Market Reports

Summary and Price Action Rundown

Global risk assets remain under pressure this morning as disappointing earnings reports and intensifying White House rhetoric against China dampen investor sentiment. S&P 500 futures indicate a 0.9% lower open, which would extend Friday’s 2.8% loss that put year-to-date downside at 12.4% and the decline from February’s record high at 16.4%. With Amazon and Apple earnings reports highlighting the challenging outlook, Warren Buffett abandoning his airline holdings, and intensifying White House rhetoric on Chinese culpability for the pandemic, the market mood is cautious. Many overseas equity markets remain closed for holidays but EU stocks reopened to a sharp selloff. Longer duration Treasury yields continue to fluctuate near their lows, with the 10-year yield at 0.60%, while a broad dollar index is turning higher. Crude oil is continuing to retrace a portion of its recent recovery from nearly 20-year lows.

Earnings Releases Closed Last Week on a Downbeat Note

Investors await more first quarter (Q1) earnings results after some underwhelming reports on Thursday and Friday, alongside warnings from Amazon and Apple over the outlook, have rekindled a degree of caution. With Netflix, Google, Facebook, and Microsoft all posting robust Q1 results, analysts had been looking for Apple and Amazon to similarly impress after Thursday’s closing bell. Amazon, however, undershot its earnings estimates, and management provided a sobering outlook for the coming quarters. Meanwhile, Apple topped consensus but reported a decline in iPhone sales and suspended guidance amid scant visibility for the coming quarter. Shares of Amazon and Apple fell 7.6% and 1.6%, respectively, on Friday putting year-to-date performance at 23.7% and -1.6%. Tesla was another high-flier that when into reverse, with shares swooning 10.3% on Friday after CEO Elon Musk tweeted that its valuations were too high, though shares remains up 67.7% on the year. Meanwhile, ExxonMobil fell short on revenues and froze its dividends, sending its shares 7.2% lower on the day to trade -37.5% year-to-date. Colgate-Palmolive topped quarterly projections but withdrew its full 2020 forward guidance amidst the uncertainty from the pandemic. Its shares fell 2.5% on Friday to turn slightly negative for the year. Lastly, Honeywell beat earnings estimates but missed revenue projections while also suspending forward guidance plans for 2020. Honeywell stock sank 3.3% for the day for year-to-date downside of 22.5%. In other corporate news, retailer J. Crew filed for bankruptcy overnight. With 280 of the S&P 500 companies having reported, 63% have surprised to the upside on sales and 69% have topped earnings expectations. Aggregate earnings have come in 0.3% above estimates thus far, though earnings growth is -8.6% year-on-year (y/y). This week features Tyson, AIG, and Shake Shack today, with Allstate, DuPont, Disney, Prudential, Western Union, AvalonBay, CVS, GM, MetLife, and PayPal later this week.

White House Sharpens Rhetoric Against China

In remarks over the weekend, President Trump conveyed a hardening stance against China for its alleged mishandling of the outbreak. Investors are pondering yet another source of uncertainty as President Trump continues to press his case that the Chinese government is culpable for the pandemic, saying “they made a mistake” and “tried to cover it.” He has suggested that tariffs or other retaliatory measures could be applied. Meanwhile, Secretary of State Pompeo over the weekend continued to espouse the theory that the virus emanated from a Wuhan virus lab. President Trump promised a “conclusive” report on the origin of Covid-19, while reports cited a Department of Homeland Security memo alleging that Chinese officials concealed the severity of the initial outbreak in an effort to stockpile medical supplies. This comes after reports last week indicating that the White House is considering an executive order to prevent a US government employee savings plan from investing in Chinese assets.

Additional Themes

Dismal Global Growth Data – Global manufacturing purchasing managers’ indexes (PMIs) for April were broadly depressed, with the final EU reading at 33.4 after registering 44.5 in March. For context, PMI readings above 50 denote expansion in the sector. Asian factory PMIs were similarly depressed. South Korea, despite generally being cited as the most successful example of Covid-19 containment, printed a dire 41.6 for last month. In the US today, investors are bracing for a depressed March readings of factory orders and durable goods orders.

Warren Buffett Dumps Airlines – During the Berkshire Hathaway quarterly earnings call over the weekend, CEO Warren Buffett disclosed that his company had unloaded its stakes in US airlines, citing major changes for the industry. Share prices for the major US carriers are 8-10% lower in pre-market trading despite already being down significantly on the year, with Delta, United, American, and Southwest suffering year-to-date losses of 58.8%, 69.8%, 62.9%, and 45.9%, respectively, as of Friday’s close. Buffett also disclosed that Berkshire Hathaway has not made significant purchases of stocks over the past two months.

