Moring Markets Brief 4-23-2020

Summary and Price Action Rundown

After three days of choppy price action to start the week, global risk assets are relatively stable this morning ahead of more US unemployment data and corporate earnings reports, while oil continues to recover from its historic swoon. S&P 500 futures indicate a flat open, which would hold the index’s week-to-date loss at 2.6%, keeping year-to-date downside at 13.4% and the decline from February’s record high at 17.3%. EU equities are similarly muted and Asian equities were mixed overnight. Earlier this week, global stocks had been trading in tandem with oil prices, which crashed on Monday and Tuesday but staged a decent rebound yesterday. With crude extending its moderate rally, the focus is shifting back to growth data, prospects for recovery, and company earnings. Longer duration Treasury yields are steady after pausing their ongoing downtrend, with the 10-year yield holding at 0.62%, while a broad dollar index is flat within its recent range after starting this week on an uptrend.

Investors Continue to Ponder Recovery Amid Deeply Depressed Economic Data

Although the incoming growth and labor market figures in the US and around the world remain historically dire, market participants are now less shocked by the depth of the trough than concerned about the prospects for a rebound. Investors are awaiting another grim tally of US unemployment claims this morning, with a consensus projection of 4.5 million new filings during the week ending April 18th. In the week ending on April 11th, 5.2 million Americans filled for unemployment benefits, down from the previous week’s 6.6 million but above market expectations of 5.1 million. This brought the total number of new filings over the last four weeks to 22 million. Earlier this morning, the preliminary April EU manufacturing purchasing managers’ index (PMI) registered a deeply depressed 33.6, dramatically undershooting both estimates of 38.0 and the prior month’s 44.5. For context, PMI readings below 50 denote contraction of the sector. The corresponding EU service sector PMI was even worse, falling to an astonishing 11.7 versus estimates of 22.8 and 26.4 in March. EU leaders are continuing to debate a €2 trillion relief package. In Asia, Japan’s government has downgraded its economic assessment to the worst level since 2009 and its early PMI readings for April also slumped deeper into contraction, with manufacturing at 43.7 and services at 22.8, down from 44.8 and 33.8, respectively, the prior month. South Korea’s first quarter (Q1) GDP data reflected a contraction of 1.4% on an annualized basis, which was slightly better than the -1.5% forecast. Public health experts have pointed to South Korea as setting the standard for testing and coronavirus containment, but economists are still forecasting a challenging Q2, with estimates of -0.4% GDP as economists will focus on the ability of fiscal stimulus to limit the downside.

Corporate Earnings Feature Some Bright Spots but Remain Broadly Challenged

This second week of first quarter (Q1) corporate earnings season is highlighting some notable outperformers but the overall tone is downbeat and the outlook is deeply uncertain. Netflix earnings climbed 106% year-on-year (y/y) and 9% quarter-on-quarter (q/q) while its 15.8 million new subscriptions in the quarter smashed estimates of 8 million. Still, the company’s somber outlook for the remainder 2020 sent its share price 2.9% lower yesterday, albeit from near all-time highs. Meanwhile, Snap’s stock price soared 36.3% after management highlighted a spike in usage during lockdowns. Chipotle also posted an impressive quarter, boosting its stock price 14.0% yesterday. Meanwhile, Delta beat the market’s dour expectations, losing $0.51 per share as opposed to the forecasts of -$0.87. The company maintains its $6 billion in unrestricted liquidity but has been notably reliant on federal support. Its stock price rose 2.8% but remains down 61.6% year-to-date. With 98 of the S&P 500 companies having reported, 65% have surprised to the upside on sales and 69% have topped earnings expectations.

Additional Themes

Oil Price Rebound Helps Stabilize Sentiment – International benchmark Brent crude and US benchmark WTI prices have recovered a portion of their steep losses after bouncing off multi-decade lows yesterday morning. Nevertheless, they remain severely depressed, hovering nearing $22 and $15 per barrel, respectively, and analysts see scant support for a durable rally. Crude oil’s dramatic swoon earlier this week not only impacted currencies of oil-dependent countries and US energy sector credits but spilled over into broader risk aversion.

House Vote Pending on Latest Support Package – After the Senate unanimously passed the latest pandemic relief bill on Tuesday evening, the House is expected to follow today. 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. 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.