2020-04-30
https://www.caixinglobal.com/2020-04-30/chinas-manufacturing-activity-slumps-again-in-april-caixin-pmi-shows-101548780.html
'China’s Manufacturing Activity Slumps Again in April, Caixin PMI Shows
The recovery in China’s manufacturing sector in March appears to have been short lived with a Caixin-sponsored index of activity falling back into contractionary territory in April as the coronavirus pandemic continued to hurt both domestic and international demand
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the country’s manufacturing sector, fell to 49.4 in April from 50.1 the previous month, a report released Thursday showed. A number above 50 indicates an expansion in activity, while a reading below that signals a contraction. In February, the reading fell to 40.3, the fastest contraction in the index’s 16-year history as the Chinese economy stalled amid the Covid-19 outbreak.'
Although the domestic economy started to recover in March as the virus was brought under control, the rapid spread of the disease across other countries and regions disrupted international business and cratered global consumption, inflicting a further blow to Chinese companies. Although output continued to recover in April, export orders contracted for a fourth straight month and at a faster pace, with the reading at its weakest since December 2008 during the global financial crisis.
The sharp fall in export orders seriously hindered China’s economic recovery in April, although businesses were gradually getting back to work,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group. The survey of around 500 manufacturing enterprises was conducted from April 7 to April 22.
“Amid the second shockwave from the pandemic, the problems of low business confidence, shrinking employment and large inventories of industrial raw materials became more serious. A package of macroeconomic policies, as suggested in the April 17 Politburo meeting, must be implemented urgently. It is particularly necessary to aid weak links including small and midsize enterprises and personal incomes,” Zhong said.'
https://edition.cnn.com/2020/04/30/business/oil-bankruptcies-default/index.html
'The oil bankruptcies are just beginning. Here's who could be next
New York (CNN Business)The oil crash is blocking American frackers from accessing the cheap credit that fueled their prolific rise. That reversal of fortunes could prove fatal for overleveraged shale oil companies.
The downturn in the oil industry has laid bare just how much America's rise to superpower status in the energy world was made possible by easy money. Virtually unlimited borrowing allowed shale companies to dramatically ramp up production, whether that oil was needed or not.
Getting locked out of the junk bond market will tip the weakest players into bankruptcy, risking countless US jobs along the way. That's what happened during the last oil crash that began in 2015.
The looming oil patch bankruptcies underscore the fragile state of the boom-to-bust industry even before the coronavirus crisis.
"These companies were in trouble before COVID-19 happened," John Kempf, senior director at Fitch Ratings, told CNN Business. "After 2015 and 2016, they never really got their balance sheets back together. When stress came, they weren't prepared for it."
Despite a recent rebound, US oil prices have imploded by three-quarters since early January, to just $15 a barrel. The crash was driven by excess supply, especially from Russia and Saudi Arabia, and an unprecedented collapse in demand because of the coronavirus pandemic.
There's so much crude that the world is running out of space to store it all. That conundrum caused crude to tumble well below zero last week, marking the first instance of negative oil prices since futures launched in 1983.
$43 billion of energy junk bond defaults
Prices are so weak that Rystad Energy has warned that hundreds of US oil exploration and production companies could file for bankruptcy by the end of 2021.
The bankruptcy wave has already started. Earlier this month Whiting Petroleum (WLL) filed for bankruptcy, marking the first high profile Chapter 11 filing of the current crisis. Diamond Offshore Drilling (DO) joined the bankruptcy club on Sunday. Diamond, which provides offshore drilling rigs for Hess (HES), Occidental (OXY) and BP (BP), was posting losses months before the crisis.
Fitch Ratings is warning that more than $43 billion of high-yield bonds and leveraged loans in the energy sector will default in 2020. For context, that's nearly five times the sector's average level of defaults over the previous dozen years.
Moody's Investors Service cut its near-term oil price assumptions this week, forecasting that US oil prices will now average just $30 per barrel in 2020, a price too low for virtually any US shale oil company to turn a profit. Moody's sees US crude rising to just $40 in 2021.
"Financial risk is rising and likely to remain very high for all but the highest-rated oil and gas issuers," Moody's wrote in the report.'
