Midweek Macro – 4.17.2020

“We are now seeing the true effects of the coronavirus on the housing industry,” said Bill Banfield, Quicken Loans executive vice president of capital markets. “Despite the fact that construction can continue during shelter-in-place orders, home buying demand has plummeted and builders are seeing materially lower foot traffic.”

Yesterday, markets watched U.S. housing and unemployment data come in slightly worse than even the dismal numbers being forecasted. Another 5.25 million Americans filed for unemployment bringing the total during the COVID lockdown above 22 million.  Housing starts were down 22% in March, representing the largest month over month drop in 36 years (the pace is still up 1.4% vs March of 2019, but April won’t be kind to this number either).

In the same way that traders ignored the good economic reports at the beginning of this crisis (because the data is lagged), they are now shaking off yesterday’s data and some bulls are coming out of the woodwork. DOW futures leave the index poised to open 3% higher as the market processes the guidelines put forth by the Trump Administration late Thursday as to how the U.S. will re-open the economy.

After starting the week on a hard line, claiming absolute authority on when states would lift their protective measures, Trump has softened his tune so much that his new plan is being received as a loose set of recommendations. Ron Klain (who spearheaded the response to Ebola) said “This isn’t a plan. It’s barely a PowerPoint.” Klain noted that the plan did not include provisions to ramp up testing or standardize levels of disease that would make it prudent to open regions of the economy.

Phase 1 – Hospitals should have a “robust testing program” that includes antibody testing for healthcare workers

  • Groups of more than 10 people should be avoided if appropriate distancing measures are not practical
  • Non-essential travel should be minimized
  • Telework should be encouraged and common areas in offices should be closed
  • Schools should remain closed
  • Movie theaters, restaurants, sports stadiums and places of worship can open with “strict physical distancing protocols”
  • Hospitals may resume out-patient elective surgeries
  • Bars should remain closed

Phase 2 – States/Regions with “no evidence of a rebound”

  • Groups of more than 50 people should be avoided if appropriate distancing measures are not practical
  • Non-essential travel can resume
  • Schools and youth camps can reconvene
  • Bars with “diminished standing-room occupancy” may re-open
  • Hospitals may resume in-patient elective surgeries

Phase 3 – “New Normal”

  • Unrestricted staffing of workplaces
  • A need for higher hygiene standards and more space between people

As I mentioned Wednesday, our leaders are doing their best to balance public health and the health of our economy. Biden and Trump are also doing their best to win the next presidential term, and there’s a lot at stake through the handling of this crisis.

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