Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 3 Apr 2020, 8:59 AM


Wall Street Breakfast: The Stimulus Rollercoaster

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Big swings in the U.S. futures market are keeping traders on edge following the worst one-week decline for stocks since the global financial crisis. After a dramatic rise-and-fall, U.S. futures pointed to an advance of 2% for most of the night, before giving back the big gains (and even going red) just moments ago. The rally was fueled by hopes that central banks across the world will deliver interest rate cuts. Like the Fed's Jay Powell on Friday afternoon, the BOJ's Haruhiko Kuroda on Sunday promised necessary action to support markets.

Economic impact on China

Stimulus bets saw China lead gains across Asia, with the Shanghai Composite closing up 3.2%, despite the first look at the economic toll the coronavirus has taken on the country. Fresh data showed Markit/Caixin's China manufacturing PMI dropping to 40.3 vs. 51.1 in January, while the official PMI from the National Bureau of Statistics slipped to 35.7 - the lowest level on record. Gaming revenue in Macau also plunged 87.8% in February to 3.10B patacas ($387M) with casinos closed for 15 days and sparse traffic for the balance of the month.

Sub-1% yield is in sight

The 10-year Treasury yield touched a fresh record low of 1.03% over the last few hours as investors scrambled for safety. The benchmark rate, which moves inversely with prices, tumbled about 37 basis points in February alone. What else is moving? Gold raced through early 2020 to its highest level in seven years before plunging 4.6% on Friday in its sharpest drop since 2013, while oil jumped as much as 4% overnight, up from multi-year lows hit earlier on Monday.

Coronavirus updates

As coronavirus cases climb to 90,000 worldwide, the U.S. has recorded at least 89 infections, according to the CDC. Health authorities in Washington state confirmed the first and second death in the U.S. from the disease over the weekend, with cases of the virus now being reported across ten states and populous cities. The first in NYC announced on Sunday was a woman in her late 30s who recently traveled to Iran. Quarantine procedures of 14 days are in effect.

World growth on watch

Global output is expected to fall during the first three months of this year due to the coronavirus, putting the economy at risk of recession, according to fresh forecasts from the OECD. In its "best case" scenario, the global economy would grow by 2.4% during 2020 (vs. 2.9% last year), before rebounding in 2021. However, the recovery won't be immediate, and some lost output would never be recovered. "It's not like it plunges and then it recovers quickly," said Laurence Boone, the OECD's chief economist.

Coronavirus puts IPOs on ice

While Warner Music (WMGC), the world's third-largest music recording label, and shoemaker Cole Haan (CLHN) had hoped to communicate their targeted share price ranges today, those plans have been put on hold. The companies had also intended to begin formal meetings with potential IPO investors, according to Reuters, but last week's market volatility is making it difficult for underwriters to find steady demand for shares. Some $65B in stock was sold through U.S. IPOs in 2019, thanks to high-profile listings like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT).

Replacing Dorsey?

Keep an eye on Twitter shares, which are soaring 8.7% premarket, after Elliott Management took a sizable stake in the company to push for notable changes. Among the issues for activist investor Paul Singer is Jack Dorsey's dual CEO roles at Twitter (NYSE:TWTR) and Square (NYSE:SQ), as well as his desire to move to Africa for six months. Dorsey is the only CEO of two public companies with market valuations of more than $5B.

GE bear no longer

"We were wrong," JPMorgan analyst Stephen Tusa admits, raising his call (made in April 2019) on General Electric (NYSE:GE) to Neutral from Underweight amid a six-month rally that has added more than 30% to the company's market value. He also lifted his price target by $3, to $8 per share, a notable change for the longtime GE bear. "The spread between our free cash-flow estimate and consensus is narrower after a better-than-expected 2019, helped by less de-risking at GE Capital Services," Tusa wrote to clients. "With zero sells and multiple upgrades since CEO Culp took over, we see little debate about sentiment." GE +1.4% premarket.

Nokia CEO quits after setbacks

Struggling to gain a foothold in the 5G market, Nokia (NYSE:NOK) CEO Rajeev Suri is stepping down after just over half a decade at the helm of the Finnish network firm. He'll be replaced by Pekka Lundmark, the outgoing CEO of Fortum Oyj, amid reports that Nokia is exploring strategic options. In October, Nokia suspended its dividend and cut its earnings guidance, triggering a 23% decline for its share price in a single day, while over the past 12 months, the company has lost about a third of its market value.

Capitalizing on 5G

Walmart (NYSE:WMT) is looking to outfit its stores with antennas and other equipment to create next-generation networks, and is talking with Verizon (NYSE:VZ) about its 5G technology. The plan would initially bring 5G wireless service to a pair of locations this year to power new Walmart digital health services the retailer aims to start offering to shoppers and employees, WSJ reports. It would also provide faster wireless connections for other store operations and the surrounding community.

Today's Markets

In Asia, Japan +1%. Hong Kong +0.6%. China +3.2%. India -0.4%.
In Europe, at midday, London -0.5%. Paris -1.4%. Frankfurt -1.5%.
Futures at 6:20, Dow -0.3%. S&P -0.5%. Nasdaq -0.1%. Crude +1.4% to $45.39. Gold +2.5% to $1605.60. Bitcoin +1.5% to $8752.
Ten-year Treasury Yield -6 bps to 1.06%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending


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