Daily Markets: U.S.-China Tensions Are Back

Today’s Big Picture

Equities Asia closed mostly lower save for China’s Shanghai Index which closed the day 0.4% higher, shrugging off reports that the U.S. ordered China to close its diplomatic consulate in Houston as part of the need to protect American intellectual property and private data. The closure order came on the heels of the U.S. government accusing two hackers in China of targeting U.S. firms involved in coronavirus research. According to reports, smoke was seen from a courtyard inside the consulate as employees dumped what appeared to be documents into flaming barrels. China condemned the order and threatened retaliation. Other reports suggest the Trump administration is considering a ban on travel to the U.S. by members of the Communist Party and their families, a move that would affect 270 million people.

All of the above points to fresh and escalating tensions between the U.S. and China that have European equities down across the board today. U.S. futures are mixed with the Dow, S&P 500, and the Russell pointing to a weaker open. By comparison, Nasdaq futures point to a modestly positive open. Odds are there will be further developments to watch on the U.S.-China front just as the June quarter earnings season heats up further today. Investors will also want to keep tabs on a unified coronavirus budget plan that is winding its way through Washington.

Data Download

Coronavirus

There are now over 15 million confirmed coronavirus cases around the world with nearly 620,000 lives lost to Covid-19. The U.S. has over 4 million cases and 145,000 have died from COVID-19. Brazil, the second-most affected nation, is up to 2.2 million cases and India is up to 1.2 million. The 7-day rolling average of daily new cases in the U.S. has risen from 21,300 on June 9 to 68,200 on July 20. The 7-day average of daily new deaths has increased from a low of 516 on July 5 to 802 on July 20, a 55.4% increase in 15 days.

According to the COVID Tracking Project, 1,029 people died from COVID-19 Tuesday, the biggest 1-day increase since May 29. Florida, Arizona, and Texas reported their biggest 1-day increases in fatalities. California now has more than 400,000 confirmed cases, the second state to pass that milestone after New York, and is likely to overtake New York later this week. Florida will likely surpass the 400,000-case mark by the end of this week as well. For comparison, Italy, the initial epicenter of the outbreak in Europe, is a nation of over 60,000,000 and currently has less than 250,000 cases and a 7-day rolling average of just 200 new cases per day.

Yesterday LabCorp CEO Adam Schechter, in an interview with CNBC, reported that the coronavirus is spreading faster in the U.S. than his company can expand its testing capacity, which is leading to slower turnaround time for results. The company has increased its testing capacity form about 20,000 a day in late March to over 165,000 a day, which means over 1 million a week.

In the last seven days, the U.S. has averaged just over 760,000 tests per day, according to data from the COVID Tracking Project. The test positivity rate has risen from below 5% in early June to 8.5%, based on a 7-day moving average, according to John Hopkins University.

International Economy

It is a very light day for global economic data with the only major data Japan’s flash Jibun Bank Manufacturing PMI for July, which rose to 42.6 from 40.1, still in contraction. Services PMI increased ever so slightly, from 45.0 in June to 45.2 in July.

Domestic Economy

That V-shaped recovery is looking more and more like a W as areas that are experiencing new spikes in cases are experiencing declines in business activity, again. According to data from Homebase, six states (including Florida, Arizona, and Texas) have seen the number of employees going to work at small and medium-sized businesses fall by at least 5% from early June to mid-July. On a national level, the number of employees at small and medium-sized businesses remains more than 23% below its pre-crisis levels for the 7-day period ending July 19.

Turns out that the Work From Home economy includes toys, as desperate parents look for ways to occupy their I’m-so-bored-I’m-gonna-die offspring so they can focus on the next Zoom (ZM) call. According to data from the NPD group, toy sales in March rose 16% YoY, in April 22% YoY, and 37% YoY in May. You can almost hear the desperate groans. As the lockdowns eased up in June and the weather improved, sales were up 19% YoY in June. Juli Lennett, an NPD Group toys industry analyst, reported that “We would never see this kind of unprecedented growth, I’ve never seen it in my life. Normally, we are up or down 3% or 4%, so this is certainly very unusual.” For the first six months of 2020, sales were up 16% compared to the same period in 2019.

Yesterday the Chicago Fed’s National Activity Index came in stronger than expected and saw revisions higher to data from May as well. The only component to decline was Sales/Orders/Inventory. Overall the June data is consistent with a 13.1% QoQ contraction in second-quarter GDP.

MBA mortgage applications for the week ending July 17 rose 4.1% after rising 5.1% previously as the 30-year mortgage rate moved slightly to 3.20% from the prior 3.19%. Purchase applications rose 19% YoY while refinance volume jumped 122% YoY.

Later today we will get the National Association of Realtors reports on existing home sales for June with expectations for a 25% MoM increase in sales after seeing existing home sales drop for three consecutive months through May. We will also get the House Price Index for May from the Federal Housing Finance Agency. In April prices rose 5.5% YoY. Also, look out for the usual weekly EIA energy stocks report.

Markets

Markets were mixed yesterday. The Dow and the S&P 500 gained 0.6% and 0.2% respectively, despite retreating during the final 30 minutes of the trading day. The Russell 2000 rose 1.3% and the Nasdaq Composite fell 0.8% after hitting an intraday high earlier in the day. The market cap of the Nasdaq has recently surpassed the GDP of the entire 27 member European Union for the first time ever. During the dotcom boom, it came close, but never actually surpassed. The Nasdaq 100 is now up 56.6% since its March 20 low.

Gold has continued its rally as the spot price reached its highest level since 2011 yesterday, with the yellow metal gaining 1.5%. Silver rose, even more, rising 6.8% for its widest outperformance relative to gold since March 24. The dollar dropped to some of its weakest levels in the past year as bond yields declined slightly.

