26/8/20: Q2 2020 Corporate Earnings and Revenues

 

Factset latest data on STOXX600 earnings for 2Q 2020 is dire: 

In basic terms, earnings figures managed to beat estimates only because analysts' expectations of earnings drop off were even more gloomy than the already dismal outrun. 

Year-on-year revenues growth was also bad:

Notably, sharper declines in earnings compared to revenues implies little gains in terms of any productivity or efficiencies during the pandemic response. 

25/8/20: Irish Tourism & Travel Post-COVID

My article for The Currency this week covers the path for recovery in Ireland's (and global) travel & tourism sector: https://www.thecurrency.news/articles/22340/why-tourism-could-take-four-years-to-get-back-to-where-it-was-in-2019.

25/8/20: Germany's Economic Recovery: ifo Survey

ifo Institute's latest economic barometer for Germany is showing continued signs of recovery in the German economy, with remaining pressures in terms of current assessment of business conditions and more positive outlook forward (expectations):

Business expectations are now ahead of the same for December 2019 - February 2020 pre-pandemic period, which really says little about the levels of activity expected and more about the speed of adjustments to the expected activity. What matters more is the current climate perception. This is still some 11 points below the three months prior to the pandemic.

Given that German economy has largely moved past the stage of restricted activity, this is worrying, as it suggests the lack of domestic demand recovery in the medium term.

23/8/20: America's Scariest Charts: Continued Unemployment Claims

 

Having updated non-farm employment data (https://trueeconomics.blogspot.com/2020/08/23820-americas-scariest-charts.html), let's take a look at continued unemployment claims, as reported through the first week of August.

A chart to start with:

Continued unemployment claims are still falling.

• The weekly rate of declines is improving. Most current week on week decline is 636,000, an improvement on prior week/week decline of 610,000. $ weeks average weekly rate of decline is 326,750. 
• Latest continued unemployment claims are at 14,844,000 which is down from the COVID19 peak of 24,912,000 set in the week of May 9, 2020. 
• We have registered reductions in continued claims in 11 out of the 13 weeks since the peak claims.

Here is the chart comparing historical records of recovery in continued claims to the current crisis perid:

And the same on the log scale

Comparing current continued claims to pre-recession period claims:

• Current levels of claims are 8,687,000 higher than pre-recession period high, 13,195,000 above the pre-recession trough and 13,142,000 above the claims registered in the last  month before the onset of the recession.

The key takeaways from this are: 

1. What matters from now on is not so much the level of the recession peak, but the rate or the speed of the recovery toward pre-recession 'normal'. So far, the rate of recovery has been fast. If sustained, we might be able to avoid much of the damage that arises from long-term unemployment duration. 
2. The rate of benefits expirations will also matter a lot. We are looking at eligibility for unemployment dropping with weeks ahead, and the supplemental payment to unemployment insurance also falling off. As the two effect bite, the impact on the overall economy from reduced unemployment support schemes can be pronounced, triggering renewed recessionary risk. 

Stay tuned for the analysis of the first time unemployment claims figures next.

23/8/20: America's Scariest Charts: Employment

 

Good news, folks, just in time for the Republican National Convention. The latest data, through July 2020, shows some recovery in non-farm payrolls numbers that is bound to make a feature in political chest-beating coming up next week.

Behold the chart:

In basic terms:

• July non-farm payrolls stood at 139,582,000, up 1.291% on June, and up 9,279,000 on the COVID19 pandemic trough (April 2020). 
• Average monthly rate of jobs recovery has been so far 3,093,000 through July. Which is worse than 3,749,500 average rate of recovery recorded through June. In other words, we are potentially seeing a slowdown in jobs recoveries.
• At current average monthly rate of recovery, it will take us just over 4 months to regain jobs lost to COVID19 pandemic, assuming no further slowdown in the rate of recovery (a strong assumption).
• Currently, non-farm payrolls sit 12,881,000 below their pre-COVID19 peak employment levels, attained in February 2020.

