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Some of the air came out of the market on Tuesday, with the Dow industrials falling 300 points on low volumes. That is likely just caution ahead of the Federal Reserve decision, but also perhaps a reaction to seeing the likes of bankrupt companies like Hertz Global Holdings HTZ, -24.41% doubling in value the day before. Take heart, though — the blue chip index DJIA, -1.08% is still a staggering 47% higher than its March lows.
The Organization for Economic Cooperation and Development released its twice-a-year economic outlook on Wednesday, and unusually, presented two scenarios — one where the coronavirus continues to recede, and another where a second wave of rapid contagion erupts later in 2020. OECD Chief Economist Laurence Boone said both forecasts are equally probable.
Both forecasts are sobering, but in the “single hit,” U.S. gross domestic product slides 7.3% in 2020 and grows 4.1% in 2021, and in the “double hit,” U.S. GDP slides 8.5% in 2020 and limps just 1.9% higher in 2021. The unemployment rate in the double-hit scenario shoots higher to 16.9% in the fourth quarter and falls to only 10% in the fourth quarter of 2021, whereas the jobless rate in the single hit slows to 10.4% this year and 8.2% in 2021.
Testing, tracking, tracing and isolating may not be enough to prevent a second outbreak of the virus, Boone said, and sectors such as tourism, travel, entertainment, restaurants and accommodation won’t return to normal as long as no vaccine or treatment is widely available.
“Even if growth does surge in some sectors, overall activity will remain muted for a while. Governments can provide the safety nets that allow people and firms to adjust, but cannot uphold private sector activity, employment and wages for a prolonged period,” she said, calling for more public investment in digital and green technologies.
The buzz
The Fed decision gets released at 2 p.m. Eastern, and Chairman Jerome Powell’s press conference is at 2:30 p.m. With expectations the Fed won’t institute yield-curve control at this meeting, the economic forecasts that will be released could shift the market, giving traders a chance to see if the Fed is as bullish on a recovery as they have been.
“Projections will offer the first systematic look at where officials see the economy and policy headed over the next two years,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “Powell will want to make clear that the Fed intends to keep its foot on the accelerator, to offer all necessary support using all available tools.”
Before the Fed statement, inflation data will get released at 8:30 a.m. Eastern.
The European Central Bank has set up a task force to look at the idea of a bad bank to warehouse unpaid euro debt to shield commercial banks from any second fallout from the crisis, Reuters reported.
It is still early but there hasn’t been any noticeable impact on virus spread from the protests after George Floyd’s killing by Minneapolis police. In Minnesota, tests are up, but the number of positive responses, hospitalization and deaths are down, according to data from the COVID-19 project. On the flip side, cases in Texas appear to be rising.
Hedge-fund legend Paul Tudor Jones said during a presentation on Tuesday that “the biggest risk to this party coming to an end is going to be inflation down the road.”
The markets
Stock futures ES00, +0.03% YM00, -0.09% NQ00, +0.31% were weaker in morning trade.
Crude-oil futures CL.1, -2.67% fell, while gold GC00, +0.15% edged higher.
The dollar was lower against many rivals, notably the Japanese yen USDJPY, -0.38%.
The chart
It is only one investor, but Invesco released data showing what percentage of its real-estate portfolio has paid rent on time. Office tenants are still paying up, even as most employees work from home. Not so in the hard-hit retail sector, where roughly half have paid on time. “Retail rental collections remain dynamic as physical distancing restrictions continue to change by region,” said the fund manager.
Random reads
Sweden identified the man who assassinated its prime minister in 1986.
A drone video captured thousands of turtles nesting on the Great Barrier Reef.
Saturn’s moon Titan has had enough — it’s drifting away.
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