Today’s Big Picture
Asian equity markets finished the day’s trading mixed with Japan’s Nikkei down slightly and Hong Kong’s Hang Seng down 0.5% while China’s Shanghai Composite rose 0.3% and South Korea’s Kospi finished the day 1.4% higher. We’d note the day’s outperformance in the Kospi reflects the news that North Korea suspended plans for military action against South Korea.
Following eight days of gains, European equities are taking a break and U.S. futures point to a lower open when those markets open begin trading later this morning. This change in direction is being fueled by the continued resurgence of the coronavirus — see Data Download for more on this — that is leading investors to shift their focus back to the current state of the economy and the waning impact of the economic impact payments.
Adding to that renewed uncertainty, President Trump expanded restrictions on U.S. visas and reports suggest the U.S. Trade Representative is looking to add $3.1 billion in tariffs on exports from France, Germany, Spain, and the U.K.. And while there is talk making the rounds in Washington that the White Housing is having serious discussions over a new $1 trillion stimulus package, Senate Majority Leader Mitch McConnell said yesterday Republicans will assess economic conditions next month and draft legislation then if necessary. “Wait and see” isn’t something investors or the stock market embraces easily.
By Friday, there will be over 9.4 million confirmed cases of the coronavirus worldwide and at least 480,000 people have already lost their lives to Covid-19. While the U.S. remains the most affected nation with 26% of all cases, Brazil has become the new global hotspot, seeing more new cases yesterday than were identified in the U.S., bringing its total to over 1.15 million. India is also seeing a rapid rise in new cases.
The U.S. has over 2.4 million cases and more than 123,000 deaths have been attributed to the virus. Yesterday saw the third-highest new daily case count, which was the highest since May 1 with the 7-day moving average for new daily cases hitting the highest level since April 13 after rising for 14 consecutive days. California has become the state with the fastest rising case count, making new record highs for 2 consecutive days and the state has experienced a 16% increase hospitalization with an 11% increase in ICU admittance over the past two weeks. Yesterday’s total active cases were just under three times the number on May 1 with 46% of the state’s cases in Los Angeles County. Arizona saw a record one-day increase in new cases as well this week.
Mexico has seen a new record-high in daily reported cases today, despite only routinely testing who are symptomatic. This increase comes as the nation deals with a 7.4 magnitude earthquake near the Pacific coast state of Oaxaca which caused five deaths.
New Delhi also reported a new record-high in daily reported cases yesterday as the capital struggles to cope with the surge in new cases. Authorities are looking to open a makeshift facility to treat patients on the grounds of a religious sect that will house 2,000 beds with the capacity to scale up to 10,000 if necessary.
France’s Business Confidence improved at a record pace in June with the Business Climate Indicator for June increasing to 78 from 60, the third consecutive increase after bottoming out at a record-low 53 in April, and the fastest pace on record. The indicator remains below the long-term average of 100.
Germany has seen sentiment among businesses recovering at a record pact with the Ifo Business Climate for June improving more than the expected 85 to 86.2 from 79.7. Ifo Current conditions were weaker than the expected increase to 84, rising to just 81.3 from 78.9. Ifo Expectations remained more robust, rising to 91.4 versus the expected increase to 87 from the prior 80.5.
New home sales came in better-than-expected yesterday, increasing to 676k in May on a SAAR compared to the 640k expected and 640k in April. While sales are still 5.6% below February’s level, they are up 12.7% YoY despite the coronavirus lockdowns. Even more promising is that sales of homes under construction and those not started accounted for 63.1% of the total, providing a tailwind for construction activity.
On a less positive note, according to data from Black Knight on May mortgages released yesterday, delinquencies were up shortly again in May with 4.123 million properties delinquent by 30 days or more, but not in foreclosure. Foreclosure data is rather pointless to assess given the moratoriums from Covid-19. The current delinquency rate is 7.8%, the highest in 8.5 years. This morning’s weekly MBA Mortgage Applications declined 8.7% WoW, the largest decrease since the 17.9% decline the week of April 5.
Yesterday also saw the largest 2-year Treasury note auction in history, with $46 billion offered, that was met with a bid to cover dropping to 2.46, the lowest since March and slightly below the average of the past ten auctions before yesterday’s. While the bidding was better than the average for June, it was weaker than the past three months.
In other positive news, Major League Baseball training camps are set to open July 1 as players prepare for the 2020 season. Adjustments include Covid-19 protocols for players, empty stadiums, and an abridged 60 game schedule. with $0 revenue from ticket sales, it’s not clear just how fiscally stimulative the season will be but it at least brings back some sense of normalcy and perhaps sets a precedent for other professional sports here in the U.S.
Richmond Fed Manufacturing reported a “0,” which established a pattern of continued improvement from last month’s -27 and April’s -53 reading. While this metric saw a high of 20 in January of this year one would have to look back to 2018 to find a persistent pattern of positive numbers. Based on recent activity, a reading of “0” is close to a return to normal. Assuming the economy can continue to open without a return to lockdown we should expect this level to hold if not accelerate.
The Johnson Redbook Index, after crashing in the beginning of May, seems to have begun a pattern of higher lows and higher highs, indicating a consumer that is starting to re-engage in spending.
