Markets

Daily Markets: Investors Focusing On U.S. Coronavirus Cases, Government Plans To Help Economies

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Today’s Big Picture

Following yesterday's late-day surge that led the major US stock market indices to close part of the gap from Monday's stock market drubbing, all the major Asian equity indices closed in the red, leaving Australia’s ASX 200 in bear territory after falling 3.6%. Japan’s Nikkei dropped 2.3% and South Korea’s Kospi fell 2.8%. US equity futures point to another leg lower in the market as the US deals with the rising coronavirus case count that is leading more companies to adopt work from home policies and other measures to limit the spread of the virus. As you’ll see in today’s Stocks to Watch, the trend of event cancellations and companies rescinding guidance continues. 

As we write today’s note, European equities are mostly in the green, up around 1%, largely in response to the Bank of England (BoE) interest rate cut earlier today and comments from European Central Bank (ECB) president Christine Lagarde that in response to the coronavirus the ECB is looking at all policy tools for their meeting this week to stave off the crisis with a dramatic intervention. And realizing the impact of monetary policy can only go so far in a crisis like the one we are experiencing, Lagarde also called for governments to boost public spending to help prop up the economies hardest hit.

The question will be: Where will the money will come from? Japan is the world's most indebted with debt to GDP of 238%, Italy's is fourth at 135% and the USA is the 10th most indebted in the world at 107%. The Euro Area as a whole is 22nd at 87.9%.

In an effort to help offset the damage from the contagion, Bank of England today reduced interest rates by 50 basis points to 0.25% and sharing it would maintain UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. 

The focus for investors today will be on two things, cases in the United States and government plans to support the economy. Yesterday saw a spike in US cases, and this morning according to data from John Hopkins University the count has surpassed 1,000. It is one thing to watch it unfold in China and Europe, but when this virus appears closer to home, the reaction changes. All bets are off on market moves if we see an acceleration of cases scattered around the US. The only way at this point to counteract such an event will be (at the least the appearance of) confident and detailed plans to provide economic support where needed and to slow the spread.

Cases of the coronavirus continue to rise across the world, nearing 120,000 affected across 120 countries and territories around the world. In Italy, despite the lock-down, there have been nearly 1,000 new cases in the past 24 hours, for a total of 10,150 cases and 631 deaths. Spain, France, and Germany now look similar to how Italy did a little over a week ago. The chart of US cases is identical to Italy's with an 18-day lag, which if the math holds could put the US case count above 55,000 in the coming weeks. 

In an attempt to assess what that could mean, we suggest readers digest Lenore’s analysis of the potential fallout to be had. Her piece written in February and describes what Italy is currently facing and what has driven the national quarantine. There are simply not enough beds nor ventilators to help those affected. Lenore discussed the situation in Italy yesterday with Cheddar TV here and here as well as Fox Business here. She will be giving further boots-on-the-ground insight from Italy as the situation is progressing on with Yahoo! Finance’s On the Move today at 11 AM ET.

Data Download

Yesterday stocks did their best to claw back some of the losses from Monday with the Dow and S&P 500 gaining 4.9% and the Nasdaq 5.0%.  Technology-led the gains, rising 6.7% while Utilities trailed, gaining 0.9%.

Who says bonds are boring? Equities haven’t been the only ones feeling the volatility these days. After watching yields fall for 13 consecutive sessions as investors raced to safe have assets, yesterday saw a spectacular reversal. The daily total return of the 30-year US Treasury bond has swung from the single best one-day return ever on Friday, March 6 (8.5%) followed by the third-best one-day return on Monday, March 9 (6.72%) to the worst one-day return ever yesterday (-6.66%).  The yield on the 2-year US Treasury rose 0.13% to 0.479%, the largest one-day gain since 2009. Same for the 10-year, which rose 0.24% to 0.743%, again the biggest move since 2009.

Moving on to economic news.

New yuan-denominated loans issued by Chain's banks fell to CNY 0.91 trillion in February from January's CNY 3.34 trillion and missed the expectations of CNY 11.1 trillion. While some may be shocked by the sharp miss relative to expectations, we'd note it’s quite a challenge for banks to issue loans when many banks and companies in China were shut for most of the month due to the coronavirus. 

Retail sales in Spain slowed to 1.7% YoY in January from 1.8% previously.  If the nation experiences shutdowns anything like Italy, the data from January and February will be useful only as a metric for just how impactful the shutdown was to the economy.

Italy’s PPI fell 2.4% YoY in January, accelerating from the prior 2.1%. With the nation in lock-down in March, expect this number to drop dramatically.

