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These are the most popular stocks for day trading
Goldman Sachs recently reported that a basket of stocks favoured by retail day traders had outperformed their hedge fund basket by nearly 20% when the coronavirus sell-off was at its worst.
Retail day traders have helped fuel the market recovery from the March 23rd low, struck as fears over the economic impact of the Covid-19 pandemic reached their zenith.
Here’s what our signals tools have to say about some of the most popular stocks amongst day traders.
The stock is up 144% since March 23rd and over 230% year-to-date. Our Analyst Recommendations tool shows a consensus “Strong Buy” rating amongst Wall Street analysts, with the average price target of $87.64 representing a 35% upside even after months of incredible growth.
Even CEO Elon Musk tweeting that the stock in his own company was overvalued couldn’t put the brakes on the Telsa stock rally this year. Day traders have helped drive this stock up 131% since March 23rd. Since January 1st the stock is up 140%.
The stock broke above $1,000 for the first time on June 10th, although it has since struggled to hold this level. The rally has left Wall Street analysts struggling to catch up – the average price target of $678.82 represents a -32% downside. Hedge funds snapped up three million shares in the last quarter, and news sentiment around the stock has been almost evenly split between bullish and bearish.
Snap is up 106% since March 23rd, although on a year-to-date basis the stock is up a more ‘modest’ 35%.
Our signals tools are sending bearish signals, however. Although the consensus rating amongst analysts is a “Buy”, at $19.91 the average price target represents a downside of -14%. Hedge funds dropped five million shares in the last quarter, and company insiders sold $206 million worth of shares.
MGM Resorts has been hit hard by the coronavirus pandemic, with its stock down 44% for the year. However, traders who bought it at the depths of the March sell-off would have netted a return of 103%.
The average price target amongst analysts of $17.92 represents an upside of just 1%, and the stock has a “Hold” rating. Hedge funds scooped up 48 million shares in the last quarter, while company insiders bought $24.5 million worth of the stock.
SAVE is another stock that is down heavily on the year, but has surged from the March low. Since the market bottomed out, Spirit Airlines has recovered 102%, although it remains down -51% since January 1st.
Analysts rate the stock a “Hold”, although it has an average price target 11% higher than the current price of $20.56. Hedge funds trimmed their holdings by one million shares in the last quarter.
Day traders are beating Wall Street pros
Some of the world’s top money managers have been outperformed by retail day traders recently.
Goldman Sachs reports that a portfolio of stocks traded by retail investors grew 61% in March, compared to just 45% for a basket of hedge fund picks.
Watch our video to find out more and discover how Marketsx stock trading tools can give you the edge when trading the most popular stocks amongst both retail investors and hedge fund bosses.
Find out more about our stock trading tools here.
Week Ahead: BoE, BoJ meetings; data to crush quick Covid recovery hopes
Last week the Federal Open Market Committee effectively killed hopes that the global economy could rebound quickly from the Covid-19 pandemic. Much of the data due this week is expected to deteriorate further. Any bright spots could be overshadowed by growing fears we may be facing a second wave of infections.
The Bank of England and Bank of Japan both hold policy meetings this week. Expect more signals that stimulus is here to stay for a long time.
Make sure you’re prepared for the coming week – read our full breakdown of the key events and data that markets will be watching.
China industrial production to accelerate, retail sales decline to slow
China is still the bellwether for the global recovery, with markets watching the data closely to see how quickly an economy can rebound from lockdown. Industrial production returned to growth on an annualised basis in April after three months of contraction. Forecasts for May suggest growth accelerated to 5%.
Retail sales are expected to continue to contract, although the rate of decline has moderated sharply since the -20.5% drops recorded in January and February. April saw a drop of -7.5% and the decline is expected to have slowed to -2% in May.
Bank of Japan to set out timeline for low rates
Last week the US FOMC stated that interest rates would remain near zero until 2022. This could prompt a similar move by the Bank of Japan, which will look to curb yen strength on the flight to safety caused by the FOMC’s gloomy economic predictions. The BOJ may therefore decide to give its own timeframe for keeping rates at their current, or lower, levels.
