U.S. and World News
- The People’s Republic of China proposed a national security bill for Hong Kong which could result in Chinese intelligence agencies setting up bases there, threatening the independence and pro-democracy movement in Hong Kong. Pro-democracy lawmakers called the plans “the end of Hong Kong”, arguing that it is a violation of the “one country, two systems” agreement created when Britain returned Hong Kong to China in 1997. In the proposal, China would annex laws into Hong Kong’s mini-constitution, the Basic Law, without any local legislative scrutiny and are intended to safeguard the central government’s “overall jurisdiction” as well as Hong Kong’s “high autonomy” given Hong Kong’s “increasingly notable national security risks”. Currently, China can take no enforcement action in the city of Hong Kong, but this proposal would allow agencies to be set up in the city, expanding China’s presence. President Trump warned that the United States would react “very strongly” if China put the bill into law, and Secretary of State Mike Pompeo said that it would be the “death knell” for Hong Kong’s autonomy.
Residents of Midland, Michigan began returning to their homes and assessing the damage from what is being called the “500-year flood” caused by a long period of heavy rain and the failure of two dams protecting the city. Nearly 11,000 people were evacuated from the city as the Tittabawassee River rose to a record 35.05 feet, much higher than the flood stage of 24 feet and left Midland underwater. Concerns over potential spread of toxic contamination arose as floodwaters overtook containment ponds at the nearby Dow chemical plant. Flood warnings remain in effect for the entire area and a forecast exists for more rain next week
Markets
- Markets surged this week as states begin reopening. The S&P 500 spiked 3.27% and closed at 2,955. The Dow Jones jumped 3.43% and closed at 24,465. Year-to-date, the S&P 500 is down -7.77% and the Dow Jones is down -13.40%.
- Yields rose higher this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.34% and 0.66%, respectively.
- The spot price of WTI Crude rallied higher this week. Prices rose 13.38% and closed at $33.47 per barrel. Year to date, Oil prices are down -45.16%.
- The spot price of Gold fell -0.50% and closed at $1,734.98 per ounce. Year to date, Gold prices are up 14.35%.
Economic Data
- Initial jobless claims fell by 249,000 to 2.4 million and the four-week moving average of claims fell by 501,000 to 3 million. Claims rose by 59,000 in New York, 41,000 in Washington, and 36,000 in California. Claims fell by 55,000 in Georgia, 46,000 in Kentucky, and 35,000 in New Jersey.
- The Philadelphia Fed manufacturing index rose by 13.5 points to -43.1 versus expectations for a reading of -40.0
- The level of housing starts fell 30.2% to 891,000 versus expectations for a decline of 25.9%
- Building permits fell by 20.8% versus expectations for a decline of 25.9%
- Existing home sales fell by 17.8% to a seasonally-adjusted-annualized rate of 4.33 million units versus expectations for a 19.9% decline.
Fact of the Week
- This week in 1991, Michael Jordan won his second MVP title. When Jordan first launched his iconic Air Jordan sneaker with Nike in 1984, the company put a sales goal of $3million over 2 years for the shoe. The original Air Jordan went on to sell $126 million in the first year alone. (Source: Bleacher Report)
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The U.S. House of Representatives will vote today on the latest stimulus bill, called the Heroes Act. This round of relief would include another $1,200 stimulus check to all Americans, $200 billion in additional funding for essential workers, and a six-month extension of the enhanced unemployment program. The $3 trillion of additional stimulus would also include funding to state and local governments, among other things. The bill is not expected to pass the Senate however, as it has been met with criticism by Republicans who believe that further stimulus is not necessary at this time. The White House responded to rumors that another stimulus check would be issued to Americans with a statement that said “As President Trump has said, we are going to ensure that we take care of all Americans so that we emerge from this challenge healthy, stronger, and with economic prosperity, which is why the White House is focused on pro-growth, middle class tax and regulatory relief.”
During a press conference, Secretary of State Mike Pompeo stated that he has seen “significant evidence” that COVID-19 originated in a Chinese laboratory and alluded to the possibility of a restructuring, stating “how we restructure … supply chains to prevent something like this from ever happening again”. Another U.S. government official stated that the United States is “turbocharging” the previously put in place initiative to remove global industrial supply chains from China. Some examples of action that could be taken are tax incentives and re-shoring of subsidies for companies doing business in China. The United States is not alone in this initiative as other large trading partners such as India, Japan, and members of the European Union have set aside funds for incentives to companies doing business in China. The United States is also considering creating an “Economic Prosperity Network” (EPN) that would consist of trusted trading partners such as Japan, India, Australia, and others to work toward balancing the economic, political, and security imperatives so that there is less reliance on China for supplies.