2020-05-01
Is that dead cat still bouncing? Or maybe that's because there's a disproportionate amount of market capitalization in a few high-tech firms that are benefiting from stay-at-home.
New York Times
'The news is terrible but Wall Street just had its best month in decades.
Stocks fell on Thursday, giving up some of their gains from the day before, after reports that showed millions more Americans applied for weekly unemployment benefits and consumer spending collapsed.
The S&P 500 closed down nearly 1 percent. But it was a small retreat in an otherwise stellar month for Wall Street. Even with Thursday’s decline factored in, the S&P 500 had its best month since January 1987, a gain that came even as it became increasingly clear that the coronavirus crisis was pushing the United States into a dire economic downturn.
The nearly 13 percent gain this month means the S&P 500 is now up roughly 30 percent from its March 23 low. It’s a rally that has surprised even the most ardent bulls.
“Frankly, I’m shocked by the speed of the rally,” said Julian Emanuel, chief equity and derivatives strategist at the brokerage firm BTIG, who has been anticipating a rebound since before the rally began.
The rally, even in the face of crushing economic data, highlights investors’ confidence that things will return to normal sooner than they thought when stocks were collapsing in late February and early March.
Both the Federal government and the central bank have pumped trillions of dollars into the economy and financial markets, lockdown measures appear to be having some success in reducing rates of infection, and some states are laying out the conditions for reopening.
“Instead of now talking about shutting everything down we’re talking about opening it back up again,” said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman. “That’s a good change in the conversation.”
Some southern states have begun trying to return to normal, and bigger states such as New York and California have started laying out the conditions for reopening.
That doesn’t mean the economy is suddenly going to be back on track.
Markets tend to rebound far before any actual improvement in economic fundamentals is apparent, as investors buy shares based on expectations for what will happen later in the year, rather than the current climate. During the last recession, the stock market bottomed in March 2009. But the unemployment rate didn’t begin to drop until October of that year.
Top Wall Street economists expect the second-quarter economic data to look, well, cataclysmic. J.P. Morgan economists, for example, believe the American economy will shrink at a previously unthinkable 40 percent annual rate in the second quarter. The Congressional Budget Office thinks unemployment could hit 16 percent by the third quarter.
It’s also important to recognize that the current rally has been relatively narrow, with an outsize part of the gains for the S&P 500 index attributable to a handful of giant technology companies — Microsoft, Apple, Amazon, Alphabet and Facebook. In April, these companies grew to account for roughly 20 percent of the total value of the S&P.
The rebound in shares of technology companies — in part because their businesses are seen as benefiting in various ways from stay-at-home orders — has been most evident in the Nasdaq composite, which has nearly erased all of its losses for 2020.'
'Stymied in Seeking Benefits, Millions of Unemployed Go Uncounted
With a flood of unemployment claims continuing to overwhelm many state agencies, economists say the job losses may be far worse than government tallies indicate.
The Labor Department said Thursday that 3.8 million workers filed for unemployment benefits last week, bringing the six-week total to 30 million. But researchers say that as the economy staggers under the weight of the coronavirus pandemic, millions of others have lost jobs but have yet to see benefits.
A study by the Economic Policy Institute found that roughly 50 percent more people than counted as filing claims in a recent four-week period may have qualified for benefits — with the difference representing those who were stymied in applying or didn’t even try because the process was too formidable.
“The problem is even bigger than the data suggest,” said Elise Gould, a senior economist with the institute, a left-leaning research group. “We’re undercounting the economic pain.”
Alexander Bick of Arizona State University and Adam Blandin of Virginia Commonwealth University found that 42 percent of those working in February had lost their jobs or suffered a reduction in earnings. By April 18, they found, up to eight million workers were unemployed but not reflected in the weekly claims data.
The difficulties at the state level largely flow from the sheer volume of claims, which few agencies were prepared to handle. Many were burdened by aging computer systems that were hard to reconfigure for new federal guidelines.
“We’ve known that the state unemployment insurance systems were not up to the task, yet those investments were not made,” Ms. Gould said. “The result is that the state systems are buckling under the weight of these claims.”
The crush of claims is a major reason — but not the only one — that states are backlogged. Frustrated applicants who refile their applications, some as many as 20 times, slow the system as processors weed out duplicates.
