Daily Markets: Equities Slump as Fiscal Deal Hope Fades Amid Surging COVID-19 Cases

Today’s Big Picture

Equities in Asia started off the last week of October on a down note, with China’s Shanghai Composite trading off 0.8%, India’s Sensex falling 1.3%, and Japan’s Nikkei moving 0.1% lower. Equity markets in Hong Kong were closed today. By mid-day trading, equities in Europe were down across the board and U.S. futures indicate those equities will move lower when those markets open later this morning.

The key factors weighing on global equities this morning are little changed from late last week, in that investors are concerned with the escalating number of coronavirus cases in the U.S. and Europe that threaten another round of lockdowns and restrictions, creating headwinds to global growth. Prospects for a fiscal stimulus bill out of Washington before the 2020 presidential election continue to fade, and the pace of corporate earnings continues to heat up this week with more than 1,000 companies reporting this week vs. roughly 450 last week. Little progress was made over the weekend as House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows accused each other of “moving the goalposts” in negotiations. Pelosi says she’s waiting for another counteroffer Monday from Treasury Secretary Steven Mnuchin, but Bloomberg reports aides in both parties said little progress was made despite the pledges from both sides.

Adding to investor concerns are renewed U.S.-China trade concerns following China's announcement that it will impose unspecified sanctions on the defense units of Boeing (BA), Lockheed Martin (LMT), and Raytheon Technologies (RTX) after the U.S. approved $1.8 billion in arms sales to Taiwan last week. According to Chinese Foreign Ministry spokesman Zhao Lijian, the sanctions will be imposed “in order to uphold national interests.”

Data Download

Coronavirus

Colombia has become the latest country to join the 1 million-plus coronavirus club, joining Argentina, Spain, France, Russia, Brazil, India, and of course, the U.S., which remains the most-affected nation with nearly 8.9 million cases. Worldwide, there are now over 43 million cases with over 400,000 added yesterday alone. Friday the U.S. saw a record-high for new daily cases of nearly 81,500 with the 7-day rolling average of new cases back at the prior peak levels from July.

UK pharmacy chain Boots, of Walgreens Boots Alliance (WBA), is expected to launch a 12-minute Covid-19 swab test in selected stores over the coming weeks but cautions that the LumireDx system is not recognized for pre-flight tests.

The Singapore Labor Ministry is set to being trials for a rapid antigen test for migrant workers, even though it will be less accurate than the one currently used. Such migrant workers are tested every two weeks but the ministry is planning to begin testing on the seventh day as well as using the rapid antigen test to complement the PCR test on the 14th day.

International Economy

Japan’s index of coincident economic indicators, which consists of a range of data including factory output, employment, and retail sales, slipped to 79.2 in August vs. the August flash estimate of 79.4 and a final July reading of 78.3. This marked the highest reading since March and we’d note the assessment for the index moved to "Halting to fall" from "Worsening," the first time since May 2019. The final August reading for Japan’s Leading Economic Index came in at 88.4, the highest reading since February but was softer than the preliminary reading of 88.8.

The Ifo Business Climate indicator for Germany dropped to 92.7 in October 2020, from a seven-month high of 93.2 in the previous month and slightly below market expectations of 93.0. This was the first decline in Germany's business confidence in six months. The Current Conditions component rose to 90.3 in October, up from 89.2 in September and the 89.8 consensus, but the Expectations component slipped to 95.0 in October from 97.4 in September. Per the report, companies were more skeptical over the coming months due to the imposition of tougher restriction measures to curb the spread of the COVID-19 pandemic.

Domestic Economy

Before trading of U.S. equities begins today, we’ll get the Chicago Fed’s National Activity Index for September. Soon after the market open, the September New Homes Sales data and the Dallas Fed’s reading on Manufacturing Activity for October will be released.

Markets

Last week, the S&P 500 declined 0.5%, largely due to a 2.2% decline in the technology sector, which more than offset the week’s gains in the utilities, communications services, and energy sectors. The Nasdaq Composite fell 1.1%, and the Dow Jones Industrial Average fell 1.0%. The Russell 2000 finished in positive territory with a 0.4% gain.

Stocks to Watch

SAP SE (SAP) reported a mixed bag for its September quarter with EPS better than expected but on revenue that came in below the consensus forecast. The company also reduced its 2020 outlook to levels below the consensus forecast. SAP now sees 2020 revenue of €27.2-27.8 billion vs. its prior guidance of €27.8-28.5 billion and the €28.22 billion consensus. The acceleration of customers' move to the cloud and subsequent business transformations drive SAP’s cloud revenue target of more than €22 billion by 2025 with total company revenue of €36 billion.

Simply Good Foods (SMPL) reported better than expected August quarter results led by the 59.7% YoY jump in revenue for the quarter to $222.3 million vs the $205.9 million consensus. The company shared it remains on track to achieve the Quest acquisition synergies and the divestiture of the Simply Protein brand will be a slight headwind to net sales growth. In the first half of fiscal 2021, the company expects retail takeaway will be somewhat similar to current trends and sees the first half of fiscal 2021 net sales in the range of $425-435 million range and adjusted EBITDA in the $77-82 million range.

