Markets shed 1.3% last week for the first weekly loss in April. Is this the bears reminding us that they are still here, or is there more to be concerned about?
Economic Fall Out
There were good economic reasons for a pullback this week as firm economic data started to pour in about the state of the economy. The headline catcher is always unemployment data. Initial jobless claims grew by 4.42M this week. For perspective, 2019 averaged approximately 215K/week. This brings the jobs lost over the last weeks to over 26M!
The bailout fund intended for small businesses (Paycheck Protection Program or PPP) totaled $349B. As of last week, there were no funds left. Quick action is expected from Washington this week to replenish funds for the program.
Oil slipped into negative pricing! At least that was the headline. Oil futures contracts for May delivery did slip into negative pricing the day before trading was to close on those contracts. Much of oil trading is speculation, with people buying those contracts never intending to take physical delivery of the oil. If they still held the contracts the following day, they would have had to do just that. So what was seen, was a price fall as speculators rushed for the exits.
Europe took strides to backstop credit in the European Union (EU) as they set up a €500B fund for relief of investment grade corporate debt and fallen angels… this is not nearly enough! More will need to be done and a cohesive EU debt offering is likely in order.
PMI Data from around the world showed just how weak things have gotten during the Pandemic. As you read these numbers, remember that equilibrium between contraction (lower) and expansion (higher) is 50. The US composite PMI came in at 27.4, EU at 13.5, UK at 12.9, and Japan at 27.8.
Conclusion
The data was bad last week, no doubt; there are some things to consider with it:
1) Unemployment data does not capture how many filers are furloughed and waiting for a job to come back when stay at home orders are lifted.
2) Oil as a whole, while down, has fundamentally not moved into negative territory. Pricing firms as you move further out, meaning July delivery has a higher projected price than June and so on.
3) The EU has more work to do, but for them, they are moving at a fever pitch. Remember these are independent nations attempting something that looks like a State turning to a federal government.
4) PMI data for China one month removed from lockdown bounced back to 52. So, while the PMI data is bad for March and will likely get worse for April, it will likely improve dramatically in May.
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