Thursday, May 7, 2020

Asia Times: Wall Street stocks fall as private unemployment figures renews concern for the US economy

Tags
  • China
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil
  • Bank of England

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Market Recap: Wall Street stocks fall as private unemployment figures renews concern for the US economy

US equities fell on Wednesday, ending its two-day win streak as concerns for the US economy and escalating tension between the US and China started to resurface. Unemployment rose to its highest ever level in the private sector in April, while some companies managed to beat expectations in their quarterly earnings report. BlackRock CEO Larry Fink's downbeat comments to a private audience likely also dampened investor sentiment. Bloomberg reported that Fink said bankers told him that they expected a wave of bankruptcies to hit the US economy, and that he expected a hike in corporate taxes to about 28% or 29% in the next year. The report cited its source as a person with knowledge of the remarks.

Among S&P500 sectors, the technology sector managed to keep the S&P500 from losing more than 1% on the day, advancing 0.71%. But the gains were unable to outweigh the downturn in the utilities, energy and financials sectors, each losing more than 2% on Wednesday.

In company news, Uber announced that the ride-hailing company will be cutting about 14% of its workforce, or roughly 3,700 jobs. The news of its layoffs come on the heels of rival Lyft's announcement that it would be cutting 17% of its workforce last week. But Lyft still managed to beat expectations for its quarterly earnings, inching closer to profitability while also managing to grow its ride hailing business for the quarter. But pressure from the Covid-19 pandemic was still present in its quarterly report. Adjusted revenue only grew 23% YoY for the quarter, in comparison to its usual growth rates upwards of 50% per quarter. Lyft's shares ended 2.10% lower on Wednesday after California sued the company for allegedly violating a labour law amid the Covid-19 pandemic, but surged more than 16% in after-hours trading. While Lyft's earnings were better-than-expected, it was likely due to lockdowns in the US and Canada (in which Lyft only operates in) only starting towards the end of March. Q2's earnings should reflect much more impact of the pandemic. Uber will report earnings next, but the company may be in a better position as compared to Lyft since it is more diversified in its business segments (food deliveries could potentially benefit from the lockdown measures).

Peloton also beat analysts’ estimates for its quarterly earnings, even prompting the company to raise its forecast for the year. The number of paid digital subscribers surged by 64% as the Covid-19 pandemic sharply increased the number of people that were forced to keep exercise indoors. But details from the company tilted its outlook towards the downside. While work-from-home environments will probably continue in the short-to-medium-term across the globe, lockdowns will eventually be eased, although likely in incremental phases. The company noted that 95% of its connected fitness subscribers were on month-to-month payment plans, which implies that it may not be able to sustain the current level of subscribers, much less the growth rates. Peloton is also not expecting to "materially" improve its delivery times for its products, which are already on a backlog. This will likely remain true, as a result of the global supply chain disruption. This also means that revenue from both its bikes and new treadmills could face some headwinds over the next quarter. Costs should also start to run up as a result of the pandemic. The company's shares spiked 11.10% in after-hours trading.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -0.91% -218.45 23,664.64
S&P500 -0.70% -20.02 2,848.42
Nasdaq +0.51% +45.27 8,854.39
*Source: Bloomberg

The dollar gained against every other major currency except the Japanese yen amid increased risk aversion as US-China tensions continue to escalate. US Secretary of State Mike Pompeo's speech during a State Department press conference on Wednesday signalled that US-China tensions were continuing to escalate. The US Treasury's announcement that it would be boosting its long-term refunding debt sales to a record US$96 billion likely also increased demand for the dollar as risk aversion increased. The ADP’s private employment report probably also contributed to reduced risk appetite. Private payrolls fell 20.2 million in April from March, while March’s decrease was revised down from 27,000 to 149,000. The services sector contributed the most to the drop for April, with employment in the sector declining by 16 million. Large businesses dropped 9 million jobs, while smaller employers cut 6 million jobs. Employment in medium-sized businesses fell by 5.3 million.

Traders and economists don't expect a rate cut from the Bank of England (BoE) at its decision on monetary policy later today. But there may be room for an expansion of its asset purchase program or a signal for one. The rate at which the central bank is making purchases on bonds imply that the additional 200 billion pounds in asset purchases will run out roughly in July. This implies that a potential increase could be either at today's meeting or in June's meeting. British Prime Minister Boris Johnson signalling that the UK government will be looking to announce the easing of its lockdown measure on Monday will also imply that the central bank will probably keep an expansion to its asset purchase program to its next meeting. As a result, sterling will likely be closely watched by traders today.

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Safe haven assets were mixed on Wednesday. Gold lost steam, dropping more than 1% to trade back below 1,700. The Japanese yen jumped against the dollar while US Treasuries were mixed. Shorter-term treasuries rose while longer-term ones fell, likely as a result of the announcement from the US Treasury. Benchmark 10-year yields were 4.1bps higher at 0.70% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.18% -20.21 1,685.71
Silver -0.74% -0.11 14.82
JPY +0.42% +0.45 106.12
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.0 0.18%
10-Year +4.1 0.70%
30-Year +6.2 1.39%
*Source: Bloomberg

Oil suffered a snapback on Wednesday, but managed to stay much higher above previous lows. Brent and WTI fell 4.04% and 2.32% respectively, likely as prices normalise after Tuesday's spike in oil prices and as storage spaces in the US continues to increase (although at a much slower rate of 4.59 million for the week ending May 1st vs 8.99 million in the prior week), renewing some concern for the oversupply in oil markets. There may be some upside for oil prices today, as data start to show some rebound in demand for motor gasoline. Germany further easing its lockdown restrictions should also provide some upside, although the German government did implement an "emergency brake" that can restart restrictions in the country should the number of infections spike again. Both Brent and WTI were trading less than 0.5% lower as of 8.28am (GMT +8) on Thursday.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -4.04% -1.25 29.72
WTI Crude -2.32% -0.57 23.99
*Source: Bloomberg

Asia will likely see more downside today, tracking losses in the US. The Nikkei reopens today, but the stronger yen will probably put pressure on Japanese stocks. Both the KOSPI and ASX200 were trading lower as of 8.41am (GMT +8) as well. Singapore's stock exchange will remain closed for a bank holiday. Futures tracking major indices in the US were trading only slightly higher, rising less than 0.50% as of 8.31am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -0.32% -62.94 19,554.01 8:21:20 AM
KOSPI Index -0.18% -3.54 1,925.22 8:41:20 AM
ASX200 Index -0.35% -18.71 5,365.90 8:41:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.16% +38.00 23,552.00 8:31:24 AM
S&P500 Futures +0.20% +5.75 2,839.00 8:31:29 AM
Nasdaq Futures +0.34% +30.50 8,983.00 8:31:29 AM
*Source: Bloomberg

Companies reporting earnings for the day ahead include (all timings in GMT +8 where available):

  • JetBlue Airways (10pm)
  • Booking Holdings (4am +1)
  • Uber (4.30am +1)
  • Dropbox (5am +1)

Economic releases for the day ahead include (all timings in GMT +8):

  • European Commission Spring Economic Growth Forecast
  • China Apr Services PMI (Caixin) (9.45am)
  • BoE Monetary Policy Decision/Statement (2pm)
  • Germany Mar Industrial Production (2pm)
  • BoE Governor Andrew Bailey's Speech on Monetary Policy (2.30pm)
  • US May 1st Initial Jobless Claims (8.30pm)