On t’Mark – Clearing the Decks, Second Waves, Hope vs Reality

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On t’Mark – Clearing the Decks, Second Waves, Hope vs Reality

On Friday, investors continued to fret about COVID-19, especially the surge in new cases in the US. The US recorded more than 42,000 cases on Saturday, which on the positive side of things was lower than the record 45,255 recorded on Friday, but it was second straight daily total over 40,000. As expected, some states in the US are having to reverse their reopening plans in response to surging case numbers, especially among young people.

Over the weekend, global COVID-19 cases passed 10 million, and deaths were close to 500,000. This should reinforce to investors that we are nowhere near the much hoped for v-shaped recovery. Unless we get a cheap vaccine in the near-term – which is possible but looking unlikely – we are in for a tortuous, long slog. Unfortunately, it won’t bring any joy like Stokes’ agricultural efforts in winning the CWC19.

With the slow realisation of further lockdowns likely, investors’ animal spirits retreated in the caves and it was a risk-off session on Friday. Equities were lower, government bond prices were higher and credit spreads wider.

It was bad news for US bank equities but good news for US bank bondholders, as the Fed stopped share buybacks and cap dividend payments for a few months. Capital One dipped 8.8%, Goldman Sachs fell 8.6% and JPMorgan fell 5.5%.

Focusing minds on the under-siege energy sector, on Sunday, Chesapeake Energy filed for bankruptcy. It will continue to operate, as it attempts to reduce its US$9bn debt load.

Another sector feeling the pain is retail property and on Friday, the UK’s largest shopping mall owner went into administration. Intu, which owns and operates 17 shopping centres in the UK including Manchester’s Trafford Centre, appointed accountancy firm KPMG to oversee the process.

Closer to home, Servcorp – which offers Serviced Offices, Virtual Offices, Coworking Spaces, Meeting Rooms, Community Packages, and IT Services – announced that it will close 12 US offices: Atlanta (2), Boston (1), Dallas (2), Los Angeles (2), Miami (1), Philadelphia (1), San Francisco (2) and Washington DC (1). One-off cash costs will be $5.5m.

On Friday, US equities closed down 2.4-2.8%. European bourses closed down 0.2-1.2%, except the UK that closed up 0.2%.

UST 10yr yields closed at 0.64% (-6bp). ACGB 10yr yields closed at 0.86% (-1bp). The Aussie dollar was 0.1c lower at USD68.6c.

Credit was offered: US IG closed at 81 (+3) and HY was at 527 (+24). In European credit, IG closed at 72 (+2) and XO was at 408 (+11). Aussie iTRAXX was at 86 (unch.).

US economic data were plentiful and mixed: PCE– MISS; Core PCE– HIT; Personal Income – HIT; Personal Spending – MISS; and University of Michigan Consumer Confidence – MISS.

Elsewhere, oil was down 0.1-0.6%. Iron ore was unchanged.

Tin hats on!

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