Fading hopes of V-shaped recovery to drag ZEW sentiment lower
German and Eurozone economic sentiment has climbed since April, but forecasts suggest the latest readings could see investor confidence pull back again. Assessment of the current conditions is in dire territory anyway, but the overall numbers were pulled up by improving expectations for a swift recovery – something that is becoming increasingly unlikely.
UK, Canada inflation – price growth to remain under pressure
Lockdowns and collapsing oil prices have exerted heavy pressure on consumer prices. Inflation data this week from the UK and Canada is expected to show further weakness. The UK’s core inflation rate was just 0.1% in April. Forecasts for Canada’s data expect a drop of -0.2% on the month, after the -0.7% recorded in May.
Retails sales decline to worsen for UK, Canada – US looking brighter?
Retail sales figures for the UK and Canada this week are expected to post more huge drops, with consumers still restrained by lockdown measures and business closures. Those businesses that are able to reopen have seen trade affected by the strict social distancing measures.
The UK, Canada, and the US all saw retail sales drop by the most on record in April. In the case of the UK and Canada things are expected to have gotten even worse in May.
However, in the case of the US data, recent figures from Mastercard suggest that the decline in retail sales may have softened notably in May. Sales fell -16.4% in April, but Mastercard says it saw a much smaller decline in transaction volumes last month.
New Zealand growth data: calm before the storm
New Zealand prime minister Jacinda Ardern was able to declare last week that Covid-19 had been eradicated in the country and that things could go back to normal.
However, the economic hit caused by the government’s actions to combat the virus will be severe. The OECD predicts a -8.9% drop in GDP this year, with the economy not returning to pre-Covid levels until the end of 2021.
This week’s GDP data is for the first quarter, and a drop of just -0.4% is expected. But as we already know, it’s the second quarter reading that really matters.
Australia jobless rate to keep climbing
Data this week is expected to show another 200,000 jobs were lost last month, on top of the nearly 600,000 in April. The unemployment rate jumped a whole percentage point to 6.2% in April, although this was well below market expectations of a surge to 8.3%.
The jobless rate is predicted to climb to 6.9%, although the true rate is likely much higher, considering how many Australians are currently relying on the government to pay their wages.
Bank of England to expand QE
The Bank of England is expected to expand its quantitative easing programme this week, with estimates for the increase ranging from £70 billion to £200 billion.
Negative rates are sure to get a mention, but policymakers are approaching the issue cautiously. While governor Andrew Bailey has recently softened his opposition to such a tool, he has only gone as far as saying that it would be “foolish” to rule them out. BoE chief economist Andy Haldane said at the end of May that, while the MPC was exploring the idea of negative rates, it was very much in the review phase and a decision on the matter was not close.
Kroger is expected to report earnings growth of 23.6% year-on-year when it releases quarterly earnings on June 18th. EPS is predicted at $0.89, while net sales are expected to have increased 7.7% year-on-year to $40.12 billion.
