Daily Markets: Stimulus Plans Take Center Stage; A Potential Detente For Oil

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Today's Big Picture

After yesterday's share price slaughter, today is all about the rebound despite the quarantine that has been extended to the entire nation of Italy - all 60 million people. Today US futures point to a significant bounce at the open after President Trump floated the idea of a payroll tax cut on top of an $8.3 billion spending package to counteract the damage from the coronavirus. There are signs that Russia and Saudi Arabia may resume discussions that would help the struggling energy sector.

Shares in Asia rose across the board but came nowhere near reversing yesterday's declines. Japan's Nikkei 225 gained 0.9%. China's Shanghai Composite rose 1.8%, and Hong Kong's Hang Seng was up 1.6%. Australia's ASX 200, which was hit the hardest yesterday, rose 3.1%.

By midday trading, all the major equity indices in Europe were solidly in the green as well. The pan-European Stoxx 600 was up 3.1%, Germany's DAX +2.9%, the UK's FTSE +3.6%, and even the quarantined Italy's FTSE MIB was up +2.4%.

The things to focus on now are:

(1) Evidence that the contagion can be and is being contained;

(2) Government programs to stimulate the economy, and;

(3) A detente between Russia and Saudi Arabia on oil prices.

There are optimistic signs out of China and South Korea. Italy remains a disaster with its healthcare pushed beyond the brink, leading to the lockdown of all 60 million residents. Keep in mind that 17 days ago the first three cases were identified and the regions in which they were located were immediately quarantined. Today Italy has the most cases outside of China at 9,172 in total, 7,985 active, and 463 deaths.

As stock markets around the world cratered, political leaders went to work on stimulus packages. Japan just unveiled a $4 billion spending package to help deal with the impact of the virus that seeks to boost growth and prevent an onslaught of bankruptcies. Today Italy's deputy economy minister announced that payments on mortgages are to be suspended across the entire country. In a radio interview, Deputy Finance Minister Laura Castelli said Italy is also studying relief for temporary layoffs and additional fiscal measures to support the economy. The country's banking lobby ABI announced that lenders representing around 90% of total banking assets would offer debt moratoriums to small firms and households struggling with the economic fallout from the outbreak.

Thailand's government approved a package of stimulus measures that reportedly will inject about 400 billion baht ($12.7 billion) into the economy in the form of tax cuts and 180 billion baht of concessionary loans for some businesses to counter the economic blow from the coronavirus outbreak.

With Cyprus detecting its first two cases, the virus has spread to every country in the EU, and case counts continue to grow in the US, with several states declaring a state of emergency. The virus is now in 115 countries and territories and has infected nearly 115,000 people. What we saw in China and Italy - the cancellation of classes at schools and universities or moving them online - is underway in the US as a growing list of events are canceled - see Stocks to Watch below.

The big concern is that the United States, with a population that is more than five times that of Italy's, is not prepared for the rapid spread experienced in Italy and the ensuing strain it will put on its hospitals.

While the US equity markets move higher today on the news of a potential payroll tax cut, the reality is we are not out of the woods by a long shot.

Data Download

Before we get into the economic data, let's review yesterday's market, which was one for the record books. The S&P 500 experienced the largest one-day drop since December 1, 2018, falling over 7.5%. The Energy sector took the biggest hit in its history, with daily data going back to 1989. The index now sits at its lowest level since August 2004, nearly 16 years! Financials experienced the largest one-day decline since April 2009 and is at its lowest level since the end of 2018. The Industrial sector took its biggest hit since at least 1989, falling 9.2%.

We are continuing to see events being canceled around the world - more pain for the travel and hospitality industry. China's Boao Forum, which is likened to the World Economic Forum annual meeting in Davos and gathers over 2,000 political and business leaders from around the world, has been canceled. Rumors are Coachella organizers are planning to cancel the music festival, which would likely lead to a global price crash in patchouli prices.

China's annual inflation rate fell to 5.2% in February 2020 from an over eight-year high of 5.4% in January. Modest increases in clothing, rent, household goods, and education were overshadowed by the 21.9% increase in food prices, including pork prices, which have been rising due to the African swine fever epidemic and virus-related lock-downs.