As the coronavirus has spread to over 3.2 million people and resulted in over 230,000 deaths, discussions among world leaders regarding the root cause of the virus have begun. While President Trump was talking to reporters Thursday night about the progress of the trade deal he stated that it “becomes secondary to what took place with the virus”, indicating that there could be repercussions for China. The President stated during the press conference that China was spreading misinformation when the virus began to spread and even said that he saw evidence that the virus originated in a Chinese lab. The calls for an investigation from lawmakers across Europe into the root cause of the virus are being supported by Ursula von der Leyen, the head of the European Union’s executive arm. Additionally, she had indicated that she would like to see China work with her organization, and others, during the investigation. In response to widespread criticism over its handling of the virus, Chinese Vice Premier Le Yucheng stated that “China has been open, transparent and responsible in its COVID-19 response.”
Some states are moving forward with reopening business and easing restrictions as they attempt to put the economy back on track. Georgia has allowed barber shops, tattoo parlors, hair salons, massage parlors, and gyms to open cautiously, with requirements such as screening of customers, wearing protective gear, and additional cleaning. Governor Brian Kemp of Georgia has faced criticism for opening business prematurely in a state that has lacked sufficient testing. This morning President Trump signed into law a $484 billion coronavirus relief bill that will primarily provide additional funding to small businesses while also providing funding to hospitals and efforts to increase testing. Some larger public companies have been criticized for taking government aid when unnecessary, while other companies such as Neiman Marcus have announced that they would file for bankruptcy protection. President Trump indicated this week the possibility of social distancing guidelines being extended into early summer and Dr. Anthony Fauci stated that the coronavirus will likely return in the fall. Developing a vaccine remains a critical task for the world and health care giants Johnson & Johnson, Pfizer, and Moderna remain optimistic about their efforts.
In an effort to serve our colleagues, Old Second Wealth Management would like to inform you about several of the recent developments that have taken place since our last update:
The total number of confirmed COVID-19 cases worldwide is now over 2.1 million, 671,000 of which is in the United States. The curve has been flattening in the United States, prompting discussions among government officials regarding ways by which to open the economy. On Thursday evening, the Trump administration set out guidelines for individual states to open their economies in a series of phases. Before entering the first phase, the number of cases or reports of COVID-19 and flu-like symptoms need to show a downward trend over a two-week period. Also released Thursday evening, was a report that said Gilead Sciences drug Remdesivir was showing some effectiveness in treating patients suffering from coronavirus, giving many a sense of optimism. Lawmakers will negotiate throughout the weekend toward an emergency bill that would expand the Small Business Administration loan plan which reached its cap of $350 billion this week.
New York State now has over 160,000 confirmed cases of coronavirus, more than any other country in the world, as Governor Cuomo continues to plea for government support, asking for ventilators, masks, and other respiratory equipment to help slow the spread. The United States now has over 466,000 confirmed cases as the virus has spread from big cities to rural America and global confirmed cases have topped 1.6 million, over 100,000 of them deadly. Despite the large numbers, the curve is flattening in New York with regards to new confirmed cases. On Thursday morning, the Federal Reserve announced $2.3 trillion of additional financing for small businesses and state governments. Congress will attempt to pass additional aid for small businesses next week after an additional $250 billion failed to pass this week, as Senate Democrats were seeking more funding for hospitals and states. Dr. Anthony Fauci stated that the U.S. death toll from the coronavirus could be closer to 60,000, instead of his prediction last week that there would be 100,000 to 240,000 deaths.
President Trump has extended the federal social distancing guidelines to April 30th as the official world number of cases surpasses 1 million. Earlier this week, Dr. Anthony Fauci and top government scientists estimated that the coronavirus could kill 100,000 to 240,000 Americans, as they pledge to do everything that they possibly can to reduce that number. So far, 38 states have instituted some form of stay-at-home orders while Dr. Fauci continues to suggest that all states institute this mandate immediately. New York Governor Andrew Cuomo said this morning that “The curve continues to go up” in New York as they saw their single-largest daily increase in deaths yesterday since the outbreak began. The American economy is at a standstill with businesses shut, roads empty, and citizens in their homes as federal officials are rushing to distribute stimulus checks to taxpayers. Even after the largest emergency spending bill in U.S. history was passed last week, Congress and the Trump administration have begun to discuss details of what “Phase 4” could look like.
Coronavirus cases across the world has eclipsed half a million and the United States has surpassed every other country in the world in number of cases, currently at about 95,000. At the epicenter of the virus, New York City Mayor Bill de Blasio projects “over half the people in this city will ultimately be infected.” In the United Kingdom, Prime Minister Boris Johnson has tested positive for coronavirus, after instating a “stay-at-home” order earlier this week. The U.S. House of Representatives was prepared for a voice vote on the $2 trillion coronavirus relief bill passed by congress earlier this week, until one lawmaker announced his opposition to the bill late last night. This announcement led to House members scrambling back to Washington to hold a recorded vote. The bill passed in the House early this afternoon and is now being sent to the President’s desk. The relief bill includes one-time direct payments to individuals, added unemployment insurance, and loans to businesses.