Kroger stock has weathered the Covid-19 pandemic well, having swiftly rebounded from the March sell-off, and is now trading up around 12% for the year. Our Analyst Recommendations tool shows it has a consensus “Buy” rating. Hedge funds bought 20 million shares in the last quarter.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|09.30 UTC||17-June||FXTrademark Course – Moving the Odds|
|11.00 UTC||17-June||Introduction to Currency Trading: Is it For Me?|
|11.30 UTC||18-June||Trading with the Killswitch Approach|
|10.00 UTC||19-June||Supply & Demand – Approach to Trading|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|02.00 UTC||15/06/2020||China Industrial Production / Retail Sales|
|01.30 UTC||16/06/2020||RBA Monetary Policy Meeting Minutes|
|03.00 UTC||16/06/2020||Bank of Japan Rate Decision|
|09.00 UTC||16/06/2020||German/EZ ZEW Economic Sentiment|
|12.30 UTC||16/06/2020||US Retail Sales|
|06.00 UTC||17/06/2020||UK Inflation Rate|
|12.30 UTC||17/06/2020||Canada Inflation Rate|
|14.30 UTC||17/06/2020||US EIA Crude Oil Inventories|
|12.45 UTC||17/06/2020||New Zealand Quarterly GDP|
|01.30 UTC||18/06/2020||Australia Employment Change / Unemployment Rate|
|Pre-Market||18/06/2020||Kroger (Q1) – Pre-Market|
|11.00 UTC||18/06/2020||Bank of England Rate Decision|
|12.30 UTC||18/06/2020||US Weekly Jobless Claims|
|14.30 UTC||18/06/2020||US EIA Natural Gas Storage|
|06.00 UTC||19/06/2020||UK Retail Sales|
|12.30 UTC||19/06/2020||Canada Retail Sales|
May’s top Blends: Einhorn rises, Corona falls
The top performing Blends in May and the latest YTD performance.
May’s Star Performer: Einhorn Blend
David Einhorn led the way in May as global stocks continued their bounce back. The hedge fund boss – founder of Greenlight Capital – enjoyed a strong month as holdings like General Motors and Green Brick Partners rose along with other holdings such as AerCap and Chemours. The Einhorn Blend rose 15% in May but remains down 23% for the year.
The second-best performing Blend in May was the Cannabis Blend, which rose almost 14%. Earlier in the month it had been down but recovered strongly in the last two weeks. The blend is flat for the year, at -0.11%. Tilray (40% of the blend by weighting) and Canopy Growth (33%) both rallied in May but remain significantly off the 2018 peak.
As risk appetite improved across the month of May, some of the better performers lagged. Notably, the Corona Blend, which had been doing well, was the only basket to record a fall over the month of May.
The Social Media Blend rose over 5% in May despite the sector attracting the ire of Donald Trump. Twitter, which makes up 10% of the index, came in for the most brutal attack by the president but shares in Facebook (45% weighted) also slipped in the final week of May.
The worst performer this year is the UK High Street Blend, which is hardly surprising given the structural shift in retail coming up against the lockdown measures enacted by the British government which has slashed footfall.
Blends 2020 Leader Board
|Trade War Winners||2.21%|
|Dogs of the Dow||-11.90%|
|Trade War Losers||-14.36%|
|Oil and Petroleum||-32.32%|
Equity indices clear big hurdles even as Hong Kong tensions simmer
Tensions between the US and China are worsening, with the two sides clashing at the UN over Hong Kong. China rejected a US proposal for the Security Council to meet over the issue, whilst US secretary of state Mike Pompeo declared that Hong Kong is no longer autonomous from Beijing. China’s ‘parliament’ this morning approved the controversial national security legislation for the territory.
We also note reports this morning that China escorted a US navy ship out of its waters. Meanwhile Taiwan is to buy Harpoon anti-ship missiles from the US, which is likely to further rile Beijing. Tensions are showing signs they could boil over – we cannot play down the importance of an embattled US president facing a national crisis at home in an election year – one he can blame on his chief geopolitical adversary. Expect more sabre rattling.
Shares in Hong Kong and Taiwan fell, whilst Japanese equities rose by more than 2% in a mixed session overnight in Asia. The FTSE 100 rallied towards 6200 on the open, but shares in Standard Chartered and HSBC fell, signalling investor concern about what’s going on in Hong Kong.
Nevertheless, equity markets continue to strengthen and move out of recent ranges and clear important technical resistance. Confidence in equity markets is strong thanks more stimulus and signs economies are reopening quicker. A resurgence in cases in South Korea is a worry.
Yesterday, US stocks surged with the S&P 500 closing above 3,000 for its best finish since March 2nd, whilst the Dow added over 500 points to clear 25k at stumps. The S&P 500 cleared the 200-day moving average and is now trading with a forward PE multiple of about 24x – making it look decidedly pricey.