Summary and Price Action Rundown

Global risk assets are retreating this morning as sobering earnings reports and renewed threats of US tariffs on China weigh on sentiment, while economic data remains grim. S&P 500 futures point to a 2.2% lower open, which would extend yesterday’s 0.9% loss and pare the index’s 2.7% gain this week, which has put year-to-date downside at 9.9% and the decline from February’s record high at 14.0%. With Amazon and Apple earnings reports highlighting the challenging outlook and intensifying White House rhetoric on Chinese culpability for the pandemic, an upbeat week of trading is set to conclude on a downbeat note. Many overseas equity markets are closed for holidays. Longer duration Treasury yields continue to hover near their lows, with the 10-year yield at 0.61%, while a broad dollar index is pausing its recent decline. Crude oil is retracing a portion of its recent recovery from nearly 20-year lows.

 

High-Profile Earnings Releases and Guidance Rekindle Investor Caution

Amid mixed first quarter (Q1) earnings, solid reports from IT giants had provided support in recent days, but nuanced results from Amazon and Apple have emphasized downside risks. With Netflix, Google, Facebook, and Microsoft all posting robust Q1 results, analysts had been looking for Apple and Amazon to similarly impress after yesterday’s closing bell. Amazon, however, undershot its earnings estimates, and management provided a sobering outlook for the coming quarters. Although revenue of $75.5 billion, up 26.5% year-on-year (y/y), handily beat expectations CEO Jeff Bezos suggested that Amazon shareholders “may want to take a seat” and said that in Q2 the company will prioritize “Covid related expenses, getting products to customers, and keeping employees safe,” mostly at the expense of Q2 operating profit. While estimates trended around $4 billion for Q2 operating profit, Amazon stated it could see losses of $1.5 billion to gains of $1.5 billion, underlining the deep uncertainty over operating conditions moving forward. Amazon shares are -5.0% in pre-market trading but still retain dramatic outperformance year-to-date (ytd), with upside of 33.9% thus far in 2020. Meanwhile, Apple topped both earnings and revenue forecasts but suspended guidance amid scant visibility for the coming quarter. Despite the pandemic, Apple managed to grow in Q1, attributing its success to Wearables and Services, but sales of its flagship iPhone declined. While other companies slashed or suspended dividends this quarter, Apple issued a 6% increase of dividends to shareholders. Apple stock is down -2.9% in early trading after closing yesterday’s session flat ytd. Lastly, Visa beat consensus earnings and revenue estimates but stated that underlying business drivers slowed during the quarter as a result of the pandemic. Regarding Q2, management noted that US spending volumes contracted 19% through April 28. Shares of Visa are 3.2% lower in pre-market trading and -4.9% ytd. With 264 of the S&P 500 companies having reported, 65% have surprised to the upside on sales and 69% have topped earnings expectations. However, aggregate earnings have come in 1.8% below estimates thus far.

Economic Data Remains Dismal Ahead of Next Week’s April Jobs Figures 

Poor economic data continues, but the prospects for a second half recovery remain the more potent driver of price action and investor sentiment. Last week 3.8 million Americans filed for unemployment benefits for the first time, compared to 4.4 million in the prior week and above market expectations of 3.5 million. This brings the total reported since the beginning of the coronavirus crisis to over 30 million, suggesting layoffs have started to spread to industries that were not initially directly impacted by Covid-19. The largest increases were seen in Florida, California, Texas, Georgia and New York. Based on this data, economists are projecting an official unemployment rate around 20%. April nonfarm payroll data will be in focus next week. Meanwhile, Personal Income in the US declined by 2.0% month-on-month (m/m) in March, after a 0.6% increase in February and below market expectations of 1.5%, while Personal spending in the US dropped 7.5% m/m, after rising 0.2% and also below -5.1% consensus. This was the largest decline in personal spending on record, as the coronavirus crisis hit households’ demand. Spending on services fell 9.5% m/m while goods spending fell 2.2% m/m. The Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation metric for which it targets 2%, fell 0.1% m/m to 1.7% y/y, down from 1.8% in February.

