Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for April 15, 2020.
Markets have pulled back this morning as fears mount that we’re heading for a deep global recession following predictions by the International Monetary Fund (IMF). An explosive report from the IMF predicted the worst economic downturn since the 1930s. Asian markets stumbled overnight despite China announcing more stimulus, cutting its medium-term interest rate to a record low to support its own businesses amid the downturn. US futures are also pointing towards a dip this morning, despite yesterday’s strong rally.
As concerns over the gravity of the global downturn continue, it adds fuel to the debate of whether the recent uptick in stocks is merely a bear market rally as opposed to a full reversal. According to Reuters, the US death toll rose by 2,228 yesterday, a single day record, indicating that the worst may not yet be over. The Dow Jones made another attempt at clearing the 24,000 resistance level but came up short, as it did last week.
Despite the majority of UK companies postponing their quarterly updates on the advice of the regulator, the first set of major US firms to report their Q1 2020 earnings delivered a mixed bag. Consumer goods and pharmaceutical company Johnson & Johnson’s stock price surged after profits jumped. Johnson & Johnson cut its full-year earnings guidance, but increased its dividend by 6.3% and reported earnings per share of $2.30, above the $2 expected. On the firm’s earnings call, executives said that they anticipate producing 600 to 900 million doses of a coronavirus vaccine by the end of 2021, if human tests go well.
The picture was not so rosy for JPMorgan and Wells Fargo, the first of several major banks to report earnings this week. JPMorgan reported earnings per share of $0.78, less than half of the Wall Street analysts’ consensus estimate, as it set aside $6.8bn in provision for loan defaults. Wells Fargo’s profit fell even harder, sinking almost 90%. That included the firm setting aside $4bn in provisions for credit losses, well above the amount analysts were anticipating. Wells Fargo CFO John Shrewsberry told analysts on the bank’s earnings call that the company is working under the assumption that there will be a high single digit GDP loss and unemployment rate running into 2021, and that there will not be a sharp economic recovery.
Tesla stock now up 65% year-to-date
All three major US stock indices rallied yesterday, with the Nasdaq Composite the biggest winner thanks to a 4% jump. That gain puts the tech-heavy index’s year-to-date loss at just 5.1%, while the S&P 500 is still sitting on an 11.9% loss and the Dow Jones Industrial Average is down 16.1% in 2020. Among the names that took the Nasdaq higher on Tuesday were Tesla, Monster Beverage and Advanced Micro Devices. After losing more than half its value in the broader market sell-off, Tesla has recovered strongly, although at just over $700 its share price is still some way off its $900 plus peak from earlier in the year. Tesla stock is now up 65% over the past month and 69.7% year-to-date, as investors back the firm to weather the current storm better than legacy carmakers. Chipmaker AMD has followed a similar trajectory — it sank dramatically but is now almost back to its previous high, driven by its role in providing chips for cloud infrastructure that are now in heavy demand.
S&P 500: +3.1% Tuesday, -11.9% YTD
Dow Jones Industrial Average: +2.4% Tuesday, -16.1% YTD
As UK markets reopened after the long Easter weekend, investors reacted to the fallout from the Opec-Russia oil production cut deal which, while record breaking, has been deemed by some analysts to be too little too late. Royal Dutch Shell’s London-listed shares fell 3.5% on Tuesday, with BP down 4.4%.
The FTSE 100 finished up the day just under 1% down, with homebuilders and banks among the sectors dragging it down. Taylor Wimpey, Barratt developments and Persimmon closed the day 10.4%, 9.4% and 6.5% down respectively. The FTSE missed out on a broader global rally, that was in part driven by positive economic data from China, including a return to a trade surplus and the ongoing recovery of both imports and exports. At the top of the FTSE 100 was online grocery delivery service Ocado Group, which gained 8.5%, taking it to a 25.5% one month and 16.1% year-to-date gain. The firm has been a major beneficiary of shoppers switching to online purchases, and its main challenge has been struggling to deal with the volume of orders it is receiving.
FTSE 100: -0.9% Tuesday, -23.2% YTD
FTSE 250: -2% Tuesday, -26.5% YTD
What to watch
UnitedHealth Group: As one of the USA’s largest health insurers, UnitedHealth is at the epicentre of the Covid-19 pandemic. The company reports earnings for the first quarter of 2020 today, and will offer up the first glimpse of how the crisis has impacted the firm financially. All major insurers have waived out-of-pocket costs for their customers to receive coronavirus testing and doctors’ visits, with some also covering hospital stays. UnitedHealth has also been making billions in advance payments to hospitals and doctors to help keep them liquid. Analysts will likely probe exactly how much all of that is costing the firm, which is only down 8% year-to-date, ahead of the broader market.
Big banks: Following JPMorgan and Wells Fargo reporting huge profit drop-offs for Q1 on Tuesday, Bank of America (BofA), Citigroup and Goldman Sachs all report their earnings on Wednesday. Of the trio, it is Goldman Sachs that has weathered this year better, with its stock down 22.5% in 2020 versus 32.6% for BofA and 43.2% for Citi. The banks provide a useful window into how consumers and investors have been reacting to the current crisis, and their executives have some of the best views of the impact the pandemic is having on the US economy. As a result, aside from the headline numbers, analysts will be closely watching statements made by senior management on the state of the economy and the prospects for a recovery.
US retail sales: Today US retail sales data for March will be released, with the largest month-on-month decline on record expected. Economists are anticipating an 8% drop off in March retail sales, versus the half a percent decline from February. US consumers make up close to three quarters of the US economy, and the figures will be watched closely to see whether a pickup in online shopping has helped to counterbalance the drop off elsewhere. Non-store retail sales, the category that includes online shopping, grew 8.2% in February versus the same period last year.
Crypto corner
Bitcoin failed to break the psychological barrier of $7000, peaking at $6997.38 in the early evening before falling away to $6827.36 overnight. Higher-highs are currently still intact from the mid-March year lows, although June futures contracts are currently trading at a discount to the spot price which could be a sign of near term pessimism in the market, despite the fact the halving is in just 27 days.
Ethereum experienced a sharper rally peaking at $163 around 6pm UK time before dropping back to $156.22 overnight. This morning it is back around $160.80. Finally, XRP experienced a lesser peak yesterday to $0.1894 but is well up this morning reaching over $0.1902 at one point early on. Both Ethereum and XRP had the dubious honour of being overtaken in volume by ChainLink on April 13 as the up and coming project surged into second place behind bitcoin.
All data, figures & charts are valid as of 15/04/2020. All trading carries risk. Only risk capital you can afford to lose.
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