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Fed’s Powell says recovery could be a lengthy one—and the markets promptly rally

May 18, 2020, 9:21 AM UTC

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Happy Monday, Bull Sheeters. There’s plenty of green on the screens this morning as investors are banking that a second-half recovery is in the cards. That’s despite a cautious interview on 60 Minutes last night by the Fed’s Jerome Powell.

Let’s see where investors are putting their money.

Markets update


  • The major indices are all clinging to slight gains, with Japan’s Nikkei up 0.6%.
  • That’s despite news of Japan officially entering recession. The world’s third-largest economy shrunk by 0.9% quarter-on-quarter. That’s bad, but better than the U.S. and Canadian outlook.
  • The Saudi economy has been devastated by low oil prices, but the kingdom is buying into this rally. Saudi Arabia’s $300 billion sovereign-wealth fund bought a half-billion dollars worth of stocks, including shares in Facebook, Citigroup, Marriott and Boeing.


  • European bourses charged out of the gates this morning. London’s FTSE and Germany’s Dax were up nearly 2% at the open.
  • Italy and Spain, among the first European countries to enter lockdown, are reopening their economies further today.
  • Sports fans, the footy is back. Germany‘s pro soccer league, the Bundesliga, resumed action this weekend. There were no fans in the stands and the goal celebrations were, for the most part, subdued. Packed stadiums, btw, are breeding grounds for infection, The Wall Street Journal reports. “I think about the stadium in the same way I think about nursing homes, cruise ships, jails and prisons,” one doctor says.


  • The Dow, S&P 500 and Nasdaq future point to a solid open, extending Friday’s gains.
  • Fed Chairman Jerome Powell, on 60 Minutes last night, shot down the prospect of negative interest rates and warned the recovery could drag into next year. But investors seem to like those odds, sending global markets higher.
  • Cash-strapped SoftBank is looking to unload a big stake in its T-Mobile U.S. business to Deutsche Telekom, giving the German telecom giant a controlling portion of the mobile carrier, the Wall Street Journal reports in a big scoop.


  • Gold is up.
  • The dollar is flat.
  • Crude too is climbing. Both Brent and WTI is are above $30/barrel, further sign demand is recovering.

Lockdown economics

Were lawmakers wise to shut down businesses, reduce travel and require citizens to work from home as coronavirus cases spiked?

In Italy, where I live, the government introduced the first nationwide lockdown and the Italian economy is now solidly in recession. Neighboring countries soon followed, and they’re doing just as poorly.

Economists will be analyzing those decisions for years. On that note, Berenberg sent clients an interesting note on Friday that gives an early assessment of which economies have suffered the most since the start of shutdown. Here’s their chart:

“As the chart shows,” authors of the Berenberg note write, “countries with tighter average restrictions in Q1 such as France and Italy suffered a worse drop in Q1 GDP than the US, the UK and Germany, which introduced lockdowns later (US, UK) and/or less harshly (US, UK, Germany).” 

Nobody is handing out grades at this early stage. Q1 was a disaster for those who acted quickly, and Q2 won’t be much better. The aim for all countries is to set in motion the conditions for a Q3-and-beyond recovery. And, as the markets are telling us today, investors are betting that’s a distinct possibility.

Those countries that acted quickly are now emerging from lockdown with the number of infections under greater control. Italy will be among the first nations to permit unrestricted travel, even from abroad, starting June 3. It’s tourism-dependent economy needs the boost.

But the risks are everywhere, as Berenberg notes. “If the virus were to come back badly in a second wave, a need to re-instate harsh lockdowns on a broad scale could deal a huge blow to the economic outlook as well as to financial markets across the globe,” the authors write, adding, “we do not expect this risk to materialize.”

Berenberg is fairly optimistic about a recovery. It foresees a check-shaped rebound—not as benign as a V-shaped recovery. But that somewhat rosy outlook is dependent on two major factors: developing a vaccine in quick fashion, and preventing a devastating second wave.

No small task.


The further you travel from Italy, the worse the coffee is. (I once said something similar about pizza.) For the past 10 weeks, we’ve been unable to get our caffè-at-the-bar fix, and it’s been eating into the national psyche, and my own productivity at times.

I miss my 90-cent espresso macchiato from Leandro, the un-fussy bar/forno down the road here in Rome. (A cappuccino will set you back €1.20, but, please, order it before 11 a.m. to avoid the horrified looks.)

I also miss chatting with the owner of this classic Ferrari of a coffee machine, at Dei Priori, up in the Marche hills. His dad bought it for the family restaurant in the ’60s. It’s like something out of Willy Wonka, and it makes the most divine cup of coffee—either straight or corretto, with a splash of sambuca.

Thanks to the latest lockdown easing measures, bars as of today are open to customers, meaning I can once again pop back down to Leandro for a much needed jolt of caffeine.

I may even order a caffè corretto.


Have a nice day everyone. I’ll see you here tomorrow.

Bernhard Warner

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Today's reads

How low will they go? 2019 was a banner year for corporate earnings, and this year was supposed to be even better. You can chuck that forecast out the window. But what can we expect on the profits front this year, now that governments around the world are reopening of the economy? Fortune's Shawn Tully tackles this question, answering just how long we should wait for a full recovery.

A dead cat bounce? A head-fake rally? What should we make of the crazy fall and improbable bounce-back of markets in recent weeks? Any chance the impressive rally over the past six weeks is sustainable? Ben Carlson at Ritholtz Wealth Management digs into the numbers, heading back over the past century, to see if history provides any lessons to what we just went through, and offers any guidance on where we're heading. Bulls, it's worth the full read.

(Some of these stories require a subscription to access. There is a 50% discount for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.)

Market candy

Quote of the day

People who have done everything right, and managed to put away some money, didn’t expect this, but they’re in a tough spot... A lot of them will have to consume less in their golden years, unless this turns around.

That's William J. Bernstein, an investment adviser, speaking to Jeff Sommer at the New York Times about the perils of low interest rates. President Trump continues to press the point for low interest rates, but there would be clear losers whenever rates hit rock-bottom lows (or, worse, go negative). Savers, pensioners, and anyone who's bought bonds or commercial annuities lately stand to lose the most.