Additional Themes

Trump Targets China – Investors are noting President Trump’s hardening posture against China, with reports that he is considering an executive order to prevent a US government employee savings plan from investing in Chinese assets. Yesterday, he mused about retaliatory tariffs and continued to suggest that Covid-19 emanated from a virus lab in Wuhan.

European Central Bank (ECB) Tweaks Policy – The ECB left rates on hold and announced modest policy enhancements yesterday. EU markets registered a degree of disappointment, with the euro turning higher against the dollar, peripheral debt selling off, and stocks falling.

Summary and Price Action Rundown

Global risk assets are mixed this morning after yesterday’s solid rally as investors digest upbeat news on the Covid-19 treatment front, some positive earnings reports, and a consistently accommodative posture from the Federal Reserve amid grim economic data. S&P 500 futures indicate a 0.3% lower open, which would pare yesterday’s 2.7% surge that put year-to-date downside at 9.0% and the decline from February’s record high at 13.2%. Equities in the EU are lagging this morning, though Asian stocks were strong overnight. Longer duration Treasury yields continued to hover near their lows, with the 10-year yield at 0.61%, while a broad dollar index is retracing more of last week’s upside. Crude oil is extending its ongoing recovery from nearly 20-year lows amid reports of US pressure on Saudi to cut output.

Key Earnings Releases Turning Supportive of Stocks

Though first quarter (Q1) earnings reports remain mixed, reports from IT giants have added further upside momentum to the ongoing stock market rebound this week. After the market closed yesterday, Facebook released its earnings report stating an earnings-per-share (EPS) value of $1.71 for the quarter, beating consensus by $0.01. Revenues came in at $17.74 billion, up 17.6% year-on-year (y/y), beating expectations by $520 million. Shares of the social media giant are up 8.5% in pre-market trading, a gain that would put them in positive territory year-to-date (ytd). Facebook attributed much of the recent trend to increased consumer engagement: “people around the world sheltered in place and used our products to connect with the people and organizations they care about.” Microsoft also beat both EPS and revenue expectations, as management emphasized that Covid-19 had hardly any net impact on revenue. Shares prices are up 1.7% in early trading to add to the 12.5% gain ytd. Qualcomm also topped expectations for Q1. Looking forward, guidance for Q3 assumes an “approximate 30% reduction in handset shipments,” though preparations for the global implementation of 5G network capabilities were a source of optimism. Qualcomm stock is trading up 0.6% ahead of the opening bell and is -10.5% ytd. Lastly, Tesla handily surpassed expectations, marking “its best Q1 ever” sending its shares 8.4% higher pre-market. Tesla is up 91.4% ytd. The remainder of the week features Apple, Amazon, Visa, McDonalds, and Comcast today, and ExxonMobil, Honeywell, and Clorox tomorrow. 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 211 of the S&P 500 companies having reported, 65% have surprised to the upside on sales and 67% have topped earnings expectations. However, aggregate earnings have come in 1.9% below estimates thus far.

Global Growth Figures Reveal Economic Pain but Draw Scant Market Reaction

With more dismal jobless data due this morning, investors continue to focus on the prospects for recovery rather than the depths of the current trough. Initial jobless claims for the week ending April 25^th are forecast to total 3.5 million, down from 4.4 million the prior week, which brough the total over the past five weeks to over 26 million. Estimates for the unemployment rate are in the mid-teens to 20%. Meanwhile, March readings of personal income, spending, and inflation are expected to be downbeat. This follows yesterday’s release of US Q1 GDP, which posted a contraction of 4.8%, ending the longest period of expansion in US history. This was the steepest pace of retrenchment since 4Q 2008 and much worse than market consensus of a 4.0% slump. Household consumption tumbled, business investment contracted for a fourth consecutive period and healthcare spending shrank as elective surgeries were delayed. In addition, exports and imports were down sharply, while residential fixed investment rose as well as government spending. EU Q1 GDP, released this morning, was similarly dire, shrinking 3.8% quarter-on-quarter, with France, Spain, and Italy underperforming with quarterly contractions of 5.8%, 5.2%, and 4.7%, respectively. China’s data reflects a moderate degree of recovery, but the April manufacturing purchasing managers’ index (PMI) slid to 50.8 from 52.0 the prior month on weak export orders. For context, PMI readings above 50 denote expansion.

