Record Unemployment Claims and Oil’s Best Day Ever

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Some of you may have already picked up on this, but any discussion about the COVID-19 crisis will undoubtedly include a number of superlatives such as “highest ever,” “most on record” and “unprecedented.”

This week’s events were no exception. On Thursday, a head-spinning 6.6 million Americans filed new claims for unemployment benefits, bringing the two-week total to 10 million. That’s more than the combined populations of Los Angeles and Chicago.

Seeking a way to properly visualize the massive spike in initial jobless claims, analysts at Cornerstone Macro noted that they’ll need to be log-scaled now and forever for us to see the business cycle.

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“There isn’t much to say about this chart aside from letting the chart show just how unique a backdrop today is,” Cornerstone wrote. “Yes, it’s different this time… for all to see. While it is nearly impossible to maintain these levels of initial claims going forward for too long, we wouldn’t read a ‘peak’ in this data as ‘good news.’ If claims are still near 600k in two months, we’ve got a problem.”

Every crisis has its own unique challenges, but none in my lifetime has been so far-reaching or pervasive, impacting all corners and facets of human life.

As we await the curve of new coronavirus cases to flatten and begin to roll over, it may be difficult sometimes to remain hopeful. Besides finding solace in my family, friends and faith, I’m relieved to know that the world’s greatest and brightest scientists are, at this very moment, working tirelessly as one to defeat this “invisible enemy,” as President Donald Trump has called it.

Never in the history of our species “have so many experts in so many countries focused simultaneously on a single topic and with such urgency,” the New York Times wrote this week. “Nearly all other research has ground to a halt.”

I’m hopeful that this unprecedented scale of intellectual bandwidth will bring us answers and a solution. The world may be “closed” right now, but as I heard it put recently, the “grand reopening” is coming soon.

Are Oil Production Cuts Coming?

Crude oil had its best trading day ever on Thursday, increasing by nearly a full quarter after President Donald Trump tweeted optimism that Saudi Arabia and Russia may be planning to reduce production by “approximately 10 Million Barrels, and maybe substantially more.”

Up until this point, Saudi Arabia and Russia had been increasing their output as the two competing super-producers were locked in a price war.

Although likely overly ambitious at 10 million barrels a day, a production cut is welcome news right now for the U.S. oil and gas industry, which has had to make cuts of its own to support prices. The number of active North American oil rigs has decreased by 115 so far this year, from 677 at the end of December to 562 as of today, according to the Baker Hughes oil rig count. Ten percent fewer rigs were running this week compared to last week, representing the biggest one-week drop in North American rig activity since February 2006, when the number fell close to 17 percent.

The price jump came just two days after oil posted its worst quarter on record, slipping an incredible 66 percent as global demand dried up and stocks began to build around the world. With an estimated 92 percent of the world now under some form of social distancing because of the coronavirus pandemic, the demand destruction has been far faster than at any other time in history.

A Global Surplus of 1.8 Billion Barrels

IHS Markit now predicts that supply will exceed demand by more than 1.8 billion barrels in the first half of 2020. This is a “staggering number,” writes Rob Smith, the firm’s director of global fuel retail, who points out that the previous record was set in the first half of 2015, when the world had a surplus of “only” 350 million barrels.

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The question now is where to put all the excess supply. According to IHS Markit estimates, there’s currently only 1.6 billion barrels’ worth of storage capacity, so at some point something will have to give. Bloomberg reports that some producers, especially those that are landlocked, are already paying customers to take the oil off their hands. Meanwhile, daily rates for very large crude carriers (VLCC) have recently hit a new record, with some as high as $229,000. Oil companies are having to turn to rail yards in Texas, Saskatchewan and Manitoba to meet the growing need for a place to stash excess crude.

The visual below comes courtesy of energy market consultant Rapidan Energy Group. The group’s storage capacity estimate is slightly different from IHS Markit’s, but the point remains the same: Oil stocks are building fast, and the world is running out of places to store it.

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You might wonder why we don’t just refine the stuff. The truth is that it’s far more practical to store crude than it is to turn it into a finished product for which there’s limited demand right now. Crude can be kept indefinitely. Diesel and jet fuel, on the other hand, have a shelf life of around a year, and gasoline begins to degrade after little more than a month.

Energy Earnings Expectations Revised Down the Most

The S&P 500 is expected to enter an earnings recession starting this quarter, according to Refinitiv, defined as two consecutive quarters of year-over-year declines. The financial data group has revised down its S&P 500 earnings expectations for the full year, with energy, transportation, automobiles and consumer services seeing the largest downward revisions to earnings estimates.

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Perhaps not surprisingly, the industries that have seen the smallest downward revisions include utilities, telecommunication services, pharmaceuticals and food and staples retailing.

I believe it’s important for investors to be aware of earnings expectations so they can adjust their portfolios accordingly as we await the world’s “grand reopening.”

Stay safe, and have a blessed weekend!

Gold Market

This week spot gold closed at $1,620.81, down $7.35 per ounce, or 0.45 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.33 percent. The S&P/TSX Venture Index came in off just 1.19 percent. The U.S. Trade-Weighted Dollar rose 2.34 percent.

