Weekly Market Update: War of words over Hong Kong doesn’t dampen optimism about reopening economies
Coming out of the holiday break, equity markets roared. US indices reached levels not seen since early March and late February while the S&P pushed up through its 200-day moving average. Positive developments on the coronavirus treatment front combined with incremental headlines surrounding the pullback of various lockdown measures aided risk appetite broadly. Japan raised expected bond issuance to fund a second budget to provide stimulus, while EU officials unveiled details of an ambitious €750B recovery fund that favors grants over loans and would be funded by joint debt. US stock markets experienced a notable rotation away from the perceived pandemic winners into banks and other beaten-down groups including small caps in general, which affirmed a welcomed sense of widening breadth in the stock market’s rebound.
Late in Thursday’s session concerns about the rising tensions over China’s move to crimp Hong Kong’s autonomy seemed to finally put a cap on risk exuberance. After a week of increasingly harsh rhetoric from the White House, on Friday President Trump announced some visa restrictions and a ‘working group’ to examine the differing financial practices of Chinese firms listed in the US. Separately, Trump also signed an executive order aimed at social media companies after one of his tweets criticizing mail-in ballots was ‘fact checked’ by Twitter. The dollar continued to lose ground this week with the very notable exception against the Yuan; The Chinese currency fell to its weakest level against the dollar since early 2008. Meanwhile, crude futures continued to rebound, ending the month of May with a record 80% gain. For the week, the S&P gained 3%, the DJIA rose 3.9%, and the Nasdaq added 1.8% to come within just a few percent of all time highs.
In corporate news this week, Boeing shares rose after it said it would resume 737 MAX production at its Renton, WA facility, and forecast output to gradually ramp up this year. Disney announced plans to start a phased reopening for its Magic Kingdom and Animal Kingdom parks on July 11th, while Six Flags is set to reopen its first park in Oklahoma on June 5th. UPS said it would add a peak surcharge and an oversize package surcharge for ground shipments beginning May 31st amid an influx of e-commerce orders. Tesla reduced prices on certain vehicles by as much as $5,000 in North American markets as well as imported Model S and X vehicles in China. Costco saw a sales bounce early in Q3 on a burst of coronavirus-related spending, but the numbers did not sustain as shopping frequency decreased over the quarter. Toll Brothers Q2 earnings beat street estimates, and while the CEO said net signed contracts in the first four weeks of May were down 37% year-over-year, they remain ‘very encouraged’ by recent deposit activity.
MON 5/25 *(DE) GERMANY Q1 FINAL GDP Q/Q: -2.2% V -2.2%E; Y/Y: -2.3% V -2.3%E (confirms technical recession) *(DE) GERMANY MAY IFO BUSINESS CLIMATE SURVEY: 79.5 V 78.5E; CURRENT ASSESSMENT SURVEY: 78.9 V 80.0E REGN Sanofi to sell majority of its 20.6% stake; Regeneron announces $5B stock repurchase (8% of market cap); drug collaborations will not be impacted NVAX Initiates Phase 1/2 clinical trial of COVID-19 vaccine NVX-CoV2373; result is expected in early July
