Weekly Market Update: Volatility rises as tech momentum gets blunted; economic data continues to improve
Equity markets continued to accelerate to the upside through mid-week, and then fell apart on Thursday as traders began to reassess the high flying valuations in the momentum names that have been the backbone of the rally since April. Highly anticipated stock splits in Apple and Tesla led the megacap stocks to new record highs as retail investors flooded into the ‘cheaper’ stocks post-split, but they were hit by a wave of steady selling on Thursday, and there was some rotation into long suffering sectors like banks and energy. By Friday, reports revealed that some of the froth in the tech sector over the last month has been driven by Softbank buying options in the tech sector tied to about $50B in equities. For the week, the S&P fell 2.3%, the DJIA lost 1.8%, and the Nasdaq plunged 3.3%.
Economic data continued to largely improve at a better than expected pace. China saw the sixth straight month of expansion in its Manufacturing PMI, while the Eurozone posted its seconds straight month of expansion in its manufacturing and services indices. A weak reading in the ADP employment change on Wednesday was quickly forgotten as the government’s employment data on Friday saw payrolls rises by nearly 1.4M jobs and unemployment fall to 8.4%, well below the 9.8% consensus estimate. The dollar index hit a fresh 2-year low on Monday and then rebounded slightly through the rest of the week, while gold saw a two-percent selloff. Treasury yields slipped throughout most of the week, but then reversed after the strong employment data on Friday.
In corporate news this week, Zoom blew away expectations in its quarterly report and guided well above what the market was looking for as the company expands its work-from-home client base. Sabre Corp saw its August air bookings drop 85% y/y, but the company in a mid-quarter statistics release noted net bookings moved positive in all regions for July, and that trend continued into August. The Department of Justice reportedly plans to file antitrust charges against Google in the coming weeks, despite pushback from DOJ lawyers who had sought more time to build a stronger case. Nestle announced it would purchase peanut allergy drug developer Aimmune Therapeutics in a $2.6B deal. Language learning tool maker Rosetta Stone said it would be acquired by Cambium Learnings for $30.00/share cash. AT&T is reportedly looking to divest its DirecTV satellite assets and was said to have been in talks with private equity names around a $20B valuation. Honda and General Motors signed an MOU toward establishing a strategic alliance to develop a range of cars in North America. The U.S. DOE selected Albemarle to take the lead on two new lithium research projects with the aim to enable nationwide lithium independence. Walmart announced it would finally launch its Walmart Plus subscription competitor to Amazon Prime on September 15th.
SUN 8/30 3328.HK Reports H1 Net -14.6% y/y (JP) Berkshire Hathaway unit acquired 5% passive stakes in each of the 5 leading Japan trading companies (Itochu, Marubeni, Mitsubishi Corp, Mitsui & Co and Sumitomo Corp) *(CN) CHINA AUG MANUFACTURING PMI (GOVT OFFICIAL): 51.0 V 51.2E (6 straight expansion)
MON 8/31 *(DE) GERMANY AUG PRELIMINARY CPI M/M: -0.1% V 0.0%E; Y/Y:0.0% V 0.1%E *(IN) INDIA Q2 GDP Y/Y: -23.9% V -18.0%E (record contraction) (US) Fed Vice Chair Clarida: Fed would consider yield caps if circumstances changed markedly; forward guidance and large scale asset purchases are effective stimulus tools *(US) AUG DALLAS FED MANUFACTURING ACTIVITY: 8 V 0.0E ZM Reports Q2 $0.92 v $0.45e, Rev $663.5M v $498Me; raises FY guidance
