3/6/20: BRIC Composite PMIs for 2Q 2020

Having covered Manufacturing PMIs for 2Q 2020 for the BRIC economies here: https://trueeconomics.blogspot.com/2020/06/1620-3-months-of-covid19-impact-bric.html and Services PMIs here: https://trueeconomics.blogspot.com/2020/06/3620-bric-services-pmi-may-2020.html, time to update charts for Composite PMIs.

Brazil Composite PMI for 2Q 2020 is currently running at 27.3, the lowest on record, and marking a major decline on 46.9 reading in 1Q 2020. This implies that Brazil economy is currently registering sharply contractionary growth indicators in two consecutive quarters from the start of 2020. 

Russia Composite PMI for 2Q 2020 currently stands at 24.5, also a historical low, marking second consecutive quarter of sub-50 readings. The last time Russian quarterly PMIs were statistically significantly below 50.0 was in 1Q and 2Q 2014. 

India Composite PMI for 2Q 2020 is currently registering the sharpest downturn of all BRIC economies at 11.0, down from strongly expansionary 54.8 in 1Q 2020. This marks the sharpest fall-off on pre-COVID19 reading for any BRIC economy and signals that the Indian economy is effectively stoped functioning.

China is the only BRIC economy so far to show signs of post-pandemic recovery. China 2Q 2020 Composite PMI is currently running at 51.1 which is statistically above 50.0 marker, signalling weak, but positive expansion. Still, 51.1 marks the second slowest growth reading in the Chinese economy since 2Q 2016. 

As the chart above indicates, Brazil, Russia and India all are currently running 2Q 2020 Composite PMIs below the Global Composite PMI (which is at 31.25 as of the end of May), while China Composite PMI is running well-ahead of the Global Composite PMI.

3/6/20: BRIC Services PMI: May 2020

Services PMIs for BRIC economies are out today, so we can updated 2Q figures to include data for May. The latest monthly print imply slight moderation in the economic contraction in Brazil, India and Russia, with return to Services sector growth in China. This marks the first month since end of January with China posting positive growth in Services (reading of PMI above 50).

Brazil Services PMI was statistically unchanged in May at 27.6, compared to April 27.4 reading. Last time the Brazilian Services sectors posted PMI reading consistent with no contraction (at 50.4 - statistically zero growth) was back in February 2020. Current running average PMI for 2Q 2020 is at 27.5, marking the lowest reading on record.

Russia Services PMI was up from an absolutely disastrous 12.2 reading in April to a somewhat less disastrous reading of 35.9 in May. The index has been at at 37.1 in March. 2Q index reading so far is at 24.1, an absolute historical low, marking the second quarter in a row of sub-50 indicator readings, consistent with sharp contraction.

China Services PMI was the only BRIC Services indicator that managed to reach above 50 in May. May index at 55.0 was consistent with a major recovery momentum compared to 44.4 recorded in April. At 49.7, however, the 2Q figure is still outside positive growth territory.

India Services PMI continued to show fundamental weaknesses in the economy. May Services PMI reading of 12.6 was an improvement on April reading of 5.4, but 2Q 2020 reading is currently at 9.0. 1Q 2020 Services activity reading was at 54.1, implying that Indian services activity has literally stopped on the dime in April-May 2020.

Overall, BRIC 2Q 2020 Services PMI is currently at 35.7, down from 1Q 2020 reading of 44.9. 2Q 2020 is currently the lowest quarterly PMI reading for BRIC in history.



I have covered BRIC Manufacturing PMIs for May 2020 here: https://trueeconomics.blogspot.com/2020/06/1620-3-months-of-covid19-impact-bric.html.

2/6/20: COVID19 Update: Russia

Updating charts for COVID19 for Russia:

Noteworthy: Russia cases and death counts are now breaking out of the prior trend, both to the upside.

2/6/20: COVID19 Update: EU27 vs U.S.

Updating my charts comparing EU27 to U.S. experiences in the pandemic:

2/6/20: COVID19 Update: Worldwide Numbers

Updating through June 2, 2020 ECDC data:

Daily counts are accelerating on-trend with no trend inversion and close to historical peaks:

Death counts are lagging daily counts, but persistent decline in counts over the previous weeks has now been arrested:

While advanced economies are seeing sustained improvements in the cases counts and deaths counts reported daily, emerging and developing economies now lead new counts and new deaths growth.

Brazil has now overtaken Russia to take the second place in the world in the number of overall cases detected. The U.S. continues to lead.

1/6/20: COVID19 and European Banking

McKinsey research note on European banks' potential losses due to COVID19 is quite on the money:

With more than 1/3rd of European executives expecting "a muted recovery that would lead to sharp drops in banks’ revenue, a squeeze on their capital, and a hit on return on equity", European banks can expect revenues to drop by 40 percent plus, and ROE drop 11 percentage points in 2021.

