Category: Market Action

Here’s a piece by Kristian Blickle of the New York Fed titled Pandemics Change Cities: Municipal Spending and Voter Extremism in Germany, 1918-1933:

We merge several historical data sets from Germany to show that influenza mortality in 1918-1920 is correlated with societal changes, as measured by municipal spending and city-level extremist voting, in the subsequent decade. First, influenza deaths are associated with lower per capita spending, especially on services consumed by the young. Second, influenza deaths are correlated with the share of votes received by extremist parties in 1932 and 1933. Our election results are robust to controlling for city spending, demographics, war-related population changes, city-level wages, and regional unemployment, and to instrumenting influenza mortality. We conjecture that our findings may be the consequence of long-term societal changes brought about by a pandemic.

… and a BBC piece on the Middle East:

The Middle East has many reasons to fear the coronavirus pandemic, but it has one big advantage when it comes to resisting it. Most people in the region are young.

A rough average is that at least 60% are under the age of 30. That makes them less susceptible to developing Covid-19, the illness that has killed so many people in countries with older populations.

Most governments in the region saw what was happening elsewhere and had time to impose curfews and social distancing measures.

But that is where the Middle East’s advantages end. Years of strife in the world’s least stable region have left weaknesses that the pandemic is sure to deepen.
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Those same young people who have the best chance of resisting the virus were, before it hit, leading demonstrations against their governments.

Every country has its own grievances, but in the Arab Middle East the protests have centred on corruption, cronyism and reform. Corrupt elites are accused of siphoning off public money that should have gone into public services, not least hospitals.
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Young people who refused orders to clear the streets for months will not be enjoying the irony that the coronavirus has forced them indoors.

When they emerge they will find the economies that failed miserably to generate jobs for them are now in even worse shape.

The result will be more anger, deepened but not created by the dangers and frustrations of this pandemic year. Leaders will have even fewer options.

So, we may be living in interesting times.

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TXPR closed at 518.14, down 0.52% on the day. Volume today was 2.08-million, third-lowest of the past thirty days, greater than only April 24 and May 1.

CPD closed at 10.36, down 0.19% on the day. Volume was 87,012, on the low side in the context of the past 30 trading days.

ZPR closed at 8.08, down 0.25% on the day. Volume of 60,799 was by far the lowest of the past 30 trading days, lower than even April 17.

Five-year Canada yields were up 3bp to 0.41% today.

The AIMCo recriminations continue:

The chief executive of Alberta’s flagship fund manager has failed to calm fears among pension clients over what they say is inappropriate risk-taking that resulted in a multibillion-dollar loss on market swings.

The Alberta Investment Management Corp., known as AIMCo, held an online meeting on Thursday to update its clients on the recent performance problems, including what it said was an unanticipated $2.1-billion loss on derivatives – financial contracts that pay off only if stock markets remain stable – due to the impact of COVID-19 on the economy. AIMCo clients include pension plans for 375,000 nurses, 4,000 police officers and other civil servants in the province.
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An executive of one client said the group expected to be told the individuals responsible for the loss were suspended or fired. Another client said the costly investment strategy appears to be a symptom of deeper cultural problems within the organization related to risk management, and was disappointed that was not discussed during the meeting.

This is illustrative of my thesis that in-house management is the way to go. I’m not sure just how AIMCo’s client list works – are all of its clients there due to legislation or are they voluntary? Either way, they do not seem to be taking the position that they own the problem; the way that Teachers’, for instance, owns the problem if results are poor for a while. Somebody else owns the problems and they’re victims. So they are acting tough and demanding accountability, just the way they learned in business school and, I’ll bet a nickel, doing a little grandstanding to impress their beneficiaries.

The implications of this dynamic are that every portfolio manager now has a role as salesman. There will be tendency for investments not to be selected solely on the basis of how well they might be judged to help achieve portfolio objectives; the portfolio manager also has to consider how well he will be able to justify the position to clients – very few of whom will have any more investment knowledge than any regular retail client – and what the personal consequences might be if such-and-such a position goes bad. And, what’s more, future PMs will be hired with the same considerations in mind.

Nobody ever got fired for buying IBM! Ignorance is Strength! Closet-index the whole position! And so bureaucratic groupthink wins another round and your retirement funds are being managed by guys with deep voices and firm handshakes.