Shares of Hasbro (HAS) are moving higher in pre-market trading following the company reporting better than expected quarterly results. Revenue for the quarter rose 9% YoY in the US and Canada, 7% in the European region while the company’s e-commerce channel jumped 50% YoY. Per the company, “Building off this quarter's growth in toys, games, and digital we are positioned to deliver a good holiday season. Live-action entertainment production is returning, and we are set to improve deliveries in the fourth quarter with some moving into 2021.”

French car rental company Europcar Mobility Group (EUCAR:FP) scrapped its 2020 financial outlook alongside reporting a 46.7% YoY drop in quarterly revenue and a net loss of 9.7 million euros. Reports suggest investment firm Eurazeo, which is Europcar’s main shareholder with a 29.9% stake, has been exploring a sale of the company.

China’s largest liquor maker Kweichow Moutai (600519:CH) reported its net profit grew 6.9% to 11.2 billion yuan ($1.67 billion) in the September quarter but missed consensus forecasts.

WiMi Hologram Cloud (WIMI) announced the pending launch of its new Mixed Reality head-mounted display product "WiMi Hologram Soft Light", which will further expand the company's suite of holographic product offerings.

Bayer AG (BAYRY) has agreed to acquire U.S. biotech company Asklepios BioPharmaceutical for a total consideration of around $4 billion. The acquisition strengthens Bayer’s cell and gene therapy business across different therapeutic areas.

Dunkin' Brands Group (DNKN) confirmed it has held preliminary talks to be acquired by Inspire Brands at $106.5 per share, valuing the company at $8.8 billion.

Accenture (ACN) acquired Enimbos, a Madrid-based provider of cloud migration and related services, enhancing its Amazon Web Services capabilities, multi-cloud strategy, and cloud migration services in Spain and Portugal.

Contango Oil & Gas (MCF) and Mid-Con Energy Partners (MCEP) entered into an agreement to combine in an all-stock merger transaction. Each Mid-Con unit will be exchanged for 1.75 Contango shares, representing a 5% premium based on a 15-day volume-weighted average price.

Reuters reports EU antitrust regulators are set to clear the merger of Fiat Chrysler (FCA) and France's Peugeot SA (PEUGF) to create the world's fourth-largest carmaker that would include brands such as Fiat, Jeep, Dodge, Maserati, Peugeot, Opel, and DS.

STMicroelectronics (STM) and semiconductor company Sanken Electric (6707:JP) have collaborated to develop intelligent power modules (IPM) for high-voltage industrial and automotive products.

Alibaba (BABA) and BMW Group (BMWYY) signed a Memorandum of Understanding for a strategic partnership in which the two will jointly launch the first online sales and services businesses engaging dealers among premium auto brands, to create a seamless end-to-end online-to-offline digital experience. With the assistance of Alibaba's membership system, BMW and MINI will launch brands' membership services and marketing campaigns on Alibaba's various online platforms.

Facebook (FB) said it would implement emergency measures reserved for "at-risk" countries to bring down the online temperature should the threat of election-related unrest escalate in the U.S.. The company also said it would not accept new political ads a week before the U.S. election and plans to ban all U.S. political ads indefinitely after November 3.

After today’s market close, Cirrus Logic (CRUS), Freshpet (FRPT), Ingersoll-Rand (IR), International Flavors & Fragrances (IFF), Mondelez International (MDLZ), OneSpan (OSPN), PayPal (PYPL), Skyworks (SWKS) and Trex (TREX) will be among the companies reporting their quarterly results. Readers looking to prepare themselves for the coming sea of earnings reports in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• • October 27: Durable/Capital Goods, FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
  • October 28: MBA Mortgage Applications, Wholesale Inventories, Retail Inventories
  • October 28: Facebook (FB), Google (GOOGL), and Twitter (TWTR) testify before the Senate Commerce Committee
  • October 29: Initial Jobless Claims, Bloomberg Comfort, GDP, Personal Consumption, Pending Home Sales
  • October 30: Personal Income, Personal Spending, PCE Deflator, Employment Cost, MNI Chicago PMI, University of Michigan
  • October 31: Boo!
  • November 3: Election Day in the US
  • November 17: Facebook (FB) CEO Mark Zuckerberg and Twitter CEO Jack Dorsey appear before the Senate Judiciary Committee.

Thought for the Day

“There is a child in every one of us who is still a trick-or-treater looking for a brightly-lit front porch.” – Robert Brault

Disclosures

• PayPal (PYPL), Skyworks (SWKS) constituents in the Tematica BITA Digital Infrastructure and Connectivity Index.
• Accenture (ACN), OneSpan (OSPN) are constituents in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• International Flavors & Fragrances (IFF) is a constituent in the Foxberry Tematica Research Sustainable Future of Food Index
• Lockheed Martin (LMT), Raytheon Technologies (RTN), Walgreens Boots Alliance (WBA) are constituents in Tematica Research's Thematic Dividend All-Stars Index.
• Freshpet (FRPT), Simply Good Foods (SMPL) are constituents in Tematica Research’s Cleaner Living Index.

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

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Stocks Earnings Economy Coronavirus Elections Politics