Summary and Price Action Rundown
After two days of steep declines this week, global risk assets are attempting to rebound this morning alongside oil prices, with investors also noting some encouraging corporate earnings reports and progress toward another economic relief package on Capitol Hill. S&P 500 futures point to a 1.1% higher open, which would pare the index’s two-day loss of 4.8% that put year-to-date downside at 15.3% and the decline from February’s record high at 19.2%. EU equities are rallying moderately, and Asian equities were mixed overnight. Global equities have reversed a portion of their rebound from mid-March lows this week as stunning oil price declines weighed against nascent optimism on economic recovery prospects and sparked broader risk aversion. After their historic slide, oil prices are steadying so far today, with Brent bouncing above $19 per barrel, which was its lowest level since 1999. Longer duration Treasury yields are pausing their ongoing downtrend, with the 10-year yield edging up to 0.58%, while a broad dollar index is stabilizing within its recent range after two days of gains this week.
US Congress Moves to Augment Fiscal Support Measures
Last evening, the Senate passed a $484 billion pandemic relief bill designed primarily to add funding for the CARES Act’s small business lending program, which ran out of money last week. After last week’s partisan wrangling gave way to reports over recent days that a deal was close, the latest economic support package passed the Senate unanimously last evening and the House is expected to follow on Thursday, as the same procedural holdout from the CARES Act is set to force some members to return to Washington DC to vote in person. The bill will provide an additional $320 billion for the Small Business Administration’s pandemic relief loan facility, the Payroll Protection Program (PPP), of which $30 billion is set aside for smaller banks and credit unions and another $30 billion will be funneled through even smaller lenders. For context, the PPP hit its initial $349 billion limit last week and is now out of money. Additionally, $60 billion will go to additional Economic Injury payouts, $75 billion to hospitals, and $25 billion to fund testing efforts, $18 billion of which is directly to states’ testing efforts. Relatively swift and muscular fiscal support has been a key pillar of the rebound in investor sentiment since mid-March lows, but the economic impact remains to be seen in data over the coming months.
Corporate Earnings Feature Some Better News
Amid this second week of first quarter (Q1) corporate earnings season, certain companies and sectors are displaying resilience and opportunity amid the pandemic. After yesterday’s closing bell, Netflix revealed subscriber growth of 15.8 million, roughly doubling analysts’ estimates, though management was cautious on the outlook. Netflix shares are 1.6% lower in pre-market trading but were hovering near an all-time high. Meanwhile, Snap’s stock price is up 20.2% ahead of the open after management highlighted a spike in usage among bored and lonely kids in lockdown. More traditional corporate bellwethers, however, have tended to show a more clearly adverse impact of virus containment measures. Coca-Cola said its global volumes have plunged 25% so far this month, as the closure of theaters, restaurants, and stadiums are weighing on its sales. Management said its full-year financial results cannot be estimated amid high uncertainty. Shares ended the day 2.6% lower and are down 18.0% year-to-date. Insurance giant Travelers missed earnings but hiked its dividend, stabilizing its shares yesterday though they remain over 25% lower on the year. Lastly, IBM missed on revenue, sending its stock price 3.0% lower to put its 2020 loss at 12.9%. With 73 of the S&P 500 companies having reported, 65% have surprised to the upside on sales and 66% have topped earnings expectations.
Oil Prices Try to Find a Floor – International benchmark Brent crude and US benchmark WTI prices are attempting to stabilize this morning but remain severely depressed, hovering around $19 and $11 per barrel, respectively. Currencies of oil dependent countries, like Russia and Mexico, have fallen steeply versus the dollar and pressure has re-intensified on US energy sector credit spreads as oil prices plunged this week. Meanwhile, Texas regulators have deferred any decision on statewide output curbs until early next month.
Treasury Support for Airlines – Yesterday, the Treasury Department concluded Payroll Support Program agreements with Allegiant Air, American Airlines, Delta Air Lines, Southwest Airlines, Spirit Airlines, and United Airlines. Meanwhile, Alaska Airlines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, and SkyWest Airlines have also indicated that they plan to participate in the Payroll Support Program, which encompasses 95% of airline capacity. The Treasury is initially distributing 50% of funds awarded and releasing the remainder in a series of payments. In total, Treasury is awarding U.S. passenger airlines $25 billion in funds earmarked for payroll costs. Airlines must repay 30% of the funds in low-interest loans and grant Treasury warrants equal to 10% of the loan amount, terms that airline executives had argued against.