European followed Wall Street higher with broad-based gains. The DAX yesterday closed above the 61.8% retracement around 11,581 and extended gains through the 11,700 level. The FTSE 100 thrust towards 6200 this morning, hitting its highest intra-day level since March 10th. The 50% retracement around 6250 is the next target before bulls can seek to clear the gap to the March 6th close at 6,462.
EasyJet is planning to reduce its fleet by 51 and cut up to 30% of staff. This is the big fear playing out – temporary furlough becomes permanent firing once businesses figure out that demand has vanished. Whilst airlines will feel this more than just about any other sector, this trend will be seen in a wide range of industries, albeit to a lesser extent.
Shares in EZJ rose 8% – cost cuts are welcome of course for investors, but also the indication of running at 30% of capacity over the summer is better than had been feared. Efforts by the likes of Greece and Spain to salvage the summer season will help a lot. IAG and Ryanair shares rose 2-3%.
Twitter shares fell and were down more in after-hours trading after Donald Trump threatened to shut down social media sites that stifle conservative voices. Having been sanctioned by Twitter with fact-check warnings, the president is very unhappy. It hurts his ego and it blunts his most effective tool.
The White House said the president will sign an executive order on social media today. Facebook shares were also lower yesterday and extended losses in after-hours trade. Will Trump try to silence Twitter and Facebook? No, but he can put more of a regulatory squeeze on them and raise their costs.
Europe’s bailout proposals were greeted with optimism, but the frugal four countries of Austria, Denmark, Sweden and the Netherlands did not seem terribly impressed at plans that will raise their budget contributions. They will need to be brought round. Estonia has also said it won’t vote for the proposals. Work to be done – getting all countries on board with a complex budget takes a long time in the best of circumstances, let alone amid a dreadful recession.
The euro has largely held gains after rising on the EU’s budget plans. EURUSD firmed above 1.10 but is struggling to clear the 200-day moving average around 1.1010. Bulls need to see a confirmed push above this to unlock the path back to 1.1150, the March swing high. Failure calls for retest of recent swing lows at 1.0880.
Sterling was steady with GBPUSD around 1.2270 after yesterday giving up the 1.23 handle and testing support at 1.220 following Britain’s chief Brexit negotiator gave a pretty downbeat assessment of trade talks to MPs.
Today’s data focuses on the US weekly unemployment claims, which are forecast at +2.1m. As we enter the summer and states reopen, the hiring will gradually overtake the firing but we are not yet there. Durable goods orders – an important leading indicator of activity – are seen at –19% month-on-month with the core reading seen at –14.8%. A second print of the US Q1 GDP is seen steady at –4.8%.
Oil dived and took a look at last week’s lows as API figures showed a surprise build in crude inventories in the US. Stocks rose by 8.7m in the week ending May 22nd, vs expectations for a draw of 2.5m barrels. The build in stocks means the EIA data today will be more closely monitored than usual, given that expected drawing down of inventories has underpinned the resurgence in crude pricing. WTI (Aug) slipped back to $31.60, just a little short of the May 22nd swing low.
Hong Kong dents optimism but stocks remain on track
US shares surged on Tuesday, with the Dow rising more than 2%, briefly trading above the 25k level again before closing a little short. The S&P 500 rose over 1%, traded above 3,000 for the first time since March 5th hitting a high at 3,021 before it too closed below this psychologically important level. The broad index traded above the important 200-day moving average but failed to close above this indicator.
Economies continue to reopen a little quicker than we’d feared. US airlines are reporting a uptick in passenger levels vs where they were last month, but were down about 80% from the same Memorial holiday weekend a year before. Globally, it seems as though countries are able to ease lockdown restrictions without sparking immediate secondary waves of infections – albeit the risk of such emerging down the line should not be ignored.
The higher the S&P 500 rises without earnings picking up the pricier it gets. PE multiples already look stretched and further gains for the index would come despite declining earnings, stretching these valuations still further. What happens when banks really lay bare all the non-performing loans they are going to need to write off?
