Morning Markets Brief 4-29-2020

Summary and Price Action Rundown

Global risk assets are on the upswing again after yesterday’s setback, with support from some key earnings reports and anticipation of exceptionally accommodative messaging from the Fed at the conclusion of its meeting this afternoon. S&P 500 futures indicate a 0.6% higher open, which would erase yesterday’s 0.5% loss that put year-to-date downside at 11.4% and the decline from February’s record high at 15.4%. Equities in the EU are lagging this morning, though Asian stocks were mostly higher overnight. Longer duration Treasury yields are edging lower, with the 10-year yield at 0.58%, while a broad dollar index is retracing more of last week’s upside ahead of a Fed meeting that will provide further details on its unprecedented level of monetary easing and credit support measures. Crude oil is extending yesterday’s recovery from nearly 20-year lows, with Russia’s Energy Minister urging unified price support.


Equities Find Support from High-Profile Earnings Releases

First quarter (Q1) earnings reports remain uneven but Google’s results set a positive tone for the upcoming reports of other tech giants, many of which report this week after their stocks have led the month-long rebound. After yesterday’s closing bell, Google released its earnings report with an earnings-per-share (EPS) value of $9.87, narrowly missing on consensus by just 0.34 cents per share. However, sales from the company are up 13.3% from last year’s Q1 results. This dispelled investor concerns of weak advertisement revenue during the pandemic. Shares of Google are up 7.8% in pre-market trading, which would nearly erase their year-to-date downside. Starbucks also issued its results after market close, generally meeting analysts’ expectations for the quarter, with revenue falling 5% year-on-year due to lost sales from the pandemic. In the earnings statement, Starbucks declared it has opened virtually all locations in China with modified operations and is looking to reopen in the US with “the best in-class-safety protocols.” The coffee chain’s stock price is only down 10.5% on the year after a strong April rebound and is consolidating in pre-market trading. Ford’s results were more downbeat, however, dramatically undershooting earnings forecasts and sending its shares 3.9% lower in early trading after already losing 42.2% on the year. Today, investors will parse Q1 results from Facebook, Boeing, Microsoft, GE, Mastercard, and Tesla. The remainder of the week features Apple, Amazon, Visa, McDonalds, and Comcast tomorrow, and ExxonMobil, Honeywell, Clorox, and Colgate Palmolive on Friday. Amazon will be of particular interest, with its stock at a record high and its delivery services taking on an even greater importance during the widespread lockdowns. With 173 of the S&P 500 companies having reported, 66% have surprised to the upside on sales and 68% have topped earnings expectations. However, aggregate earnings have come in 3.2% below estimates thus far.

Fed Accommodation in Focus

Market participants are awaiting today’s Federal Reserve decision, with communications over ongoing programs and strategies for further easing likely to feature most prominently. No major monetary programs are expected to be unveiled by the Fed today at the conclusion of its two-day meeting, though there is speculation that the FOMC may tweak some of its policy levers in order to put a floor under the effective federal funds rate, which is languishing at the low end of its 0-0.25% range. Overall, analysts will be highly attuned to details provided by the FOMC and Chair Powell on existing programs, with a particular focus on the volume of bond purchases. There is also likely to be discussion of further easing options in case the Fed needs to up the ante in its fight against deflation, which some market-based gauges of inflation expectations suggest is a deepening risk. Specifically, Chair Powell is likely to review his assessment of yield curve control, which the Bank of Japan (BoJ) is employing, and negative interest rate policy (NIRP), which is predominant in the EU and also being used by the BoJ. Questions about equity purchases by the Fed are also likely to be raised.

Additional Themes

US Q1 GDP Set to Contract – This morning’s release of Q1 GDP is expected to reflect a 4.0% annualized rate of contraction after a 2.1% pace of expansion in Q4 of last year, with estimates varying widely from 0% to -10%. This retrenchment, though the worst quarter since early 2009, pales in comparison to forecasts for Q2, which are exceptionally diffuse and uncertain but feature stunning estimates of a 30-40% range of economic contraction.

US Consumer Sentiment Conveys a Hint of Optimism – The Conference Board Consumer Confidence Index deteriorated further in April, following a sharp decline in March. The Index now stands at 86.9, down from 118.8 in March. However, the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, improved from 86.8 in March to 93.8 this month, in anticipation of “the possibility that stay-at-home restrictions will loosen soon, along with a re-opening of the economy.”