Daily Markets: Mixed Economic Data, Rising Coronavirus Cases Sets Tone For Stocks
Today’s Big Picture
Following yesterday’s move in equities that was spurred on by positive developments on the coronavirus vaccine front, equities in Asia finished today’s trading predominantly lower. That included a 4.5% drop in China’s Shanghai Composite Index, which set the tone for trading in Europe and the U.S. Mixed economic data out of China - see Data Download - was offset by another uptick in reported COVID-19 cases in Japan and the U.S. By mid-day trading, European equities were down across the board and U.S. futures imply those equities will trade-off when that market opens later this morning.
Before that market opens, investors will digest the June Retail Sales report, which we suspect should deliver favorable month over month comparisons given the reopening of the economy. Later this morning we’ll receive the latest monetary policy decision from the European Central Bank, which is widely expected to keep its policy unchanged. We’d also note U.S.-China tensions are likely to mount further following the U.S. imposing travel sanctions on Chinese tech companies like Huawei. Now to see how China responds...
And adding confirmation to our view that privacy will be a key theme in 2020 and beyond, in response to a clash between Facebook and Austrian privacy activist Max Schrems, who has challenged Facebook’s handling of EU citizens' data following the Edward Snowden's spying revelations in 2013, earlier today Europe's top court invalidated the "PrivacyShield." The shield was an EU-U.S. framework used to transfer personal data across the Atlantic and the ruling will likely require regulators to vet new data transfers to make sure Europeans’ personal information remains protected according to the EU’s stringent standards. Further privacy news includes yesterday’s hack/Blue Check Bitcoin ransom attempt at Twitter (TWTR) - see Stocks to Watch for more.
There are now over 13.2 million confirmed cases worldwide and 570,000 lives have been lost to Covid-19 related illnesses.
Three of the largest U.S. retail chains, Walmart (WMT), Kohl’s (KSS), and Kroger (KR) will require all customers to wear masks starting next week after the U.S. recorded over 65,000 new infections on Wednesday, the second biggest 1-day increase, and 855 deaths, a near record-high. Yesterday Alabama became the latest state to mandate face masks and Texas recorded a 1-day high of 110 fatalities. California reported fatalities of 140, just 9 less than its 1-day record high from last week and a record-high for new daily cases. Yesterday also saw Kevin Stitt, governor of Oklahoma, become the first governor to test positive. Florida has become the third U.S. state to have more than 300,000 coronavirus cases.
According to a survey of 2,000 people from Freeletics, just over 40% of Americans used a fitness app for the first time during the pandemic quarantine and over half (56%) are so confident in their home workouts that they plan to cancel their gym memberships. Good news for Peloton (PTON), Nike (NKE), and Fitbit (FIT) but not so good for Planet Fitness (PLNT), Town Sports International (CLUB), and other gym companies.
China’s economy grew 3.2% YoY in the second quarter, aided by strong industrial production which rose 4.4% YoY. Retail sales contracted 3.9% with an unemployment rate of 5.7% in June, slightly better than May's 5.9%.
India saw its first trade surplus in over 18 years in June. Exports were down 12.4% YoY in June, but imports declined dramatically, down 47.6% YoY, as the pandemic slammed the nation’s economy.
According to data published by the European Automotive Manufacturers Association, registrations of new passenger cars in the EU totaled 949,722 units in June, a drop of 22.3% YoY. For the first half of 2020, EU demand for new passenger cars contracted by 38.1%. Among the four major EU markets, Spain saw the biggest decline (-50.9%) so far this year, followed by Italy (-46.1%),France (-38.6%), and Germany (-34.5%).
Mortgage applications in the U.S. rose 5.1% in the week ended July 10, the second consecutive increase as rates fell to new record lows, according to data from the Mortgage Bankers Association. Refinance applications rose 11.9% but home-buyer mortgage applications were down 6.1%. The average 30-year fixed mortgage rate fell 7 basis points to a new all-time low of 3.19%.
NY Empire State Manufacturing Index rose to 17.2 in July from -0.2 in June, beating market forecasts for 10. This was the first increase in business activity in New York State since the pandemic began and was the strongest since November 2018. Both new orders and shipments increased, while unfilled orders remained steady. Employment levels and the average workweek were relatively unchanged.
Import prices rose 1.4% MoM in June, beating forecasts for a 1.0% increase. This was the largest monthly increase in import prices since March 2012, driven mostly by increases in fuel prices. Export prices rose 1.4% MoM as well, beating expectations for a 0.8% increase. This was the biggest increase since March of 2011.
Industrial Production rose 5.4% MoM, (beating expectations for a 4.3% increase) but was down 10.8% YoY. This was the largest 1-month increase since December 1959. Manufacturing output increased 7.2% but was still 11.1% below February’s pre-pandemic level. For the second quarter overall, industrial output fell 42.6% at an annual rate, the largest quarterly decrease since right after WWII. Manufacturing Production in the U.S. fell 11.2% in June MoM and capacity utilization rose to 68.6% in June from 64.8%, beating expectations for 67.7%, but still 11.2% below the long-run average of 80.1 (from 1972 to 2019) and January’s 76.9%.
S&P Globalsaid Wednesday that U.S. corporate credit downgrades reached a high of 414 during the second quarter. The company went on to comment that "even as we expect the economic recovery to begin in the second half of this year, we anticipate that corporate credit measures will take longer to recover, and all sectors currently show a negative bias that is above their long-term average."
Later today we will get the latest data for Retail Sales, Philly Fed Outlook, the usual weekly Jobless Claims report, Bloomberg Comfort, Business Inventories, Homebuilder Sentiment, and TIC Flows.
