Daily Markets: Concerns Remain Despite Today's Feel-Good Market Rebound

Today’s Big Picture

Starting off the first full week of October trading, Asian equities finished trading today on an upbeat note with most major markets rising more than 1%; China’s stock market was closed for a holiday today. European markets shrugged off mixed economic data today and by mid-day trading were higher across the board, while U.S. equity futures point to a rebound from Friday’s market sell-off when those markets open later this morning.

Fueling the “feel good” mood for global equities are reports that the U.S. is making progress toward another coronavirus relief bill and easing fears surrounding President Trump’s health. Despite these positives, we are likely to see renewed concerns over the speed of the global economy amid a continued resurgence in the coronavirus and Brexit-related questions remain. It was announced that Paris and its surrounding suburbs will be put under “maximum alert” today as coronavirus cases surge in the city. Yesterday, New York City Mayor Bill De Blasio said Sunday that schools and non-essential businesses in parts of Brooklyn and Queens will be closed temporarily because of a recent spike in coronavirus cases.

And on the Brexit front, over the weekend, UK Prime Minister Boris Johnson met with European Commission President Ursula von der Leyen and the two agreed that while progress has been made in talks between the EU and UK, "significant gaps" remain. As a result, additional rounds of negotiations are coming even though both sides are calling on the other to compromise.

Data Download

International Economy

The Final September reading for the Jibun Bank Japan Composite PMI came in at 46.6 vs. the expected 45.5 and the August reading of 45.2. Contributing to that upside surprise the Final September reading for the Jibun Bank Japan Services PMI rose to 46.9 from 45.0 the prior month and the expected 45.5.

In the Eurozone, the Final September IHS Markit Composite PMI inched higher to 50.4 from August’s 50.1 but missed the consensus forecast of 51.9. Contributing to that weaker than expected MoM performance, despite a modest MoM improvement, at 48 the Final Markit Service PMI reading for September remained in contraction territory as overall new business fell for a second straight month. Here are some of the key inputs driving those figures:

• Spain: September Markit Service PMI contracted to 42.4 from 47.7 in August, well below the expected 446.3
• Italy: September Markit/ADACI Service PMI came in better than expected at 48.8 vs. the 47.1 reading in August and the 46.6 consensus
• France: The Final September reading for the Markit Composite PMI was unchanged MoM at 48.5, matching the expected reading for the month, but well below the 51.6 reading for August as the Final September Markit Services PMI fell to 47.5 from 51.5 in August
• Germany: The Final September reading for the Markit Composite PMI came in 54.7, up MoM from August’s 54.4 and ahead of the expected 53.7. Despite that performance, the Final September Market Services PMI fell to 50.6 from 52.5 in August
• Great Britain: The Final September Markit/CIPS Composite PMI slipped to 56.5 vs. the August figure of 59.1 but bested the 55.1 consensus forecast for the month. The Final September Markit/CIPS UK Service PMI dropped to 56.1 from 58.8 in August

Retail Sales in the Eurozone rose 3.7% YoY in August (+4.4% MoM), the most since November 2017, and above market expectations for 2.2%.

Domestic Economy

Later this morning we will get the September reports for the IHS Markit Non-Manufacturing Business Activity Index and the ISM Non-Manufacturing Index. This afternoon, we can expect speeches from Federal Reserve Bank of Chicago President Charles Evans, Atlanta Fed Chief Raphael Bostic, and the Richmond Fed President Thomas Barkin.

Markets

Despite the tumultuous trading last Friday following the news that President Trump tested positive for the coronavirus and the September Employment Report was weaker than expected, last week both the S&P 500 and Dow Jones Industrial Average snapped four-week losing streaks. The Nasdaq Composite performed comparably with a 1.5% gain, but the real winner last week was the small-cap heavy Russell 2000 that rose 4.4%.

Ten of the 11 S&P 500 sectors finished in positive territory last week, led by real estate (+4.9%), financials (+3.3%), utilities (+3.3%), and consumer discretionary (+2.5%) sectors. The only sector to contract last week was the energy sector, led by the 8% decline in crude prices that reflect renewed economic demand concerns.

Stocks to Watch

Bristol Myers Squibb (BMY) is accelerating the expansion of its cardiovascular portfolio by acquiring MyoKardia (MYOK) for $225 per share in cash. Bristol Myers expects to finance the acquisition, which is expected to close before year-end, with a combination of cash and debt. The transaction is expected to be minimally dilutive to the company’s non-GAAP EPS in 2021 and 2022 and accretive beginning in 2023.

