| Wednesday's Headlines 1. US markets rally hard on vaccine hopes and Fed support 2. Big Tech earnings impress investors 3. The Fed pledges ongoing support 4. Protein problems Markets Closed
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Markets Today Global markets surged today on positive virus treatment news and renewed hopes for more monetary policy assistance. Never mind the first quarter GDP report that showed a 4.8% decline for the U.S. economy, ending the longest expansion in post-war history as the economy abruptly fell into a steep recession. Never mind that tomorrow, we will likely see another 3–4 million initial jobless claims in the U.S., taking the six-week total north of 30 million people. The Federal Reserve has our back, and there was positive news on the vaccine front.
Gilead Sciences shared positive data from drug trials for its COVID-19 treatment, remdesivir, which contradicted what Chinese health officials reported last week. Even infectious-disease expert Anthony Fauci, who is leading the White House efforts on combatting the virus, said the early results offered "quite good news." The FDA plans to announce emergency-use authorization for the drug as early as Wednesday.
Tech companies, including Microsoft and Facebook reported stronger than expected earnings and will continue to lead the market wherever sentiment goes. While their businesses are impacted, they are less prone to a drop in consumer spending and services spending, the two biggest drivers of GDP.
While GDP did shrink 4.8% last quarter, the reading for the second quarter will make the Q1 GDP report feel like child's play. Look at the contraction in services spending (chart below), which only captured the month of March last quarter. Will more monetary policy and strong results from tech companies be enough to keep investors' chins up?
We'll see.
chart courtesy Bank of America  Headlines:
 chart courtesy FederalReserve
Fed: "Whatever it Takes" As expected, the Federal Reserve said today that it would do "whatever it takes" to stabilize the U.S. economy as growth plummets and the country deals with the fallout of the health pandemic.
While the FOMC made no changes to interest rates, it did promise to use every other monetary policy tool at its disposal to support the economy.
From the FOMC statement today: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals."
That means the Fed will continue buying U.S. Treasuries and mortgage backed securities, in what is called "quantitative easing," and continue to support the corporate bond market, states and municipalities, and the interbank lending market.
While those measures have stabilized financial markets and have been one of the key reasons stocks have climbed more than 20% from their lows, they are not slowing down the historic rise in unemployment brought on by the loss of business and industry across the country.
More than 26 million people filed for first time unemployment insurance over the past five weeks, and another 4 million are expected to have filed in the past week.  chart courtesy Bank of America
Protein Problems U.S. news headlines have been awash in stories about COVID-19 forcing the closure of meat and pork processing plants across the country, and thousands of tons of raw meat being buried on farms. Several companies, including Smithfield Foods and Tyson Foods, the biggest pork and chicken producers in the U.S., have had to idle their plants as the coronavirus has infected scores of employees.
Spot prices for cattle, poultry, and pork have all declined to multi-year lows as restaurants stop orders and processing plants are overrun with supply. That is causing food companies to store thousands of tons of chicken, beef, and pork in cold storage facilities until demand resumes (chart above).
The problem, according to Bank of America, is more acute in the pork industry. The reason, is that the nation's top processing plants are centralized in the Midwest, particularly in Iowa, Illinois, and Missouri. Hog processing requires a lot of workers given the size of the animals and the complexity of the slaughter. Since many of those plants are near each other and require heavy staffing, bringing them back online in a safe manner is not simple.  The Pork Processing Cycle In addition, pork processing takes a long time, compared to other animals. The lifecycle of raising a live hog for slaughter is nearly 300 days. While that is shorter than cows, it is still a long labor-intensive process. With processing plants offline for the next several weeks, expect supply to keep rising while demand stays muted and pork plants stay offline. 
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(chart courtesy YCHARTS)  Shares of Norwegian Cruise Line rose by 26% today. The cruise company is planning to furlough roughly 20% of its staff through the end of July in order to cut costs during the ongoing hold on sailing. The stock price of oil companies, such as Noble Energy (23%), Apache (22.5%), and Marathon Oil (18%), are up following confirmation that oil inventory rose less than was previously anticipated.  Shares of Hasbro are down by over 6% after the toy company announced that its Q1 earnings and revenue fell short of estimates. Coty's stock price dropped by over 5.5% today. The beauty company had recently planned to sell a portfolio of beauty brands, but the continued closure of hair salons and nail bars has delayed the sale. Word of the Day The Main Street Lending Program is a program announced April 9th, 2020, in which the Federal Reserve will purchase loans that banks give to small and mid-sized businesses. The Fed will purchase 95% of each loan, so that the bank must keep 5% of the loan on their books to discourage irresponsible lending. The program is designed to keep credit flowing to small and mid-sized businesses that were in "good financial standing" before the onset of the COVID-19 coronavirus crisis, but which are now under extreme stress due to stay-at-home and business closure orders from state and local governments. To be eligible, a company must employ less than 10,000 people or have annual revenue of less than $2.5 billion. Under the program, the Federal Reserve will purchase up to $600 billion of loans to qualifying businesses.  Today in History April 29th, 1863: William Randolph Hearst, one of the founders of the American media industry, is born to George Hearst, a wealthy miner and rancher, and Phoebe Apperson Hearst, a schoolteacher. In 1887, young "Billie Buster," just out of Harvard, takes over as editor of a fledgling newspaper called the San Francisco Examiner, which his father had recently acquired as settlement for a gambling debt. By the turn of the century, William Randolph Hearst is one of the world's most powerful press barons—and the model for Orson Welles' Citizen Kane.
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Wednesday, April 29, 2020
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