TUES 9/1 *(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 0.25%; AS EXPECTED; expands size and duration of term lending facility (HK) Macau Aug Casino Rev (MOP): 1.3B; Y/Y: -94.5% v -93.0%e *(IT) ITALY AUG MANUFACTURING PMI: 53.1 V 52.0E (2nd month of expansion and highest since Jun 2018) *(FR) FRANCE AUG FINAL MANUFACTURING PMI: 49.8 V 49.0E (confirms 1st contraction in 3 months) *(DE) GERMANY AUG FINAL MANUFACTURING PMI: 52.2 V 53.0E (confirms 2nd month of expansion) *(DE) GERMANY AUG NET UNEMPLOYMENT CHANGE: -9.0K V -2.0KE (2nd straight decline); UNEMPLOYMENT CLAIMS RATE: 6.4% V 6.4%E *(EU) EURO ZONE AUG FINAL MANUFACTURING PMI: 51.7 V 51.7E (confirms 2nd month of expansion) *(UK) AUG FINAL MANUFACTURING PMI: 55.2 V 55.3E (confirms its 3rd straight expansion) *(EU) EURO ZONE AUG ADVANCE CPI ESTIMATE Y/Y: -0.2% V +0.2%E; CPI CORE Y/Y: 0.4% V 0.8%E (record low reading for core) *(EU) EURO ZONE JULY UNEMPLOYMENT RATE: 7.9% V 8.0%E *(US) AUG ISM MANUFACTURING: 56.0 V 54.8E; PRICE PAID: 59.5 V 54.0E (highest ISM since Jan 2019, highest prices paid since Nov 2018) (US) Dallas Fed Aug Texas Service Sector Outlook Survey: General Business Activity: 4.7 v -26.7 prior (IE) ECB’s Lane (Ireland, chief economist): We have seen a repricing in the Euro in recent weeks V Reports Aug total US payments +7% y/y
WED 9/2 M Reports Q2 -$0.81 v -$1.78e, Rev $3.56B v $3.51Be *(US) AUG ADP EMPLOYMENT CHANGE: +428K V +1.00ME (3rd straight month of increase) CCA.CA Altice USA presents unsolicited offer to acquire Cogeco for $7.8B in order to own Atlantic Broadband; to sell Canadian assets to Rogers Communications upon completion of transaction *(US) DOE CRUDE: -9.4M V -2ME; GASOLINE: -4.3M V -3ME; DISTILLATE: -1.7M V -1.5ME *(US) FED BEIGE BOOK: EMPLOYMENT INCREASED OVERALL AMONG DISTRICTS, GAINS IN MANUFACTURING CITED MOST OFTEN (US) CDC calls on states to be ready for potential vaccine by early November - NY Times ALB Selected by U.S. DOE for Lithium Research Projects, one with ANL to "Enable Lithium Independence" SABR Reports July/Aug Gross air bookings down ~85% y/y; Jul Net air bookings down ~ 90% and Aug down ~85% - filing
THURS 9/3 (FR) FRANCE AUG FINAL SERVICES PMI: 51.5 V 51.9E (confirms 3rd straight expansion) *(DE) GERMANY AUG FINAL SERVICES PMI: 52.5 V 50.8E (confirms 2nd month of expansion) *(EU) EURO ZONE AUG FINAL SERVICES PMI: 50.5 V 50.1E (confirms 2nd month of expansion) *(UK) AUG FINAL SERVICES PMI: 58.8 V 60.1E (confirms 2nd straight expansion and highest since Apr 2015) *(US) Q2 FINAL NONFARM PRODUCTIVITY: 10.1% V 7.5%E; UNIT LABOR COSTS: 9.0% V 12.0%E *(US) INITIAL JOBLESS CLAIMS: 881K V 950KE; CONTINUING CLAIMS: 13.25M V 14.00ME CIEN Guides Q4 Rev $800-840M v $999Me, adj gross margin 46-48% - earnings call *(US) AUG FINAL MARKIT SERVICES PMI: 55.0 V 54.7E *(US) AUG ISM SERVICES INDEX: 56.9 V 57.0E GOOGL Dept of Justice reportedly to file antitrust charges against Google in coming weeks; DOJ lawyers said to oppose move to expedite the case - New York Times AVGO Reports Q3 $5.40 v $5.24e, Rev $5.82B v $5.78Be
FRI 9/4 *(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.0%E; Y/Y: 4.7% V 4.4%E; AVERAGE WEEKLY HOURS: 34.6 V 34.5E *(US) AUG UNEMPLOYMENT RATE: 8.4% V 9.8%E *(US) AUG CHANGE IN NONFARM PAYROLLS: +1.37M V +1.35ME Reportedly Softbank has been buying options in tech stocks over the last month - FT MRNA To slow enrollment of COVID-19 vaccine trial to ensure diversity; trial could be delayed by a week due to the enrollment slowdown - CNBC