Millions who have managed to keep their jobs face salary cuts or furloughs, a sign of employers’ uncertainty. Given the trillions spent, “we would have hoped that federal efforts would have been more effective at stemming job losses,” said Michael Gapen, chief U.S. economist at Barclays.
Mr. Gapen said he expected the unemployment rate to hit 19.5 percent in April, a level unseen since the Depression.
The federal stimulus efforts include an additional $600 in weekly unemployment benefits through one program, known as Federal Pandemic Unemployment Compensation. Another, Pandemic Unemployment Assistance, is aimed at independent contractors and so-called gig workers who don’t qualify for traditional unemployment coverage. Washington is also paying for 13 weeks of benefits once state payments run out, an initiative called Pandemic Emergency Unemployment Compensation.
According to the Labor Department, all 50 states are paying the $600 weekly supplement, but only 23 have begun benefits under the program for independent contractors, and only nine have started the 13-week extended payments.'
2020-04-23
'Prior to this five-week stretch of 26.5 million initial jobless claims, there were already 7.1 million unemployed Americans as of March 13, according to the U.S. Bureau of Labor Statistics. When the figures are combined, it would equal more than 33 million unemployed, or a real unemployment rate of 20.6%—which would be the highest level since 1934.'
https://fortune.com/2020/04/23/us-unemployment-rate-numbers-claims-this-week-total-job-losses-april-23-2020-benefits-claims/
'Bank of England warns of worst contraction in centuries, as economic activity slumps - as it happened
UK purchasing managers’ index (PMI) data showed that Britain’s economy is shrinking at an unprecedented rate.
It was a similar tale in the eurozone data.'
https://www.theguardian.com/business/live/2020/apr/23/uk-government-borrowing-covid-19-recession-pmi-us-jobless-claims-business-live
2020-04-02
SCMP
'In February, friends Jay Wang and Zhou Ping were among the millions of Chinese manufacturers battling to resume production after the coronavirus outbreak shuttered key industrial sectors across the economy.
But when the pair finally managed to restart their separate operations last month, after rigorous quarantining of workers and disinfection of factory floors, they encountered an even bigger problem: clients from Europe and the United States were suspending orders as the pandemic spread throughout the rest of the world.
“In late February, I took orders for more than 90,000 pairs of shoes, but 80,000 were cancelled last week,” said Wang, who like Zhou has run a factory in the industrial and export hub Dongguan in southern China for about a decade.
Both companies will ask most of their workforce to take leave on minimum wage in mid-April or May because of the worsening situation overseas.
“Many factories like us had already paid in advance to buy raw materials, and the current trend of increasing cancellations and postponements of orders increases risk and uncertainty,” Zhou said.
Dongguan, once a centre of labour-intensive manufacturers from shoes to electronics, started to lose its shine following the global financial crisis in 2008-2009 and it is no longer so appealing to China’s estimated 290 million rural migrant workers.
While the industrial hub was once thriving with commerce, rows of empty stores and restaurants, peppered with for lease and sale signs, are common features of the cityscape today.
(...)
The early impact of the virus on China’s economy was laid bare in recent economic data, which showed industrial production, investment and exports plunged in the double digits in the first two months of the year.
President Xi Jinping has said China, which exported US$2.5 trillion worth of products in 2019 – making it the world’s largest exporter – needs to work hard to ensure its position in the global value chain.
Xu Xiaonian, a professor of economics and finance at China Europe International Business School, said last week that China was headed for a severe economic downturn due to its reliance on overseas markets.
China not only lacks food and oil but also a market for orders. Our per capita [gross domestic product] is about a fifth of that in the US and a quarter of Europe. China’s domestic purchasing power just cannot support our huge manufacturing capacity,” said Xu in a speech.
Slumping overseas demand is already beginning to ripple through Dongguan’s job market.
Li Dian and Zhang Qing – both in their 20s – arrived in the city from Hunan province, some eight hours drive to the north, to look for a “good factory” job offering a monthly salary of at least 4,000 yuan (US$563), a day off a week and free food and accommodation
As they stood in line at a recruitment agency office, they said they had already found wages were lower than last year, but they wanted to start work as soon as possible.'