Power semiconductor company Alpha and Omega (AOSL) issued upside guidance for its September quarter. The company now sees revenue for the quarter in the range of $148-152 million vs. the $136 million consensus and its prior guidance of $134-138 million. Alpha and Omega “expects bottom-line results to significantly exceed the current analyst consensus estimates” of $0.06.

In a regulatory filing, global automotive supplier Visteon (VC) shared its board had approved a restructuring plan that will reduce headcount at various locations to improve efficiency and rationalize its footprint.

Microsoft (MSFT) announced plans to build three data centers in greater Athens, Greece, providing an investment of up to $1 billion. Microsoft currently has data centers in 26 countries, including seven in the European Union.

Caterpillar (CAT) has agreed to acquire the Oil & Gas Division of the Weir Group PLC, a Scotland-based global engineering business, for $405 million. Weir Oil & Gas produces a full line of pumps, flow iron, consumable parts, wellhead and pressure control products.

Electric Vehicle (EV) company Xpeng Inc. (XPEV) reported 3Q 2020 deliveries of 8,578 Smart EVs, consisting of 6,210 P7s and 2,368 G3s, an increase of 266% YoY.

Coca-Cola (KO) will discontinue its Zico coconut water brand and is considering doing the same for its less-popular versions of Coke and Diet Coke as it reassesses product offerings as part of its announced plan to cut its number of fully or partially owned branded beverages.

The New York Post reports Navistar (NAV) is willing to sell it to a Volkswagen (VLKAY) subsidiary for around $50 a share, valuing the maker of International semi-trucks at a whopping $5 billion.

Bloomberg reports AirAsia Group Bhd (AIRASIA:MK) will cease operations in Japan immediately as it tries to reduce cash burn amid the coronavirus outbreak that’s wiped out travel demand globally.

Airbus (EADSF) Chief Operating officer Michael Schoellhorn said in an interview with Handelsblatt the company plans to eliminate at minimum 15,000 jobs due to rising coronavirus infections and renewed travel restrictions.

United Airlines (UAL) will resume nonstop service between San Francisco and Shanghai.

Sorrento Therapeutics (SRNE) will host an R&D Day conference call and simultaneous webcast on October 13th that will focus on its comprehensive multi-modal approach to COVID-19.

Shares of Cineworld Group (CINE) came under serious pressure following the company sharing it would suspend operations at all of its 536 Regal theaters in the U.S. and its 127 Cineworld and Picturehouse theatres in the UK.

Before U.S. equity markets open, SailPoint Technologies (SAIL) will replace Sally Beauty (SBH) in the S&P MidCap 400, and Sally Beauty Holdings will replace Oasis Petroleum (OAS) in the S&P SmallCap 600.

After today’s market close, there are no expected quarterly earnings reports to be had. Investors looking to prepare themselves for a sea of such reports to be had in the coming weeks should visit Nasdaq’s earnings calendar page.

On the Horizon

• • October 6: Trade Balance and JOLTS Job Openings
  • October 7: MBA Mortgage Applications, Consumer Credit, FOMC Meeting Minutes
  • October 8: Initial Jobless Claims, Bloomberg Comfort
  • October 9: Wholesale Inventories, Wholesale Trade Sales
  • October 13: NFIB Small Business, CPI, Real Hourly Earnings, Budget Statement
  • October 13-14: Amazon’s (AMZN) 2020 Prime Day event
  • October 14: MBA Mortgage Applications, PPI
  • October 15: Initial Jobless Claims, Bloomberg Comfort, Empire Manufacturing, Import/Export Prices, Philly Fed Outlook
  • October 16: Options Expiration Day, Retail Sales, Industrial Production, Business Inventories, University of Michigan Consumer Sentiment, TIC Flows
  • October 19: Home Builder Sentiment
  • October 20: Building Permits and Housing Starts
  • October 21: MBA Mortgage Applications, Fed Beige Book
  • October 22: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Manufacturing
  • October 23: Preliminary Markit PMIs
  • October 26: Chicago Fed Activity, New Homes Sales, Dallas Fed Manufacturing Activity
  • October 27: Durable/Capital Goods, FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
  • October 28: MBA Mortgage Applications, Wholesale Inventories, Retail Inventories
  • October 28: Facebook (FB), Google (GOOGL), and Twitter (TWTR) testify before the Senate Commerce Committee
  • October 29: Initial Jobless Claims, Bloomberg Comfort, GDP, Personal Consumption, Pending Home Sales
  • October 30: Personal Income, Personal Spending, PCE Deflator, Employment Cost, MNI Chicago PMI, University of Michigan
  • October 31: Boo!

Thought for the Day

“You have to trust in something—your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.” ~ Steve Jobs

Disclosures

• Microsoft (MSFT) is a constituent in Tematica Research's Thematic Dividend All-Stars Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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