Strengths

• The best performing precious metal for the week was gold, off only 0.45 percent. The yellow metal is continuing its strong showing. Gold futures had its sixth straight quarterly gain in the first three months of this year – the longest stretch of gains since 2011. Bullion rose 4.8 percent in the first quarter. Last week, the gold market was thrown into turmoil as logistical disruptions caused speculation that there wouldn’t be enough bullion in New York to deliver against contracts traded on the Comex, but things turned around this week. Bloomberg News writes: “Open interest in April futures or the amount of outstanding contracts eligible for potential delivery – on Tuesday was the equivalent of 737,800 ounces, down from as much as 1.96 million ounces last week. By comparison, total deliverable stocks in Comex warehouses were 3.7 million ounces on Wednesday, jumping from about 1.8 million ounces a week earlier.” Logistical issues in the gold market could be transitory, according to Bart Melek, head commodity strategist at Toronto Dominion Bank.
• Hedge funds cut their short positions in gold by 78 percent in the week ended Tuesday, the most in government records going back more than a decade. Bloomberg notes that the exit came amid speculation bearish speculators might get squeezed as investors holding April futures seek delivery of the metal as suppliers are facing disruptions. Commerzbank AG analysts said in a note this week that “it is obvious that gold – an alternative currency that cannot be reproduced at will – will profit from this unprecedented orgy of money-printing.”
• Gold coins sold by the U.S. Mint were bought in March at the fastest pace in over three years as investors continued to flock to gold. Investors bought 142,000 ounces of American Eagle coins. Long-only ETFs linked to gold have grown by $13 billion so far in 2020, the most since data was collected in 2004, when the first gold ETFs began trading, reports Bloomberg. The SPDR Gold Shares saw a quarter of that inflow. Blackrock’s iShares Gold Trust attracted $332 million on Monday alone. Bob Phillips, managing principal at Spectrum Management Group, said “demand for gold is going to stay pretty high because gold is a hedge against currency devaluation.”

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Weaknesses

• The worst performing precious metal for the week was palladium, off 4.47 percent, on likely anticipated falling automobile sales in the near term. Impala Platinum, one of South Africa’s largest platinum-group metals producers, declared force majeure due to the 21-day nationwide lockdown, reports Bloomberg. Impala is seeking government approvals for limited smelting operations and permission to conduct limited underground ore transport and milling to keep some operations running. Zimbabwe’s government did grant permission for the company’s local operations to continue amid Zimbabwe’s own 21-day lockdown.
• Russia’s central bank, a long-time gold buyer for domestic producers, said that it will pause purchases from April 1 onward. “Further decisions on purchasing gold will be made depending on the situation on financial markets,” read a statement on the bank’s website. Russia’s gold stockpile is valued at $119.8 billion, or about 73.6 million troy ounces. Although it is negative that the country stopped buying gold amid economic challenges, Russia is simply pausing purchases for now, rather than ending the entire buying program; western news media tried to spin the story’s translation into an end of central bank buying everywhere.
• Jeffrey Gundlach has warned investors that are piling into gold-backed ETFs such as the GLD about possibly not getting the physical gold back. Gundlach says these investment products are “paper gold” and that buyers should be aware that holding shares doesn’t amount to having gold bars. Bloomberg reports that the legendary investor said these statements in a webcast this week. “What happens if physical gold is in short supply and everyone wants to take delivery of their paper gold? They can’t squeeze blood out of a stone.”

Opportunities

• UBS responded to the resurgent gold price by boosting its 2020 price forecast to $1,649 an ounce, noting that most stocks are pricing in a gold price of between $1,300 and $1,500 an ounce, reports the Australian Financial Review. UBS added that its preferred stocks for gaining exposure to gold are Saracen Resources, Evolution Mining and Alacer Gold. The Australian dollar is weak, which has boosted cash flows, but travel restrictions in the country could challenge production. Matthew Sigel, CLSA Portfolio Strategist, in his recent iconic “Hello Investors” makes the case for owning gold mining stocks as Central Bank balance sheets are exploding upward and budget deficits are expanding. Matthew shows how gold miners were the first to bottom in 2008 in the prior crisis and then became one of the strongest performers with the stressed financial conditions. Gold in the ground held by miners is the cheapest way to acquire access to future cash flow stream that will likely be rising in magnitude.
• Premier Gold Mines Ltd. announced that an offer has been made to acquire Centerra Gold Inc.’s 50 percent stake in the Greenstone Gold Mines Partnership in a deal worth $205 million. Argonaut Gold and Alio Gold announced that they entered into a definitive agreement for an at-market merger where Argonaut will acquire all of the issued and outstanding shares of Alio. TD analysts said that Barrick Gold has been upgraded to “action list buy” from hold due to the improving gold price outlook. Bloomberg reports that TD also raised Centerra Gold to a buy from hold after a recent selloff.
• BNP Paribas highlighted in a recent report that the growing fallout amid COVID-19 suggests investors are likely to continue to seek refuge in gold. “We expect demand for gold to remain strong, at least until such time that economic conditions stabilize and the outlook begins to improve following the raft of unprecedented stimulus measures put in place by governments and central banks alike,” wrote Michael Sneyd in a March 30 report titled “Gold: The Jack of all Trades.”

