Markets

Daily Markets: Investors Losing Faith in V-Shaped Recovery

Customers lining up to enter Gucci store
Credit: Adrees Latif - Reuters / stock.adobe.com

Today’s Big Picture

Stocks in Asia closed lower across the board today in the face of rising coronavirus cases around the world. Hong Kong’s Hang Seng closed 2.3% lower, Australia’s ASX 200 lost 0.6%, Japan’s Nikkei 225 fell 1.1%, and South Korea’s Kospi lost 0.8%. In China, the Shanghai Composite lost 2.0%, and the Shenzhen Composite 0.3%. 

By midday trading, the major European indices were mostly in the green, albeit just slightly, after having been mixed in early trading. U.S. equity futures point to a weak start to the last day of trading for the week. Concerns over the coronavirus resurgence in the U.S., which has started to show signs of weighing on businesses, coupled with expected news from Washington that is likely to stoke geopolitical tension, will be the likely market drivers today as we brace for the earnings deluge that will begin next week. The U.S. is expected to announce actions today against France over its digital services tax, and the Trump administration is expected to finalize regulations this week that will bar the U.S. government from buying goods or services from any company that uses products from Chinese firms Huawei, Hikvision, Dahua (DHUA), Hytera and ZTE Corp. (ZTCOY).

Data Download

Coronavirus

There are now nearly 12.4 million confirmed cases worldwide, and just under 560,000 lives have been lost to Covid-19. The U.S. has more than 3.2 million confirmed cases and has seen nearly 136,000 deaths from Covid-19. The past two days, the U.S. has added more than 60,000 confirmed cases each day, with Texas, California, and Florida the hardest hit, recording their largest single-day increase in Covid-19 deaths since the pandemic began. The 7-day moving average for new daily cases continues to rise dramatically, rising from a low of 21,280 on June 9 to 54,800, an increase of 260%. There were 12 states in the U.S. that reached record-breaking new 7-day averages for daily cases.

Australia has initiated a 6-week lockdown in Melbourne, after Victoria, its most populous state, reported a record 288 new cases of Covid-19. The Chief Medical Officer for the region, Brett Sutton, said it was “a pretty ugly number.” (Yes, we had to read that twice as well… 288, an ugly number…)

Hong Kong has once again had to suspend schools due to a resurgence in local coronavirus infections over the past few days, just two weeks after the government relaxed social-distancing measures. Schools are getting an early summer break, shutting from Monday instead of at the end of this month.

New York City has canceled all large events until at least September 30, as Mayor de Blasio announced yesterday that authorities would not issue permits for any event larger than one city block.

Desperate to get away from the coronavirus? Barbados has so far recorded on 98 cases and 7 deaths from the virus. Around 48% of its economy is based on tourism, so in an attempt to limit the damage from the pandemic, the country is offering 12-month visas for $2,000 for an individual and $3,000 for families - not a bad option for remote working.

Covid-19 treatment trials in Iran have found that 94% of patients taking a combination of sofosbuvir and daclatasvir (antiviral drugs used to treat hepatitis C) showed reduced fevers and improved breathing versus 70% in the control group.

International Economy

Japan’s PPI fell 1.6% YoY in June, (versus -1.9% expected) and rose 0.6% MoM (versus 0.4% expected). The biggest decline came from petroleum and coal prices (-25.9% YoY) as well as chemical (-5.9%). 

Vehicle sales in China rose 11.6% YoY in China, the fourth consecutive monthly increase from the February coronavirus-induced low. The value of new loans in China rose 13.2% YoY in June, as the credit party continues.

Industrial Production in France rose at a record pace of 19.6% MoM in May, beating expectations for a 15.1% increase, after a record-breaking 20.6% decline in April. That said, both Industrial Output (-21.1%) and Manufacturing (-23.4%) are below February levels with IP down 23.4% YoY.

It is a similar story in Italy, with Industrial Production up a record-breaking 42.1% MoM in May after a 20.5% decline in April, handily beating expectations for an increase of 22.8%. IP remains down 20.3% YoY, which is still better than the 32.5% decline expected.

Global oil demand in the first half of 2020 plunged by 10.75 million barrels a day, down roughly 11% Y/Y, according to the International Energy Agency (IEA). The group forecasts oil demand will be down by 5.1 million barrels per day (bpd) in the second half of the year, which implies a global oil demand will be down 7.9 million (bpd) in 2020 vs. 2019. That’s a slight improvement, roughly 400,000 bpd to IEA’s last monthly report. 

Domestic Economy

Yesterday’s initial unemployment claims came in lower than expected, but still high at 1.3 million, which is about 2x the record high prior to 2020. Continuing claims declined by around 700,000 to 18.1 million. Great to see improvement, but the level of continuing claims is brutally high, and the number of initial claims was nearly 2x the reduction in ongoing claims.

In terms of U.S. economic data, we’ll end the week with the usual weekly Baker Hughes Rig Count and the June Producer Price Index, with expectations for a 0.4% MoM increase in the headline index and 0.1% increase for core PPI.

