Markets

Daily Markets: As Coronavirus Spikes Across U.S., Dr. Fauci 'Cautiously Optimistic' About Vaccine

Dr. Anthony Fauci
Credit: Al Drago/Pool Photo - Reuters, stock.adobe.com

Today’s Big Picture

Equities in Asia finished trading today on mostly higher ground save for Japan’s Nikkei that slipped to close the day down 0.3%. For the week in full, Asian equities were mixed with China’s Shanghai Composite shedding 5.0% and Hong Kong’s Hang Seng down 2.5% while Japan’s Nikkei closed the week up 1.8%. European equities were trading were mixed by mid-day trading today and U.S. futures point to the market shrugging off the post-earnings drop in Netflix (NFLX) shares, the new daily record for U.S. coronavirus cases and escalating tensions between the U.S. and China when it opens later this morning. 

Helping spur the market higher were comments from Dr. Anthony Fauci, director of the National Institute for Allergy and Infectious Disease, told Facebook’s (FB) Mark Zuckerberg that he expects results for a clinical trial on monoclonal antibodies by late summer or early fall. The growing expectation for additional central bank and government aid is also helping lift equities as we finish out the week, however, investors may need to re-think the near-term given public officials in Texas, California and Florida warning they could implement a second round of lockdowns to halt the resurgent coronavirus. 

Data Download

Coronavirus

Yesterday the U.S. recorded more than 70,000 new coronavirus cases for the first time in a single day, reaching 71,229 cases, with Florida and Texas both reporting more than 10,000 cases each. There were also 977 deaths recorded yesterday, up from 855 on Wednesday, and is the highest level seen since June 3. Again, Florida and Texas were the most affected, reporting 156 and 129 deaths respectively, both 1-day record highs. Texas reported a record-high 3,129 coronavirus patients in ICUs with the total number of Covid-19 hospitalization at about 10,500. 14 states reported increases of over 1,000 yesterday.

Target (TGT) announced that it will be requiring customers to wear face masks starting August 1, joining Walmart (WMT)Kohl’s (KSS), and Kroger (KR).

Globally the number of cases is reaching 13.5 million with nearly 600,000 lives lost. 

  • Colombia just recorded its single worst day for new cases yesterday, with 8,000 new infections and over 200 deaths. 
  • France will require that face masks be worn in indoor public spaces across the country starting next week after an uptick in infections. 
  • A leading public health expert in Greece has advised that face masks should become mandatory in all closed spaces after the number of people hospitalized with COVID-19 in the nation has doubled in the past two weeks.
  • India now has more than 1 million confirmed cases.

The U.S. and Canada have agreed to extend the temporary restriction for non-essential travel across the shared border through to August 21. The restriction was initially enacted in March for a June 30 expiration and since been extended to July 31 and now to August.

The Center for Disease Control (CDC) has extended its ban on cruise ships through to September 30, a restriction that applies to passenger vessels that carry 250 or more passengers in U.S. waters.

On Monday, the first clinical trial results from Oxford University’s Covid-19 vaccine, backed by AstraZeneca (AZNwill be published in the Lancet.

Bloomberg reports International Airlines Group’s (ICAGY) British Airways, the world’s biggest operator of Boeing Co. 747-400s, is retiring its entire fleet of the jumbo jets with immediate effect because of the damage the coronavirus has done to air travel. This follows Qantas Airlines 747 retirement announcement in early June and accelerates existing plans to retire the fleet by 2024.

Since there is never a time when hacking isn’t in play... hackers linked to Russian intelligence, (namely APT29 aka "Cozy Bear") have been trying to steal information about coronavirus vaccine research in the U.S., Canada, and the UK. While some are trying to steal data, the Center for Disease Control (CDC) is no longer providing public data on hospital bed availability on its website. Reportedly, the public information disappeared after federal officials told the states to stop reporting data from hospitals to the CDC’s National Healthcare Safety Network.

International Economy

Eurozone construction output fell 11.9% YoY in May following the 31% slump in April. Construction output fell 24.4% in Spain and 24% in France but increased by 1.7% in Germany during May.

Consumer price inflation in the Eurozone rose 0.3% YoY in June, up from a four-year low of 0.1% in May. The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and is the one the European Central Bank looks to when it comes to its policy decisions, rose 0.8%, down a tick from 0.9% in May.

European Central Bank Vice-President Luis de Guindos said he expects European leaders to reach an agreement on the recovery fund "very soon" and before the end of July.

Domestic Economy

Yesterday initial jobless claims came in at 1.3 million, just 10,000 fewer than last week, making for the 17th consecutive week with jobless claims over 1 million, and was 50,000 higher than expected. To put that string of job losses in context, the previous record high, before the pandemic, was just 695,000 from back in 1982.

On a more positive note, retail sales in June rose 7.5% MoM and were up 1.1% YoY, despite the record-breaking number of people filing for unemployment over the past 17 weeks, roughly 32 million people collecting unemployment of some form and the extra $600 a week unemployment benefit ending at the end of this month. We see that combination presenting a headwind to consumer spending and August retail sales.

Homebuilder sentiment rose 14 points to return to where it was in March, at 72, after having fallen to 30 in April. Mortgage rates hitting new all-time lows are certainly providing tailwinds for the housing sector.

The Federal Reserve’s balance sheet expansion has stalled out, leading investors to rethink just how much intervention in the markets should be expected for the rest of the year. For the week ending July 15, the Fed’s balance sheet held at $7 trillion, up slightly from the prior week, but down about $210 from the June 10 peak. To put that in context, the Fed’s balance sheet has increased by 71% since the start of 2020.