Threats

• According to bond manager Jeffrey Gundlach, the March lows that the S&P 500 reached are likely to be surpassed in April as economic uncertainty continues, reports Bloomberg. Gundlach said in a webcast this week that “I think we’re going to get something that resembles that panicky feeling again during the month of April.” The S&P 500 dropped 12.5 percent in the month of March – it’s worst month since October 2008.
• The rush to get hands on U.S. dollars continued this week. Foreign official holdings of Treasuries at the Federal Reserve dropped by $109 billion in March – the largest monthly drop on record. Bloomberg reports that international governments and central banks are struggling with the economic fallout from the pandemic and is a sign of the global rush to raise U.S. dollars. Countries that are especially reliant on oil exports have been selling U.S. debt and offloading older, less-liquid Treasuries.
• The economic impact of COVID-19-induced lockdowns became incredibly visible in the U.S. this week. A record 6.6 million Americans filed unemployment claims. This is a record high number of weekly claims and double the previous week’s 3.3 million. Unemployment in March was reported at 4.4 percent, up from 3.5 percent in February. According to the Bureau of Labor Statistics, the U.S. economy lost 701,000 jobs in March. A number of gold mining operations have reduced operations at some mines while in Mexico; they have called for halt to mining to battle transmission of the virus.

	April 1, 2020 These U.S. Companies Have the Highest Debt-to-Equity Ratios Right Now		March 30, 2020 Congress and the Fed Just Opened the Stimulus Floodgates		March 26, 2020 America Will Come Out of This Stronger Than Ever. It’s Done It Before

Index Summary

• The major market indices finished down this week. The Dow Jones Industrial Average lost 2.70 percent. The S&P 500 Stock Index fell 2.08 percent, while the Nasdaq Composite fell 1.72 percent. The Russell 2000 small capitalization index lost 7.06 percent this week.
• The Hang Seng Composite lost 1.03 percent this week; while Taiwan was down 0.36 percent and the KOSPI rose 0.45 percent.
• The 10-year Treasury bond yield fell 7 basis points to 0.606 percent.

Domestic Equity Market

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Strengths

• Energy was the best performing sector of the week, increasing by 5.38 percent versus an overall decrease of 2.08 percent for the S&P 500.
• Devon Energy was the best performing S&P 500 stock for the week, increasing 33.23 percent. 
• Zentalis Pharmaceuticals, a clinical-stage cancer treatment developer, rose as much as 50 percent in its trading debut after raising $165 million in an initial public offering. The company’s shares opened at $25.20 Friday, 40 percent above the $18 offer price.

Weaknesses

• Utilities was the worst performing sector for the week, decreasing by 7.11 percent versus an overall decrease of 2.08 percent for the S&P 500.
• Carnival Corp was the worst performing S&P 500 stock for the week, falling 41.08 percent.
• Global mergers and acquisitions fell to an 11-year low as coronavirus fears discourage deals. Worldwide transactions totaled $12.5 billion, the smallest weekly value since April 2009, according to Refinitiv data.

Opportunities

• HelloFresh shares hit a record high due to a coronavirus sales boost. The meal-kit delivery firm expects strong first-quarter sales and profits as lockdowns lift demand. 
• Peloton was initiated with a buy rating by Rosenblatt Securities analyst Bernie McTernan. McTernan is assuming the company will introduce a lower-end treadmill, with an average selling price of $2,500 during fiscal 2022 “in order to achieve the same benefits of scale” the company has seen for its bike. The current treadmill costs about $4,295. Meanwhile, the company’s bike-delivery wait times have been increasing, indicating “greater demand for the product” while gyms across the country are closed.
• Bank of America analysts said in note that a Eurozone PMI recovery in the third quarter would imply a 25 percent upside for the Stoxx 600 by August. Strategists wrote that the best time to be bearish on equities is when PMI is high, not low, and Eurozone composite PMI new orders fell to an all-time low of 29.5 in March. The strategists say the PMI cannot go much lower as some industries will still do well, even as the economy suffers.

Threats

• Goldman Sachs sees S&P 500 dividends declining 25 percent in 2020. "The record high level of net leverage for the median S&P 500 stock coupled with the ongoing credit market stress means many firms are unlikely to borrow to fund their dividend."
• According to bond manager Jeffrey Gundlach, the March lows that the S&P 500 reached are likely to be surpassed in April as economic uncertainty continues, reports Bloomberg. Gundlach said in a webcast this week that “I think we’re going to get something that resembles that panicky feeling again during the month of April.” The S&P 500 dropped 12.5 percent in the month of March – it’s worst month since October 2008.
• Major airlines have urged the U.S. Treasury to disburse assistance quickly. American, Delta, United, Southwest and others signed a letter stating it was "essential" they receive the help soon, Reuters reported.

The Economy and Bond Market

Strengths

• The U.S. trade deficit for goods and services narrowed to $39.9 billion in February, down another $5.5 billion from $45.5 billion in January. This is now the lowest trade deficit in the balance since September 2016.
• U.S. factory orders were unexpectedly unchanged in February. A report released by the Commerce Department showed new orders for U.S. manufactured goods were virtually unchanged in the month of February. The Commerce Department said factory orders edged down by less than a tenth of a percent to $497.4 billion in February after falling by 0.5 percent to $497.5 billion in January. 
• Data from the Mortgage Bankers Association released on Wednesday showed that applications rebounded in the week ending March 27, 2020. The Market Composite Index, a measure of mortgage loan application volume, rose 15.3 percent on a seasonally adjusted basis from one week earlier. Much of the increase was driven by refinances, which are still running well above last year despite the havoc the coronavirus is causing. Refinancing at lower rates is positive for the consumer at a time of economic stress.

