Stock indexes on different continents have so far continued to behave in a moderately positive mood. The US broad market S&P500 index, after a small pullback lower on Monday, is again hitting the ceiling near last week's highs. The American Nasdaq index of the global high-tech sector has been able to climb more than 100 points above the peak resistance near the 8350 area it had almost reached before Easter.
However, this happened mainly due to the rise in share prices of several leading companies whose activity is concentrated in online service segments. For example, there is Amazon, which gave the index its biggest boost gaining more than six % as the retail giant reported it would hire 75,000 more workers amid a surge in demand for online orders. The other example is Netflix which is the second company from the so-called FAANG group of leaders in market capitalisation (that informal group also include Facebook, Apple and Google). Netflix Co relies mostly on its streaming TV channels and is expected to accumulate even more profit during the course of the quarantine. Yesterday Netflix's share price was already rising higher than before the March collapse and may get to $400, close to its absolute historical maximum of $422 per share. The company's Q1 2020 report is due to be published on April 21, and the consensus expert forecast from Bloomberg's poll is $5.74 billion of revenue after the record $5.47 billion in Q4 2019, with $1.61 in EPS (earnings per share) vs $1.3 in Q4 2019 and $1.47 in Q3 2019. The unique resilience of Netflix has been described before at the beginning of the year. The company is only adding more and more subscribers around the world, especially outside the United States, amid the raging offline world crisis.
Another well-known competitor of Netflix, Disney, recently announced an increase in its Internet audience to more than 50 million subscribers. Its prices are also rising, although at a much slower pace, because the company is incurring large expenses for numerous expensive entertainment parks around the world that have the most uncertain prospects as they are closed due to quarantine. Nevertheless, Disney's prices are already $25 higher than the bottom of March level of $79 per share. Other assets of companies that are active on the world wide web, such as Google, or many smaller companies which have their key pillars in the online sectors are gradually finding cautious portfolio buyers. However, those investors keep in mind a huge dependency of almost all such companies on advertising revenue, which has sharply declined around the world and will not probably reach its previous levels soon.
European stock markets are finally opened after the long Easter weekend. But the trading resumed near the late levels of the last week while stock indexes are treading water there. Apparently, the reason for such reluctant behaviour is a kind of frustration as the bailout package from the Eurogroup was not strong enough and spending of funds is too strictly controlled by Brussels under pressure from the wealthiest European countries. There is also a wave of uncertainty with the timing of the quarantine. In general, the markets take into account more limited financial capabilities of European governments and the European central bank (ECB) compared to the US Federal reserve (Fed). The Fed can easily take advantage of the semi-monopoly position of the American Dollar and may put its long hands into worldwide pockets whenever it wants to do it.
All this is happening with American companies amid reports of a possible partial opening of the economy in nine states while the US Centres for Disease Control and Prevention (CDC) officials said the decline in the number of the infection cases may occur in the United States earlier than it was expected, but without mentioning specific dates yet. The number of cases in the United States is less than 30,000 for only the second day in a row, but New York authorities also reported a decrease in the new admissions to hospitals, with the worst cases seen over the past weekend.
The European markets feel themselves much more confident than a couple of weeks before. But they are more or less able to hold the gains of the previous week only. It might be assumed that most of the market participants have already used in their investment models the idea that the worst time may not be over yet, but that it will be over soon. This idea is supported by a rising belief that the bottom was reached in the last ten days of March on the stock exchanges and these lows may remain the ultimate bottom. Is this the case, how realistic this market consensus may be?
A very simple technical analysis of the epidemic situation charts in four European countries. may provide some incentives on how the virus situation is evolving. Now the question is different: how country leaders and their governments are going to implement their political will and what decisions are they ready to make on quarantine? Are they going to be brave enough to unlock the economy step by step at least before June or not? Or maybe most of the politicians are going to hold on to the achieved partial control over the numbers of the new cases and simply choose to play the long and safest way, leaving millions of useful employees sitting at home.
Nobody can predict it for certain. There are some encouraging signals, but also some contradictory and disappointing signs. Emmanuel Macron, the President of France, just announced the quarantine regime extension for almost a month, until May 11. In his opinion, this is the only way for France to respond effectively to the daily challenges, to slow down the spread of the virus further and to have enough free places for intensive care, and for the medical workers to recover in short pauses between their intensive work. Hope is returning, but hospitals are full in some regions, according to Macron. The entry to France will be delayed for non EU-citizens at least until mid-summer, if not until September. This is not optimistic for the economy at all. At the same time, the French President noted the slowdown in the epidemic, and that after May 11 he expected the kindergartens and educational institutions would open their doors, but restaurants, bars and mass entertainment events will not resume working until mid-July.
It is not a must that other European nations will follow the French path. The fact is that the French health care system has been under unbearable pressure: with a comparable number of infected people France met five time more casualties than Germany. Therefore, approaches may differ even in the neighbouring countries. Some of them are already either looking for the possible ways out of the quarantine, or even ready to undertake the first steps. The Spanish government has allowed some sectors of the economy to start working, in particular, the construction business that will allow about three million people to return to work. The authorities require from businesses to provide their employees with all personal protective equipment and ensure that the distance between employees is at least two meters. The North Italian region of Veneto has restored open-air food markets and allowed residents to walk within 200 meters of their homes.
One of the earliest plans among European countries to start exiting the quarantine measures was announced by Sebastian Kurz, the Chancellor of Austria. On April 6, a week before Easter, he tweeted that the next week would be crucial and that people should not celebrate with relatives and friends, but asked them to continue to adhere to self-isolation measures and to avoid additional social contacts. At the same time, he announced the nearest goal of the Austrian authorities would be to allow small stores of up to 400 m2 to open under strict requirements from April 14. These measures include wearing masks, disinfecting, as well as a limited number of clients at the shop at the same time. It will be important for other countries to watch how this plan will work. If it does Austria is planning to open all shopping centres, hairdressers, but keep restaurants and hotels temporarily closed for quarantine as the next step after May 1.
Thus, developments in some countries may be more favourable for the local economic outlook than in others. Countries that could be more successful in lifting the quarantine earlier may serve as a model for neighbouring countries in theory. In practice, let's not forget that Europe is a complex body with principles of Schengen agreement, and most importantly, the pan-European executive officials in Brussels. The common point of view in Brussels may be challenged by national officials, but it's not that simple.
For example, Ursula von der Leyen, the European Commission president, just warned: "the elderly and people with underlying medical conditions may need to isolate until the end of the year". She said, older people should brace for many more months of isolation until a vaccine is developed. "I know that it is difficult and that isolation is a burden, but this is a question of life and death. We have to remain disciplined and patient. We will need to learn to live with this virus for many months, probably until next year," she added. "I'd advise everyone to wait before making holiday plans," Ms von der Leyen said in an interview with the German newspaper Bild am Sonntag published on Sunday. "At the moment, no one can make reliable forecasts for July and August." If this tug-of-war between Brussels and national officials continues then it remains to be seen who will win and how all these possible contradictions will be perceived by the markets.
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