Markets

Yesterday stocks, for the most part, were unable to maintain their gains in the face of the dour coronavirus data. The Dow lost 1.4%, the S&P 500 fell 0.6%, and the Russell 200 lost 2%. The lone winner on the day was the Nasdaq Composite, which rose 0.5%, as technology shares continue to outperform. WTI crude is back below $40, and gold dropped to $1,808.

The Federal Reserve’s balance sheet has seen the sum total of interest-bearing assets fall for a fourth consecutive week to $6.9 trillion, down $60.5 billion over the past week and $197 billion from its peak on June 10, leaving the 3-month annualized growth rate at just 217%, well below the 726% pace a month ago.

Stocks to Watch

Specialty apparel and accessories retailer Express (EXPR) shared its comparable sales for open stores sequentially improved from down over 50% in early May to approximately negative 15% by the third week in June. Traffic also improved, from approximately negative 65% in early May to approximately negative 30% by the third week in June as the company continued to reopen locations. Roughly 95% of Express’s locations are now open, but as COVID-19 cases began to spike in late June, the company saw declines in both sales and traffic in Arizona, California, Florida, and Texas, which were significant enough to impact total results.

Tata Motors (TTM) reported a 49% drop in its June global passenger vehicle wholesales to 79,996 units, which included 65,425 Jaguar Land Rover vehicles.  For the company’s FY1Q 21, group global wholesales fell 64% YoY. 

Bloomberg reports Wells Fargo (WFC) is preparing to cut thousands of jobs starting later this year in a bid to cut costs and improve its efficiency vs. competitors. 

In a company-wide webcast, Hawaiian Holdings (HA), the company that owns Hawaiian Air, said it continues to experience significant operating losses, and that, based on its current planning assumption of a 10-15% reduction in its anticipated flight schedule for the summer of 2021 (as compared to historical averages), it expects to make employee headcount reductions.

According to data published by IDC, traditional PC shipments rose 11% YoY in the June quarter to 72.3 million units. Leading the pack was HP (HPQ), followed by Lenovo (LNVGY)Dell (DELL)Apple (AAPL), and Acer. Per the report, HP’s units rose more than 20% while Apple’s grew 6% YoY. 

Taiwan Semiconductor (TSM) reported its June revenue increased 40.8% YoY to NT$120.9 billion and integrated circuit packaging and testing company ChipMOS Technologies (IMOS) lifted its June quarter revenue forecast to NT$5.43 billion vs. the NT$5.19 billion consensus. 

In a reminder that supply chains continue to matter, Ford (F) may have to shut some U.S. car plants as early as next week if they fail to receive engines produced in Mexico’s Chihuahua state.

PriceSmart (PSMT) reported better than expected May quarter results, beating top and bottom-line consensus forecasts even though comparable net merchandise sales for the quarter fell 3.6% YoY. 

Ocean transportation and logistics company Matson (MATX) boosted its June quarter outlook well above consensus expectations. The company, which now expects quarterly EPS of $0.70-$0.75 vs. the $0.12 consensus, cited strength in its China service as the reason for the stronger than expected performance.

Pharmaceutical research software company Simulations Plus (SLP) reported May quarter earnings that topped expectations led by revenue that rose nearly 24% YoY. 

Spirit Realty Capital (SRC) reported its June and Q2 rent collections reached approximately 75% as of July 8.

Shares of performance improvement products company Franklin Covey (FC) slumped in aftermarket trading last night following the company’s latest quarterly results missed expectations. All of the company's business units "were adversely impacted by the closure of offices, schools, and other gathering places in the United States and in other countries" amid the pandemic.

Caesars Entertainment (CZR) announced it will resume operations at Bally's Las Vegas on July 23.

With an investment of $250 million, Sony (SNE) is taking a minority stake in Fortnite maker Epic Games.

Honda Motor (HMC) is taking a 1% stake in electric vehicle (EV) battery maker Contemporary Amperex Technology (300750:CH), and the two will jointly develop EV batteries and battery technology. 

Health Catalyst (HCAT) entered into a definitive agreement to acquire healthfinch, Inc., a company that provides a workflow integration engine delivering insights and analytics into EMR workflows to automate physicians' ability to close patient care gaps in real-time.

Reuters reports Coinbase is drafting plans for a stock market listing that could come as early as later this year. This would make the company the first major U.S. crypto exchange to go public.

After today’s market close, there are no expected corporate earnings reports to be had. Investors that wish to get a jump on the corporate earnings reports to be had next week should visit Nasdaq’s earnings calendar page

On the Horizon

  • Dates to mark:
      • July 13: Budget statement 
      • July 14: NFIB Small Business, CPI, Real Average Hourly Earnings
      • July 15: MBA Mortgage Apps, Import/Export Prices, Empire Manufacturing, Capacity Utilization, Industrial Production, Fed Beige Book
      • July 16: Retail Sales, Philly Fed Outlook, Initial Jobless Claims, Bloomberg Comfort, Business Inventories, Homebuilder Sentiment, TIC Flows
      • July 17: Options Expiration, Building Permits, Housing starts, Univ of Michigan Consumer Sentiment
      • 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

“Everything is figureoutable.” ~ Marie Forleo.

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 has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. 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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