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Tiff Macklem is the new governor of the BoC:

Finance Minister Bill Morneau has appointed Tiff Macklem, the former senior deputy governor of the Bank of Canada, to take over the top job at the central bank as it navigates the uncertainty of a pandemic-driven recession.

Macklem is currently the dean of the Rotman School of Management in Toronto, but had spent decades with the Bank of Canada before starting that appointment.

Macklem began his career at the bank in 1984. He was widely expected to win the contest for bank governor in 2013, but was beaten out by Stephen Poloz, who was then CEO of Export Development Canada.

Poloz’s term ends June 2.

TXPR closed at 520.86, down 0.63% on the day. Volume today was 1.70-million, lowest of the past thirty days, behind second-place April 24.

CPD closed at 10.38, down 0.10% on the day. Volume was 151,520, high but not extraordinary in the context of the past 30 trading days.

ZPR closed at 8.10, down 0.37% on the day. Volume of 197,498 was low in the context of the past 30 trading days.

Five-year Canada yields were unchanged at 0.38% today.

Well, that’s another month done! This one was considerably more pleasant than the last one!

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The markets got excited over initial testing of remdesivir today:

A top U.S. health official said Gilead Sciences Inc’s experimental antiviral drug remdesivir is likely to become the standard of care for COVID-19 after early results from a key clinical trial on Wednesday showed it helped certain patients recover more quickly from the illness caused by the coronavirus.

Preliminary results from a U.S. government trial show that patients given remdesivir had a 31 per cent faster recovery time than those who received a placebo, results hailed by Dr. Anthony Fauci, the nation’s top infectious disease expert, as “highly significant.”

Gilead earlier on Wednesday said remdesivir helped improve outcomes for patients with COVID-19 in the government-run trial, and provided additional data suggesting it worked better when given earlier in the course of illness, sending its shares up more than 7 per cent.

The FOMC also met, but nothing really new was said, although they hint at forward guidance suggesting rates are stuck for a while:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued April 29, 2020

TXPR closed at 524.34, up 2.76% on the day. Volume today was 3.59-million, very high in the context of the past thirty days.

CPD closed at 10.49, up 2.44% on the day. Volume was 227,152, second only to April 9 in the past 30 trading days.

ZPR closed at 8.195, up 2.69% on the day. Volume of 358,272 was high in the context of the past 30 trading days.

Five-year Canada yields were down 1bp to 0.41% today.

PerpetualDiscounts now yield 5.96%, equivalent to 7.75% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.38%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened somewhat, to 435bp from the 425bp reported April 22.

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TXPR closed at 510.24, up 0.76% on the day. Volume today was 2.72-million, below average in the context of the past thirty days.

CPD closed at 10.24, up 1.69% on the day. Volume was 77,422, quite low in the context of the past 30 trading days.

ZPR closed at 7.98, up 0.88% on the day. Volume of 258,059 was average in the context of the past 30 trading days.

Five-year Canada yields were down 5bp to 0.42% today.

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TXPR closed at 506.38, up 0.59% on the day. Volume today was 3.22-million, maybe a hair above average in the context of the past thirty days.

CPD closed at 10.07, up 0.10% on the day. Volume was 65,422, second-lowest of the past 30 trading days, ahead of only April 22

ZPR closed at 7.91, up 0.89% on the day. Volume of 180,599 was well below average in the context of the past 30 trading days.

Five-year Canada yields were up 3bp to 0.47% today.

Aristocrats have fallen on hard times:

Companies across a range of industries are slashing or suspending dividends to cope with the economic fallout from the coronavirus outbreak, complicating the stock selection process for money managers eager to buttress their portfolios with a steady stream of income.
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The S&P 500 dividend aristocrats index, which tracks companies that have increased dividends annually for the past 25 years and includes Exxon and Chevron, has fallen about 19% so far in 2020 as of Thursday, greater than the 12.9% drop over that time for the S&P 500 total return index.
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The S&P 500’s dividend yield recently exceeded the yield on the benchmark 10-year U.S. Treasury by its highest margin in nearly five decades.
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Goldman Sachs expects S&P 500 aggregate dividends to fall 23% to $398 billion in 2020 after rising each year over the past decade.