US stock markets test key 200-day SMA
In the last two major recessions (see below chart), the 200-day simple moving average has been the ceiling for the market. A breakout here would be important for recovering market highs – failure could suggest it will contain price action for a while. I hate to say it but this time could be different – central bank largesse was not a factor like it is today. This only concentrates the power of the largest capitalised companies.
What’s going on in the real economy is not reflected by markets. Even as we reopen, the economic uncertainty and long-term health fears will support household deleveraging, boost savings rates and knock consumer spending.
Today the Fed will release its Beige Book providing anecdotal evidence of business activity across the US – there will be some very grim stories to tell and will underline how it will take a long time to get businesses and people moving at the same rate they were before the crisis.
Tensions in Hong Kong weigh on global equities – will the US sanction China?
The rally in global equities seen at the start of the week ran out of steam a little in Asia overnight though as tensions in Hong Kong hove into view once more. Riot police fired pepper pellets at groups gathering to protest a bill that would ban people from insulting the Chinese national anthem. This comes as tensions were stoked by China’s planned introduction of sweeping national security powers in Hong Kong.
There is a strong chance that the anti-Beijing feeling grows and leads to the kind of unrest we saw over several months last year. The US is said to be considering sanctions against China; Beijing said yesterday it was increasing its readiness for military combat. Whilst the eyes of the world are on Hong Kong, China is already engaged in a military standoff on its border with India.
Asia soft, European stocks firm
Asian shares fell broadly, although Tokyo held up as Japan said it will carry out another $1.1 trillion stimulus package on top of a $1.1tn programme already launched last month. The Hang Seng dipped by almost 1%. But European shares rose with the FTSE 100 recapturing 6100 and making a sally towards 6200 and to close the early March gap.
Yesterday the DAX made the move back towards its Mach 6th close at 11,541 to fill the gap but failed to complete the move on the close. This morning the DAX moved strongly through this level after a pause at the open, moving back to 11,600.
Euro, pound come off highs, retreat from key technical levels
In FX, both the euro and pound failed to really make any real breach despite a strong gain yesterday and have come off their highs. EURUSD moved back towards the middle of the recent range, having fallen short of a move back to 1.10 and was last trading around 1.0960. GBPUSD has retreated under 1.23 having fallen short of the 50% retracement of the move lower over the last month around 1.2375.
After Germany and France proposed a €500bn bailout fund based on mutual debt issuance (what some have dubbed Europe’s Hamiltonian moment), EC President Ursula von der Leyen will present her plans, which will build on the Franco-German proposal and call for a €1 trillion plan. If the budget talks are successful it should lower the risk premium on EU sovereign debt, lowering bond yields and offering succour to the euro as well as to European equity markets. It would also mark a major step towards EU fiscal policy coordination and possible fiscal union. The frugal four remain a hindrance but Merkel’s weight is behind this.
We’re also looking at the appearance before MPs today by Michael Gove and UK Brexit negotiator David Frost.
Gold falls to test $1700, WTI crude oil edges down to $34
Gold was weaker, testing $1700 again as US yields rallied on economic reopening, but 10yr Treasury yields peeled back off the highs at 0.7% due perhaps to the US-China tension.
WTI (Aug) has retreated further from the $35 level and is testing support around $34. The pattern suggests a pause for thought as we try to figure out the mess of supply and demand. The pattern is one of consolidation with a bullish flag forming, with better demand forming the basis for the move alongside supply impairment that was evidenced by a new report from the IEA saying Covid-19 will cause investment in the energy sector to decline by $400bn this year. That is the kind of capex carnage that will remove a lot of supply and force rebalance quickly.
Chart: The 200-day line has been a ceiling in past recessions
The European Green Deal and COVID-19 Recovery Package
The European Union is set to officially present a recovery package next week on May 27th, with a focus on the EU Green Deal – an economic rescue plan aimed at generating jobs and private investment across the continent, while also integrating into the package policies geared towards reaching net zero greenhouse gas emissions by 2050.