Stocks to Watch

Teledyne Tech (TDY)  announced Q2 (Jun) earnings of $2.47 per share, better than the analyst estimate of $2.04 while reporting a 4.9% YoY decline in revenue to $743.3 M versus the $743.53 M consensus estimate. The company guided down for Q3, seeing EPS of $2.25-2.45 versus the consensus estimate of $2.51 but forecasts in line EPS for FY20 between $9.45-10.00 as compared to the $9.69 estimate.

Boeing’s (BA) 737 MAX woes are expected to continue for a bit longer than expected given another regulatory delay that is expected to push the return the aircraft to passenger flights until early 2021. 

Walmart (WMT) announced that it will be giving its hourly employees a third round of special bonuses, spending about $428 million for a total of $1.1 billion across all three rounds. Full-time hourly employees will receive $300 and part-time and temporary will receive $150. The company has hired over 400,000 employees during the pandemic to help with the surge in demand with same-store sales up 10% and online sales up 74% in the first quarter. The company also announced that it will, for the first time in ages, be closed on Thanksgiving as a thank you to its employees.

United Airlines (UAL) landed mixed June quarter results with better than expected revenue but a miss on its bottom line. Of note, the company shared its cash burn during the quarter averaged $40 million per day. With its capacity expected to fall 65% YoY in the current quarter, the company targets its daily cash burn falling to $25 M in the current quarter. United will continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand.

Shares of social media company Snap (SNAP) came under pressure following the company’s June quarter results that included better than expected revenue and EPS but lacked guidance for the current quarter. The company did fire a warning shot across the advertising business model bow when it said, “advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back to school season, film release schedules, and the operations of various sports leagues." Exiting the quarter the company had 238 million daily active users, up 17% YoY, with gains in all of its geographic regions.

Best Buy (BBY) shared its quarter to date sales through July 18 are up roughly 2.5% YoY with its online sales up 255% YoY. Key areas of consumer demand were computing, appliances, and tablets.

Texas Instruments (TXN) reported EPS of $1.15, well ahead to the consensus forecast as revenue for the quarter came in ahead of expectations despite falling almost 12% YoY due primarily to weakness in the company’s automotive business. The company’s Industrial business rose 2% QoQ while its Personal Electronics one rose 20% QoQ reflecting strong PC and laptop demand during the pandemic.

Checkpoint Software (CHKP) announced Q2 (Jun) earnings of $1.58 per share, beating consensus estimates of $1.43. The company reported a YoY 3.6% rise in revenues to $505.6 M versus the consensus of $488.39 M.

Thermo Fisher (TMO) announced Q2 (Jun) earnings of $3.89 per share, handily beating the consensus estimate of $2.89. The company reported a 9.5% increase in YoY revenues to $6.92 B as compared to $6.91 B consensus expectations.

MarketAxess Holdings, Inc. (MKTX) announced Q2 (Jun) earnings of $2.20 per share, beating the consensus estimate of $1.47. The company announced a 47.5% increase in YoY revenues to $184.8 M versus the $139.51 M consensus estimate. The Company’s board of directors declared a cash dividend of $0.60 per share of common stock outstanding, to be paid on August 19, 2020, to stockholders of record as of the close of business on August 5, 2020.

TechCrunch reports Netflix (NFLX) is testing a new low-cost subscription offering in India. The “Mobile+” plan delivers streaming in high-definition quality and supports viewing across mobile, tablet, and computer screens, but not TVs.

Fiat Chrysler (FCAU) and Alphabet’s (GOOGL) Waymo have agreed on an exclusive deal to develop self-driving commercial vehicles. Initially, Waymo will integrate “Waymo Driver,” its autonomous driving system, into Fiat Chrysler’s Ram ProMaster full-size van.

Marriott International (MAR) forecasts room occupancy in Greater China will rise to 60% next month from 55% this month and could recover to pre-pandemic levels by the start of 2021. The company plans to open 70-80 hotels in the region next year.

Beyond Meat (BYND) announced the latest iteration of the Beyond Burger is now available at major grocery stores in Canada. Per the company, compared to a traditional beef burger, this new version of the Beyond Burger contains 35% less saturated fat, less total fat, and no cholesterol, antibiotics, or hormones.

After today’s market close, Chipotle Mexican Grill (CMG), CSX (CSX), Las Vegas Sands (LVS), Microsoft (MSFT), Tesla (TSLA), and many others are scheduled to report earnings. To get the 411 on those reports as well as get ready for the earnings reports to be had later this week, investors should visit Nasdaq’s earnings calendar page.

On the Horizon

• Dates to mark:
  • • July 23: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Kansas City Fed Manufacturing
    • July 24: Preliminary Markit PMIs, New Home Sales
    • July 27: Durable Goods, Capital Goods, Dallas Fed Manufacturing
    • July 28: Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
    • July 29: MBA Mortgage Apps, Trade Balance, Wholesale Inventories, Retail Inventories, Pending Home Sales, FOMC Rate Decision
    • July 30: GDP, Personal Consumption, Jobless Claims, Bloomberg Comfort
    • July 31: Personal Income and Spending, PCE, Employment Cost Index, Univ of Michigan Sentiment

Thought for the Day

“’’Tain’t what you do, it’s the way that you do it.”~ Ella Fitzgerald

Disclosures

• Beyond Meat (BYND), Chipotle Mexican Grill (CMG), Tesla (TSLA) are constituents in the Tematica Research’s Cleaner Living Index. 
• Microsoft (MSFT) is a constituent in the Tematica Research's Thematic Dividend All-Stars Index. 
• Checkpoint Software (CHKP) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy 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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