Some of these are good news. Assuming the recovery dynamics remain unchallenged by:

1. Natural rate of moderation in jobs recoveries
2. Renewed pressures of COVID19 (see the latest on this here:https://trueeconomics.blogspot.com/2020/08/23820-covid19-update-us-vs-eu27.html), or a second wave of the pandemic
3. The ravages of political uncertainty surrounding November 3 elections (not only Presidential).

One side note: the above comparatives are current-to-past. These, of course, do not take into the account where the U.S. employment figures would have been, absent COVID19 pandemic crisis. Whilst estimating potential employment levels is a hazardous exercise, taking a simple exponential trend (decaying over time) from August 2018 through the latest reported period implies potential July employment level ex-COVID19 of 153,267,800. Which is not that much of a gap to the pre-crisis peak. 

Another side note: if we assume that the rate of decay in jobs additions that prevailed between June and July 2020 (-17% decay) continues into the future (also a strong assumption), jobs recovery to the pre-crisis peak will take us through May 2021. For the pre-pandemic trend case, the recovery will take us into March 2022.

More data analysis of the U.S. labor markets is coming up in subsequent posts, stat tuned. 

23/8/20: COVID19 Update: U.S. vs EU27

 

Updating pandemic data for the U.S. vs EU27 comparatives. All comments in charts.

Key takeaways:

• Since the start of August, U.S. averages 51,004 new cases per day and 1,056 deaths per day.  Over the same time, EU27 averaged 12,452 new cases per day and 126 deaths per day.
• Since mid-July, EU27 new cases and daily deaths are now trending up once again, with current daily rates at the levels above those that triggered the first shutdowns in March.
• The EU27 daily counts of new cases are now on a sustained rise since mid-July and currently exceed the levels at which the original EU lockdowns were imposed.
• The U.S. is still experiencing its first wave of infections. The trend in the U.S. suggest that the peak infection has taken place in late July. 

• Overall counts of deaths in the U.S. are now above the EU27, since July 12, with current excess gap at +38,432 up from +9,409 a month ago.
• Deaths per capita: the U.S. has overtaken the EU27 since May 18, 2020, and the trend for the U.S. continues to be worse than that for the EU27.
• EU27 death rate per capita has effectively flattened-out at around 303-308 per 1 million prior to August 2, 2020, but is rising once again since then (310.9 currently). U.S. deaths per capita continue to increase (531.9 currently).
• Put differently, current U.S. death rate per capita is 73 percent above that for the EU27. 
• Thus, there are 228 more deaths per 1 million of population in the U.S. to-date than in the EU27.

23/8/20: COVID19 Update: Worldwide Cases and Deaths

 

Updating latest data for COVID19 pandemic - comments in charts

New cases and deaths: daily counts

Key trends in thee above:

• Global number of daily new cases was on an upward trend through July 2020. Since the start of August, however, new daily cases additions have been flat at the levels close to the prior peak trend (< 260,000 per day).
• In the last 30 days, average number of new cases stood at 258,816, with the current 7-days average at 252,383.
• Week-to-date, daily case numbers ranked within top 10 in 1 day, and in 11-25th place in 4 days. 
• Overall, there are some indications in the more recent data that the trend in new cases will likely moderate toward 220-225,000 per day in the next 7-10 days. Such a moderation will not, in itself, be sufficient to mark the end of the first wave of the pandemic.
• Death rates have peaked in mid-April, but the extent of subsequent declines is largely artificially contrasted to past higher rates, due to: 

1. Delayed reporting, especially in April, primarily in Europe (nursing homes deaths);
2. Lags between new cases arrivals and deaths;
3. Shift in new cases to younger demographics; 
4. Improved detection/testing;
5. Shift in the pandemic intensity toward countries with different reporting methodologies.