Prior to the crisis, the European Commission had calculated that EUR 260 billion of additional annual investment was required to reach its 2030 emission goals, on the path to the net zero target.
Despite calls from some leaders to forget the EU Green Deal and focus instead on the virus, the EC has continued to reiterate its commitment to the Green Deal as being central to the recovery and reconstruction package. Earlier this week, a draft, unofficial document detailing the green recovery plan was published.
Considering this level of political support, we wanted to consider which sectors may stand to benefit from such green-focused policies, including renewables, building renovation and clean mobility. You can trade ESG stocks on Marketsx with ESG ETFs, as well as our unique ESG Leaders Blend.
The goal of reaching net zero greenhouse gas emissions by 2050, as outlined above, could drive earnings growth for those utility companies with existing and scalable exposure to renewables in their power generation mix, and to those that are developing such exposure.
Two key renewable energy sources are wind and solar, which combined (Captain Planet, anyone?) form a complimentary mix: solar generation is largely during the sunnier, longer days in summer, while wind produces most in the winter months and typically peaks at night.
Screening for utilities with strong balance sheets could indicate that they have capacity for additional investment and growth in renewable energy sources.
Apart from decarbonising the power generation mix in a move to renewables, energy demand may also increase because of other measures, further accelerating growth in the sector.
For example, the use of electric heating in buildings is low in Europe, with the majority being gas or oil heated. Switching to electric heating, where electricity production comes from clean sources, could lower emissions while increasing power demand.
Increased use of electric vehicles could also contribute to growing power demand. It may also require the deployment of charging stations to facilitate long distance travel, where utility involvement could come in too.
Furthermore, it is not only utilities that stand to benefit from renewables growth, but also those companies involved in providing the infrastructure for renewable electricity generation and transmission.
Automobile manufacturers with a focus on battery electric vehicles (BEV) may stand to benefit from the green recovery plan. For example, consider a situation where public money is spent on subsidies that would reduce the cost for firms, or indeed cities, to cut emissions by converting vehicle fleets from combustion to electric engines.
A boost for public transport investment could have a significant impact on businesses in the sector. The report flags the importance of the European rail supply chain and supporting it and the businesses involved while it faces increased competition from China.
It is also worth noting that Volvo and Daimler recently announced a joint venture to develop and commercialise clean hydrogen technology for the truck market.
According to the leaked report we referenced above, buildings consume the largest amount of energy in the EU and are responsible for 36 percent of EU greenhouse gas emissions.
As previously discussed, a switch to electric heating could help in lowering emissions associated buildings.
Construction exposed companies could also be worth monitoring, such as those related to heating, ventilation and air conditioning, lighting, and electrical, as buildings are targeted for renovation to make them more energy efficient.
Amazon stock is at record highs, and hedge funds have never been more bullish
Tech companies surged to record highs yesterday, with Amazon stock closing 2% higher at just below $2,498.00 per share. The move helped fuel another 2% gain for the NASDAQ, which is now trading within 3% of February’s all-time high.
Amazon stock has rallied over 50% from the lows struck in mid-March and is up 32% since the start of the year. Gains have been fuelled by expectations that the company is well positioned to benefit from shifts in consumer behaviour due to the coronavirus pandemic.
Hedge funds bullish on AMZN stock
Hedge funds in particular have never been more bullish on AMZN stock.
Holdings increased by 8 million shares in Q1, with the number of bullish positions on AMZN amongst hedge funds rising 25% to 251. Amazon was the number one stock amongst hedge fund managers at the end of December and March.
Amongst those opening new positions in the first quarter were Jorge Lemann of 3G Capital Partners, Brad Gerstner of Altimeter Capital Management, and David Tepper of Appaloosa Management.