Weaknesses

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• As many as 200,000 Americans are projected to die in the coronavirus outbreak, a top White House official said, even with another 30 days of the most stringent public health restrictions. Deborah Birx, the top public health official coordinating the coronavirus task force, revealed the data Tuesday. The government has not previously shared details on its projections for the spread of the virus, which has so far killed more than 3,400 people in the U.S. and infected more than 177,000. “We’re going to go through a very tough two weeks,” Trump said Tuesday at the White House briefing. “Our strength will be tested, our endurance will be tried.”
• The economy lost 701,000 jobs last month as government-mandated shutdowns to help contain the spread of the coronavirus started to take their toll. The drop — much more severe than the median estimate for a loss of 100,000 — marks the first decline since 2010, according to Labor Department data. The unemployment rate climbed to 4.4 percent, the highest since 2017, surging from a half-century low of 3.5 percent.
• Goldman Sachs expects the economy to experience a far deeper slump than previously anticipated as the coronavirus pandemic hammers businesses, causing a wave of mass unemployment. The world’s largest economy will shrink an annualized 34 percent in the second quarter, compared with an earlier estimate of 24 percent contraction, economists led by Jan Hatzius wrote in a report. Unemployment will soar to 15 percent by mid-year, up from a previous forecast of 9 percent, they wrote.

Opportunities

• House Speaker Nancy Pelosi suggested state governments will get a federal bailout under the next stimulus package that she’s working on amid the coronavirus fallout. “We want to have more money for state and local government,” the California Democrat said on a conference call with reporters, adding that most items in the fourth economic relief package will be incremental except infusions for states.
• Europe is showing some early signs of improvement, with infection rates slowing down in most of the worst-hit countries, igniting hopes that the lockdowns are starting to bear fruit and that the outbreak is reaching a plateau.
• Governments around the world have announced respectable spending packages to prevent the crisis from evolving into a depression, and central banks have likewise done everything they can to mitigate the blow, cutting rates to zero and announcing enormous quantitative easing programs.

Threats

• One of the world’s top restructuring bankers sees an economic crisis looming that will be worse than the last recession. “In some ways, it’s much more severe than what we experienced in ’08 and ’09,” Irwin Gold, executive chairman of Houlihan Lokey Inc., said in a Bloomberg Television interview Tuesday. “You saw that in the incredible volatility and revenue destruction we saw, which will lead to cash-flow destruction, liquidity destruction and knock-on effects,” he said, adding that the coronavirus pandemic and shocks in oil prices have “revealed excesses in corporate credit and direct lending.” 
• Among the more immediate victims of the coronavirus are bonds issued to finance student housing. The $13 billion market relies on payments from university students to support 252 separate rental projects, about half of which have less than a year’s worth of cash on hand, according to Bloomberg Intelligence senior municipals strategist Eric Kazatsky.
• The impact of the coronavirus pandemic on state budgets will be “like nothing we’ve ever seen before,” officials said during a webinar Friday held by the National Conference of States Legislatures, Bloomberg Law reported. “The estimates we’re seeing for reduced revenues are significant,” said Erica MacKellar, liaison to the National Association of Legislative Fiscal Offices, a professional staff association of the NCSL. “Those states reliant on sales tax revenue are taking an immediate hit” given that many businesses are shut down nationwide, she said.

Energy and Natural Resources Market

Strengths

• The best performing commodity for the week was crude oil, up 32.17 percent. Brent crude oil saw a massive 47 percent intraday spike after President Trump tweeted about potential oil output cuts from Saudi Arabia and Russia. Trump said he expects a production cut of 10 million barrels per day, or even 15 million barrels, and said that he spoke with the Saudi Crown Prince on Thursday, who said he spoke with Russia President Vladimir Putin. However, later Thursday, the Kremlin denied that Putin had spoken with the Saudi Crown Prince. In another Trump-induced price spike, steel and copper stocks jumped on Tuesday after he called on Congress to provide $2 trillion for U.S. infrastructure.

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• Apache Corp surged after the company announced a second major oil discovery off the coast of Suriname, reports Bloomberg. This is just three months after Apache and its partner Total SA reported its first discovery off the Suriname coast. Apache shares were up as much as 22 percent Thursday morning.
• Preliminary data for 2019 released by the European Commission shows that Europe’s emissions fell at a pace of 8.3 percent last year as power generators swapped coal for natural gas. Bloomberg notes that the drop in greenhouse gases was faster than the 6 percent expected in a survey of analysts. As manufacturing slows globally due to COVID-19 lockdowns, pollution has been cut.

Weaknesses

• The worst performing commodity for the week was lumber, down 15.68 percent with an expected decline in construction in the near-term. Despite the positive week for oil prices, the industry is still suffering big due to the global pandemic. Futures in London fell as much as 9.4 percent on Monday to the lowest since November 2002, while New York crude briefly fell below $20 a barrel, according to Bloomberg data. Overall, in the first three months of 2020 oil fell 66 percent, marking its worst quarter ever. In the U.S., oil companies idled 40 rigs this week, twice the pace of last week and the biggest contraction since April 2015, according to Baker Hughes Co. Newfoundland’s only refinery, owned by North Atlantic Refining Ltd., is shutting down – the first North American fuel maker to be idled as COVID-19 crushes worldwide fuel demand. Coal plants are also getting hit. Consol Energy idled a Pennsylvania mine after two of its workers tested positive for the virus.
• Copper miners had their worst quarter since 2008. The BI Global Copper Competitive Peers Index fell 37 percent, led by Teck Resources, Hudbay Minerals and Freeport-McMoRan, which were all down more than 50 percent for the year, reports Bloomberg. Glencore, the world’s biggest commodity trader, announced this week that it will defer its proposed $2.6 billion dividend to protect its balance sheet amid shocks from the coronavirus. Shell said in a statement on Monday that it is exiting an LNG export terminal planned for Louisiana – another sign that projects are in jeopardy as fuel demand plummets.
• The world oil production status remains in limbo. Saudi Arabia made good on its promise to ramp up oil exports in April and loaded several of the supertankers it hired in March to boost its ability to increase exports. Then on Thursday the country called for an urgent OPEC+ meeting to reach a fair deal to restore balance in oil markets. Until a deal and production cuts are made, the oil market will likely remain in surplus and prices could remain low.

