Markets

Daily Markets: Weakening Economic Data and Rising Political Uncertainty Weigh on Investors

Man crossing a deserted NYC street
Credit: Mike Segar - Reuters / stock.adobe.com

Today’s Big Picture

Equities in Asia ended the week on a mixed note, with Japan’s Nikkei trading off 0.4% while Hong Kong’s Hang Seng rose 0.9% on the day, and China’s Shanghai Composite eked out a 0.1% gain. By mid-day trading, European equities were higher across the board. Still, investors will want to see how those markets swallow the morning news that UK Prime Minister Boris Johnson would seek a no-deal Brexit unless there is a fundamental change of approach from the European Union. 

U.S. futures point to a positive open, but the September Retail Sales report and the September Industrial Production Report are likely to shape futures ahead of the market open. We’d also note today is an options expiration day in the U.S., which tends to make trading a tad more volatile than usual. 

While readers may have been hoping for a quiet weekend to rest and get ready for the surge in quarterly earnings reports next week, we’re sad to say there will be some developments that will likely shape how global equities start next week. In addition to the latest coronavirus data and U.S. stimulus package negotiations, we are likely to hear the U.S. response to China's legislative body, the National People's Congress, adopting a new rule that would restrict exports vital to national security. That likely comes in response to the U.S. crackdown on Huawei and ByteDance’s (BDNCE) TikTok. The Export Control Law, as it’s being called, is likely to keep the U.S.-China trade talks in ping-pong mode at least through the end of the 2020 election. On Sunday evening, China will report its September quarter GDP figures. 

Data Download

Coronavirus

Yesterday saw a new record high for daily cases worldwide, just shy of 400,000, but the 7-day moving average of daily deaths has remained relatively stable between 5,000 and 5,300 for over a month. 

  • The 7-day average for new cases in the U.S. is accelerating, up to nearly 55,000 after seeing the most new cases since July yesterday, but again the 7-day for daily deaths has been trending down slightly, sitting at just over 700. 
      • Hospitalizations in Texas hit the highest level since August.
      • Wisconsin and North Carolina reported a record-high number of new cases yesterday.
      • Florida saw one of its biggest one-day increases in new cases in a month yesterday.
  • France reported 30,621 new cases, up nearly 70% week-over-year as was the nation’s third-highest since the pandemic started. 
  • Italy saw another record-high 8,804 of daily cases over, well above the 6,554 peak during the first wave and deaths are up 345% over the past two weeks.
  • Poland just reported a record number of deaths from Covid-19.
  • The Czech Republic saw a new record high for daily cases.
  • On a more positive note, the Australian state of Victoria just reported the lowest number of new daily cases in four months.

High profile political figures are facing constraints due to the virus. With only three weeks left until election day, VP hopeful Kamala Harris has had to cancel all campaign travel until the end of Sunday after two people involved in her and Joe Biden’s presidential campaign tested positive. Ursula von der Leyen, the European Commission president, has been forced to leave an EU leaders’ summit after coming into contact with an individual who tested positive for Covid-19. She subsequently tested negative but is quarantining herself as a precaution.

Some cities in China are asking people to voluntarily sign a consent form to receive experimental Covid-19 vaccines, expanding the already controversial emergency use program that has so far administered hundreds of thousands of doses of drugs that are not yet approved for sale.

Pharma giant Roche (RHHVF) has warned that governments will have to use less accurate antigen testing on top of the gold-standard polymerase test to identify potential SARS-CoV-2 infections as the second wave accelerates and the need for testing overwhelms that availability of tests.

The World Health Organization (WHO) has determined that the antiviral remdesivir has no substantial effect on a Covid-19 patient’s survival chances. So that one is out.

In an open letter on its website from Chairman and CEO Albert Bourla, Pfizer Inc. (PFE) said its Covid-19 vaccine, developed in conjunction with BioNTech (BNTX), could be ready to apply for emergency-use authorization of by late November.

