Monday 20 April 2020

Week to Apr 17th

COVID growth stabilising, Mixed bag of earnings, Oil collapses again

This week, some light was seen at the end of tunnel, with some flattening of the infection curve, and promising results from the remdesivir drug from GILD. However, the macroeconomic data continued to be dire, such as the lowest Retail Sales print on record, and the Philly Fed survey’s worst result since 1980. Nevertheless, markets reached their highest level from a month, and have now recovered half the drop from the March crash. Earnings were generally misses, although of course a lot of this is priced in.

Next week will probably bring more coronavirus progress, and traders will be looking for any sign of a lockdown exit plan. Earnings season continues with bellwether IBM, lockdown beneficiary NFLX, tech giant INTC, and staple KO. US macro data is lighter, with only the Capital Goods (a manufacturing proxy) and of course the Initial Jobless claims being significant.

Last week we published an earnings table, showing how there was little correspondence between the earnings estimates and the drop in stock prices. At the time, in all cases the drop was more than the lower estimate suggested. Here are the results of earnings reports, and as you can see in most cases, although the variance (and thus the price/earnings ratio) is still considerable, there has been some reversion to mean post-results.

Mon Apr 13
The COVID-19 rollercoaster continued today, although volatility is clearly falling off. After last week’s rally, DJIA was down 1.39%, partly through CAT falling 9% after a downgrade, the other US indices less so. European markets were closed, and DAX futures were flat. The dollar was generally down, although the Euro fell even further. Gold and JPY were up, and Oil was down in line with equities, although bonds were slightly down. 

Tuesday April 14
After news that the New York virus deaths were levelling off, we saw Turnaround Tuesday in equities, with SPX up 3%, following outstanding earnings for JNJ. Another down day for the dollar, although NZD and CAD were flat. Gold was up again, continuing its partial disconnect with other markets, and bonds once again went in the same direction as equities, although both Monday and Tuesday’s move were small. Oil fell again, on general over-supply fears.

Wednesday April 15
The worst Retail Sales and Empire State Manufacturing releases in history turned the market down again today, and BAC missed on earnings. Markets turned down again, but only by about 2%, a relatively small move by current standards. A safe haven flight to the dollar pushed DXY sharply up over 1%, although JPY was the least affected. Bonds were up in line, and Oil fell sharply by nearly 5%, after the big miss on EIA stocks. God ignored equities again, and fell in line with the stronger dollar.

Thursday April 16
Equities were back up today, but only slightly, with SPX adding 0.6%. Competing forces of politicians being upbeat about coronavirus control and a flattening of the curve were in stark contrast to the ever worsening data (which lags behind of course). Today’s new Jobless Claims was 5.245 million, and remember this is new claims, in addition to the 16 million already filed in the last three weeks. The pre-COVID levels are less than a million a month. We are starting to see serious decor relation of individual stocks, today’s lockdown winners included NFLX and AMZN, both hitting all-time highs.

USD was also mixed and the DXY basket was slightly up, mainly due to a noticeable move down in EUR. Where equities are following news to some extent, it is very difficult to find the reasons for currency moves at the moment. Gold and bonds were nearly flat, and Oil’s drop of 2% 

Friday April 17
The rally continued today, with SPX pushing through the 50% retrace barrier. The trigger came in NDX as GILD (1.19% of NDX) rose 16% overnight on reports that their drug remdesivir was very helpful for COVID-19 patients (GILD ended the day 9.73% up. That only added 0.12% to NDX but sentiment is the thing, and indices were up 3%. USD took a dip today, down again all currencies and Gold, so for once all other other asset classes (bonds, Gold JPY down, Oil up) were in line.

And finally, if you are in any doubt that the current market is entirely driven by sentiment, look at this chart of Google searchs for "coronoavirus" correlated with the inverted price of SPX.

A quieter week with the NDX 6% rise being the strongest move. For the first time in weeks, a cross was the strongest mover with NZDJPY down 1.57%, also quieter than before. Bitcoin hardly moved, whereas ETH added to last week’s gains. FANGs did very well, particularly AMZN which returned to new highs.

My USDCAD sell call lost 0.33%. Eleven weeks, five wins, and a running total of 3.73%. This week I am selling EURCAD. CAD is going to break out soon.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • Possible light at end of tunnel
  • Sentiment-driven market
  • Earnings season continues
  • UK and Canada inflation

Earnings are the key variable again as we enter the second week of the season. Like last week, we have done a table for next week’s earning and as you can see, the reduced estimates vs prices are all over the place. We will update the table next week with actual figures.

Monday April 20
Light on news today, as we enter another week of lockdown. Earnings today include bellwether IBM and oil services contractor HAL.

22:45 NZD NZ CPI (YoY e1.8% p1.9%) (Sun)
23:50 JPY Japan Imports/Exports/TB
01:30 CNY PBoC Interest Rate Decision (p4.05%)
06:00 EUR Germany PPI
12:30 USD Chicago Fed National Activity Index

Tuesday April 21
Today’s earnings give us some profile outside the banks, with DJIA staple KO before the bell, and lockdown winners NFLX and SNAP after the bell. The first post-lockdown unemployment figures come out in the UK, and we will see if Canada’s Retail Sales are as bad as last week’s US figures. Markets are closed in Brazil.

01:30 AUD RBA Meeting Minutes
05:00 AUD RBA's Governor Lowe speech
06:00 GBP UK Unemp/AHE/Claimant Count Change (Unemp e3.8% p3.9%)
09:00 EUR Germany ZEW Economic Sentiment (e-43.0 p-49.5)
12:30 CAD Canada Retail Sales (e0.0% p0.4%)
14:00 USD US Existing Home Sales
14:30 NZD NZ GDT Milk Index

Wednesday April 22
DAL the first airline to report comes before the bell, together with theoretically unaffected T. Casino LVS reporting after the bell will give us some insight into how bad the leisure industry has taken the crisis. Again, putting some numbers on the problem. Watch out for EIA oil stocks which seem to be growing every week. There is a rate decision in Turkey.

06:00 GBP UK CPI/RPI/PPI (YoY CPI e1.7% p1.7%) 
12:30 CAD Canada CPI (BoC Core YoY e1.8% p1.8%)
13:00 USD US Housing Price Index
14:30 WTI EIA Oil Stocks
23:00 AUD Aus Commonwealth Bank Manuf PMI

Thursday April 23
A fifth week of virus-era Jobless Claims may show some tailing off in claims, or not, as the case may be. The European PMIs are already at dire level. INTC after the bell is the most significant earnings release today. Markets are closed in Turkey.

06:00 GBP UK PSBR/Retail Sales
06:00 EUR Germany Gfk Consumer Confidence Survey(May)
07:15 EUR Italy Markit Prelim PMIs
07:30 EUR Germany Markit Prelim PMIs (Manuf e39.6 p45.4)
08:00 EUR Eurozone Markit Prelim PMIs (Composite e38.8 p29.7)
08:30 GBP UK Markit Prelim PMIs (Composite e38.8 p29.7)
12:30 USD Initial Jobless Claims (p5245k)
13:45 USD US Markit Prelim PMIs
14:00 USD US New Home Sales (MoM)(Mar)
15:00 USD Kansas Fed Manuf Activity
23:30 JPY National CPI

Friday April 24
The inelegantly named Non-Defence Capital Goods excluding Aircraft report is the main macro print of the day. Earnings include telecoms provider VZ and bank AXP.

06:00 GBP UK Retail Sales
08:00 EUR IFO - Business Climate/Assessment/Expectations
12:30 USD Durable/Capital Goods (e-0.4% p-0.9%)
14:00 USD Michigan CSI

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