Later today in the U.S. we will get June Housing Starts and Building Permits, the latest University of Michigan Consumer Sentiment report, and the usual weekly Baker Hughes Oil Rig data.

Markets

Yesterday U.S. stocks fell after China experienced its worst sell-off since February with the Nasdaq Composite dropping 0.7%, the Dow lost 0.5% and the S&P 500 closed down 0.3%. The yields on the 10-year and 30-year Treasuries fell to 0.62% and 1.31% respectively while the VIX closed at 28 and gold dropped to $1,795 an ounce.

Today is an option expiration day, so things could get interesting as we close out the week for U.S. equities.

Stocks to Watch

Tesla’s (TSLA) vehicle registrations in California dropped nearly 48% in the second quarter, according to Cross-Sell, a marketing research firm.

Citizens Financial Group (CFG) announced 2Q (June) earnings of $0.53 per share, beating the consensus estimate of $0.06. The company reported a 7.5% YoY increase in revenues to $1.75 billion as compared to the $1.68 billion consensus. The company’s loan portfolio grew 9% YoY and 6% QoQ, including PPP loans of $4.7 billion at quarter-end.

Netflix (NFLX) shares fell nearly 10% in extended trading yesterday after the company reported (unsurprisingly) an increase in users to the tune of 10.09 million new subscribers, besting the 8.26 million expected, but that wasn’t enough to please investors. EPS came in at $1.59, less than the $1.81 expected on revenue of $6.15 billion, versus expectations for $6.08 billion. The company generated $1 billion in net cash during the quarter, compared to a loss of $544 million a year ago, as the shutdowns limited opportunities to spend. Third-quarter guidance from the company calls for revenue of $6.33 billion, which is less than the $6.40 billion expected, and EPS of $2.09, better than the expected $2.01, with an additional 2.5 million net subscribers, well below the 5.27 million previously expected as pandemic lockdown(s) pulled forward subscriber growth.

American Airlines (AALand JetBlue (JBLU) announced that they are forming a code-share alliance and will integrate some of the networks in what could be a sign of industry consolidation as carriers are aggressively downsizing. The alliance will include “loyalty benefits” for customers of both carriers.

Check Point Software Technologies (CHKP) introduced its Internet of Things Protect solution to secure both IoT devices and networks in smart building, smart city, healthcare, industrial, and critical infrastructure environments against all types of advanced cyber-threats.

Blackrock (BLK) announced 2Q 2020 earnings of $7.85 per share, beating the consensus estimate of $6.95. The company reported a 2.3% YoY increase in revenues $3.6 billion as compared to the $3.55 billion estimate with assets under management increasing 7% YoY to $7.32 trillion.

Ericsson (ERIC) announced June quarter earnings of $0.74 per share, beating the consensus estimate of $0.65. The company reported a 1.5% increase in revenues YoY to $55.6 billion as compared to the $55.12 billion expectation and maintained its guidance through 2022 on expectations of 5G rollout coupled with ongoing balance sheet strength.

Shares of cruise line companies Norwegian Cruise Lines (NCLH), Carnival Cruises (CCL), Carnival plc (CUK), and Royal Caribbean Cruises (RCL) all came under pressure last night following the CDC confirming the extension of the "no sail order" to September 30.

Citing strength in its Home segment where low-interest rates drove robust consumer interest in refinancing, LendingTree (TREE) boosted its June quarter guidance to $182-$186 million vs. the prior $160-$175 million and the $171 million consensus.

PPG Industries (PPG) reported better than expected quarterly results for both the top and bottom line despite the 24% drop in sales volumes YoY associated with the pandemic. The strongest performance came from the company’s global architectural coatings businesses, which it attributed to increased do-it-yourself demand of PPG paint products in all major regions. While the company sees overall economic activity to continue to recover, it expects a varied pace across end-use markets and regions given the uncertainty around the ongoing effects of the pandemic.

Take-Two (TTWO) shared that it entered into an Xbox Console Publisher License Agreement with Microsoft (MSFTwith an effective date of July 1, 2020. The agreement grants the company the right to develop, publish, have manufactured, market, advertise, distribute, and sell Xbox compatible products for the Xbox One and the Xbox Series X platforms, until May 31, 2023.

After today’s market close, there are no expected quarterly earnings reports to be had.  To get the lowdown on the almost 500 such reports coming at us next week, investors should visit Nasdaq’s earnings calendar page.

On the Horizon

  • Dates to mark:
      • July 21: Chicago Fed Activity
      • July 22: MBA Mortgage Apps, FHFA Home Prices, Existing Home Sales
      • July 23: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Kansas City Fed Manufacturing
      • July 24: Preliminary Markit PMIs, New Home Sales
      • July 27: Durable Goods, Capital Goods, Dallas Fed Manufacturing
      • July 28: Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
      • July 29: MBA Mortgage Apps, Trade Balance, Wholesale Inventories, Retail Inventories, Pending Home Sales, FOMC Rate Decision
      • July 30: GDP, Personal Consumption, Jobless Claims, Bloomberg Comfort
      • July 31: Personal Income and Spending, PCE, Employment Cost Index, Univ of Michigan Sentiment 

Thought for the Day

“Do not go where the path may lead. Go instead where there is no path and leave a trail.” ~ Ralph Waldo Emerson

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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