Data out of the UK was mostly weaker than expected in January, and this is well before any effects from the coronavirus. Manufacturing Production declined 3.6% YoY in January, accelerating down from the prior 2.5% decline and worse than the expected 3.5% decline. Construction output rose 1.6%, slowing from the prior 5% increase and well below the expected 2.4%. Industrial Production declined 2.9% in January YoY, accelerating the slowing from the prior 1.8% and worse than the expected 2.6% decline. GDP in the UK slowed to 0.6% YoY in January from the prior 1.2% and below the 0.9% expected.

On the US economic data front, today brings investors and market watchers the weekly MBA Mortgage Applications Index, which following the Fed’s recent emergency rate cut could see some lift in refinancing activity. We also have the weekly EIA Crude Oil Inventory report and the February Consumer Price Index.  

The US administration has announced a potential payroll tax cut and possibly delay of the April 15th tax due date. The challenge with any stimulus will be how to pay for it. The US Treasury Department released the US monthly budget statement for February which found that fiscal 2019, which ended in September, had a deficit of $984 billion, the largest since 2012. Fiscal year 2020 was projected to see a $1 trillion deficit, before any impact of the coronavirus.

Stocks to Watch

Quick coronavirus-related hits:

  • Google (GOOGL) has told more than 100,000 employees in North America to work from home at least until April 10 as part of its measures to limit the spread of the coronavirus
  • The New York Auto Show has been postponed for the first time since World War II and will now be held Aug. 28-Sept. 6 instead of early April
  • Both Jeopardy and Wheel of Fortune have announced they will tape episodes without a live audience
  • The Democratic National Committee announced Sunday's Arizona debate between Joe Biden and Bernie Sanders will have no live audience
  • Brookdale Senior Living (BKD) announced it has postponed its Investor Day Event, previously scheduled for March 31
  • Fiserv (FISV) also announced this morning it is postponing its Investor Day
  • Reports suggest the Japanese Olympic organizing committee executive member Haruyuki Takahashi plans to propose the possibility of postponing the 2020 Tokyo Olympics due to the coronavirus outbreak, which isn't expected to be contained by July

Moving on to airlines and hotels: JetBlue (JBLU) CEO Robin Hayes said yesterday that demand for airline flights has fallen more in response to the coronavirus than it did after 9/11. These comments follow United Airlines (UAL) sharing it experienced a 70% net drop in domestic bookings over the last few days. Jetblue pulled its 2020 guidance on Monday, and Hayes said JetBlue is planning for things to get worse as it doesn’t look like bookings have stabilized yet. This has the company making adjustments to its flight schedule between March and early May. Also last night SkyWest Airlines (SKYWshared that as a result of the coronavirus its 2020 outlook “should no longer be relied upon.”   

Shares of Hilton Worldwide Holdings (HLT) fell in aftermarket trading last night as the company joined the growing list of travel and hospitality companies that have pulled their current quarter and full-year 2020 guidance as a result of the COVID-19 coronavirus. "With the coronavirus now spreading beyond China and the Asia Pacific region, and the related increase in travel restrictions and cancellations around the world, we believe that the potential negative impact will be greater than our previous estimate and have decided to withdraw our previously announced guidance…" Following that announcement, this morning Xenia Hotels (XHR) also withdrew its 2020 guidance. 

Beyond coronavirus, this morning it was announced that PepsiCo (PEP) will acquire Rockstar Energy Beverages in a $3.85 billion deal, which would expand its offering in the energy-drink category that is currently dominated by Monster Beverage (MNST) and Red Bull. 

The Trump administration extended a license allowing US companies to continue doing business with China’s Huawei Technologies until May 15. 

Shares of solar-power installer Vivint Solar (VSLR) fell more than 11% in aftermarket trading last night following after the company reported a wider-than-expected bottom-line loss and missed quarterly revenue expectations.

After US markets close today, there will several companies reporting their quarterly results including 58.com (WUBA), Del Taco (TACO), Kronos Worldwide (KRO), and Village Farms (VFF). Readers looking for more details on these and other upcoming earnings reports, we suggest visiting Nasdaq’s earnings calendar page

On the Horizon

    • Upcoming IPOs:
        • Clinical-stage biopharmaceutical company IMARA Inc. (IMRA) is looking to price 4.5 million shares in the range of $16-$18.
        • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
    • Dates to mark:
        • March 12: European Central Bank rate decision
        • March 17-18: Federal Reserve FOMC meeting
        • April 28-29: Federal Reserve FOMC meeting
        • April 30: European Central Bank rate decision
        • May 12-14: Google I/O Developer Conference
        • May 25: US stock market closed for Memorial Day

Thoughts for the Day

"Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all." ~ Dale Carnegie

Disclosures

PepsiCo (PEP) is a constituent in Tematica Research's Thematic Dividend All-Stars Index

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.

Read Chris's Bio

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.

Read Lenore's Bio