Recently I subsequently explore on US market, also talk with a few investors who are both good at US economy observations. There are some points summarised as follow :
1. Last time we mentioned IHS Markit US Services Feb PMI sharply down 4% with the forecast. But leading index for manufactured sector Chicago PMI of Jan-Feb-Mar show as 42-49- 47.8. Unfinished orders soar and business inventory have been in minus since last Nov. It seems that business inventory is on closeout ( or clearance). and if US consumption can keep going, It'll create persistent demand for industrial production. Another sign to back up view is that Capacity Utilization in Manufacturer increased to 77 percent in February from 76.60 percent in January
2. Michigan Consumer Sentiment Index widely used for measuring consumer spending on durable goods and economic demand in 3-6 months. the scores show sharp drops 11.9 points in March that in History only 1980 recession, 2005 Hurricane Katrina and 2008 crisis barely over it. 1980 and 2008 lead to long economic recession, but in 2005 things get reverse only take 3 months after hurricane. The chart below shows the seven-day moving average of the Sentiment Index over the past two months, if seven-day moving average can be stabilised, it is possible the economy demand would soonly recover like 2005
3. Sales in light vechiles have declined past 2 years before after 7 years of long climbing show that the business activities top to highests in 2016-2017 ( light vechile used in transportation for business It imply the economy cycle now situated at phase 3. )
The new home sales have increased from 2010 for almost 10 years, it once downward in early 2018, recently it climb up again. Real estate is powerfull engine for economc growth, as Fed cuts rate a lot, we wish it can support US real estate market not fall too much by virus
4. Real state industry still on hot spot untill March, under strike of COVID-19, house business activities could be cool down for a few months. Fed already cuts down rate to 0.25%, it either help to defend the coming problems of mortgage paid postponed( evenly default) by much lower rent of business property due to unrescurable low sales in central business district ; or help to support the minimum demand of personal residence market that 80M households have to pay total 95 bn of Mortgage loan monthly.
Two items extracted from Trump 2 tr stimulus plan do more discussion following :
1) Create a $500 billion pool of taxpayer money to make loans, loan guarantees or investments to or in businesses, states and municipalities damaged by the crisis.
The Economists predict that Business enterprise and households total would pay 125 bn monthly on Mortgage since April, If 40% of 2tr plan used for the relieving Mortgage problem, means that 600 bn( 2000bn*40%) used for aid to monthly 125 bn of Mortgage paid last for 4.8 months (600 bn/ 125bn = 4.8 months). The 2 tr plan can keep US Mortgage market from seriously declined for nearly 5 months.
( using this approach I assume whatever 2 tr spent on which industry and which economy dimension, The money eventually flow to people's pocket to keep business functioning instead of collapse and make households sufficient resource to maintain essential of livings, and mortgage paid is one of them )
2) Provide $17 billion in loans and loan guarantees for unspecified “businesses critical to maintaining national security.”
what industry most likely related to national security ?? I guess is oil one.
Alright ! I assume 17 billion aim at rescuing the oil industry that some of them have been downgraded for credit ratings, and there is highly possibility of borrowing default within a year.
Market size of U.S high yield bond : 2 trillion
Bond coupon rate : 5%
2 trillion= 2000 bn
we suppose badly there are 20% oil companies meet default one year after, what amount to be poured into market so that finally prevent most companies from borrowing default evenly fallen down tragedly. The Calculation as follows :
2,000 bn * 20%* coupon rate 5% = 20 bn ( The amount needed to rescue oil industry )
20 bn of numbers figured out little more than 17 bn of Trump plan, and I still wish it do a favor for rising concerns on financial pressure expectedly come to oil company by mid of 2020
Alright ~ above are the issues observed in market recently, last time I mentioned US economy will facing risk of going down, and prosperous economy activities will give an aid to resist impact of COVID-19, the latest news show US jobless claims surge to 6 M people, I keep watching and subsequently updated views to the market.
BR
York
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