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Market Outlook update: Markets jump on Gilead news

The FTSE 100 extended gains to take out 6060
April 29, 2020

European stocks added to gains and US futures extended higher after a report indicated positive results from Gilead’s drug trials for treating Covid-19.  

Gilead said it was aware of positive data emerging from the National Institute of Allergy and Infectious Diseases’ (NIAID) study of its antiviral drug remdesivir for the treatment of Covid-19.

Gilead will share additional data on its own trials in due course, stating in a press release: "This study will provide information on whether a shorter, 5-day duration of therapy may have similar efficacy and safety as the 10-day treatment course evaluated in the NIAID trial and other ongoing trials. Gilead expects data at the end of May from the second SIMPLE study evaluating the 5- and 10-day dosing durations of remdesivir in patients with moderate COVID-19 disease." 

This is undoubtedly positive for risk – the closer you get to treatment or a vaccine the quicker we reopen the economy and the lower the risk of a second, third wave of outbreaks. Rumours of positive results from Gilead a week ago helped lift spirits and this is yet more encouraging news. We are also hearing that there will be a press conference later today with Dr Fauci on the NIAID results, which may offer further details for markets. 

The FTSE 100 extended gains to take out 6060, while the DAX moved aggressively back to with touching distance of 11,000. The S&P 500 headed to open up at 2920, with the Dow seen up +400 points at the open around 24,540. 

Meanwhile, after some delay and an initial misprint we learned US GDP contracted 4.8 per cent in the first quarter. The usual caveats pertain – it's backward-looking data and the worst of the damage will be done in Q2, but nonetheless it was worse than the -4 per cent expected.  

 

09:00 Barclays shares pop

Barclays CEO Jes Staley reckons that after Covid-19 the idea of sticking thousands of people in a building may be a thing of the past. I heartily agree. Working from home is clearly working rather well. Also, banks are no doubt looking at this and thinking they can cut costs by closing offices, call centres and branches. Nevertheless, it highlights how bosses and government have a very hard task in exiting lockdown. Moreover, what about the Pret or the pub that depends on lunch trade from the City workers filling up these offices every day? The impact on the economy will be permanent.

Shares in Barclays popped over 5 per cent despite the lender taking a £2.1bn credit impairment charge, five times the level of a year before. Like its US peers, trading revenues soared by 77 per cent but this offset may be a one-off for banks as volatility returns to more normal levels. Shares were due a rally - they’ve been beaten down so much and haven’t really participated in the upturn. Investors may need to wait for dividends but UK banks could be in much better shape their share prices indicate.

 

SPX faces big hurdle with Fed, GDP ahead

The S&P 500 failed a major test yesterday as bulls stumbled amidst a blitz of earnings releases and doubts about oil prices. The broad index rallied on the open to trade above 2900 but closed lower and crucially below the key 2885 resistance at 2,863, forming a dark cloud cover bearish signal. 

Futures though are higher again today, but we will need to see these levels broken decisively on a close before we consider a push to the 61.8 per cent retracement of the drawdown at 2934. For that we will look to earnings and the US advanced GDP print – seen at -4 per cent - but more importantly the messaging from the Fed today will be crucial for sentiment in equity markets. 

Asian markets were broadly firmer overnight with traders expecting the Fed to make clear it will not remove any accommodation until the threat from Covid-19 has passed. 

European indices opened strongly, building a very solid session on Tuesday that saw the FTSE 100 rally almost 2 per cent and close above the Apr 14th swing high, but then we saw weakness creep in after half an hour’s trading outside of the UK market, which looks pretty solid as it taps on 6,000.  

Italian bonds have softened after Fitch cut the country’s debt to one notch above junk. This unscheduled move followed S&P affirming Italy’s status but with a negative outlook. The yield on Italian 10-year BTPs spiked to 1.83 per cent, the highest since Friday, and it just causes a little added worry for the ECB ahead of its meeting tomorrow. BTP-Bund spreads widened. 

Alphabet dealt with a sharp decline in ad revenue growth in the first quarter as a result of the Covid-19 outbreak and lockdown measures that are stifling consumer spending, but management pointed to a rebound in April and outline spending cuts that sent shares up 8 per cent after hours.  

The fact that Alphabet sees ‘some signs users are returning to normal behaviour’ does not in itself mean the global economy is anywhere near to normal. Alphabet is one of the best placed companies to grow out of the crisis and should benefit from consumers increasing screen time in lockdown and no doubt growing digital ad spend as economies recover in the latter part of 2020 and through 2021. Structural shifts boosting digital ad growth that Covid-19 is accelerating will also be factor.  Facebook and Microsoft report today. 

Elsewhere, front month WTI bounced off the lows after testing $10 to move up through $14 by the European session open. API data showed inventories rising almost 10m barrels in the week to Apr 24th, but this was lower than estimates. As ever we are looking at the EIA figures with more interest. A slowing in inventory builds from the +15M we’ve seen in the last three weeks can be expected as we reach tank tops at Cushing. Expect volatility in the front month WTI to be very high until expiry.

 

Charts of the day

S&P 500 looks to clear key resistance again, still worried about rolling over 

FTSE 100 looks to breakout of recent range, taking out the horizontal resistance and looking to breach 6,000 but first it’s got the 50-SMA to deal with. 

 

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Neil Wilson is chief markets analyst at Markets.com