TUES 5/26 *(DE) GERMANY JUN GFK CONSUMER CONFIDENCE: -18.9 V -18.0E (DE) German govt said to be prepared to lift travel warnings on almost three dozen countries and replaced by more detailed travel advice - financial press (UK) EU said to be prepared to drop maximalist approach to fisheries in next round of Brexit negotiations - financial press (EU) ECB said to be working on a contingency plan if Bundesbank is forced to quit PSPP bond buying scheme - financial press *(US) APR NEW HOME SALES: 623K V 480KE *(US) MAY CONSUMER CONFIDENCE: 86.6 V 87.0E *(US) MAY DALLAS FED MANUFACTURING ACTIVITY INDEX: -49.2 V -62.0E MRK Merck CEO Frazier casts doubt over 12 to 18 month timeframe for development of a Covid-19 vaccine - FT TWTR Twitter now includes a 'fact check' of Pres Trump tweets about mail-in ballots on his Twitter page (US) White House econ adviser Kudlow: Trump is so 'miffed' with China on coronavirus and other matters that the trade deal is not as important to him as it once was; China trade deal is on for now - Fox interview
WED 5/27 (CN) China Foreign Ministry spokesperson Zhao Lijan: Will take countermeasures if others harm China (EU) ECB chief Lagarde: Will not have a new Euro area debt crisis following the pandemic; not overly concerned about the high level of debt- online event (EU) EU Commissions recovery fund proposal said to be comprised of €500B in grants and €250B in loans - German press (EU) EU Commission President Von der Leyen: Dealing with pandemic is Europe's moment; total EU recovery effort stands at €2.4T *(US) MAY RICHMOND FED MANUFACTURING INDEX: -27 V -40E (US) Dallas Fed May Texas Service Sector Outlook Survey: General Business Activity: -41.7 v -83.9 prior (US) Sec of State Pompeo: announces that US can no longer certify Hong Kong autonomy from China; says no reasonable person can assert today that Hong Kong maintains high degree of autonomy from China given facts on the ground BA Resumes 737 MAX production at its Renton, WA facility; production to gradually ramp up this year - press MU Raises Q3 $0.75-0.80 v $0.56e (prior $0.40-0.70), Rev $5.2-5.4B v $4.91Be (prior $4.6-5.2B), Gross margin 33-34% (prior 31.5% +/-1.5%) - filing
THRS 5/28 *(EU) EURO ZONE MAY ECONOMIC CONFIDENCE: 67.5 V 70.6E *(DE) GERMANY MAY PRELIMINARY CPI M/M: -0.1% V -0.1%E; Y/Y: 0.6% V 0.6%E *(US) APR PRELIMINARY DURABLE GOODS ORDERS: -17.2% V -19.0%E; DURABLES (EX-TRANSPORTATION): -7.4% V -15.0%E *(US) INITIAL JOBLESS CLAIMS: 2.123M V 2.10ME; CONTINUING CLAIMS: 21.05M V 25.68ME *(US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: -5.0% V -4.8%E; PERSONAL CONSUMPTION: -6.8% V -7.5%E *(US) Q1 PRELIMINARY GDP PRICE INDEX: 1.4% V 1.3%E; CORE PCE Q/Q: 1.6% V 1.8%E *(US) DOE CRUDE: +7.9M V -1.5ME; GASOLINE: -0.7M V -0.5ME; DISTILLATE: +5.5M V +2ME (US) Atlanta Fed raises Q2 GDP growth to -40.4% from -41.9% UPS To add peak surcharge for ground packages, to add oversize package surcharge beginning May 31st amid jump in e-commerce shipments - press (US) Pres Trump: will sign executive order to 'uphold free speech'; social media companies will lose their liability shield; they are tantamount to a monopoly COST Reports Q3 $1.89 v $1.91e, Rev $36.5B v $37.7Be
FRI 5/29 *(EU) EURO ZONE MAY ADVANCE CPI ESTIMATE Y/Y: 0.1% V 0.1%E; CPI CORE Y/Y: 0.9% V 0.8%E (US) Nevada reports April casino gaming Rev $3.7M, -99.6% y/y; Las Vegas strip Rev $3.4M, -99.3% y/y (US) Fed Chairman Powell: want to reiterate Fed is strongly committed to using all our tools to get to a robust recovery; acknowledging a lot of pain being felt out there - Princeton webcast (US) New York Fed Nowcast: cuts Q2 forecast to -35.5% from -30.5% (US) Atlanta Fed cuts Q2 GDP growth to -51.2% from -40.4% (US) President Trump reportedly will NOT leave the phase one US/China trade deal over recent tensions - press (US) Pres Trump: to launch working group to study differing practices of Chinese companies listed on US stock markets; will revoke Hong Kong's preferential treatment; Will take steps to sanction Hong Kong officials involved in eroding Hong Kong's autonomy - remarks at Rose Garden