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The Dollar and Equities are Finishing the Week on Firm Footing

The Dollar and Equities are Finishing the Week on Firm Footing

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4 years ago

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Overview: A 6.8% contraction of the Chinese economy in Q1 did not derail investor optimism today, which saw Asia Pacific stocks rally strongly after Gilead reported very preliminary positive testing of its drug to fight the coronavirus and plans to re-open are developing. Japan's Nikkei and South Korea's Kospi surged more than 3%. The MSCI Asia Pacific Index, Europe's Dow Jones Stoxx 600, and the S&P 500 are posting their first back-to-back weekly gains since the first half of February. European bourses are recouping the losses from early in the week, and the S&P 500 looks poised to gap higher at the open. Benchmark yields rose in the Asia Pacific region, and the central banks in Australia and New Zealand indicated they would buy few bonds next week. European core bond yields are little changed, while in the periphery, led by Italy, yields are softer. Despite this risk-on mood, the dollar is firm against all the majors, but the yen and New Zealand dollar, and only the yen are higher on the week. Emerging market currencies are mixed today, but the JP Morgan Emerging Market Currency Index is off about 1.5% this week. May WTI has fallen to $18 a barrel after settling in the US below $20.  Gold is a little more than 1% lower and is now nearly flat on the week, a little below $1700.  

Asia Pacific

China's reported contraction was not far off from what economists expected. The nearly 10% quarterly contraction translates to a 6.8% year-over-year decline in output. The bright spot appears to be that March data showed some improvement, especially industrial production (-1.1% in March). The slide in investment also moderated in March. However, retail sales were dismal (-15.8% vs. Bloomberg survey median forecast of -10%). This warns that supply may be returning before demand. We expect China to shortly announce new infrastructure measures to help stimulate the economy and absorb production internally.

The Japanese government was forced by political wrangling within the coalition to pullback from the JPY300k payout to those households hit hard by the virus and instead give all households JPY100k. In contrast, the US program is means-tested. The shift by Japan's Prime Minister Abe could triple the cost of the program, as the state of emergency is extended to cover the entire country, not just a few prefectures. The broadening of the cash payout would ostensibly not only raise the amount of stimulus but is thought to expedite the payout.  

The dollar is trading just inside yesterday's range as the recovery ran out of steam just north of JPY108.00. It finished last week near JPY108.50. Support is seen near JPY107.60. The Australian dollar recovered from about $0.6245 yesterday to reach almost $0.6385 in early turnover today before running out of steam. Look for the $0.6300-$0.6400 range ahead of the weekend. After falling for the past two weeks, the dollar rose about 0.5% against the Chinese yuan at CNY7.0740. 

Europe

The weak coordination marks the official response to the pandemic. Just like the absence of strong leadership from Washington has left the states to compete (e.g., PPE and ventilators) and to cooperate where they can (e.g., regional coordination of easing shutdowns), so too with European countries. Five European countries (France, Spain, Austria, Belgium, and Greece) imposed bans on short sales. The prohibitions were imposed in the middle of March when officials could not strike broader participation, and efforts to shut the markets in mid-March were rebuffed. French regulators extended their ban until May 18. Spain, Austria, Belgium, and Greece's blockage of short sales was to end today and next week (Greece) and have also been extended. Italy's ban runs until mid-June. 

Bank of England Governor Bailey reportedly had advocated a coordinated market closure and verbally admonished against aggressively shorting stock in mid-March because it was not good for the economy. Looking at the equity market performance both year-to-date and over the past month, it is hard to make the argument that short-selling bans resulted in better returns relative to the regional benchmark (e.g., Dow Jones Stoxx 600) or Germany's DAX. To say that there were other sellers is an understatement. A more granular investigation is needed to see if bid-offer spreads widened. At the same time, if the absence of short-selling did not alter the "price discovery process" then the social value of allowing pools of capital to sell what they do not own (which requires an elaborate network of share providers, risk managers, compliance officers, back-office, etc.) may not be so obvious outside of the industry.    

To varying degrees, central banks have three levers of power. The first is monetary policy proper, involving the price and quantity of money. Second, are the purchases of other assets. The third is the regulatory authority. The ECB took moved this third lever yesterday.  It reduced the amount of capital needed to support trading activity for six months. Ironically, the ECB explained the reduction in funds put aside as part of its response to the "extraordinary levels of volatility." Investors know volatility as risk, so at the moment that trading has become riskier, the ECB (and other central banks) permit greater risk-taking by the banks. It is important in the transmission of monetary policy to ensure markets run smoothly. Market-making functions and the liquidity they provide is essential. These are activities require scale, which means banks with large trading operations, will be the largest direct beneficiaries of the reduced capital requirement. Officials are subject to criticism when they take measures that limit market activity, as in the ban on short selling, and they are chastised for favoring large entities over small. 