Opportunities

• Lithium stocks rallied this week after the Chinese government extended tax rebates and subsidies on electric vehicle purchases by two years, reports Bloomberg. BMO analyst Joel Jackson said that the extension should help support lithium demand growth in the mid-term even as uncertainty continues. However, according to people familiar with the matter, China is considering reducing the incentives for electric vehicle buyers by 10 percent later this year.
• United Co. Rusal Plc plans to sign a $16 billion deal to sell aluminum to Glencore Plc in what would mark one of the biggest metals supply deals, reports Bloomberg. The deal would allow Rusal to sell about one-third of its production to commodities trader Glencore.
• UBS recommends that investors buy Americas copper producers before prices rebound. The firm predicts that copper mines’ worst quarter ever in the first three months of this year will be followed by six quarters of strength. UBS estimates copper prices will rebound after the world follows China’s lead in resuming work. China Molybdenum is also optimistic on a copper rebound. The company said in an earnings report this week that “governments led by the U.S. have decided to provide further support to the economy by cutting taxes, giving green lights to large local government bonds and encouraging infrastructure investments.”

Threats

• The world’s largest sovereign wealth fund – Norway’s $950 billion fund – is about to make history as it prepares to liquidate assets to cover government withdrawals, reports Bloomberg. The government needs to tap into the fund to make ends meet as the country faces its worst economic shock in half a century due to the pandemic. Previously the fund’s cash flow has been able to cover withdrawals, but not this time around as the fund will likely offload a big amount of its bond portfolio. In 2008, the fund used the global selloff to buy cheap stocks. 
• Russia is planning for oil prices at $20 a barrel for the rest of 2020 and is increasing borrowing of rubles to make up for its budget shortfall. The Finance Ministry estimates that budget losses will total 3 trillion to 4 trillion rubles this year. Russia is one of many countries heavily dependent on the price of oil. As a major producer, it is troubling for Russia to predict such low prices for the remainder of the year, yet a Trump-led deal might find a way to stabilize prices.
• As if the world didn’t need any more negative forecasts, the Colorado State University released its initial 2020 storm forecast. The estimates show eight hurricanes could spin out of the Atlantic Ocean with an above-average chance that at least one will make landfall in the U.S. Bloomberg notes that the report says the odds for an early hurricane season are small. The threat is that early hurricanes could hamper social distancing orders. Phil Klotzbach, the study’s lead author, noted that major sports events are being cancelled, but that “they cannot cancel hurricane season.”

Emerging Europe

Strengths

• Russia was the best performing country this week, gaining 7 percent. Oil stocks bounced with the price of oil. Brent crude oil gained in the past five days after U.S. President Donald Trump said Russia and Saudia Arabia could cut oil production. Among oil producers, Surgutneftegas and Lukoil were the best performing stocks, gaining 20 percent in the past five days.
• The Russian ruble was the best performing currency this week, gaining 3 percent. The ruble appreciated with the rebound in the oil price. Year-to-date the price of Brent dropped from 66 dollars a barrel to 35, while the ruble lost less than 20 percent during the same period as the Russian central bank has been defending its currency.
• Materials was the best performing sector among eastern European markets this week.

Weaknesses

• Greece was the worst performing country this week, losing 1.8 percent. Greece’s manufacturing PMI in March dropped from 56.2 to 42.5, the second steepest drop in the region after Hungary. Greece has quarantined a refugee camp in the mainland, home to 2,300 people, for at least two weeks after 20 residents tested positive for COVID-19. There are nearly 50,000 refugees in Greece. 
• The Hungarian forint was the worst performing currency in the region this week, losing 5.5 percent. The forint added losses this week as lawmakers passed controversial legislation that granted Prime Minister Viktor Orban the power to rule by decree indefinitely. The central bank announced tightening steps to support its currency. Starting Thursday, the central bank will take deposits on a new deposit facility paying 0.9 percent interest, compared to the negative 0.05 percent offered on overnight deposits.
• Financials was the worst performing sector among eastern European markets this week.

Opportunities

• The virus news stream out of Europe has improved slightly from last week. It appears that the situation in Italy continues to stabilize, with the head of the public health institute confirming that the country has reached a plateau in the contagion phase, according to Win Thin from BBH Global Strategy. The death toll continues to rise in Spain, but the overall outlook seems to be improving.
• In Poland, CDR Projekt, a game maker and developer, became the most important equity listed on Warsaw Stock Exchange. Its share in the WIG20 index increased to 13.2 percent. This is more than PZU, an insurance company, whose share is 12.8 percent, or PKO bank with a 12.6 percent share. Gaming companies may continue to profit from the coronavirus pandemic as more people stay at home.
• Sok Marketler and Migros Ticaret are among the best performing equites trading on the Istanbul exchange. This week, Sok Marketler, a food retailer, announced it will begin online orders for home delivery across the country for same day delivery at no additional charge. Migros has been the dominant player in e-commerce with 3.5 million members and more stores are turning to online ordering as the threat of a longer lockdowns lingers.