More good news came from the chairman of the Beijing-based American Chamber of Commerce in China who this morning reported that "Our member companies are in varying stages of resumption of productivity. So operations are mostly north of 50% in capacity, some are as high as 80%."

Japan Machine Tool Orders fell 30.1% in February, continuing the year over year slide that began with the 35.6% drop in January.

Italy's Industrial Production fell 0.1% YoY in February. As of last night, the entire nation has been placed under quarantine. There is no playbook for just how hard the economy is going to be hit. The leadership of the European Union has an incredibly hard road ahead of it.

The third estimate for December 2019 quarterly GDP in the Eurozone registered growth of 1.0% YoY vs. 1.2% in the two preceding quarters. Expectations are for a significant hit in the first quarter of 2020, with discussions around just how much stimulus will be required in the coming months.

The NFIB Small Business Optimism Index hit 104.5 in February, ahead of the expected 103.7 and January's 104.3 reading. The MoM tick higher reflected expectations for better business conditions in the next six months, which offset declines in plans to make capital outlays and expectations for real sales and earnings. As the US comes to grips with the coronavirus, we would not be surprised one iota to see the better business condition expectation reverse course with the March reading.

Stocks to Watch

The coronavirus continues to hit the travel industry with uncertainty, as evidenced by more travel and hospitality companies rescinding their guidance, including Booking Holdings (BKNG), Host Hotels (HST)Sotherly Hotels (SOHO), and Park Hotels & Resorts (PK).

American Airlines (AAL) this morning announced it will be slashing its international and domestic flights as demand falls from the coronavirus epidemic.

Qantas (QABSY), the Australian air carrier, announced further cuts to its international flying, announcing that it will reduce capacity with nearly 25% for the next six months. The company also announced that its board is canceling the off-market share buyback announced just last month to preserve cash. Expect to hear this from a lot of companies in the coming weeks and months.

Singapore Airlines (SGX:C6L) also announced additional cuts, canceling more flights across its network for both Singapore Airlines and its regional SilkAir through the end of May that would see its capacity reduced by 13.6% since the outbreak began. Air France KLM (AF:FP) also cut its flight schedule, and Finnair (FIA1A:FH) reduced its April seat capacity in Europe by more than 20%.

On a more positive note, all but four of Apple's (AAPL) 42 stores in mainland China have been opened again. However, reports suggest the company's iPhone shipments in China plunged more than 60% in February. Alibaba (BABAreports its package and delivery units are back at pre-coronavirus staffing levels with its Cainiao, meal delivery unit and grocery chain Freshippo all back at "full strength."

The virus is also leading more companies to either cancel or alter how upcoming events are held. Water technology company Xylem (XYL) announced it will postpone its 2020 Investor Day that was set for March 31. NVIDIA (NVDA) announced that it has deferred plans to deliver a webcast keynote as part of the digital version of its GPU Technology Conference later this month, and instead will issue news announcements on March 24 that will be followed by an investor call. General Motors's (GM) Cadillac canceled a reveal event on April 2 for its all-electric mid-sized SUV dubbed the Lyriq.

Embracing aspects of Tematica's Digital Lifestyle and New Middle-class investment themes, Ikea announced it will be selling its products on Alibaba's Chinese e-commerce platform Tmall. This marks the the first time the world's biggest furniture retailer has sold through a third-party in its history.

Online personalized styling company Stitch Fix (SFIX) saw its shares fall 25% in after-market trading yesterday after it reported quarterly results that missed expectations and saw the company slash its guidance for both the current quarter and all of 2020. Of note, in the company's comments, it saw not only heightened promotional activity but also customers spending less per average order.

In response to weak demand emanating from China, Toyota Motor (TM) is cutting production of its Lexus sedans and SUVs at its Fukuoka and Aichi plants beginning on March 16.

After today's US equity markets close, there are less than a dozen expected earnings reports. Of those, investors are likely to focus most on what is aid by data management company Cloudera (CLRDand solar energy company Vivint Solar (VSLR). Readers looking to get the lowdown on those reports as well as other upcoming ones should visit Nasdaq's earnings calendar page.

On the Horizon

  • Upcoming IPOs:
    • Environmental services company GFL Environmental (GFL) targets 73.2 million shares in the range of $20-$21.
    • 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

"You'll have bad times, but it'll always wake you up to the good stuff you weren't paying attention to." ~ Robin Williams.

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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