Amazon to benefit from shifts in consumer behaviour and company culture
Social distancing, lockdown measures, and supply shortages in bricks-and-mortar retailers drove consumers online during the first quarter, helping push Amazon sales up 18% internationally and 29% for North America. Q1 earnings, released at the end of April, showed revenue of $75.5 billion and earnings per share of $5.01 for the first three months of 2020; revenue was higher than estimates, while EPS fell short.
Amazon’s Web Services cloud computing business saw sales grow 33% during the period, surpassing the $10 billion mark for the first time. Sales growth continues to slow, but the shift to homeworking could see many more businesses needing to harness the power of the cloud to keep operations running, and this could be a long-term shift in business culture rather than a temporary measure.
Subscriptions to Amazon Prime were up as well; the combination of expedited shipping and video and music streaming proving an offer that is hard to resist while stuck at home. Advertising revenues also climbed, growing 33% to over $3.9 billion. Here, again, Amazon is set to benefit as businesses adapt to the pandemic; more marketing spend is being directed online as other channels, such as event sponsorship, dry up.
However, Amazon is known to spend big, and it looks like Q2 will be no exception. On the Q1 conference call, Jeff Bezos told investors that he expected to spend the $4 billion or more in estimated operating profit from Q2 on “Covid-related expenses getting products to customers and keeping employees safe”. The stock had fallen after hours, but fund managers are betting that the costs will help Amazon to operate more effectively under “new normal” conditions going forward.
What do Wall Street analysts say about Amazon stock?
Amazon holds a “Strong Buy” rating amongst Wall Street analysts, with a price target of $2,673.17 representing a 7% upside. Only one of 41 analysts covered by our Analyst Recommendations tool has a “Sell” rating on the stock.
Upbeat start for European equities
No Monday morning blues for equities after the Bank of Japan announced more stimulus and we’ve some good news from Italy at last and even Deutsche Bank has reported a profit.
The BOJ laid down the gauntlet to the Federal Reserve and European Central Bank, who both meet later this week, by raising its package of support. The BOJ will now buy unlimited government bonds (JGBs), catching up with market expectations, and is increasing how much corporate and commercial paper it buys.
The moved gave an upbeat tone to trading in Asia. Tokyo rose 2.7% whilst Hong Kong rose 2%. European shares followed suit with the FTSE 100 opening above 5800 and the DAX reclaiming 10,500. Indices remain in consolidation phase and risk rolling over as momentum fades, but the news today is quite positive. US futures are positive after closing higher on Friday but falling over the course of the week.
Italian and German yield spreads came in after S&P didn’t downgrade Italian debt. This is good news for the ECB, which may well increase its pandemic asset purchase programme by €500bn this week.
On the Covid-19 front, Italy is also making progress and will relax lockdown measures from May 4th. Spain has reported its lowest daily death toll in a month. Boris Johnson is back to work.
Meanwhile Deutsche Bank reported exceeded expectations on profits and revenues in the first quarter but warned on loan defaults as a result of Covid-19. Investors shrugged off the warning and shares rose 7%, sending European banking stocks higher by around 3%. It’s a very big week for earnings releases – HSBC, BP, Shell, Amazon, Alphabet, Facebook and the rest.
Oil has taken a turn lower as fears of approaching ‘tank tops’ imminently. The June WTI contract is starting to show stress, gapping lower at the open last night and trending lower to approach $14. Brent is –5% or so at $23.50. Goldman Sachs estimates global storage capacity will be reached in just three weeks, which would require a shut-in of 20% of global output. That would chime with what we’ve been tracking and suggests OPEC+ cuts of 9.7m are – as anticipated – not nearly enough. It will make the Brent front-month contract liable to volatility, though perhaps not quite what we have seen in WTI. Baker Hughes says oil rigs in the US were down 60 in the week to Apr 24th to 378, the fewest active since 2016 and well under half the number this time a year ago.
In FX, speculators are dialling up their net long bets on the euro. The Commitment of Traders (COT) from the US Commodity Futures Trading Commission shows euro net longs rose to 87.2k contracts in the week to Apr 21st, the most since May 2017. Traders turned long at the end of March and have been adding to positions since. The last time a move like this occurred in EUR positioning in 2017 it preceded a 15% rally in EURUSD.
