Weekly Market Update: ‘Animal spirits’ unshaken despite oil trading debacle and terrible economic data
Markets opened the week amid historic turmoil in the crude markets. Oil prices continued to plummet amid a glut of supply against a backdrop of historic demand destruction related to the pandemic measures. Nowhere was the stress more evident than in the WTI futures market which saw the front month, May, contract trade well into negative territory ahead of expiry. Speculators struggled to find buyers that were willing and available to take delivery forcing them to pay a premium for the first time since the 1970s to offload what was essentially a cash contract. On Tuesday, the declines spread further out across the curve, before the summer contracts experienced a modicum of stabilization following Tuesday’s May contract expiration. June WTI finished the week down over 30%.
Global economic data remained awful. European PMI readings registered data series lifetime lows in both headline and component readings while Germany’s IFO and ZEW readings continue to descend rapidly. US weekly initial jobless claims remained near 4.5M and March new home sales missed expectations. Nevertheless, animal spirits continued to get a tailwind from an active corporate bond market. Both investment-grade and high-yield bond offerings remained plentiful as corporations rushed to raise capital to shore up balance sheets and ensure they can manage through the pandemic environment. EU officials struggled to find or even define ‘solidarity’, but pledged to find a way to provide massive fiscal stimulus for Europe once economies there reopen. The ECB was left holding down the fort yet again, announcing a widening of collateral rules to mitigate impacts of potential sovereign downgrades to economies within the Eurozone. Stocks consolidated recent gains, with the S&P down 1.3% on the week, the DJIA falling 1.9%, and the Nasdaq slipping 0.2%.
In corporate news this week, IBM reported a beat on earnings but a revenue miss and noted it expects customers to postpone projects in the near term. Intel shares took a hit after guiding Q2 EPS below consensus while withdrawing its FY outlook, and the chipmaker pointed to weaker demand in the second half from corporate and government customers. Netflix surprised the street by adding nearly 16M subscribers in the quarter, though the streaming giant offered conservative forward guidance as it expects global lockdown orders to ease. Snap surged after posting a top and bottom line beat, saying that it saw high revenue growth rates in the first two months of the quarter which offset its lower growth in March. Target offered some preliminary numbers, reporting its comparable sales were up +7% quarter to date and that it was experiencing “Cyber Monday volumes” almost every day in April. Tyson temporarily closed three meat processing facilities in Washington, Iowa, and Indiana on COVID-19 concerns, and a food workers union warned that about 10% of US beef processing plants and 25% of pork plants are closed due to coronavirus. Zoom Video shares added to recent gains after the teleconferencing provider announced it would join the Nasdaq 100 index on Apr 30th. AT&T CEO Stephenson confirmed plans to step down, setting his departure date for July 1st when COO John Stankey will assume his role.
SUN 4/19 (US) US Treasury announces 90-day deferral of some tariff payments, does not apply to anti-dumping and countervailing duties
MON 4/20 941.HK Reports Q1 (CNY) Net 23.5B v 23.7B y/y, Rev 181.3B v 185B y/y May WTI crude futures fall into negative territory IBM Reports Q1 $1.84 v $1.70e, Rev $17.6B v $18.0Be; Withdraws FY20 outlook (US) House Speaker Pelosi told Democrats she expects a deal with GOP tonight on billions to replenish a small businesses loan program and provide more hospital funds; Maj Leader Hoyer says vote as soon as Wednesday - NY Times (US) Treasury: finalized agreement with major airlines, distributed $2.9B in initial payments (US) US President Trump tweets: "In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens, I will be signing an Executive Order to temporarily suspend immigration into the United States!"