• In July, average growth in death cases was +5.79%. August-to-date, the average is -2.66%. Last 7 days average is -4.42%. 
• However, deaths are still running at high rates. 30-days average is 5,882 deaths per day and 7-days average is 5,663 deaths.

Trend growth rates:

• New daily cases growth rates are moderating. July average daily growth rate in new cases was 10.35%. This fell to 0.65% in August (to-date).
• In July, average growth in death cases was +5.79%. August-to-date, the average is -2.66%. Last 7 days average is -4.42%. 

Two summary tables of stats: G7+ and BRIICS:

Recent divergence in deaths counts dynamics from the new case counts dynamics can be indicative  of:

1. Improving rates of detection (earlier detection) of cases 

2. Learning from treating COVID19 patients 

3. The pandemic working through a decreasing density of older population impacted by the disease (due to increasing numbers of detections amongst younger patients)

4. Younger demographics of the new geographical concentrations of COVID19, and

5. Differences in cases and deaths recordings from the early stage of the pandemic (countries with deaths recorded on a primary cause basis, as opposed to COVID19 attribution in the presence of virus).

20/8/20: All Markets are Now Monetized

 

While the economy burns, the stock markets are literally going bonkers. Here are the main implied volatility options:

Which are symmetric, in so far as they treat volatility as symmetrically-valued to the upside and downside. And here is another way of looking at the same concept via repricing speed, or the rate of change in actual P/E ratios of S&P500 over longer time horizons, in this case: 20 weeks running P/E ratios change:

Source of the chart is @longvieweconomics. What does the above show? We have S&P500 at an all-time high. S&P500's PE ratio (PER) is only slightly below the 2000 peak. And, we have the fastest rate of S&P over-valuation increase in history - full 85 percentage points trough to peak. Both, the fundamentals and the momentum of their deterioration are absolutely out of control. Of course, this is just the stocks. One must never mention the massive bubble blown up by the Fed in the bonds markets. 

The 20-weeks moving change in weekly yields for Aaa-rated bonds maxed out at historical high of -44.06% (remember, lower yields = higher prices) in the week of July 31st this year. Top three historically highest rates of change took place in the three weeks of July 24th-August 7 this year. Overall range of bonds repricing is in the range of 60 percentage points in the current cycle:

This is plain horrendous: there is nothing in the macro and micro fundamentals that can warrant these changes. Except for the expectation of continued monetary accommodation of the Wall Street into the infinitely long future. 

19/8/20: The VUCA World of World Trade

 

WTO projections for global merchandise trade by volume:

Let's take a closer look. Optimistic scenario is for a 13% y/y drop in merchandise trade flows. Pessimistic one is for a 30% drop. Swing is 17 percentage points. These are not forecasts, but are uncertain guesses. We are in a VUCA world, folks.

Let's take a second look: COVID19 shock will be permanent (new trend line post-recovery is permanently below old trendline and flatter) with a minor impact post-2022 that will compound over longer period of time. In pessimistic scenario, the impact appears to be also permanent, but seriously severe.

On a linear trend projection, pre-2008 consistent trend would have left us at around 155 index reading in 2022. 2009-2019 trend would have gotten us to around 122 index reading. Optimistic scenario would leave us around 119 in 2022; pessimistic - at around 95. Wait... optimistic gap for COVID19 and GFC impacts to no GFC and no COVID19 impact is... 33 points! One third of 2015 annual level of trade activity. GFC but no-COVID19 gap to pre-2008 is between 36 points and 60 points. 

And the final look: notice 2019 line... it is virtually flat. As WTO notes (see Chart 4 here: https://www.wto.org/english/news_e/pres20_e/pr855_e.htm) there was, basically, no growth in trade in 2019, before the COVID19 hit. 

We are in a VUCA world, folks.