Yesterday the good news on Moderna’s (MRNA) vaccine helped push stocks higher, which those tied directly to reopening of the economy seeing big gains; American Airlines (AAL), United Airlines (UAL), and Royal Caribbean Cruise Lines (RCL) all up double-digits. The major indices all closed off their highs after a midday swoon, but still in positive territory. The S&P 500 rose 0.9%, putting it right back to nearly unchanged for the year and less than 5% below its February all-time high. The Dow gained 0.9% as well and the Nasdaq Composite rose 0.5%. The big winner of the day was the Russell 2000, which closed up 3.5%, its biggest one-day gain since early June.
Stocks to Watch
Morgan Stanley (MS) announced Q2 earnings per share of $1.96 beating the consensus estimate of $1.11. The company reported a 30.9% increase in YoY revenue at $13.4B, beating the consensus estimate of $10.39B. The company stated that Institutional Securities net revenues had increased 56% reflecting outperformance across the businesses and that sales and trading were up 68% on strong client engagement as markets stabilized. Furthermore, underwriting was up 64% as clients accessed the open capital markets to strengthen their balance sheets.
Bank of America (BAC) reported better than expected top and bottom-line results for its June quarter even as the company boosted its provision for credit losses to $5.1 billion up from $4.76 billion in the March quarter.
Johnson & Johnson (JNJ) announced Q2 (Jun) earnings of $1.67 per share beating the consensus estimates of $1.51.The company reported a drop of 10.8% in revenues YoY to $18.34B versus consensus of $17.73B. The company raised guidance for FY20, with EPS of $7.75-7.95 from $7.50-7.70 as compared to estimates of $7.75 and sees increased FY20 revenues of $81.0-82.5B from $79.2-82.2B versus consensus $79.7B.
Taiwan Semiconductor (TSM) reported Q2 (Jun) earnings of NTD 4.66 per share, beating the consensus NTD 3.21 by 45%. The company posted a 28.9% YoY gain in revenues to NTD 310.7 B versus consensus of NTD 273.44 B. Advanced technologies, defined as 16-nanometer and smaller processor gate sizes, accounted for 54% of total wafer revenue. The company issued upside guidance for Q3, seeing revenues of $ 11.2-11.5 B as compared to the consensus estimate of $10.46 B. Taiwan Semi also shared that while it expects the first Apple Silicon Macs before the end of 2020, it sees a big boost in production from the second half of 2021.
Apple (AAPL) shares rose 0.7% yesterday on the news that a European Union court annulled at the 2016 European Commission order requiring the company to pay $15 billion taxes to Ireland on the argument that Ireland had given Apple unfair tax advantages. Both Apple and Ireland appealed the decision, with Ireland arguing that “there was no special treatment provided to the two Apple companies.”
Outdoor power products manufacturer Husqvarna Group (HUSQF) reported a Q2 increase in Net sales by 3% when adjusted for the exit of Consumer Brands business and changes in exchange rates. The company announced earnings per share after dilution amounted to SEK 2.74.
After gaining 18.2% during yesterday’s trading, American Airlines shares fell 2% in extending trading after the company announced that around 20% of its workforce (25,000 employees) are facing potential furloughs and layoffs in the fall as the hoped-for V-shaped rebound in air travel becomes increasingly less likely.
Shares of Alcoa (AA) jumped in after-hours trading after posting a second-quarter EPS loss of $0.02 excluding items and revenue of $2.15 billion versus expectations for an EPS loss of $0.38 on revenue of $2.11.
Dell (DELL) shares rose in extended trading after announcing that it exploring a spin-off of its 81% ownership of VMWare (VMW). VMware shares rose 3% on the news. The spinoff would happen in September 2021 at the earliest.
Shares of Twitter (TWTR) fell in after-hours trading after news that hackers had broken into the accounts of former President Barack Obama, Elon Musk, and Bill Gates along with others. Twitter said it is investigating the hack. Shares of Palo Alto Networks (PAWN), CrowdStrike (CRWD), CyberArk Software (CYBR), and FireEye (FEYE) traded higher in response.
DraftKings (DKNG) launched its Casino product suite in association with Penn National Gaming’s (PENN) Hollywood Casino at Charlestown Races in West Virginia. The launch includes the DraftKings Casino standalone mobile application, access to DraftKings Casino via the DraftKings Sportsbook mobile application, and features virtual, branded table games.
Beyond Meat (BYND) will enter the Brazil market, the third-largest one for animal meat consumption, through a partnership with grocer St. Marche, which will be selling four items in 19 stores across Sao Paulo.
Amazon (AMZN) has extended work from home for its employees until January 8, 2021.
Formula 1 and Zoom Video Communications (ZM) announced a new digital partnership to deliver the first-ever virtual Paddock Club experience, ahead of the FORMULA 1 ARAMCO MAGYAR NAGYDÍJ 2020 Budapest. The news follows yesterday’s announcement by Zoom that it has entered the device market with its Zoom for Home product, a 27-inch device that includes three built-in wide-angle cameras for high-resolution video, an 8-microphone array for audio in meetings and phone calls and a touch display for interactive screen sharing, whiteboarding, annotating and "ideation."
After today’s market close, JB Hunt (JBHT), Netflix (NFLX), and PPG Industries (PPG) among others will report their quarterly results. To get the 411 on those reports as well as those to be had next week, investors should visit Nasdaq’s earnings calendar page.
On the Horizon
- Dates to mark:
- 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
“You know you’ve reached middle age when you’re cautioned to slow down by your doctor, instead of by the police.” ~Joan Rivers
- Beyond Meat (BYND) is a constituent in the Tematica Research’s Cleaner Living Index.
- Johnson & Johnson (JNJ) is a constituent in the Tematica Research's Thematic Dividend All-Stars Index.
- Palo Alto Networks (PAWN), CrowdStrike (CRWD), CyberArk Software (CBYR), and FireEye (FEYE) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.