US  in the Middle of a Deep Recession.

The US  in the Middle of a Deep Recession.

US  in the Middle of a Deep Recession.

Following some turbulent weeks in and outside financial markets, a lot of institutions may be closing in on a peak in new coronavirus infections globally. As a result, we could see lockdowns gradually lifted during the second half of April and early May in both the US and Europe. The question is: What does this mean for the economic and financial damage done? What may be next from a policy response point of view? And what are the outlook across equities, fixed income, and credit and FX markets in light of this? 


The US House of Representatives is expected to pass the USD 2,000bn fiscal stimulus tonight. It was approved with the agreement of all people involved in the Senate on Wednesday. The US releases data for personal spending and core PCE inflation in February. However, since the data reported are from the month before the COVID-19 virus really hit hard on the United State, we doubt it will get much interest.


US stocks have been gaining for three days consecutively for the first time since February. The central banks and governments have done a lot to tackle the economic side of the coronavirus crisis, though one cannot say this will end the spread of this virus. US futures are down around 1.6% this morning. We think both central banks and governments will do more if necessary. It is interesting that the US spending package includes more money to the Exchange Stabilization Fund, which US Treasury uses to inject liquidity into the Fed’s various credit programmes. (US Treasury provides 10% of credit protection to the Fed). This means the Fed’s various credit programmes can be expanded significantly if needed. “In our view, the credit market and the liquidity situation are important, whether the Fed will do more or not,” report by Danske banks.



US initial jobless claims have increased by 3.3 million last week, which was a new record high. There is no doubt that the US is in the middle of a deep recession, which is also why we think it is positive that the politicians have agreed on a huge spending package and the Fed has gone all in. That is what is needed to avoid this developing into a prolonged recession.


New data for the Fed’s balance sheet shows an increase of USD586bn to USD5,254bn, a new record high, due to the Fed’s new credit and liquidity programmes and increasing QE buying. The balance sheet is expected to rise much further in the near future for the same reasons.


Taxes oil: Could this be the beginning of the end. As reported by The widespread misery was evident in the Dallas Fed’s latest survey which included responses from 161 energy firms and took place from March 11-19. The quarterly survey offers a window into not just the economic health of the industry, but also a look into the psyche of many oil executives in Texas. The numbers were stunning. The broad business activity index, which measures activity in the energy industry, plunged in the first quarter, dropping to a -50.9 reading, down from -4.9 in the fourth quarter. More specific indices reveal similar numbers. For instance, the Dallas Fed’s index on Capex fell off a cliff, declining from 9.1 in the fourth quarter to -49.0 in the first three months of the year, a reflection of the severe cuts to spending budgets.


In a rather revealing slide from the Dallas Fed survey, the average price that a driller needs to simply cover operating expenses (let alone earn a return) ranged from $23 in the Eagle Ford to $36 in “other” shale basins. In other words, with WTI currently trading below $25 per barrel, the “average” shale driller is not even covering the cost of keeping shale wells online. 



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