The euro is pinned near the week's lows, just above $1.08. Around 1.3 bln euros in expiring options are struck between $1.0835 and $1.0850. It finished last week near $1.0935. The month's low (so far) was set by $1.0770. A recovery back above $1.09, where a 1.3 bln euro option is struck that will also be cut today,  is needed to take the pressure off it at the start of next week. Earlier in the week, sterling approached its 200-day moving average near $1.2650, but met a wall of sellers and backed off to almost $1.24 yesterday. It tried again to poke above $1.25 and found sellers waiting. A break of $1.24 could spur a quick more toward $1.2350 and would weaken the near-term technical outlook.  

America

Even though NY and NJ have extended their shutdowns to the middle of May, some other states may relax a bit earlier, and Gilead Science's preliminary results for its Remdesivir drug treatment of Covid-19 helped lift spirits. The results look better than other tests of it, though many questions remain unanswered (no control group), and there are other tests being conducted. Still, it seems to give insight into sentiment and the psychological importance of hope. The equity market reaction from late yesterday through now also seems to suggest that many investors remain cautious and are not prepared for higher equities. A Pew poll may explain why. Roughly 2/3 of Americans are more concerned that the social restrictions are eased too early rather than too late. 

The Bank of Canada announced it would buy 40% of the government T-bill sales, up from 25% now for an unspecified period. In the US, the flood of Treasury bill issuance has kept the bill-OIS spread wide and reflecting ongoing stress. Three-month dollar LIBOR rose yesterday for the first time in nearly two weeks. Mexico's President AMLO requested an advance from Banxico of its profits that are due next year. The central bank refused. The request does not appear to be far from what others are doing, like the UK Treasury took unlimited overdraft privileges at the BOE. Still, emerging market economies have less latitude when it comes to central bank independence.  

The US dollar reached almost CAD1.4185 yesterday, a nine-day high,  before reversing lower to settle a big figure lower. Follow-through selling saw it reach almost CAD1.40 in Asia before bouncing back through CAD1.41. There is a $1.9 bln option at CAD1.40 that will be cut today. A $580 mln expiring option is struck at CAD1.4045. Over the past 30 and 60 sessions, the percent change in the Canadian dollar is better correlated with the percent change in the S&P 500 than with oil prices (WTI). The greenback's low for the week against the Mexican peso was set on Monday near MXN23.2460. The high for the week was set yesterday around MXN24.43. It had fallen to MXN23.70 in Asia before rebounding and has held above MXN24.00 in the European morning. The dollar had fallen every day last week against the peso, but a higher close today would be the fourth advance this week.     




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Key shipping company files for Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

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6 hours ago

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March 14, 2024

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The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Key shipping company files Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

Published

6 hours ago

on

March 14, 2024

By

The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Tight inventory and frustrated buyers challenge agents in Virginia

With inventory a little more than half of what it was pre-pandemic, agents are struggling to find homes for clients in Virginia.

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9 hours ago

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March 14, 2024

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No matter where you are in the state, real estate agents in Virginia are facing low inventory conditions that are creating frustrating scenarios for their buyers.

“I think people are getting used to the interest rates where they are now, but there is just a huge lack of inventory,” said Chelsea Newcomb, a RE/MAX Realty Specialists agent based in Charlottesville. “I have buyers that are looking, but to find a house that you love enough to pay a high price for — and to be at over a 6.5% interest rate — it’s just a little bit harder to find something.”

Newcomb said that interest rates and higher prices, which have risen by more than $100,000 since March 2020, according to data from Altos Research, have caused her clients to be pickier when selecting a home.

“When rates and prices were lower, people were more willing to compromise,” Newcomb said.

Out in Wise, Virginia, near the westernmost tip of the state, RE/MAX Cavaliers agent Brett Tiller and his clients are also struggling to find suitable properties.

“The thing that really stands out, especially compared to two years ago, is the lack of quality listings,” Tiller said. “The slightly more upscale single-family listings for move-up buyers with children looking for their forever home just aren’t coming on the market right now, and demand is still very high.”

