Thursday, 23rd April 2020
Quote of the day: “In order to protect our great American workers I’ve just signed an executive order temporarily suspending immigration into the United States,” Trump said
Opinion: Exec. Order for 60 days, can extended. Political move towards election. Declaration comes the day before unemployment numbers. Still, unlikely to affect the real economy as US government already imposed travel curbs on China, Europe, Canada and Mexico to contain the virus’s spread.
Quote of the day : “ House Speaker Nancy Pelosi saying “we’re ready to go on to the next bill.” The House is set to vote in favor of the $484 billion stimulus package today before sending it to President Donald Trump for his signature.
Lesson of the day:
· US treseary (Inverted) yield curve: Indicate Investors feeling about the economy. The higher the yields the better the economic outlook. The lower the confidence in economy outlook is, the higher the demand for Treasury bond is as investor see T-bills as a safe investment. Hence, the yield falls.
· Inverted yield curve represents a situation in which long-term debt instruments have lower yields than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession. Most investors believe that short-term interest rates are going to fall sharply at some point in the future. As a practical matter, recessions usually cause interest rates to fall.
Numbers to watch
· March new home sales data at 16:00 Paris time will get attention with transactions forecast to fall by 16
· Intel Corp., Eli Lilly & Co. and Blackstone Group Inc. are reporting today.
· Purchasing Manager index Data for the U.S. economy is published at 9:45 a.m.
· Facebook biggest investment in 6 years: to acquire 10% of Jio Platforms, an Indian telecom company that aims at competing with Walmart and Amazon in its country. Cost of the stake: $5.7B, more than Instagram and Oculus deals combined. Allow to tap into a 1.3B internet users market, of which only a third are currently monthly users. Previous attempt to access Indian market failed due to regulatory Indian body.
· Contracts on the S&P 500 moved up after jobless claims surged by 4.4 million last week, slightly less than expected. The median estimate of economists was for 4.5 million claims. Total job losses now exceed 26 million.
· Central America to feel the pain of U.S. layoffs with money transfers declining
· Today’s Purchasing Managers’ Indexes. France plunged to 10.4, below the 50 level that marks the divide between expansion and contraction. Composite PMI for the euro area plunged to an astonishingly low 13.5. “PMIs and initial jobless claims to understand the depth of recession, but it’s not the key input to determine asset allocations.”
Private Investment in Private Equity Opportunity
· Private equity firms may take advantage of the downturn to build stakes in publicly traded companies, rivate equity funds hunting for deals during and after the coronavirus pandemic will likely turn to the public markets. These deals are more likely to occur when “cyclical businesses look for cash when credit is hard to come by,”
· Expedia in discussion to receive more than $1bn against board seats from Apollo Global Management and Silver Lake. Expedia shares have been hit as the global coronavirus outbreak puts a pause on travel.
· IAC is also considering selling debt in addition to the new equity. Travel companies have rushed to shore up their finances following a sharp drop in revenues due to coronavirus, which has suspended air travel and holiday bookings.
· Struggling cruise operator Carnival raised $6.3bn in debt and equity from investors this month following high-profile breakouts of the virus on its ships.
· Airbnb closed a combined $2bn deal on debt and equity financing with PE Silver Lake
Indicators showing that a V shape recovery is not yet to come
· Although there has been an improvement in the tone of corporate credit since that Fed action, we want to highlight a few credit indicators that suggest an economic and market ‘V’ call may be too early.”
· “US Treasury yield curve remains too flat.” The yield curve, or the spread between the yield on the 2-year U.S. Treasury note and the 10-year note has long been an indicator of coming economic weakness or economic recovery, with the spread narrowing or even inverting before recessions and steepening before recoveries.The spread “remains well below the spread at either [previous stock-market lows] or ends of recessions,” Dwyer wrote.
· The second indicator Dwyer is watching is the 26-week rate of change in business loan demand, which spiked by 17.3% in the week ended April 17. This rate of change “has been truly historic and likely marks the beginning of a recession,” he wrote, adding that business loan demand typically drops sharply just before the beginning of an economic recovery.
· Chicago Federal Reserve’s National Financial Conditions Index, which compiles 105 measures of financial activity to gauge the overall availability of credit to businesses. While recent Fed has stressed its willingness to engage in extraordinary action to support bond markets, credit conditions continue to grow more restrictive by this measure.
· too early to price in the end of the recession