Threats

• The final March reading of the Eurozone manufacturing PMI was revised down to 44.5 from the flash reading of 44.8 and 49.2 in February. This marks a seven-and-a-half year low and reflects only the partial lockdown and restriction of movement throughout the Eurozone. In central Europe, Hungary recorded the steepest decline in manufacturing with its PMI dropping from 50.3 to 29.1. On a positive note, Russia recorded the smallest decline in manufacturing activity, with its PMI reported at 47.5, down from 48.2 a month ago.
• Eurozone sentiment suffered its steepest ever-monthly decline in March as the coronavirus led to declining confidence among consumers and all sectors of the economy. Economic sentiment fell to 94.5 points in March, down from 103.4 in February, and sharply breaking an upward trend in place since November.
• The Czech Republic may record its widest budget gap ever due to its planned emergency spending to fight the economic impact of the coronavirus. The cabinet approved on Monday to widen the budget shortfall fivefold to 200 billion koruna ($7.8 billion). The budget amendment is based on a forecast of a 5.1 percent economic contraction this year.

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China Region

Strengths

• Pakistan was the best performing country in the region this week, gaining 12.5 percent. Minister for Economic Affairs, Hammad Azhar, said on Friday that the government and World Bank have signed a $200 million COVID-19 response package. Kohat Cement was the best performing equity trading on the Karachi Stock Exchange, gaining 43 percent in the past five days.
• The Vietnamese dong was the best performing currency in the region this week, gaining 40 basis points. Vietnam’s Prime Minister ordered the central bank to keep the dong stable as it aims to maintain macroeconomic stability and fight against the coronavirus pandemic.
• Telecommunication was the best performing sector in Hong Kong’s HSCI Index this week.

Weaknesses

• India was the worst performing country in the region this week, losing 7.5 percent. Equites sold off after India imposed a nationwide lockdown limiting the movement of its 1.3 billion people for 21 days. Banks sold off after Moody’s cut the Indian bank outlook to negative. Indusind Bank was the worst performing stock listed in the Nifty 50 Index, losing 24 percent in the past five days.
• The Indonesian rupiah was the worst performing currency in the region this week, losing 3 percent. Indonesia slashed its growth forecast for 2020 to 2.3 percent, down from 5.3 percent. At the same time, it removed the budget deficit cap of 3 percent of GDP, allowing the government to significantly increase its stimulus in order to provide economic stability amid the coronavirus.
• Financial was the worst performing sector in Hong Kong’s HSCI Index this week.

Opportunites

• CLSA research found that large developers in China reported a 95 percent work resumption rate of construction sites at the end of March and hope to see a 100 percent resumption by the end of April. The industry is growing positive as the Wuhan lockdown will be lifted on April 8. CLSA expects land sales to remain slow for several months, but new starts and completions to have strong rebounds starting in April. PMI data for March points to an improving Chinese economy. After plummeting in February, the PMI spiked back above the 50 level that separates growth from contraction.

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• According to Sankaran Naren, chief investment officer of ICICI Prudential Asset Management, India’s second largest money manager, the record selloff in Indian stocks is a once-in-a-decade buying opportunity. “Historically, such times have been proven to be attractive for long-term equity investing opportunities.” The quarter ended March 31 was the S&P BSE Sensex’s worst quarter on record. Bloomberg notes that the 21-day lockdown on the country has caused trading volumes to drop as traders work from home and banks curtail operations.
• Chinese airlines said they are optimistic on future growth after the worst of the coronavirus pandemic passes in reporting first quarter results this week. Air China said in a statement that “we will surely be able to triumph over this battle of containing the pandemic.” China Southern Airlines also expressed hope: “China’s prevention and control measures have achieved positive results, and the most difficult and arduous stage has passed.” OAG Aviation Worldwide data shows that China’s airline capacity since January 20 has fallen more than 50 percent, but the pace of decline has steadied since.

Threats

• The Chinese yuan hit the weakest level in six months on Thursday after the central bank lowered its daily reference rate while the U.S. dollar rose. Bloomberg reports that the yuan fell as much as 0.41 percent after the dollar rallied to a one-week high the night before. Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd, said “if we get a sustained break above 7.1250, then that would be a trigger for a move for the yuan to be even weaker.”
• China’s property and homebuilding sector is a critical contributor to the economy and a massive global driver of iron ore and other construction materials demand. Property consultancy CRIC shows that sales in Beijing and Shanghai have plummeted, falling to half of the level seen before the virus outbreak.
• Moody’s Investors Services cut its outlook for the Indian banking system to negative from stable, citing disruptions to economic activity from the pandemic. Bloomberg reports that the ratings company predicts India’s economy to worsen the existing slowdown and impair lenders’ asset quality. Even before the outbreak hit India and led to a 21-day lockdown, the country was hit by a crisis among shadow lenders and default by a private sector bank.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended April 3 was Gleec, up 1,120.88 percent.
• As many cryptocurrencies have taken a hit amid the wider market selloff, Tether has done exceptionally well. Since mid-February, Tether’s market cap has increased by 38 percent, or nearly $2 billion, according to researcher Messari. Bloomberg News notes that Tether’s most well-known version has been promoted as being pegged to the U.S. dollar and as a conduit for doing transactions with little price volatility. “The world has been piling into dollars, and it just so happens that stablecoins are among some of the most unencumbered dollars you can obtain, outside of the financial system,” said Nic Carter, co-founder of crypto market tracker Coin Metrics.
• A project called tBTC is seeking to forge a truce between Bitcoin and Ethereum. Bloomberg News writes: “The idea is to let Bitcoin users turn their coins into tBTC, a token that can run on the Ethereum blockchain, allowing them to use tBTC as collateral to earn interest, trade using leverage or access enhanced financial privacy applications, all without having to sell their Bitcoin. Then the tBTC can be changed back to Bitcoin.” The effort is set to begin on April 27.