Later today we will get the usual EIA weekly energy stock report as well as the House Price Index report for April.
The tech-heavy Nasdaq Composite rose 0.78% yesterday, enjoying its eighth consecutive day of gains and making its 21st record close in 2020. The index has gained 32% since April and is currently on track for its best quarter since the end of 1999, the last quarter of gains for the dotcom bubble when the index rose 48%. The index then peaked in March 2000 and didn’t make a new all-time high for another 14 years. We suspect that this time it may be different.
As the physical world has become more dangerous during the pandemic, the digital world has become more attractive. Most businesses around the world have been forced to quickly shift their business models towards the digital world, a shift that is unlikely to reverse when this blasted pandemic is fully behind us.
That said, there are reasons for concern in the tech sector, which now represents 27% of the S&P 500, it highest weighting since (drum roll please), the peak of the dotcom bubble in 2000. The combined market caps of the five largest companies — Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB) — has seen an impressive surge recently as their valuations expand. The S&P 500 trades at around 21.8x on a trailing 12-month basis versus 36x for the Big Five and just 19x for the median S&P 500 stock.
Stocks to Watch
According to The Wall Street Journal, Dell (DELL) is reportedly examining options with its 81% stake in VMware (VMW) that could include either spinning the business off to buying the rest of the cloud-software giant.
Germany’s Federal Court of Justice upheld the decision of the country’s antitrust watchdog that Facebook had abused its position in the social media to illegally harvest data about its users. According to reports, Facebook broke competition laws by combining user data that it collected across its various social media platforms with that from outside websites and third-party apps. Facebook shared its view there is no antitrust abuse and that it will fight the decision.
Renewable Energy (REGI) updated its June quarter EBITDA guidance to between -$12M and -$2M from its prior range of $20M – $35M. The company stated while market volatility played into the revision that the guidance model used had significant calculation errors and was largely the source of the revision.
The Department of Justice has indicated that it will pursue an anti-trust lawsuit focusing on Alphabet’s dominance in the search space as well as what are perceived to be anti-competitive practices in the advertising sector.
WWE (WWE) and Discovery (DISCA) today announced a new multi-year agreement in Italy beginning Wednesday, July 1 that will make WWE’s weekly flagship programming available exclusively live and on-demand with original US commentary on DPlay PLUS, the OTT premium pay service of Discovery, along with versions featuring Italian commentary on DMAX. Fantastico!
Carnival Corp. (CCL), which earlier saw its credit rating cut but remain in investment-grade received its second credit-rating downgrade of the day as S&P reevaluated and set credit quality to BB- from BBB-. The outlook remains watch negative, suggesting the possibility of further reductions.
Amazon entered into a lease agreement for 1.5M-square feet of warehouse space in New York City in Maspeth, Queens. The company is also in talks to lease a 620K-square-foot office and warehouse property under construction in Red Hook, Brooklyn.
Verizon (VZ) has partnered with Digital Catapult, a UK’s digital technology innovation center, to launch an immersive accelerator program to develop innovative 5G solutions for enterprises.
TerraPay, a global payments infrastructure company, and Visa (V) announced a partnership to focus on solutions to drive the “repeat consumption” of mobile wallets and digital currency for digital payments.
Beginning in 2024, Daimler AG’s (DDAIF) Mercedes Benz will feature the in-vehicle computing and AI computing infrastructure that it co-developed with Nvidia (NVDA) that can automate the driving of regular routes and has“numerous safety and convenience applications.”
GNC Holdings (GNC) has filed for Chapter 11 bankruptcy with a commitment from certain term lenders to provide $100M in “new money” debtor-in-possession financing and $30M from modifications to the existing ABL credit agreement. The company has also reached an agreement in principle with most of its supporting secured lenders and an affiliate to top shareholder Harbin Pharmaceutical for the sale of the business for $760 million, which would be executed through a court-supervised auction process.
Volkswagen (VWAGY) is reportedly considering an offer for car rental company Europcar Mobility Group as it seeks to expand its mobility services offerings, including rental and leasing programs for new and used electric cars.
California American Water, a subsidiary of American Water (AWK), announced it will acquire the operating assets of the Hillview Company to become the new water provider to its ~1,500 customers in Madera County, California.
After today’s market close, Blackberry (BB) and KB Home (KBH) are expected to report their quarterly results. Investors that wish to get a jump on those reports, as well as other forthcoming ones, should visit Nasdaq’s earnings calendar page.
On the Horizon
- Dates to mark:
- June 25: Wholesale Inventories, GDP, Durable Goods, Kansas City Fed Activity
- June 26: Personal Income, Personal Spending, PCE, Univ of Michigan Consumer Sentiment
- June 29: Pending Home Sales, Dallas Fed Manufacturing
- June 30: Case-Shiller Home Prices, MNI Chicago PMI, Consumer Confidence
- July 1: ADP Employment Report, Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Wards Vehicle Sales
- July 2: Nonfarm Payrolls, Unemployment Rate, Durable Goods, Capital Goods, Factory Orders
Thought for the Day
“A bad day with coffee is better than a good day without it.” ~ Anonymous
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.