TUES 4/21 (EU) EU leaders reportedly unlikely to agree post-coronavirus economic plan during teleconference scheduled on Thursday, Apr 23rd - financial press *(DE) GERMANY APR ZEW CURRENT SITUATION SURVEY: -91.5 V -77.5E; EXPECTATIONS SURVEY: +28.2 v -42.0E (SG) Singapore PM Lee: To spend additional S$3.8B for virus stimulus LH COVID-19 At-Home RNA test kit receives FDA Emergency use authorization (US) Attorney Gen Barr says Dept of Justice may join lawsuits against stay-at-home orders if states repeatedly extend them - radio interview TXN Reports Q1 $1.24 v $1.01e, Rev $3.33B v $3.18Be UAL Files to sell 39.3M shares (16% of shares outstanding) (US) CDC Director Redfield: possibility that the assault of the coronavirus on the US next winter will actually be even more difficult than the one we just went through because it is likely to coincide with the start of flu season DGX Begins performing coronavirus antibody testing, expects to scale up to 150K tests/day by early May
WEDS 4/22 ROG.CH Reports Q1 (CHF) Rev 15.1B v 14.8Be *(TR) TURKEY CENTRAL BANK (CBRT) CUTS ONE-WEEK REPO RATE BY 100BPS TO 8.75%; MORE-THAN-EXPECTED (US) President Trump tweets: I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea. TSN To indefinitely suspend Waterloo operations in Iowa; Co's largest pork plant *(US) DOE CRUDE: +15.0M V +14ME; GASOLINE: +1.0M V +4.5ME; DISTILLATE: +7.9M V +4ME LB Court filings show Sycamore partners seeks to terminate Victoria's Secret deal - press (EU) ECB widens collateral rules to mitigate impact of downgrades; to accept some junk-rated debt as collateral for loans - press DVAX Collaborates with Valneva to advance vaccine development for COVID-19; Goal is to initiate clinical trials before end of 2020 AA Reports Q1 -$0.23 v -$0.29e, Rev $2.38B v $2.29Be; To cut costs
THURS 4/23 *(DE) GERMANY MAY GFK CONSUMER CONFIDENCE: -23.4 V -1.8E UNA.NL Issues Q1 trading update: Rev €12.4B v €12.7B y/y;withdraws outlook; affirms dividend *(FR) FRANCE APR PRELIMINARY PMI MANUFACTURING: 31.5 V 37.0E (3rd straight contraction and record low) *(DE) GERMANY APR PRELIMINARY PMI MANUFACTURING: 34.4 V 39.0E (16th month of contraction and a record low) *(EU) EURO ZONE APR PRELIMINARY PMI MANUFACTURING: 33.6 V 38.0E (15th straight month and record low) *(UK) APR PRELIMINARY PMI MANUFACTURING: 32.9 V 42.0E (2nd straight contraction and record low) *(US) INITIAL JOBLESS CLAIMS: 4.43M V 4.50ME; CONTINUING CLAIMS: 15.98M V 16.74ME *(JP) Bank of Japan (BOJ) reportedly to consider unlimited bond buying at next meeting; Bank of Japan to double purchases of corporate bonds and commercial paper - Nikkei *(US) APR PRELIMINARY MARKIT PMI MANUFACTURING: 36.9 V 35.0E (US) Fed officials signal that April meeting is not likely to issue new announcements on asset purchases; will consider expansion of Main Street lending program to nonprofits - press *(US) MAR NEW HOME SALES: 627K V 644KE GILD Gilead antiviral drug remdesivir reportedly 'flops' in first randomized clinical coronavirus trial - Financial Times *(EU) EU leaders talks have ended with no agreement on recovery package; European Commission tasked with presenting a formal proposal by May 6th INTC CFO: Intel feels good about the underlying demand for chips; H1 will be stronger than we thought - press interview post-earnings (US) Fed takes action to increase availability of intraday credit extended by Federal Reserve Banks (US) House votes to pass $484B coronavirus package bill to boost small business program and hospitals - press (as expected)
FRI 4/24 SAN.FR Reports Q1 Business EPS €1.63 v €1.43e, Business Net €1.68B v €1.77B y/y, Rev €8.97B v €8.39B y/y *(UK) MAR RETAIL SALES (EX-AUTO/FUEL) M/M: -3.7% V -4.0%E; Y/Y: -4.1% V -4.8%E *(DE) GERMANY APR IFO BUSINESS CLIMATE: 74.3 V 79.7E; CURRENT ASSESSMENT SURVEY: 79.5 V 80.5E *(US) MAR PRELIMINARY DURABLE GOODS ORDERS: -14.4% V -12.0%E; DURABLES (EX-TRANSPORTATION): -0.2% V -6.3%E T CEO Stephenson to step down July 1st; COO John Stankey to assume role - CNBC (US) Pres Trump: Postal Service should raise package prices fourfold; USPS doesn't want to hike prices because it doesn't want to insult Amazon (US) Pres Trump: ticket purchases are one option to aid airlines; US could pre-pay for four to five years of tickets for the airlines