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended April 3 was WhiteCoin, down 75.59 percent.
• Bitcoin fell roughly 25 percent in March to trade around $6,500 for its worst month since November 2018. “Bitcoin is a highly speculative instrument so in such risk-averse markets, it’s naturally a front-runner to be offloaded,” said Craig Erlam, senior market analyst at Oanda to Bloomberg News. “If anyone was holding it as part of a portfolio, then I would imagine it would also be high on the list of positions to close out to cover margin calls or losses elsewhere.” The top crypto briefly rose above $7,000 on Thursday after investors predict that the worst of the 2020 selloff might be over.

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• On Wednesday, a New York judge ruled that the injunction barring Telegram from issuing its Gram tokens extends to all entities in the U.S. and overseas and denied Telegram’s effort to distribute tokens to the international participants of its 2018 ICO. Cointelegraph writes that around $1.27 billion of the funds raised for the development of the Telegram Open Network came from non-U.S.-based investors.

Opportunities

• Binance, the world’s largest crypto exchange, has reached an agreement to acquire CoinMarketCap, one of the most-referenced crypto data websites, in an undisclosed deal. The companies officially announced the acquisition to Cointelegraph on Thursday.
• Refereum, a blockchain-based platform that rewards users for video game engagement and streaming, has partnered with Tron to allow paying out users in Tron’s TRX coin and BTT token, according to an April 2 statement provided to Cointelegraph. "It’s our hope that through this partnership with Tron and DLive we can make time at home more interesting for millions of people by offering rewards for watching game streams," Dylan Jones, Refereum CEO, said in the statement.
• According to a new report released by Premium Market Insights (PMI) and as reported by Cointelegraph, global investment in blockchain technology in energy markets is set to reach $34.7 billion by 2025. Valued at just $156.5 million in 2016, the sector is forecast to grow at a rate of 82 percent a year.

Threats

• One of the first companies to host a token sale, Factom, has notified creditors it has entered receivership after an appeal for additional funding fell flat, writes CoinDesk. "[FastForward] has been notified by the directors of Factom that in a board meeting on 31 March 2020 they concluded that, in the absence of further funding, they now needed to begin the process of assignment of assets for the benefit of creditors," reads the London Stock Exchange statement. Factom Protocol has previously raised $140,000 in Bitcoin through the sale of "factoid" tokens.
• The National Internet Finance Association of China (NIFA), a major Chinese financial watchdog, warned investors of rising risks in crypto investments, adding to the growing list of organizations globally warning against crypto-fraud schemes. CoinDesk reports that foreign-based crypto exchanges have faked trading volume, according to NIFA’s own data analysis, and some platforms have completely made up trading volume by copying other exchanges’ data. This has created false prosperity in the crypto trading market.
• Guadicore Labs said this week that in the last several weeks alone, hackers have managed to infect close to 2,000 to 3,000 Microsoft SQL servers daily to mine cryptocurrency. As reported by Hacker News, the botnet has been dubbed "Vollgar" after the vollar cryptocurrency it mines alongside monero (XMR), and its "vulgar" way of operating.

Airline Sector

Strengths

• Investors are noticing the buying opportunities among airlines amid the continued equities selloff on coronavirus concerns. Billionaire investor Warren Buffet’s Berkshire Hathaway, Inc. increased its stake in Delta Airlines in late February, reports Bloomberg. The company acquired more than 976.000 shares for around $45.3 million. Berkshire now owns 17.9 million shares of the carrier – or about 11 percent total.
• As commercial carriers make big cuts to scheduled flights due to plummeting passenger numbers, private jet operators are seeing a surge in demand. Richard Zaher, CEO of Paramount Business Jets, says demand is unbelievable and that “aircraft are getting booked literally in minutes.” Bloomberg reports that Zaher’s business is up 30 percent from the same time last year and that JetSet Group, Inc. is 60 percent higher. The carriers noted that passengers are required to go through mandatory temperature screenings.
• One positive light for airlines amid the COVID-19 outbreak is lower oil prices. Crude has fallen dramatically as the world predicts weaker oil demand and production continues to grow. Fuel is one of airlines’ biggest expenses. However, many carriers now hedge oil prices and secure locked-in prices. For example, RyanAir hedges almost 90 percent of its oil consumption, while Southwest is less than 60 percent hedged. Airlines learned from the oil surge in 2013 that locking in lower prices can be beneficial when prices rise, but a weakness when prices fall.

