Market Quick Take - April 30, 2020

What is our trading focus?

• US500.I (S&P 500 Index) and USNAS100.I (Nasdaq 100 Index) – These major US stock indices have torn through local resistance and the Nasdaq is only some 7% from all-time highs, with no resistance lines of note ahead of those highs, while the S&P 500 faces the last major resistance levels ahead of the top in the form of the 200-day moving average and the last major Fibonacci retracement lines a bit higher still. Better than expected earnings with the market especially taking note of earnings from Facebook, Microsoft and Tesla. Major US earnings reports continue today with Apple and Amazon on tap (see below).
• FB:xnys (Facebook) – Facebook shares traded up 10.5% in after-market trading as Q1 numbers were in line with estimates and comments during the conference call that advertiser activity had stabilised in April from the significant drop in March.
• MSFT:xnas (Microsoft) – the greatest monopoly of all-time delivered again with strong results across all business segments. The company said that only smaller companies have put off one-off purchases and else no impact from COVID-19 is visible at this point.
• Tesla (TSLA:xnas) – Tesla delivered Q1 revenue numbers that were better than expected and reported a positive EPS of $1.24 compared to a loss of $2.90 a year ago. The company talked very little about the impact from COVID-19 instead boasting about its investments and aim to have industry leading operating margins. Tesla also said that it expects the Model Y to be the best-selling car ever for the company. On the negative side the free cash flow went back into negative losing $895mn in the quarter compared to a gain of $1.01bn in Q4.
• Gilead Sciences (GILD:xnas): the biotechnology company announces that its drug Remdesivir has met its primary endpoint in trial for treating COVID-19 saying it leads to 31% faster recovery time compared to the control group. FDA may make an emergency authorization by Wednesday next week, and Gilead’s CEO said that the company had 50,000 courses ready to ship to patients.
• EURJPY – again, while yesterday’s market backdrop could not have been less supportive for a traditional “safe haven” currency like the JPY, the EURJPY pair again settled lower and remained below the long term support area broken around 116.00-25. That level remains key going into today’s ECB meeting if that meeting fails to produce an indication that the ECB will move more directly to address different funding costs across the EMU.
• AUDUSD – the AUDUSD rally continued yesterday and is a proxy for risk appetite in the G10 currencies, with the next major resistance point up at the major lows established back in late 2019 around 0.6675. Hopes for a global recovery and recent Chinese stimulus have offered additional support for the rally, but the drumbeat of noise non potential bad blood brewing between the US and China could slow the progress of this rally soon.
• 10YBTPJun20 – the Italian June, 10-year sovereign bond (BTP) future: the ECB is unlikely to expand its purchase programme today, but we are watching closely for indications of how aggressively it is willing to tilt its PEPP programme purchases in favour of peripheral debt, as the ECB is the critical support for propping up funding of peripheral governments running enormous deficits to deal with the Covid19 crisis.
• OILUSJUL20 (WTI) and OILUKJUN20: Crude oil is tough to differentiate from the broader recovery across risk assets, as prices rallied a further two dollars, or over 10%, overnight in the wake of yesterday’s almost 10% advance, with some supportive news of a jump in demand and a draw on US weekly gasoline supplies. US output my fall by 2 million barrels per day in May, and Russia said that it would reduce output by about 20%, with Norway joining in announcing its own reductions. Still, concerns for storage filling in the US and globally linger.

What is going on?

Facebook and Gilead news yesterday with online advertising activity stabilizing in April and Gilead study showing positive impact from treating COVID-19 with Remdesivir were the two things that powered equity sentiment in equity futures after the market close.

The FOMC statement for April, released late yesterday, pointed to Fed concerns that the economy won’t snap back immediately, as the ongoing crisis “poses considerable risks to the economic outlook over the medium term”. That medium term language suggests that the Fed is concerned that the recovery will not be v-shaped and will remain in an easy stance for a long period.

US GDP dropped at a -4.7% annualized clip in Q1 – arguably a somewhat remarkably negative number as the widespread shutdowns were only implemented over the first couple of weeks of March and a surge in hoarding demand for supplies would have driven some consumption levels higher.

What we are watching next?

Apple and Amazon earnings are expected to be released after the close tonight with consensus expecting Apple to see revenue down 7% y/y and EPS down 9% y/y with products expected to be weak while their services segment is expected to have performed strongly. Consensus is looking for Amazon to see revenue up 24% y/y in Q1 and EPS up 28% y/y as the e-commerce and cloud computing giant benefitted from work-from-home policies and lockdowns. This is the last chance for bears to get their catalyst on the downside. If earnings from Apple and Amazon are strong sentiment could be bolstered even more.

ECB meeting few are expecting any expansion in the ECB purchase amounts, as the central bank has only purchases a fraction of the EUR 750 billion it plans to purchase in government bonds, though an expansion of that programme (or suggestion that this ceiling could be lifted down the road) may be hinted at in today’s meeting. More interesting is whether the ECB plans to move more aggressively to reduce sovereign bond yield spreads across the EU, a move that quickly gets the ECB into a political hot seat if it goes all in. Such a move could support the euro, and the lack thereof could see further pressure on the single currency.

US weekly jobless claims – as portions of the US open up from shutdowns, this is the high-frequency data point best suited to indicate the pace of the economic recovery after it peaked quickly in the wake of the shutdowns announced back in March. Expectations for today’s figure are 3.5M, which would still represent a level of more than five times worse than the worst single reading in the history of the data series before this crisis started.

Economic Calendar Highlights (times GMT)

• 0855 – Germany Apr. Unemployment Rate/Change -  the market looking for the largest jump in unemployment – at +75k,  for a single month since the financial crisis of ‘08-09 -
• 0900 – Euro Zone Q1 GDP estimate – expectations for a -3.8% QoQ reading, which is nearly a -15% annualized clip.
• 1145 – ECB Meeting with press conference to follow 1230 – watching mostly for all things periphery-related in press conference
• 1230 – US Weekly Initial Jobless Claims – as noted above, expected to drop again, but need to continue dropping aggressively to suggest any semblance of normalcy returning.