International Economy

Remember that whole Brexit vote that sent markets crashing, at least temporarily, roughly 4 million Covid years ago? Well, it still hasn’t been sorted out, and UK Prime Minister Boris Johnson is warning, in yet another example of political game of chicken that has become so popular of late, that he will be seeking a no-deal Brexit unless the European Union fundamentally changes its approach. This comes after an agreement was not reached ahead of his self-imposed deadline of October 15.

European car registrations rose 3.1% YoY in September to 933,987 new cars, marking the first monthly increase in 2020. Sales increased by 9.5% in Italy and 8.4% in Germany (+8.4%) but fell 13.5% in Spain and 3.0% in France. Despite the September performance, for the first nine months of 2020, Europe's car sales were down 28.8%.

Improvements in Eurozone exports are stalling, with August seeing the smallest monthly increase since the pandemic began, rising just 2.0% from July (seasonally adjusted), a 12% YoY decline. Imports rose 0.5% MoM, but remain down 13.5% YoY.

Italy remains in deflation, with the nationals inflation rate falling to -0.6% YoY in September from the prior -0.5%. The harmonised inflation rate fell to -1.0% YoY from the prior -0.5%. 

South Korea’s unemployment rate rose to 3.9% in September, up from 3.2% in August and 3.4% in September 2019.

Domestic Economy

According to a new JPMorgan Chase Institute (JPManalysis and media reports, seven months into the worldwide pandemic, Americans are facing empty savings accounts, reduced unemployment benefits, and “no relief in sight.” Per the report, “Eventually, without further government support or significant labor market improvements, jobless workers may exhaust their accumulated savings buffer, leaving them with a choice to further cut spending or fall behind on debt or rent payments.” 

In wholly unrelated news, initial unemployment claims in the U.S. unexpectedly rose last week to just under 900,000, surpassing both estimates and the prior week’s number.

Yesterday the first manufacturing activity indices for October was released by the New York and Philly Fed Reserve banks. The Empire Index missed estimates but remains positive while the Philly Fed beat estimates, rising to its highest levels since 1973, mostly due to a jump in New Orders.

Later today, we will get the University of Michigan Consumer Sentiment Index, which is expected to see only a slight increase in the headline index to 80.8 from 80.2. Retail sales for September will be released by the Census Bureau, with expectations for a 0.8% MoM in consumer spending overall and ex-auto, 0.3%, down from August’s 0.7% pace. We will also get info on Industrial Production, Business Inventories, and TIC Flows

Markets

Despite falling at the open, the major U.S. equity indices managed to close only slightly in the red, marking the third consecutive day of declines. The Nasdaq Composite lost 0.5%, the S&P 500 0.2% and the Dow 0.1%. The 30-year U.S. Treasury bond yield closed at 1.51%, WTI crude closed at around $41 a barrel, and gold finished the day at $1,911.

Stocks to Watch

Logistics solution company JB Hunt (JBHT) reported mixed September quarter results with EPS below consensus expectations while its revenue for the quarter was better than expected. Revenue performance was primarily driven by a 25% increase in revenue per load in Integrated Capacity Solutions (ICS), a 34% increase in the number of stops in Final Mile Services (FMS), a 9% increase in loads in Dedicated (DCS), and a 14% increase in loads in Truck (JBT), partially offset by a 5% decrease in revenue per load in Intermodal (JBI) and 32% decline in fuel surcharge revenue. Current quarter total operating revenue, excluding fuel surcharges, increased 9% YoY.

September quarters results came in stronger than expected at VF Corp. (VFC), and the branded lifestyle apparel company issued upside guidance for 2021 with EPS of at least $1.20 vs. the $1.13 consensus. The company also made its 48th consecutive annual dividend increase by boosting its quarterly dividend by 2% to $0.49.

Color, flavor, and fragrance company Sensient (SXT) crushed September quarter expectations with EPS of $0.78 on revenue of $323.6 million. A key contributing factor to the better than expected performance was the continued growth in natural ingredients and flavors, extracts, and flavor ingredients. Sensient reaffirmed its 2020 guidance that calls for EPS of $2.60-$2.80 vs. the $2.71 consensus. 

