Displaying items by tag: coronavirus
Goldman Sachs, who has been a leader in putting out new research n the economic effects of the current lockdown, has issued new guidance on this week’s pending jobless claims. The bank thinks jobless claims will increase to a whopping 6m this week. If that happens, it would mean this week’s figure would exceed the record that stood until last week by a whopping 9x. The coming release will cover the week from March 22-28th. “Jobless claims will be the timeliest hard data point for assessing the depth of the recession and catching the start of the recovery”, says Goldman.
FINSUM: The period the release covers is not even likely to be the worst. There is probably still a few weeks before the full scale of the layoffs becomes apparent and the numbers peak.
Citibank is pitching a convincing and optimistic view of the economy, and it is a refreshing take in an otherwise bleak landscape. The bank says the big influx of tests that will become available may allow the economy to open much sooner than planned. Their argument is that the growth in tests will allow 60% of working-age US individuals to be tested by the end of April, and 95% by the end of May. As workers are tested, they can head back to work, quickly re-opening the economy. Accordingly, by the end of this month 90 million Americans may be back at work. “While potential therapeutic strategies for COVID-19 seize headlines, we believe diagnostics rather than therapeutics are far better positioned to materially change the economic and even medical outlook for the current COVID-19 pandemic”, says Citi.
FINSUM: Honestly, this sounds like more of a plan than a forecast, but it is a very good one, and does lend some useful optimism.
Speaking from the White House, President Trump issued a grave warning yesterday. Alongside Dr. Fauci, the team said that they expected between 100,000 and 240,000 deaths in the US from Coronavirus. The announcement took the media world by storm and appears to have also impacted markets, as futures have been down considerably since the speech. The president’s tone was a marked departure from his previous outlook, with Trump saying Americans needed to prepare for a “very, very painful two weeks”.
FINSUM: Those are big shocking numbers, and the grimness of Trump’s tone added even more gravity to the situation.
The epicenter of the financial crisis accompanying the Coronavirus pandemic has undoubtedly become the commercial real estate space. With so many physical businesses bringing in zero revenue, the huge suspension of cash payments is going to flow through to property owners and then to the lenders that financed those building purchases. Multiple parts of that value chain are going to targeted by markets, but Wells Fargo, in particular, looks exposed. The bank has almost 13% of mortgage market share (residential), around double the exposure of JPMorgan Chase and triple that of Bank of America.
FINSUM: The government’s stimulus package offers some good assistance to help support cash flow (via Ginnie Mae), which could soften the blow. But still, it is going to be a painful period.
All the predictions in the market are about how steep the recession in Q2 will be (we think people should also be considering the Q1 numbers!), but a new paper has been published looking back at the economic effects of the 1918 pandemic. The surprising finding is that strong shutdowns did not actually hurt the economy as much as thought. In fact, the areas that undertook the strongest and swiftest shutdowns, had the weakest drops in output and the quickest recoveries. The average US location suffered an 18% downturn from the pandemic. However, the researchers (two from the Fed, one from MIT) summed up their findings this way, saying “Cities that implemented more rapid and forceful non-pharmaceutical health interventions do not experience worse downturns … In contrast, evidence on manufacturing activity and bank assets suggests that the economy performed better in areas with more aggressive NPIs after the pandemic”.
FINSUM: While this is not the most compelling evidence (given it is 100 years old), it is encouraging to consider that those taking swift action might not see the worst consequences.