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Weaknesses

• Airlines could lose $252 billion in revenue from passenger operations this year due to the pandemic, according to the International Air Transport Association (IATA). The organization’s CEO said that half of its member carriers could go bankrupt without government aid. Commercial flights globally have been cut by nearly 90 percent and carriers are seeking bailouts from their respective countries. The U.S. passed a stimulus package that includes more than $50 billion in earmarked liquidity for domestic airlines, $25 billion in loans and guarantees for passenger carriers and $25 billion in direct grants. Although this should help the airlines, many predict that it won’t be enough.
• The entire airline industry is suffering from the slowdown in global travel, including manufacturers and engine makers. Rolls-Royce halted civil engine production for a week and Safran cut a $1.1 billion dividend. Bloomberg writes that the sector employs more than 500,000 people in the U.S. alone. GE Aviation – the world’s biggest engine maker – is cutting 10 percent of its 26,000 U.S. employees and will furlough half of its maintenance staff for 90 days.
• A 136-page report released by Ethiopian investigators shows that Boeing’s design of the 737 MAX jet and inadequate pilot training led to the deadly crash of an Ethiopian Airlines flight a year ago. The report released in early March is a draft and the final report determining the cause of the crash has not yet been released. The report puts a focus back on Boeing for its troubled 737 model that suffered two deadly crashes. Aircraft design and pilot training were also cited as factors in the fatal Lion Air flight.

Oppurtunites

• Airlines are adapting to the changing travel landscape by venturing into cargo-only flights. Carriers are replacing passengers with goods in a bid to earn some revenue as traffic is down 90 percent during the COVID-19 outbreak. Bloomberg notes that carriers around the world, such as Cathay Pacific Airways, Korean Air Lines and American Airlines, are boosting cargo traffic by transporting goods in the belly of passenger planes. Southwest even offered its first cargo-only flight in its history. Um Kyung-a, analyst at Shinyoung Securities, said “with oil prices falling and higher rates, it’s become economical for some airlines to be using passenger plans for cargo.”
• The European Union (EU) is helping airlines cope with the coronavirus pandemic by waiving until October 24 the requirement that carriers use at least 80 percent of their takeoff and landing positions or risk losing them the following year, reports Bloomberg News. Airline slots are worth millions of dollars and the suspension of the EU “use-it-or-lose-it” rule should help struggling carriers.
• Although the U.S. government stimulus package might not have been all that airlines had asked for, President Donald Trump did express strong support for the sector. In mid-March Trump told reporters that “as far as the airlines are concerned, we are going to back airlines 100 percent. We’re going to help them very much.” President Trump’s economic advisor Larry Kudlow also expressed support for the industry, saying that “If they get into a cash crunch, we’re going to try and help them.” This provides hope that airlines might get even more help further down the road.

Threats

• Bloomberg News used Edward Altman’s Z-score method to predict bankruptcies and created a list of the airlines at most risk of going bankrupt in the next two years. The list is heavily concentrated in Asian carriers due to high debt levels and includes Pakistan International Airlines, Air Asia Indonesia, Nok Air PNG Air and Kenya Airways. Qatar Airways CEO Akbar Al Baker said that “in this very difficult period, it will only be the survival of the fittest.” The executive added that “a lot of airlines” will disappear due to the virus.
• Before U.S. lawmakers passed the over $2 trillion stimulus package, the bill included language that would have linked financial aid to a requirement that airlines would have to cut in half their carbon emissions over the next 30 years and start offsetting emissions in 2025, reports Bloomberg. That provision was ultimately removed from the package, along with other green initiatives, as Republicans accused Democratic lawmakers of trying to add in unnecessary measures and put the Green New Deal in effect.
• From 2010 to 2019, U.S. airlines spent approximately 96 percent of free cash flow, or $45 billion, to purchase shares of their own stock. Share repurchase programs aim to boost share prices. This issue arose when lawmakers were considering aid packages for airlines. Perhaps if airlines used all that cash to build up reserves, rather than buy their own stock, they might have been in a better position to weather a downturn such as now due to the virus.

Leaders and Laggards

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (12/31/2019):

SPDR Gold Shares
Impala Platinum Holdings Ltd
Evolution Mining Ltd
Alacer Gold Corp
Centerra Gold Inc
Argonaut Gold Inc
Alio Gold Inc
Consol Energy Inc
Royal Dutch Shell Plc
Surgutneftegas PJSC
Lukoil PJSC
CD Projekt SA
Sok Marketler Ticaret AS
Migros Ticaret AS
PZU
American Airlines Group Inc
Boeing Co/The
Ryanair Holdings Plc
Deutsche Lufthansa AG
easyJet PLC
Air-France-KLM
Wizz Air Holdings Plc
Southwest Airlines Co
Delta Air Lines Inc
United Airlines Holdings Inc
 

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index. The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The NIFTY 50 index is the National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market. The BSE SENSEX is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange. The WIG20 is a capitalization-weighted stock market index of the twenty largest companies on the Warsaw Stock Exchange. WIG is an acronym for "Warszawski Indeks Gie?dowy", that means in Polish Warsaw Stock Exchange index. The BI Global Copper Competitive Peers Index tracks the largest global copper mining companies. The MBA Refinance Index is a weekly measurement put together by the Mortgage Bankers Association, a national real estate finance industry association. The index helps to predict mortgage activity and loan prepayments based on the number of mortgages refinance applications submitted. The STOXX Europe 600 is a stock index of European stocks designed by STOXX Ltd.. This index has a fixed number of 600 components representing large, mid and small capitalization companies among 17 European countries, covering approximately 90% of the free-float market capitalization of the European stock market.