HIGHLIGHTS OF THE WEEK
- COVID-19 continued to dominate headlines this week. But, hopes that the virus’ spread may soon peak, together with new details on the Fed’s support measures, helped support risk-on sentiment. Equities soared as a result.
- The mood remained decisively downbeat on the economic data front, however. Small business confidence deteriorated sharply in March, with the NFIB index recording the largest monthly decline in the data’s 35-year history.
- Initial jobless claims came in at 6.6 million last week, bringing the three-week tally to 16.8 million. This means that one in ten American workers has already filed for unemployment insurance. At this pace, we expect the unemployment rate to be well into the double digits in April.
Markets Roll With COVID-19 Punches
COVID-19 continued to dominate headlines this week, with U.S. cases topping 430,000 by early Thursday. But, signs that the virus’ spread may soon peak – a message echoed by top White House health advisor Dr. Fauci mid-week – supported risk-on sentiment. Equity markets rebounded, with the S&P 500 up over 12% on the week as at the time of writing. New details on the Fed’s upcoming aid to the economy and clarity on who will lead the Democrats in the fall election appeared to lend a helping hand. Politics have been on the back burner, but with Senator Sanders out of the Democratic race, investors can now more clearly weigh the policies of the two key candidates running for President in the fall. Speaking of clarity, today’s OPEC+ meeting, where production cuts are high on the menu, and tomorrow’s G20 meeting, may also offer a new sense of direction for energy markets.
The mood remained decisively downbeat on the economic data front, where the U.S. continued to take it to the chin. More evidence of the pandemic’s damage to the economy continued to emerge. Small business confidence deteriorated sharply in March, with the NFIB index recording the largest monthly decline in the data’s 35-year history. Declines among the subcomponents were led by sharp pullbacks in expectations regarding sales and the economy, and the belief that now is a good time to expand (Chart 1).
Small businesses are in the line of fire given significant exposure to sectors that have been shut down to stem the spread of the virus. Recent government measures, such as the Payroll Protection Program (PPP), should help cushion the impact of the crisis (see our recent report). More help should be on the way, with new details on the Fed’s $2.3 trillion aid package unveiled this morning. Of note, the Main Street Lending Program will help fund up to $600 billion in loans to small and medium-sized enterprises. Timely access to funds remains of the essence, however, since many businesses do not have large cash buffers to ride out a drop in revenues – a point corroborated by a recent New York Fed report – and layoffs have already begun in earnest.
The initial jobless claims report continued to provide timely evidence of the pandemic’s massive impact on the U.S. labor market. Jobless claims remained at unprecedented highs for the third week in a row, coming in at 6.6 million last week (Chart 2). This brought the three-week tally to 16.8 million, which means that about one in every ten American workers has already filed for unemployment insurance. While fiscal and monetary measures should help stem the bleeding, the hemorrhage is likely to continue in the near-term, particularly as restrictive physical distancing measures remain in place. At this pace, we expect the unemployment rate to be well into the double digits in April.
All told, there may be some faint lights appearing at the end of the tunnel on the spread of COVID-19, which raises hopes for the potential for a move toward normal for the U.S. economy. However, the virus’ path remains uncertain and will continue to necessitate close monitoring. For now, sour economic data will continue to roll through, with April likely to be a particularly bad month.
Admir Kolaj, Economist | 416-944-6318
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