Stocks Fall Worldwide As Coronavirus Death-toll Climbs
Stocks around the world tumbled at the start of the week, with the US also pointing downwards in the futures markets, after another weekend saw a jump in coronavirus deaths.
Widespread concern about surging US COVID-19 cases had already sent markets reeling late last week, and the picture didn’t improve over the weekend. As of Sunday morning, the US has set consecutive new daily case records for five days straight.
Globally the picture is also troubling, with 10 million infections and more than half a million deaths.
The US is leading for both infections and deaths from the diseases, having confirmed 2.5 million cases and more than 125,000 deaths from the disease.
The early signs in markets today were for further losses, with shares in Asia tumbling. Japan’s Nikkei closed down 2.3%, leaving it more than 10% off its year-to-date high, while Hong Kong’s Hang Seng was off 1.4%.
The US is currently tipped to open down around 0.4%, with the losses coming after a Friday session that saw its banking stocks retreat as the Federal Reserve moved to implement restrictions on shareholder payouts. The Fed introduced limits on dividends and share buybacks for large banks after its annual stress tests of 33 banks found that while the industry is in good enough shape to make it through the crisis, in some scenarios several banks could come close to minimum capital levels. Banking stocks plunged on the news, with the banks sub-sector of the S&P 500 dropping 6.1%. Fifth Third Bancorp (FITB) and Goldman Sachs (GS) were among the biggest fallers, closing the day 8.3% and 8.7% lower respectively.
The financial sector was the biggest loser in a day where all 11 sectors in the S&P 500 fell by more than 1%. Overall, the index of America’s largest companies dropped by 2.4% on Friday, taking it to a 2.9% loss for the week.
Energy stocks sink in US as risk of lockdowns threatens oil demand once again
After financial stocks, the energy sector was the hardest hit in Friday’s sell-off, losing 3.5% overall, as concerns about rising Covid-19 case numbers once again threaten demand for oil. If states roll back reopening plans and go back to strict lockdowns, demand for everything from petrol to jet fuel is likely to fall back again.
Having climbed over the $40 a barrel mark, the price of WTI Crude Oil is now back down to $37.68. The threat of oversupply coupled with a collapse in demand was enough to turn the price on some oil contracts negative in April, a scenario that is likely to play on investors’ minds.
Financial advice giant Edward Jones argued in a Friday note that, as long as statewide lockdowns are avoided, economic recovery in the US is now underway. But record numbers of new virus patients over the weekend do raise the possibility of that happening. At its peak, New York — which was the original US epicenter of the pandemic — hit just over 6,000 new daily cases. On Saturday, Florida posted close to 10,000.
Friday’s sell-off puts the S&P 500 back into correction territory, down more than 10% from its February peak. The standout performer from the index on Friday was struggling clothing retailer Gap, which jumped more than 18% after announcing that rapper Kanye West’s Yeezy brand is working with Gap (GPS) on a new clothing line.
S&P 500: -2.4% Friday, -6.9% YTD (-2.9% last week) (SPY)
Dow Jones Industrial Average: -2.8% Friday, -12.3% YTD (-3.3% last week) (DIA)
Nasdaq Composite: -2.6% Friday, +8.7% YTD (-1.9% last week) (COMP)
Pay cuts and pilot job losses at BA and Ryanair
The FTSE 100 sank 2.1% last week, while the FTSE 250 was down 3.3%, as the turning tide of sentiment around the COVID-19 virus spread in the US set the tone globally. However, London-listed stocks avoided matching the hefty sell off in the US on Friday.
Over the weekend, airline stocks dominated headlines. British Airways, part of International Consolidated Airlines Group (IAG), reportedly told long-serving cabin crew members to take a 20% pay cut or face losing their jobs and has also sacked 350 pilots. Out of those, 300 have been put in a pool to potentially rehire in the future. Ryanair (RYAAY) reportedly sent pilots a memo asking them to accept proposals that include a 20% pay cut, and that the number of job losses will depend on acceptance levels. Virgin Atlantic, which is not a listed company, is attempting to secure a £900m rescue deal by the end of the week to ensure its survival.
FTSE 100: +0.2% Friday, -18.3% YTD (-2.1% last week)
FTSE 250: 0% Friday, -21.8% YTD (-3.3% last week)
What to watch
Micron: Computer memory firm Micron’s (MU) share price is down 9.8% year-to-date, following an 11.5% rally over the past three months. Many memory firms and chip makers have enjoyed huge rallies in recent months, driven by increased demand for cloud computing services boosting requirements for data centers and other hardware necessary to increase capacity. For Micron, massive uncertainties remain, however, such as how memory pricing will hold up, which is giving investors more pause than computer processor and graphic card stocks. Nvidia, for instance, is now up more than 50% year-to-date. Micron reports its latest set of quarterly earnings today, analysts are anticipating an earnings per share figure of $0.75, up from the $0.55 they were predicting three months ago.
Pending home sales: In the US today, the National Association of Realtors will put out its pending home sales index for May, after reporting a 9.7% drop in existing home sales for the month last week. New home sale figures, also reported last week, increased 16.6% in May versus April. The pending home sales data acts as a form of barometer for future sales of existing homes, as it includes deals where a contract was signed but the sale hasn’t yet closed.
Nationwide house price index: Tomorrow in the UK, the Nationwide House Price index for June will be reported. In May, house prices were down 1.7% versus April, but were still up 1.8% versus the same month last year. The housing market in the UK has been subject to strict restrictions, which effectively shut the market down, but those began to be lifted last month. Speaking to Reuters, Samuel Tombs, an economist at Pantheon Macroeconomics, said that last month’s fall in prices is probably the start of a larger slide over the rest of the year.
What do second quarter earnings have in store?
Second quarter earnings season kicks into gear in the US in the week beginning July 12, led as always by the largest banking stocks. This is arguably a more crucial quarter for companies than Q1, as they have lived with the impact of the pandemic for the entire quarter, and decisions around getting staff back to offices and reopening locations are much tougher to make than initial lockdown decisions. Investment firm John Hancock noted that, as of Friday, only 49 S&P 500 companies had issued earnings-per-share guidance for the quarter. The lack of forecasting for investors to peg expectations could lead to major volatility in individual names and sectors following earnings announcements, which may also be accompanied by major announcements about structural changes.
Crypto corner: Can Bitcoin track gold rally?
Bitcoin (BITCOMP) could track soaring gold prices which have risen to near-decade highs so far in 2020, according to a new research paper from Bloomberg analysts.
In the paper, which cites analysts from Morgan Stanley, JPMorgan and Goldman Sachs, it says the “same forces buoying gold support Bitcoin, yet the supply of the crypto is more constrained.”
Gold (GLD) is being sought out by investors because of the devaluation of the US dollar, uncertainty about the economy and rising demand for physical gold, with all three factors likely to boost Bitcoin as well.
Bitcoin itself remains steady around the $9,000 mark, having rallied significantly this year from lows around $4,800.
All data, figures & charts are valid as of 29/06/2020.
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