Statewide, Virginia had a 90-day average of 8,068 active single-family listings as of March 8, 2024, down from 14,471 single-family listings in early March 2020 at the onset of the COVID-19 pandemic, according to Altos Research. That represents a decrease of 44%.

Virginia-Inventory-Line-Chart-Virginia-90-day-Single-Family

In Newcomb’s base metro area of Charlottesville, there were an average of only 277 active single-family listings during the same recent 90-day period, compared to 892 at the onset of the pandemic. In Wise County, there were only 56 listings.

Due to the demand from move-up buyers in Tiller’s area, the average days on market for homes with a median price of roughly $190,000 was just 17 days as of early March 2024.

“For the right home, which is rare to find right now, we are still seeing multiple offers,” Tiller said. “The demand is the same right now as it was during the heart of the pandemic.”

According to Tiller, the tight inventory has caused homebuyers to spend up to six months searching for their new property, roughly double the time it took prior to the pandemic.

For Matt Salway in the Virginia Beach metro area, the tight inventory conditions are creating a rather hot market.

“Depending on where you are in the area, your listing could have 15 offers in two days,” the agent for Iron Valley Real Estate Hampton Roads | Virginia Beach said. “It has been crazy competition for most of Virginia Beach, and Norfolk is pretty hot too, especially for anything under $400,000.”

According to Altos Research, the Virginia Beach-Norfolk-Newport News housing market had a seven-day average Market Action Index score of 52.44 as of March 14, making it the seventh hottest housing market in the country. Altos considers any Market Action Index score above 30 to be indicative of a seller’s market.

Virginia-Beach-Metro-Area-Market-Action-Index-Line-Chart-Virginia-Beach-Norfolk-Newport-News-VA-NC-90-day-Single-Family

Further up the coastline on the vacation destination of Chincoteague Island, Long & Foster agent Meghan O. Clarkson is also seeing a decent amount of competition despite higher prices and interest rates.

“People are taking their time to actually come see things now instead of buying site unseen, and occasionally we see some seller concessions, but the traffic and the demand is still there; you might just work a little longer with people because we don’t have anything for sale,” Clarkson said.

“I’m busy and constantly have appointments, but the underlying frenzy from the height of the pandemic has gone away, but I think it is because we have just gotten used to it.”

While much of the demand that Clarkson’s market faces is for vacation homes and from retirees looking for a scenic spot to retire, a large portion of the demand in Salway’s market comes from military personnel and civilians working under government contracts.

“We have over a dozen military bases here, plus a bunch of shipyards, so the closer you get to all of those bases, the easier it is to sell a home and the faster the sale happens,” Salway said.

Due to this, Salway said that existing-home inventory typically does not come on the market unless an employment contract ends or the owner is reassigned to a different base, which is currently contributing to the tight inventory situation in his market.

Things are a bit different for Tiller and Newcomb, who are seeing a decent number of buyers from other, more expensive parts of the state.

“One of the crazy things about Louisa and Goochland, which are kind of like suburbs on the western side of Richmond, is that they are growing like crazy,” Newcomb said. “A lot of people are coming in from Northern Virginia because they can work remotely now.”

With a Market Action Index score of 50, it is easy to see why people are leaving the Washington-Arlington-Alexandria market for the Charlottesville market, which has an index score of 41.

In addition, the 90-day average median list price in Charlottesville is $585,000 compared to $729,900 in the D.C. area, which Newcomb said is also luring many Virginia homebuyers to move further south.

Median-Price-D.C.-vs.-Charlottesville-Line-Chart-90-day-Single-Family

“They are very accustomed to higher prices, so they are super impressed with the prices we offer here in the central Virginia area,” Newcomb said.

For local buyers, Newcomb said this means they are frequently being outbid or outpriced.

“A couple who is local to the area and has been here their whole life, they are just now starting to get their mind wrapped around the fact that you can’t get a house for $200,000 anymore,” Newcomb said.

As the year heads closer to spring, triggering the start of the prime homebuying season, agents in Virginia feel optimistic about the market.

“We are seeing seasonal trends like we did up through 2019,” Clarkson said. “The market kind of soft launched around President’s Day and it is still building, but I expect it to pick right back up and be in full swing by Easter like it always used to.”

But while they are confident in demand, questions still remain about whether there will be enough inventory to support even more homebuyers entering the market.

“I have a lot of buyers starting to come off the sidelines, but in my office, I also have a lot of people who are going to list their house in the next two to three weeks now that the weather is starting to break,” Newcomb said. “I think we are going to have a good spring and summer.”

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