Additional Themes

Fed Steady, Dovish – Yesterday, the FOMC voted unanimously to maintain the target range for the federal funds rate between 0 to 0.25%, held the interest on required and excess reserve balances at 0.10%, and maintained its massive liquidity operations. Despite no shifts in policy, the accompanying communications conveyed an ultra-accommodative posture and Fed Chair Powell opined that the Fed will likely have to do more to support the economy.

Drug Hopes – Risk sentiment surged yesterday on an announcement from Gilead Sciences that preliminary results of a coronavirus drug trial showed positive results for treating severe cases of Covid-19 with remdesivir. Meanwhile, President Trump announced a government-led push for a vaccine, dubbed “Operation Warp Speed” targeting wide availability by year-end.

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.”

 

Summary and Price Action Rundown

Global risk assets are rising this morning as investors look ahead to key earnings reports and global central bank meetings this week, while closely monitoring plans to reopen some segments of the economy. S&P 500 futures point to a 1.1% higher open, which would extend yesterday’s 1.5% gain that put year-to-date downside at 10.9% and the decline from February’s record high at 15.0%. Equities in the EU are higher this morning as well, though Asian stocks were mixed overnight. Longer duration Treasury yields are holding yesterday’s modest upside, with the 10-year yield at 0.66%, while a broad dollar index is retracing more of last week’s upside but remains within its recent trading range. Oil prices are fluctuating near their 20-year lows from early last week, but the volatility is not spilling over into broader risk aversion.

 

Equities Increasingly Optimistic Ahead of High-Profile Earnings Releases

Though uneven first quarter (Q1) earnings have provided scant direction to equities thus far, indexes have been rallying sharply ahead of this week’s calendar of key reports. Today, investors will parse Q1 results from Google, Ford, 3M, Caterpillar, and Starbucks. The remainder of the week also features household names, including Facebook, Boeing, Microsoft, GE, and Tesla tomorrow, Apple, Amazon, Visa, McDonalds, and Comcast on Thursday, 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 in people’s lives during the widespread lockdowns. Other companies reporting this week include D.R. Horton, Harley-Davidson, Southwest, Mondelez, Pfizer, United Airlines, UPS, Archer-Daniels-Midland, ADP, eBay, The Hartford, Mastercard, Qualcomm, and Yum! Brands. Thus far, earnings season has featured stark divergence between the corporate winners and losers from the pandemic. While companies like Netflix and Target have benefitted from increased subscribers and robust online sales, respectively, banks and credit card companies have had to aggressively prepare for credit deterioration. Brick and mortar retailers like JC Penney, which is in advanced bankruptcy talks with lenders, and travel sector companies have suffered an exceptionally adverse impact. With 133 of the S&P 500 companies having reported, 62% have surprised to the upside on sales and 67% have topped earnings expectations. However, aggregate earnings have come in 4.3% below estimates thus far.

Fiscal and Monetary Support Remain in Focus

As market participants await tomorrow’s conclusion of a two-day Federal Reserve meeting, the prospect for swift passage of CARES Act 2.0 appears to be improving on Capitol Hill. Though no new policy actions are expected to be unveiled by the Fed tomorrow, yesterday it announced an expansion of its $500 billion Municipal Liquidity Facility to allow access for more cities and counties and extended the duration of the program. Meanwhile, only days after President Trump signed the latest pandemic relief bill, the focus is already shifting to the next round of support, the CARES Act 2.0. For context, the latest bill that President Trump signed on Friday provided 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. Reports suggest that this amount could be exhausted within days. 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. Yesterday, Senator McConnell indicated that the Senate “probably will” pass another economic support package, while also softening his stance on state and local funding aid and backing off his advocacy of state bankruptcy as a potential avenue for resolving budgetary woes. Additionally, reports suggested that the administration is floating the idea of a “negative payroll tax” and a White House spokesperson said that infrastructure spending will be a “big part” of CARES Act 2.0.

Additional Themes

Oil Prices Near Lows Again – International benchmark Brent crude and US benchmark WTI prices have returned to last week’s multi-decade lows, with WTI again underperforming. Analysts noted that selling of the front-month June WTI future by popular oil ETF USO contributed to the outsized declines for this contract to below $12 per barrel, with the July WTI contract trading around $19. This comes after USO rebalanced its oil futures holdings multiple times last week into longer duration contracts in a bid to avoid implosion and escape the most pronounced volatility. For context, traders abandoned the expiring May contract last week amid aversion to physical delivery due to dwindling storage capacity. A recent Goldman Sachs report estimated that storage capacity may be exhausted within as little as three to four weeks.

