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ECB, Fed Take More Steps; Plus 281K New Claims

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Thursday, March 19, 2020

Overnight, the European Central Bank (ECB) announced it will backstop the European economy by expanding its asset-purchase program, buying 750 billion EUR ($820 billion equivalent) in government, private sector and commercial paper units. This somewhat contradicts President Christine LaGarde’s earlier, more dovish statements on the outlook for the European Union. It also shows the ECB is still a step or two behind the aggressive stance of the U.S. Federal Reserve.

The Fed, for its part, has come out with a new bailout plan to help mutual fund liquidity for both trading firms and individuals. The Money Market Mutual Fund Liquidity (MMFL) will assist funds in meeting demand requirements, further looking for ways to keep funds fluid enough so that our financial instruments are not frozen without access to capital.

Initial Jobless Claims for last week rocketed up 70,000 — from an unrevised 211K two weeks ago (in the middle of our long-term range of 200-225K, consistent with an historically robust labor market) to 281K last week. It’s the highest number of new weekly claims since September 2017, when the trajectory was going in a much different direction.

This is clearly a result of the coronavirus spread leading to a fallout in domestic jobs, particularly in the Services sector. Although we do not see a breakdown by industry, it stands to reason that Retail (15 million employees in the U.S.) and Restaurants/Bars (12 million U.S. employees) are going to be among the hardest hit as a result of “social distancing” and self-quarantining practices designed to thwart the spread of the coronavirus.

Continuing Claims, which report a week in arrears, reflect on our long-term job situation that we used to have: 1.701 million resides in the historically low range we’d grown to enjoy for the past few years. These figures are expected to spike going forward, as our current situation regarding (mostly) Services layoffs manifest.

The Philly Fed survey for March produced a record drop this morning, from a robust +36.7 posted for February to -12.7 this morning — a nearly 50-point swing month over month. Again, the fault-lines are now beginning to show up in our monthly, weekly and quarterly economic data, without much hope for any sort of upswing in the foreseeable future. It would be wise to adjust expectations going forward, especially with marquee economic data like quarterly GDP and the Unemployment Rate.

We are a week and a half from the end of Q1 2020, which is by any measure expected to be a challenging one. The good news, such that it is, is progressing through the tough times brings us closer to a brighter future — provided we conduct ourselves as responsible citizens as we continue forward.

So with Q1 already expected to be a disaster, please wash your hands regularly with soap and water, and limit your physical contact with others for the time being. We’ll eventually find ourselves on the other side of this.

Mark Vickery
Senior Editor

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