26 Jun A VOLATILE DAY
Fears of resurgence of the coronavirus are dominating the news and spooking the markets. The flareups bear watching but the original lockdowns were never going to eradicate the disease without incredible societal ending pain. Perhaps the unhappy truth is that we will have to learn to cope with the virus, a view that I expressed several times over two months ago.
More spread was inevitable once states started to relax their shutdowns but we must place the increase in cases into the proper perspective, defined as to whom is being infected, the number of tests conducted and the number of hospitalizations and ICU admissions. Today we know a lot more about the virus than we did three months ago.
It is becoming accepted the health, social and economic cost of shutting the economy down again are way too high. Twenty-one million are unemployed. Countless businesses and livelihoods have been destroyed.
The Journal of the American Medical Association finds that the number of adults reporting symptoms of serious psychological distress rose to 13.6% from 3.9% a year ago. Rhode Island reported overdose deaths have spiked 22% as compared to the same period last year.
Radically changing topics, in my view yesterday’s data dump was positive as evidenced by the Citicorp surprise index which is still hovering at an all-time high. In many regards, it indicates the economy is undergoing a V shaped recovery.
Specifically speaking, weekly jobless claims were 1.48 million vs the 1.32 million estimate. Last week claims were 1.5 million.
Continuing claims were 19.522 million vs. the estimate of 20 million and down from 20.54 million the week before.
Inventories contracted considerably more than expected. This could be viewed either positively or negatively. The positive interpretation is there will be inventory restocking thus greater growth in the future. The negative interpretation is the lack of confidence in tomorrow.
Durable Goods orders in all dimensions were considerably stronger than expected.
There were no revisions in first quarter GDP.
The question at hand is how will the economy, government respond to rising regional Covid cases? Will the increase in cases crush the recovery?
Johns Hopkins stated on a national basis cases were up 1.7% yesterday, the biggest gain since May 30 and higher than the 7-day average of 1.4%. The increases were regional. Overall hospitalizations are flat.
Late yesterday based on serology tests an internal CDC report suggested more than 20 million Americans may have contracted the virus. The official total is 2.3 million infections. If this is indeed the case, the death rate is significantly lower than expected, consistent to the death rate of a severe flu season. Conversely many are asymptomatic thus suggesting the spread to more at-risk individuals is greater than previously thought.
Unfortunately, and as expected, Covid is now entirely political.
Commenting briefly about yesterday’s market activity, in volatile trading equities advanced. Crude gained about 3.1%. Gold also advanced. Treasuries were essentially unchanged.
What will happen today?
Last night the foreign markets were up. London was up 1.62%, Paris up 1.71% and Frankfurt up 1.15%. China was up 0.30%, Japan up 1.13% and Hang Sang down 0.93%.
The Dow should open flat. At this juncture the markets are ignoring the increase in virus cases believing the reopening will continue and the health impacts are not nearly as great as initially feared.
The 10-year is up 3/32 to yield 0.68%.