GM Conserves Capital – With their US plants shuttered since mid-March, General Motors has suspended its quarterly dividend and stock buybacks to preserve cash during the pandemic.

Summary and Price Action Rundown

Global risk assets were mostly positive overnight at the outset of a week of key earnings reports and global central bank meetings, while investors keenly monitor plans to reopen some segments of the economy. S&P 500 futures indicate a 0.8% higher open, which would extend the index’s 1.4% gain on Friday that put year-to-date downside at 12.2% and the decline from February’s record high at 16.2%. Equities in the EU and Asia posted gains overnight, with the Nikkei outperforming after the Bank of Japan upped its monetary stimulus (more below). Longer duration Treasury yields are edging upward from recent lows, with the 10-year yield at 0.62%, while a broad dollar index is retracing a portion of last week’s upside. Oil prices are giving back some of their recent rebound, which took crude above its 20-year lows from early last week, as analysts remain focused on dwindling storage capacity for the supply glut.

 

Equities Rise into Key Earnings Reports This Week

Though first quarter (Q1) earnings reporting has been uneven thus far, this week’s calendar is set to feature many of the companies that investors expect to be successfully weathering the pandemic. Thus far, earnings season has featured stark divergence between the corporate winners and losers from the pandemic. While companies like Netflix and Target have benefitted from increased subscribers and robust online sales, respectively, banks and credit card companies have had to aggressively prepare for credit deterioration. Brick and mortar retailers like JC Penney, which is in advanced bankruptcy talks with lenders, and travel sector companies have suffered an exceptionally adverse impact. This week’s earnings calendar features household names including Apple, Amazon, Google, Facebook, Microsoft, 3M, Ford, Caterpillar, D.R. Horton, Harley-Davidson, Southwest, Mondelez, Pfizer, Starbucks, United Airlines, UPS, Archer-Daniels-Midland, ADP, Boeing, eBay, GE, The Hartford, Mastercard, Qualcomm, Yum! Brands, and McDonalds. Amazon will be of particular interest, with its stock at a record high and its delivery services taking on an even greater importance in people’s lives during the widespread lockdowns. With 123 of the S&P 500 companies having reported, 63% have surprised to the upside on sales and 67% have topped earnings expectations.

Policy Support in Focus Ahead of the Fed Meeting

With market participants citing aggressive monetary and fiscal policy actions as key factors underpinning the improvement in sentiment and market function over the past few weeks, Fed communications at its meeting this week are set to convey details of enacted programs. The FOMC will convene on Wednesday at a regularly scheduled meeting, and analysts anticipate that the focus will be on communications rather than actual policy action. Given that the Fed has undertaken a panoply of monetary measures of unprecedented size and scope over preceding weeks, this meeting offers the opportunity to provide needed clarity on the progress of the newly enacted programs. For context, gauges of systemic risk and funding market pressures have eased significantly over the past month as the Fed has offered trillions in liquidity support. Meanwhile, fiscal policy support has continued to expand, with Congress and the Trump administration finalizing the latest pandemic relief package, which is meant to backstop programs established in the $2 trillion CARES Act, ahead of the negotiations for CARES Act 2.0, which are expected to begin after Congress returns to session in early May. This latest bill provides 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.

Additional Themes

Reopening Plans in Focus – With Covid-19 hotspots showing a flattening of infection rates, government planning for restarting some segments of the economy, social life, etc. are helping boost sentiment. With lags in economic data, however, analysts’ ability to measure the progress of recovery will be uneven. Over the coming months, the most important metric will remain the infection rates in areas that have begun to reopen. Any significant re-intensification of Covid-19 transmission in places like New York and Italy, or even worse a return to lockdown as experienced in Singapore, would dent investor confidence. A NABE survey showed estimates for business to return to normal ranging from 5-8 weeks all the way out to 3-6 months.

Bank of Japan (BoJ) Augments Policy Support – The yen posted moderate gains versus the dollar, Japanese government bonds (JGBs) were steady, and the Nikkei outperformed overnight after the BoJ pledged to buy unlimited JGBs to achieve its policy goals, upped its cap on corporate bond buying to ¥20 trillion, and increased an emergency liquidity program for banks. For context, Japan has suffered an acceleration in Covid-19 infections recently.

