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European shares end with solid gains as risk on sentiment increases

  
Analysis, Global Indices
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Hopes f him him him rom Gilead news propel European shares higher.

European indices are ending the session with solid gains on hopes from the Gilead remdesivir drug,
  • German DAX, +3.0%
  • France’s CAC, +2.32%
  • UK’s FTSE 100, +2.77%
  • Spain’s Ibex, +3.24%
In the European 10 year note sector are mostly lower with the exception of Italy (their credit rating was lowered by Fitch after the close yesterday)
Hopes f him him him _rom Gilead news propel European shares higher.

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Fitch downgrades Italy to BBB-, stable outlook

  
  Analysis
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Fitch Ratings agency says the downgrade reflects the significant impact of the COVID-19 pandemic on Italy’s economy and fiscal position

  • expects Italy’s govmt debt to GDP ratio to increase this year, by around 20%
  • Fitch forecasts an 8% GDP contraction in 2020
  • says Italy’s gross general government debt to GDP ratio will increase by around 20pp this year
  • stable outlook partly reflects view that ECB’s net asset purchases will facilitate Italy’s substantial fiscal response to covid-19 pandemic
  • downward pressure on Italy’s rating could resume if government does not implement credible economic growth & fiscal strategy
  •  says recession & economic policy response to covid-19 pandemic will result in sizeable deterioration of Italy’s budget balance this year
This is a negative input for euro
Link to Fitch for more … note this:
  • In accordance with Fitch’s policies, the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.
Huh … reading between the lines on this it could have been a worse outcome for Italy?
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Note – S&P recently affirmed Italy at BBB/A-2 with an outlook negative.
And – the ECB will still accept Italy debt as collateral given their recent changes to accept debt which was eligible on April 7th.

Nasdaq leads the way to the upside today. All major indices fall for the week.

  
Analysis, US Market
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Dow posts a 3 day win streak. All 11 S&P sectors close higher

the major indices all closing higher for the day with the NASDAQ index leading the way to the upside. The Dow industrial average posted a gain for the 3rd day in a row. All 11 sectors of the S&P closed higher.

The final numbers are showing:
  • Dow, +260 points or 1.11% at 23775.27
  • S&P index +38.94 points or 1.39% at 2836.74
  • Nasdaq index +139.77 points or 1.65% at 8634.52
For the week, all 3 major indices closed lower with the NASDAQ outperforming relatively. The numbers for the week show:
  • Dow, -1.93%
  • S&P, -1.32%
  • Nasdaq close modestly lower at -0.18%.
For the week, some oversized winners included:
  • Beyond Meat +41.44% as meet distributors close operations due to coronavirus
  • Rite Aid +22.75%
  • Papa John’s, +10.52%
  • Lyft, +9.74%
  • DuPont, +9.23%
  • Chipotle, +8.23%
  • Twitter, +7.64%
  • Facebook, +6.05%
  • Schlumberger J, +5.3%
  • IBM +3.83%
  • Bristol-Myers Squibb, +2.71%
  • Box, +2.45%
  • Johnson & Johnson +1.81%
  • Home Depot, +1.35%
  • Pfizer, +1.33%
Big decliners for the week included:
  • Boeing, -16.24%
  • United Airlines -12.07%
  • Deutsche Bank, -9.02%
  • Delta Air Lines, -7.66%
  • Slack, -7.26%
  • General Dynamics, -6.5%
  • Southwest Airlines, -5.93%
  • Coca-Cola, -5.47%
  • Walt Disney, -5.16%
  • Gilead -5.16%
  • Citigroup, -5.15%
  • Wells Fargo, -5.11%
  • Lockheed Martin, -4.93%
  • American Express, -4.87%
  • Procter & Gamble, -4.8%
  • Bank of America, -4.73%
  • J.P. Morgan, -4.71%
  • Raytheon technologies, -4.06%
  • travelers, -4.05%

US stocks move higher led by the Nasdaq index

  
Analysis, US Market
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Dow lags as Boeing slumps

The US stock indices closed higher on the day led by the Nasdaq index. The S&P  and Dow closed higher as well but the gains were well behind the tech heavy Nasdaq. For the Dow, the blame fall firmly on Boeing which alone fell over 7% on the day.
The final numbers are showing:
  • S&P index rose 16.19 points or 0.58% at 2799.55
  • Nasdaq index rose 139.18 points or 1.66% at 8532.36
  • Dow rose 33.33 points or 0.14% at 23537.68

