Stocks turned broadly weaker yesterday as investors reacted to some stinky data from Europe and the US. Overnight Asian data has also had the whiff of soft cheese that’s been left out too long. Stocks are softer once more, though most of Europe is on holiday so the focus is on London until New York opens. To find out what our wider team make of the potential ripple effect of the coronavirus crisis on banks and property and Phil Oakley's latest thoughts, listen in to our weekly Investment Hour podcast.
The S&P 500 eased back almost 1 per cent to relinquish the 61.8 per cent retracement at 2934 but closing at 2912 it finished well off the lows. Both the Dow and the S&P 500 recorded their best months since 1987 as equity markets rebounded on central bank largesse, government bailouts and the outperformance of US tech over just about anything else. The tech-heavy Nasdaq was up 19 per cent for the month and is nearly flat for the year. It’s shame we don’t really have any tech firms left, as nothing else is growing.
The FTSE 100 endured a terrible session, finishing 3.5 per cent weaker as Shell tumbled, just holding onto 5900 and the 38.2 per cent retracement of the drawdown. At Friday’s open the index shipped another 2 per cent to break under 5800 and move back to where it opened on Monday at 5,752, completing a 400-pt round trip this week. This will be a level bulls will seek to defend. RBS shares rallied 3 per cent, whilst Lloyds fell 4 per cent. RBS said profits fell 59 per cent to £288m as it set aside £800 for loan losses. But revenues were down just 1.6 per cent at £3.2bn - Lloyds reported an 11 per cent decline in revenues. Something doesn’t look right. Remind yourself of what Alex Newman made of the major banks ahead of the quarterly reporting season.
South Korean exports declined 24.3 per cent, the worst slump in 11 years. Japanese factory activity fell to its lowest since 2009. The AIG Australian PMI dropped by 17.9 points to 35.8 in April, its largest month-to-month fall in the 28 years since it began. New Zealand consumer confidence fell 21 points in April to 84.8, where it troughed in 2008. Today’s main event will be the US ISM manufacturing PMI, which is seen declining to 36.7 from 49.1 a month ago.
Donald Trump is threatening new tariffs on China in retaliation for the coronavirus – trade tensions back on the agenda won’t be terribly positive for risk appetite but for now remains something on the margins. But the US and Europe will demand China steps up – if we talk about what permanent changes are taking place or what trends have accelerated sharply, then deglobalisation has to be at the forefront.
Apple shares declined in extended trading after it reported a slowdown in revenue growth and declined to offer guidance for the June quarter. It will however continue to buy back stock and increased its share repurchase programme by $50bn. Revenues from iPhones declined 7 per cent to $29bn, but Services revenues rose 16 per cent to $13.3bn. Overall revenue growth was down to +0.5 per cent vs 9 per cent in the previous quarter.
Amazon shares also dipped after hours as it warned massive costs incurred because of Covid-19 could lead it to a first quarterly loss in 5 years. Amazon always spends big when required and is prepared to make the investment at the expense of short-term earnings per share metrics. Despite these results, both Apple and Amazon are in the camp where you think they will be thriving under the new world order. More smartphone time - yes, more home delivery – yes, more cloud servers required – yes.
Crude oil continues to find bid with front month WTI running to $20 before dropping back to $19, was last week oil's nadir? Crude prices are stabilising as OPEC+ cuts begin to take effect this month, potentially easing the supply-demand imbalance. Markets are also more confident about US states reopening for business, which will fuel demand for crude products like gasoline. Texas oil regulators don’t seem prepared to mandate production cuts, with chairman Wayne Christian against plans for 1m bpd reduction. For an alternative way to trade the oil price fluctuations, read Michael Taylor's latest column.
In FX, yesterday saw a pretty aggressive 4pm fix as we approached the month end. GBPUSD made a big-figure move and rallied through 1.25 and beyond 1.26 but turned back as it approached the Apr 14th swing high at 1.2650 and the 200-day SMA. It looked an easy fade but the euro also spiked but has held its gains, with EURUSD trading at 1.0960, having briefly dipped to 1.0830 after the ECB decision.
GBPUSD fades after hitting near-term resistance
EURUSD – clears 50-day SMA, looking to scale Apr 14th high
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Neil Wilson is chief markets analyst at Markets.com