Summary and Price Action Rundown

Global risk assets are mixed this morning after struggling to find direction this week as investors continue to ponder reopening and recovery efforts amid a continuation of dire economic data and uneven corporate earnings reports. S&P 500 futures point to 0.8% higher open, which would pare the index’s week-to-date loss of 2.7% that put year-to-date downside at 13.4% and the decline from February’s record high at 17.4%. Equities in the EU and Asian, however, were mostly lower overnight. Earlier this week, crashing oil prices had spilled over into broader risk aversion, but the ensuing rally as crude markets stabilized was dampened yesterday by news that a potential treatment for Covid-19 had performed poorly in drug trials. Longer duration Treasury yields are hovering near recent lows, with the 10-year yield at 0.60%, while a broad dollar index is flat within its recent range after starting this week on an uptrend. Oil prices are continuing to rebound but remain at very depressed levels.

Markets Look Past Dismal Data to Focus on Possible Recovery

Although initial jobless claims data signals an unemployment rate over 20%, the shock value appears to have completely worn off as investors remain focused on the prospects for a rebound. Yesterday, financial markets remained steady once again in the face of a gauntlet of historically grim economic readings. Last week, 4.427 million Americans filled for unemployment benefits for the first time, down from the previous week’s revised level of 5.237 million and compared to market expectations of 4.2 million. The latest figure brought the total reported over the past five weeks to over 26 million. The largest increases were reported in California, Florida, Texas, Georgia, and New York. The real numbers are most likely higher as some states like Florida have large backlogs due to ineffective systems and the self-employed are not included in these statistics. To put in perspective the magnitude of these losses, the US economy had created 22 million jobs since the Great Recession, which have now been destroyed in a month. Meanwhile, the IHS Markit Manufacturing Purchasing Managers’ Index (PMI) for the US fell to 36.9 in April from 48.5 in March, below market expectations of 38. For context, PMIs above 50 denote expansion. The reading pointed to the sharpest contraction in factory activity in 11 years amid the cancellation or postponement of both domestic and foreign orders. The Services PMI fell to 27.0 from 39.8 and below market expectations of 31.5, the steepest fall since the series began in October 2009. Also, New Home Sales plunged 15.4% month-on-month and 9.5% year-on-year to a seasonally adjusted annual rate of 627K in March, below a downwardly revised 741K in February and below market forecasts of 645K.

Corporate Earnings Reveal Divergent Winners and Losers Amid the Pandemic

Amid this second week of first quarter (Q1) corporate earnings season, certain companies and sectors are displaying resilience and opportunity amid the pandemic while others are severely impacted. Shares of railroad giant CSX rose 1.0% after the company was able to cut expenses by 7% percent as operating income declined by 3% compared to the same period last year. Meanwhile, Gap stock price edged back toward multi-decade lows after the retailer warned it may not have enough cash flow to sufficiently fund its operations. This contrasts to the announcement from Target CEO Brian Cornell that the retailer has benefited from a surge in online shopping but warned it will have lower profits this quarter due to higher costs. Since Feb. 2, Target has seen same-store sales up more than 7% and so far in April, comparable digital sales have increased by more than 275% from a year ago. Shares closed lower but are down less than 20% year-to-date after finishing last year at all-time highs. With 121 of the S&P 500 companies having reported, 65% have surprised to the upside on sales and 67% have topped earnings expectations. Next week’s earnings calendar features household names including Amazon, Apple, Facebook, Google, Microsoft, Boeing, 3M, Ford, and McDonalds.

Additional Themes

Discouraging News on Covid-19 Treatment Dampens Sentiment – Share of drugmaker Gilead Sciences fell 4.3% yesterday following headlines that remdesivir, which had apparently shown some promise in treating severely ill Covid-19 patients “flopped” in its initial trials, according to the Financial Times. The company attempted to qualify this assessment, suggesting that it may have had some positive results but US equities failed to recapture the highs of the morning. After rising as much as 1.6% in early trading, the S&P 500 closed in slightly negative territory.

Looking Ahead – Next week, the Federal Reserve and the Bank of Japan both have meetings that are expected to feature more communications than policy action after weeks of emergency monetary maneuvers. US and EU Q1 GDP figures are due, as are more US and global purchasing managers’ indexes (PMIs). These will surely deliver uniformly awful news though markets are priced for it and investors are firmly focused on prospects for recovery rather then depths of the current trough, as evidenced by the lack of price action in response to dire data.

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 18^th. In the week ending on April 11^th, 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.

 

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. Additional Themes 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.