Meanwhile, speculators net short bets on the USD are now at the highest in two years as traders call the top in the dollar. Traders habitually call the top in the dollar and get it wrong. Various actions taken by the Fed to improve liquidity and an easing in the market panic we saw in March has helped, but the dollar remains the preferred safe harbour in times of market stress.
EURUSD – the last time specs turned this long was in May 2017.
DAX – rangebound, approaching top Bollinger band.
Stocks rally on drug hopes, oil legs it lower
V is for vaccine: stocks have taken a bit of good news and are running with it for better or worse, whilst figures showing the economic wreckage can be discounted, by and large.
A lot of the chatter this morning centres on Gilead Sciences, whose shares leapt 16% in extended trading last night after reports that its antiviral drug Remdesivir was delivering positive results in treating Covid-19 in a University of Chicago trial. It’s not actually a vaccine, but anything that can help end lockdowns and get economies moving quickly is a huge positive. As risk appetite has improved stocks have firmed and US yields came back bit with 2s up at 0.216% after hitting an 8-year low of 0.195%, while 10s are trading at 0.645%.
Gilead remains pretty circumspect on the tests – there are obvious risks in getting carried away at times like these when people will cling to anything offering hope. On the other hand, there are a lot of companies working on cures and vaccines right now – human ingenuity will win in the end.
Asian markets firmed up despite data showing China’s economy shrank in the first quarter, the first such decline since at least 1992 when records began, or more likely since 1976. Tokyo rallied 3%, with Hong Kong up more than 1% even as data showed Chinese GDP declined 6.8% in Q1, while fixed asset investment was 16% lower. Retail sales were down 15.8% in March, but industrial production only declined 1.1% vs expectations for a 7% drop. It wasn’t all bad news from Asia overnight; Singapore’s non-oil exports jumped 12.8% in March.
Broadly, though, we continue to see the damage. US jobless claims surged again by more than 5.2m in a single week. New car sales in Europe have fallen off a cliff, particularly in Italy. On the virus, the UK is extending the lockdown by at least three weeks, while Donald Trump has set out a three-stage plan for exiting lockdown.
European markets tracked the rally in Asia and US futures with ~3% gains at the open on Friday. The FTSE 100 added 150+ points in early trade. 5800 is again the target before a push to the week highs at 5900. Travel & Leisure leading the way indicates a risk on rally as investors lap up the Gilead news.
Wall St was higher a touch yesterday, with the S&P 500 rising half of one percent to rest a whisker away from 2800. News of the treatment drug spurred futures on and can now look to close the March 9th gap. If this gap gets closed today by stumps, then the bulls have done some important work. The cash close at 2,973 on March 6th is the target but first there is key resistance at 2885. If the bulls can hold the break above the 50-day simple moving average it may start to act as support.
USA 500 Cash, 1-Day Chart, Marketsx – 08.02 UTC, April 17th, 2020
In FX, the US dollar is squeezing peers again with the dollar index holding the 100 handle. GBPUSD has failed to recover the 1.25 and the near-term bias looks to the downside with the 1-hr chart showing lower lows and lower highs being made. The 50-hour moving average, which has been a solid support rung, has turned into resistance.
GBP/USD, 1-Hour Chart, Marketsx – 08.12 UTC, April 17th, 2020
Crude oil futures have taken another leg lower ahead of the May expiry, with WTI sinking to new 18-year lows at $18.44. This opens up the way to the mid-teens. The OPEC deal is clearly failing to boost sentiment. We are in new territory so it all depends on the mood in the market – there is not a heck of support in the way to $10.
With US yields higher Gold is trying to hold a break under $1700 but has rejected the 50-period SMA on the 4-hr chart at $1685. Next support lies on the 23.6% retracement at $1678.
Gold, 4-Hour Chart, Marketsx – 08.15 UTC, April 17th, 2020