

  • 20/03/2020  Banco de México: rate cut bps = -50, base rate = 6.50, overnight interbank rate.
  • 20/03/2020  National Bank of Romania: rate cut bps = -50, base rate = 2.00
  • 20/03/2020  Bank of Thailand rate cut bps = -25, base rate = 0.75
  • 20/03/2020  Norges Bank (Norway) rate cut bps = -75, base rate = 0.25
  • 19/03/2020  Central Reserve Bank of Peru rate cut bps = -100, base rate = 1.25
  • 19/03/2020  Bank of England rate cut bps = -15, base rate = 0.1, added GBP 200 billion to bond buying programme raising it to GBP 645 billion. On 17/03/2020: the U.K. Government unveiled another, larger stimulus package. It includes, among other things USD 379 billion in business loan guarantees, USD 23 billion in business tax cuts and grant funding to businesses hit worst by the virus, such as retail and hotel businesses
  • 19/03/2020  South African Reserve Bank rate cut bps = -100, base rate = 5.25
  • 19/03/2020  Taiwan Central Bank rate cut bps = -25, base rate = 1.125
  • 19/03/2020  Bank Indonesia rate cut bps = -25, base rate = 4.5
  • 19/03/2020  Philippine Central Bank cut bps = -50, base rate = 3.25
  • 19/03/2020  Reserve Bank of Australia cut bps = -25, base rate = 0.25, set a target for the yield on 3-year government bonds at ~0.25%, plans to purchases bonds in the secondary market do sustain yield around 25 bps; provided a 3-year funding facility to the banks at a fixed rate of 0.25%
  • 18/03/2020  Central Bank of Brazil cut bps = -50, base rate = 3.75
  • 18/03/2020  Bank of Ghana cut bps = -150, base rate = 14.50
  • 18/03/2020  Central Bank of Iceland cut bps = -50, base rate = 1.75
  • 18/03/2020 Federal Reserve Bank of the U.S. announced the Money Market Mutual Fund Liquidity Facility (MMLF), to lend money to banks so they can purchase assets from money market funds. The U.S. Treasury will cover up to USD 10 billion of loan losses from this program, and lending under the program will not effect bank capital requirements. The program is scheduled to run until the end of September. This is similar to the AMLF program launched in 2008 after the collapse of Lehman Brothers.
  • 17/03/2020 French Government announced a guarantee on bank loans to businesses up to USD 327 billion
  • 17/03/2020  National Bank of Poland cut bps = -50, base rate = 1.00
  • 17/03/2020  Central Bank of Armenia cut bps = -25, base rate = 5.25
  • 17/03/2020  Bank Al-Maghrib, Marocco cut bps = -25, base rate = 2.00
  • 17/03/2020  State Bank of Pakistan cut bps = -75, base rate = 12.50
  • 17/03/2020  Central Bank of the Rep. of Turkey cut bps = -100, base repo rate = 9.75
  • 17/03/2020  State Bank of Vietnam cut bps = -100, base refinancing rate = 5.00, cut bps = 50, base discount rate 3.50
  • 17/03/2020 Federal Reserve Bank of the U.S.: U.S. Treasury Secretary Mnuchin approved the Federal Reserve's "Commercial Paper Funding Facility" (CPFF) which allows the Fed to create a corporation which can purchase commercial paper, short-term, unsecured loans made by businesses for everyday expenses. Mnuchin authorized up to USD 10 billion from the U.S. Treasury to help cover loan losses incurred under this program. The program will end on March 17, 2021 unless it is extended. The program is similar to the one launched after the Global Financial Crisis. On the same day, the Federal Reserve received approval to re-launch another Great Recession-era tool, the Primary Dealer Credit Facility (PDCF). PDCF will offer short-term loans to banks secured by collateral such as municipal bonds or investment-grade corporate debt. The program will run at least six months and can be extended.
  • 16/03/2020 Federal Reserve Bank of the U.S. increased reverse repo operations by another $500 billion to USD 2 trillion
  • 16/03/2020  Central Bank of Jordan cut bps = -100, base rate = 2.50
  • 16/03/2020  Central Bank of Chile cut bps -75, base rate = 1.00
  • 16/03/2020  Central Bank of Egypt cut bps -300, base overnight rate = 10.25; cut bps = -300, base overnight deposit rate = 9.25
  • 16/03/2020  Czech Central Bank, cut bps = -50, base rate = 1.75
  • 16/03/2020  Central Bank of Bahrain, one week deposit rate, cut bps = -75, rate =1.00
  • 16/03/2020  Qatar Central Bank, cut bps = 50, base repo rate = 1.00
  • 16/03/2020  Saudi Arabian Monetary Authority, cut base repo rate = -75 bps, to rate = 1.00
  • 16/03/2020  Central Bank of Sri Lanka, cut base deposit rate to 6.25 and standing lending rate to 7.25
  • 16/03/2020  Bank of Korea cut 50 bps to the base rate of 0.75
  • 16/03/2020  Bank of Japan: short term rate -0.1%, long term 10-year JGB yield target at 0%; raised purchases of exchange-traded funds (ETFs) x2 from USD 56 billion a year to USD 112 billion for ETFs and for other risky assets, including commercial paper, created new loan program for 1 year at zero rate for financial institution.  
  • 16/03/2020  Reserve Bank of New Zealand, cut bps = -75, base rate = 0.25
  • 16/03/2020 Bank of Canada: the Office of the Superintendent of Financial Institutions (OSFI), Canada's financial regulatory body, lowered bank reserve requirements, allowing banks to lend an additional USD 214 billion
  • 15/03/2020  Federal Reserve of the U.S., cut bps = -100, base rates 0-0.25 range, will purchase at least USD 700 billion of securities, including at least $500 billion of U.S. Treasuries and at least $200 billion of mortgage-backed securities
  • 13/03/2020 Germany authorizes state-owned KfW bank, to lend out as much as USD 610 billion to companies to cushion the effects of the coronavirus
  • 13/03/2020  Bank of Canada, cut bps = -50, base rate = 0.75
  • 13/03/2020  Norges Bank, Norway, cut bps = -50, base rate = 1.00
  • 13/03/2020 People's Bank of China: lowered the banks' reserve requirement ratio by 0.5-1 percentage points to free USD79 billion worth of new lending
  • 12/03/2020 Federal Reserve Bank of the U.S. massively expanded reverse repo operations, adding USD1.5 trillion of liquidity. Effectively, the Fed extended the amount of short term loans to banks in an attempt to stabilize money markets and increase banks' access to cash.
  • 12/03/2020  European Central Bank, deposit rate remains = -0.50%, cut TLTROIII rate by 25 bps to -0.75% (TLTROs are Targeted Long-Term Refinancing Operations providing negative cost loans to banks); later added to its 2019-announced asset purchase programme of EUR 20 billion a month: a one-off EUR 120 billion purchases in 2020 on top of EUR240 billion already planned, plus another EUR 750 billion in a Pandemic Emergency Purchase Programme. Purchases total planned for 2020 is at EUR 1.1 trillion.
  • 11/03/2020  Bank of England, cut bps = -50, base rate = 0.25, also introduced a new programme for cheap lending and reduced a capital buffer requirements for the banks. Lowered capital requirements for U.K. banks, allowing them to use a "counter-cyclical capital buffer". Facilitating nearly USD 390 billion in new loans.
  • 11/03/2020  National Bank of Serbia, cut bps = -50, base rate = 1.75
  • 11/03/2020  Central Bank of Iceland, cut bps = -50, base rate = 2.25
  • 05/03/2020  Central Bank of Jordan, cut bps = -50, base rate = 3.50
  • 04/03/2020  Bank of Canada, cut bps = -50, base rate = 1.25
  • 04/03/2020  Hong Kong Monetary Authority, cut bps = -50, base rate = 1.50
  • 04/03/2020 and 03/03/2020: People's Bank of China expanded its reverse repo operations by USD 71 billion and USD 174 billion, respectively.
  • 03/03/2020  Federal of the U.S., cut bps = -50, base rates range = 1.00-1.25. Largest cut since 2008
  • 03/03/2020  Central Bank of Malaysia, cut bps = -25, base rate = 2.50
  • 03/03/2020  Reserve Bank of Australia, cut bps = -25, base rate = 0.50
  • 20/02/2020  Bank of Indonesia, cut bps = -25, base rate = 4.75
  • 20/02/2020  People's Bank of China, cut bps = -10, base rate = 4.05 for 1 year loan prime rate and 5-year rate from 4.80% to 4.75%.
  • 06/02/2020  Philippine Central Bank, cut bps = -25, base rate = 3.75
  • 05/02/2020  Bank of Thailand, cut bps = -25, base rate = 1.00