S&P cut Australia to AAA negative

  
  Analysis
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S&P cut Australia outlook to negative from stable

Rating is AAA still.
This is not wholly unexpected from S&P
AUD down a few pips on the announcement
S&P cite:
  • reflects substantial deterioration of Australia’s fiscal headroom
More:
  • large Australian budget deficits likely to be temporary
  • virus a severe economic c and fiscal shock
  • government deficit to average 7.5% of GDP in 20/21
  • annual growth to fall to 1.3% in FY 2020

Goldman Sachs analyst on downside risk for US equities

  
  Analysis
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Goldman Sachs’s chief equity strategist, David Kostin spoke Tuesday with CNBC

  • “There’s a little bit of asymmetry in terms of the downside risk toward a level in the S&P 500 of around 2,000, which is down almost 25%, and upside of around 10% to a target at the end of the year of 3,000”
Unpicking/deciphering that – he thinks lower is more likely.
More:
  • important investors not get too keen to buy
  • during the 2008 financial crisis the market took several months of violent moves up and down before ultimately putting in a lasting bottoming on March 9, 2009
  • “I would just remind you that in 2008 in the fourth quarter there were many different rallies…but the market did not bottom until March of 2009” 

JP Morgan’s Dimon sees financial stress similar to the global financial crisis ahead

  
  Analysis
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Jamie Dimon is chief executive officer of JPMorgan Chase & Co.

On the coronavirus pandemic:
  • “At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008” 
  • More specifically for his firm, JPM earnings this year will be “down meaningfully”
  • 180,000, or about 70%, of the firm’s employees are working from home
  • JPM is paying around $1,000 to those whose jobs don’t allow them to work remotely
Adds:
  • people could return to work more quickly if governments made tests widely available
  • to determine who has recovered from the disease
  • “The country was not adequately prepared for this pandemic,”

Dimon is correct on the unpreparedness. Three months of denial from the very top of the US administration that there was even a problem has cause such a tragic escalation in the numbers of lives lost.

BlackRock on ‘unprecedented policy actions to limit the coronavirus shock’

  
  Analysis
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BlackRock is the world’s largest asset manager (circa $7.4 trillion in assets under management)

Given the surging equity markets (more ion this in just a moment) the comments from their latest update might appear stale (ps. these below relate to a credit view, not equities) :
  • Unprecedented policy actions to limit the coronavirus shock and sharply lower valuations have improved the outlook for credit, in our view. 
  • Major central banks are committed to keep rates low and greatly expand their balance sheets. 
More specifically on stocks (bolding mine):
  • We previously downgraded global equities to neutral. The coronavirus outbreak is disrupting economic activity and supply chains. The outbreak also poses risks to corporate earnings, in our view. Accommodative monetary policy is a support. We now favour rebalancing back toward benchmark weights as markets fall.

S&P affirms US rating at AA+, outlook stable

  
  Analysis
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Is there a “too big to downgrade” rating?

Especially in the current global predicament
S&P ratings
  • US rating is constrained by high government debt and fiscal deficits, both are likely to worsen this year after the coronavirus shock
‘likely’ to worsen??? Nothing unlikely about it.
More:
  • expect US economic recovery in 2021, which will partly compensate for loss of output this year, then continued GDP growth afterwards
  • expects general government deficit to fal;l below 5% of GDP by 2022
  • expects the US economy to contract around 1.3% in 2020
  • recovering by 3.2% in 2021
  • 2.5% in 2022

China is to start buying oil for state reserves after sharp drop in prices – report

  
  Analysis
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Bloomberg reports, citing people with knowledge of the matter

Bloomberg reports, citing people with knowledge of the matter

The report says that China is moving forward with plans to buy up oil for its emergency reserves after the epic crash in oil prices over the past few weeks.

Adding that Beijing has asked departments to quickly begin filling tanks and options to lock in the current low prices in the market. Also noting that Beijing may use commercial space for storage as well – in addition to its state-owned reserves.
I don’t think this comes as much of a surprise as China is the biggest crude oil importer in the world, and there has been so much speculation of them doing this already. There were even reports on this as far as three weeks back as seen here at the time.
But at least with China stepping in, it may help to briefly support prices somewhat in the near-term but don’t expect this to change the grand scheme of things.
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