And the problems are strategic. COVID19 is actually accelerating changes in customers' demand for services. "McKinsey’s European customer survey shows how customer behavior and needs have changed over the past month: digital engagement levels have climbed up to 20 percent, the use of cash has halved, 30 to 40 percent of customers have expressed a greater need for advice, while 20 to 40 percent want products to help them through the crisis.4 Pension shortfalls are a particular challenge with those close to retirement facing a very immediate problem."

Alas, European banks, especially those operating in the 2008-2014 crises-hit economies, such as Ireland, Italy, Spain and Portugal, are utterly unprepared for these shifting trends. I wrote about these problems in a series of two article for The Currency here: https://www.thecurrency.news/articles/4810/a-catalyst-for-underperformance-how-systemic-risk-and-strategic-failures-are-eroding-the-performance-of-the-irish-banks and https://www.thecurrency.news/articles/3833/culture-wars-and-poor-financial-performance-just-what-is-going-on-within-irelands-beleaguered-banks.

1/6/20: U.S. political culture and mass protests: "Russia-gate" Season X, Episode Z

The U.S. media has been quick in accusing Russia of stirring the current wave of violence that is sweeping across the U.S. cities. As daft as it may sound, Russia has now been effectively elevated to the national cause of every malaise in many major U.S. media outlets. As quipped on Twitter by Seva Gunitsky, politics professor at University of Toronto,

Well, the problem, of course is that the U.S. leads the rest of the advanced economies in domestic political violence in recent years.

The above chart comes from Samuel J. Brannen Christian S. Haig Katherine Schmidt "The Age of Mass Protests: Understanding an Escalating Global Trend", Center for Strategic & International Studies, 2020. Note that Europe in the above includes countries that are outside the EU27, such as Russia and Ukraine. The entire continent of Europe has consistently fewer anti-government protests than North America, which includes Mexico and Canada. North American data here is heavily dominated by the U.S.

And this is not a new phenomena. Police brutality and racism, racially-based violence and violent protests are not new for the U.S., and all of these events predate the existence of Russia as an independent state, as established here: http://peterturchin.com/age-of-discord/united-states-political-violence-database/. The full paper is here: http://peterturchin.com/PDF/Turchin_JPR2012.pdf.

1/6/20: 3 months of COVID19 impact: BRIC Manufacturing PMIs

BRIC Manufacturing PMIs are out for May, showing some marginal improvements in the sector. However, of all four economies, China is the only one that is currently posting activity reading within the statistical range of zero--to-positive growth. Brazil, Russia and India remain deeply underwater.

Please note, these are quarterly PMIs, not monthly, based on GDP-weighted shares of manufacturing sectors and monthly PMI data points. 

31/5/20: S&P500 Shares Buybacks: Retained Earnings and Risk Hedging

Shares buybacks can have a severely destabilizing impact on longer term companies' valuations, as noted in numerous posts on this blog. In the COVID19 pandemic, legacy shares buybacks are associated with reduced cash reserves cushions and thiner equity floats for the companies that aggressively pursued this share price support strategy in recent years. Hence, logic suggests that companies more aggressively engaging in shares buybacks should exhibit greater downside volatility - de facto acting as de-hedging instrument for risk management.

Here is the evidence:

Note how dramatically poorer S&P500 Shares Buybacks index performance has been compared to the overall S&P500 in recent weeks. Since the start of March 2020, S&P500 Shares Buybacks index average daily performance measured in y/y returns has been -15.04%, against the S&P500 index overall performance of -0.89%. Cumulatively, at the end of this week, S&P500 Shares Buybacks index total return is down 10.18 percent against S&P500 total return of -0.967 percent.

While in good times companies have strong incentives to redistribute their returns to shareholders either through dividends or through share price supports or both, during the bad times having spare cash on balancesheet in the form of retained earnings makes all the difference. Or, as any sane person knows, insurance is a cost during the times of the normal, but a salvation during the times of shocks.

30/5/20: The Cost of Not Shutting Down

Sweden is the case study for the COVID19 impact absent an aggressive shutdown of social interactions. And it is not a great one:

29/5/20: COVID19: US vs EU27 comparatives

Ok, here are the latest comparatives for the U.S. of A and EU27 in terms of COVID19 statistics. As always, comments in the charts:

The U.S. vs G7 and EU27 statistics are:

29/5/20: COVID19: Worldwide Cases and Deaths

There is still no signs of slowdown in the number of daily reported infections in the worldwide data for COVID19. In fact, 29/5/2020 marks the new all-time peak in the rate of new cases additions:

Aptly, with a lag, trends in daily reported deaths are starting to show signs of potential reversal from the recent lows:

Huge caveats worth keeping in mind in the above data interpretation, including the facts that:

1. More recent vintages of cases has been shifting to countries and regions with weaker public health systems, resulting in potential decline in testing rates, accuracy and reporting; and
2. Data for COVID19 is severely VUCA in its nature, as discussed here: https://trueeconomics.blogspot.com/2020/05/29520-covid19-data-one-hell-of-mess.html.