Multinational efforts:

  • The Fed, along with the ECB, Bank of Canada, Bank of England, Bank of Japan and the Swiss National Bank also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.
  • 04/03/2020 the International Monetary Fund made USD 50 billion in loans available to deal with the coronavirus, including USD10 billion of zero-interest loans to the poorest IMF member countries. 16/03/2020 the IMF said it, "stands ready to mobilize its USD 1 trillion lending capacity to help our membership." In the same statement, the IMF said it has $200 billion in current lines of credit, some of which could be used for the COVID crisis, and that they have "received interest from about 20 countries and will be following up with them in the coming days." The IMF also is aiming to boost its debt relief fund to $1 billion from its current level of $400 million.
  • 03/03/2020 the World Bank announced an initial package of up to USD 12 billion in loans for countries to help cope with the effects of the COVID19. USD 8 billion of the funding is new loans and the remaining USD 4 billion is redirected from current lines of credit.


Friday, March 20, 2020

20/3/20: Euromoney on Risk Landscape Changes

Euromoney on changing risk landscape for global sovereigns: With a comment from myself.

20/3/20: Central Banks are Failing to Reinflate the Deflating Bubble

In the last 5 days, central banks around the world have announced 2020 monetary stimuli to the tune of USD 4 trillion (inclusive of measures continuing from those announced back in late 2019). This is what this bought them in the markets:

The problem with 'doing more of the same and expecting different results' is that the measures being deployed by the monetary authorities are predominantly skewed on simply increasing the total quantum of debt in the global economy already croaking under a mountain of debt. The markets see this. The markets know this. And, at long last, the markets are not buying any more of this.

On what timeline will the central bankers and their masters in the governments recognize the same?..