BNY Mellon (BNY) reported September quarter results that topped consensus expectations. EPS for the quarter came in at $0.98 vs. the expected $0.94, while revenue for the quarter rose 0.4% to $3.85 billion vs. the $3.83 consensus. 

Del Taco (TACO) reported September quarter EPS of $0.16, $0.06 better than the consensus, as revenues rose 0.5% YoY to $120.78 million. System-wide comparable restaurant sales increased +4.1 for the quarter with company-operated comparable restaurant sales up 2.0%, and franchised comparable restaurant sales increased by 6.5%.

Hewlett Packard Enterprise (HPE) reaffirmed its FY20 EPS outlook for $1.30-$1.34 and guided its FY21 EPS above consensus. For FY21, the company now sees EPS of $1.56-1.76 vs. the $1.46 S&P consensus. HPE also provided its long-term financial model for FY20-FY23 in which it expects a CAGR revenue growth rate of 1-3% adjusted for currency driven by Edge, High-Performance Compute & Mission Critical Systems, and as-a-Service business. 

Daimler AG (DDAIFreported preliminary 3Q 2020 results above consensus expectations as it benefitted from a faster than expected market recovery and a particularly strong September performance. Daimler expects to publish updated guidance for the financial year 2020 together with its quarterly results on October 23. 

Intuitive Surgical (ISRG) reported better than expected September quarter earnings as worldwide da Vinci procedures increased approximately 7% YoY, reflecting a partial recovery from the disruption caused by the COVID-19 pandemic. During the quarter, the company shipped 195 da Vinci Surgical Systems, a decrease of 29% YoY but grew its da Vinci Surgical System installed base to 5,865 systems as of September 30, an increase of 8% YoY. According to management, the resurgence of COVID-19 in some states has had, and will likely continue to have, an adverse impact on the co's procedure volumes. As such, Intuitive declined to provide guidance.

Jack in the Box (JACK) is introducing the first "unchicken" sandwich on its menu at select locations through a partnership with Tyson Foods' (TSN) Raised Root brand. The chicken alternative made of pea protein will be initially featured at locations in Monterey and Salinas, California, and Reno, Nevada.

CIT Group (CIT) and First Citizens BancShares (FCNCA) have entered into a definitive merger agreement that was unanimously approved by the Boards of Directors of both companies. CIT stockholders will receive 0.0620 shares of First Citizens class A common stock for each share of CIT common stock they own. First Citizens stockholders will own approximately 61%, and CIT stockholders will own approximately 39% of the combined company.

The Rémy Cointreau Group (REMYY) acquired a majority stake in Champagne J. de Telmont, including its brands, inventory, production facilities, and property assets on its estate, as well as vineyards in the Champagne region.

Yandex N.V. (YNDX) and Tinkoff were not able to agree on definitive transaction terms with the core shareholders of Tinkoff. As such, both parties have agreed to terminate discussions regarding an offer for 100% of Tinkoff.

Blackstone (BX) and co-investors say they agree to sell BioMed Realty, the largest private owner of life science office buildings in the U.S., for $14.6 billion to a group led by existing BioMed investors.

Patrick Ky, executive director of the European Union Aviation Safety Agency, declared Boeing’s (BA) 737 Max aircraft safe to fly and commented that he’s satisfied with the changes Boeing has made to the aircraft, which “could return to the region’s skies before the end of 2020.”

After today’s market close, there are no expected corporate earnings reports. Investors looking to make a game plan for the forthcoming reports to be had during the September quarter earnings season should visit Nasdaq’s earnings calendar page

On the Horizon

    • October 19: Home Builder Sentiment
    • October 20: Building Permits and Housing Starts
    • October 21: MBA Mortgage Applications, Fed Beige Book
    • October 22: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Manufacturing
    • October 23: Preliminary Markit PMIs
    • October 26: Chicago Fed Activity, New Homes Sales, Dallas Fed Manufacturing Activity
    • 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!

Thought for the Day

“May today be the Fridayest Friday that ever Fridayed” ~Anonymous

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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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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