Wall Street Breakfast

Author: bmotrader   |   Latest post: Tue, 2 Jun 2020, 9:57 AM


Wall Street Breakfast: Easing Of Lockdown Restrictions

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News of easing lockdowns saw stocks go green across the globe overnight, though oil tumbled under $15/bbl with storage running short. Spanish children ventured outside for the first time in weeks, while hard-hit Italy and New York laid out a timetable for reopening their economies. Helping boost sentiment was more stimulus from the BOJ (see below), ahead of meetings this week at the Federal Reserve and ECB, with the latter likely to beef up asset purchases. It's also a busy week for earnings: Around 173 companies in the S&P 500 will report quarterly results, as well as 12 Dow Jones Industrial Average components.

Unlimited bond buying

Further boosting monetary stimulus, the BOJ said it will "purchase a necessary amount of Japanese government bonds," echoing similar language used by the U.S. Federal Reserve last month. The step is largely symbolic, however, as the BOJ had been purchasing few JGBs recently and could easily expand its purchases without lifting the previous ¥80T upper limit. The central bank will also triple its holdings of corporate debt to ¥20T ($186B) - easing fundraising for companies hit by the coronavirus - and forecast a sharp contraction in GDP this fiscal year.

Public companies took more than thought from PPP pantry

Last week, Morgan Stanley analysts found that public companies had received $243.4M from the original Paycheck Protection Program, but that figure has now ballooned as additional firms file disclosures. More than 200 public companies applied for at least $854.7M, including $76M for Ashford Hospitality Trust (NYSE:AHT), which applied via 117 separate loans, as well as $34M for Braemar Hotels & Resorts (NYSE:BHR). Another $310B in fresh funding has been approved for the PPP program, and demand is expected to be high when it reopens today.

Big economic rebound in Q3?

"You're going to see the economy really bounce back in July, August, September," Treasury Secretary Steven Mnuchin said on Fox News Sunday. "You're seeing trillions of dollars that's making its way into the economy, and I think this is going to have a significant impact," he added. "This is not the financial crisis [of 2008]." The position resembles the forecast issued Friday by the Congressional Budget Office, which expects a sharp contraction in this quarter and then growth at an annual rate of 17% in the second half of 2020.

Next oil-related bankruptcy

In a Chapter 11 filing, Diamond Offshore Drilling (NYSE:DO) said operating conditions had worsened "precipitously in recent months" amid a plunge in oil prices and the coronavirus pandemic. Earlier this month, the rig contractor, controlled by Loews (NYSE:L), had skipped an interest payment on senior debt, beginning a 30-day window as to either make good or default. Diamond's total debt load is about $2B, and the paper has recently been trading hands at pennies on the dollar.

Big week ahead for Boeing

The U.S. planemaker is set to hold its annual meeting, report Q1 results and face the application deadline for a multibillion dollar aid package from the federal government. Reports suggest Boeing (NYSE:BA) will focus on building two financial bridges to the future: Cutting near-term losses brought on by the coronavirus (don't forget the 737 MAX crisis) and a longer-term plan to deal with fewer orders for commercial jets. New targets for plane production could see as much as 10% of the company's 160,000 employees cut from the payroll, while CEO Dave Calhoun has previously indicated Boeing may pass on government loans if it requires the U.S. Treasury to take a stake in the company.
Go deeper: Boeing-Embraer deal hits the skids.

Life preserver from Germany

Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) are securing some help from a debt holiday initiative by Germany's export credit agency, Bloomberg reports. The companies were left out of the Trump administration's coronavirus rescue package because they are not incorporated in the U.S. in order to avoid U.S. income taxes and minimum wage requirements. Norwegian said the 12-month holiday - which applies to debt used to finance ships - will provide about $386M in additional liquidity through April 2021, while Royal Caribbean will add $250M through debt holiday agreements.

Buzz builds over Beyond Meat

The hot streak for Beyond Meat (NASDAQ:BYND) may continue - after shares ran up a 40% gain over the last week - as more meat plants shut down due to COVID-19 outbreaks. "Even if there aren't shortages on a national scale, the timing of the closures could lead to a reduced hog herd this year," observes Oppenheimer analyst Rupesh Parikh. Berenberg's Donald McLee calls the development the perfect storm after the news of Beyond Meat's deal with Starbucks (NASDAQ:SBUX) in China and its expansion to the Far East.

Paying a visit to Luckin Coffee

More than a dozen officers from State Administration for Market Regulation descended on Luckin Coffee's (NASDAQ:LK) headquarters in Xiamen on Sunday, marking the most significant action so far by Chinese authorities against the upstart coffee chain. Since Luckin is listed in the U.S., China's securities regulator has limited supervisory authority compared to the SAMR, which has power over business licenses and antitrust reviews. Luckin's American depositary shares have been suspended from trading since April 7 after revealing that much of its 2019 sales were fabricated.

Contact tracing

Reversing course over the weekend, the German government is now backing a coronavirus-tracing app using technology supported by Apple (NASDAQ:AAPL) and Google (GOOG, GOOGL), ditching a home-grown alternative that had come under fire over privacy concerns. In recent weeks, a battle has raged over apps being fast-tracked by governments that use Bluetooth-based smartphone proximity as a basis for infection risk. Governments can either hold personal data on a central server (centralized approach) or keep logs on individual devices (decentralized approach).

Today's Markets

In Asia, Japan +2.7%. Hong Kong +1.9%. China +0.3%. India +1.5%.
In Europe, at midday, London +1.7%. Paris +1.8%. Frankfurt +2.4%.
Futures at 6:20, Dow +1.1%. S&P +1%. Nasdaq +1.3%. Crude -15.8% to $14.27. Gold +0.3% to $1740.30. Bitcoin +1.9% to $7722.
Ten-year Treasury Yield +3 bps to 0.63%

Today's Economic Calendar
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $43B, 5-Year Note Auction

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