18/8/20: COVID19 Update: U.S. vs EU27

 

Updating charts for EU27 vs U.S. comparatives:

High level comparatives: U.S. and EU27 shares of global cases, deaths and population

Dynamics of cases and deaths:

Key takeaways from the above:

• Deaths per capita: the U.S. has overtaken the EU27 since May 18, 2020, and the trend for the U.S. continues to be worse than that for the EU27, albeit the second derivative is moderating.
• EU27 death rate per capita has effectively flattened-out at around 303-310 per 1 million prior to August 2, 2020, but is rising once again since then.
• Overall counts of deaths in the U.S. are now above the EU27, since July 12, with current excess gap at +33,342 up from +5,817 a month ago.
• U.S. deaths per capita continue to increase.

• Controlling for the gap of 7 days in the first deaths reported, U.S. has a higher death rate per 1 million population than the EU27 rate.
• Even without timing adjustment, current death rate per 1 million of population in the U.S. (521) is in excess of the EU27 (309.0).
• Put differently, current U.S. death rate per capita is 69 percent above that for the EU27. 
• Since the start of August, U.S. averages 52,406 new cases per day and 1,024 deaths per day.  Over the same time, EU27 averaged 11,366 new cases per day and 118 deaths per day.
• Since mid-July, EU27 new cases are now trending slightly up once again, and deaths are starting to rise as well.
• The EU27 daily counts of new cases are now on a sustained rise since mid-July and currently exceed the levels at which the EU lockdowns started.

18/8/20: COVID19 Update: Worldwide Cases and Deaths

 

Updating World counts and major cases through August 18, 2020 (ECDC timing):

First, top countries by case numbers (> 25,000 total cases) (color coding legend in the second part of the table):

Next, dynamics of new cases:

Some moderation in new cases growth rate (7-day average trend is flat, with early signs of possible reversal downward after months of increases).

And dynamics of daily deaths counts:

Hopefully, the gentle drop in the trend (14 days moving average) is going to be sustained from here on.

13/8/20: Federal Deficit Keeps Climbing in July

 

Federal fiscal position for July has been published (https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0720.pdf) and the numbers are interesting. Remember, this year, July was personal income tax filing month, as opposed to the usual April. So, over April and July 2020, total Federal receipts were at USD 805.350 billion, which is up on USD 786.893 billion in April and July 2019. Sounds good and it improved significantly monthly contribution to the annual deficit, with Federal deficit in July coming in at USD62.99 billion, or USD223.3 billion worse than April 2019 (which registered a surplus). 

So here is where we stand:

Average cumulative per-term Federal deficit for Obama Administration was USD 3.523 trillion. The same for President Trump's tenure to-date (not yet a full term) is USD 5.078 trillion. Of this, USD 1.889 trillion. Hence, ex-COVID, President Trump's first term deficit currently is running at USD 3.190 trillion. There are still 3 months of the Federal Fiscal Year running and 5 months of the calendar year left. If we are to assume that Federal deficits in August-December were to remain on the levels of 2019 (stripping out effects of COVID19 pandemic), President Trump will end his last year in office with a cumulated per-term deficit of around USD 3.664 trillion, which is - and remember, this is excluding COVID19 effects - a higher deficit than accumulated, on average, across two terms of the Obama Administration. 

Now, back to those charts above: COVID19 related increases in deficits have been staggering. So far, from April 1, through July, these amount to around USD1.89 trillion. Non-COVID deficits have been equally staggering. 

Here is an interesting thing: while public health took out USD624 billion in 2020 from January through July, Pentagon took USD608 billion. Who is handling the pandemic in the U.S. is quite not as clear as who is spending the money like the proverbial drunken sailors.

Another interesting thing: net interest payouts by the Federal Government. These are defined as "Net interest consists of interest paid on Treasury securities and other interest that the government pays (for example, interest paid on late refunds issued by the Internal Revenue Service) minus the interest that it collects from various sources..." (https://www.cbo.gov/publication/56073). Which means there are lags in Fed remitting interest payments, but much of that is already in the numbers. So far, the U.S. has managed to rake in USD 309 billion worth of net interest expenditures in the FY2020.