Market Overview

19 May 2020

Markets Striped Like a Zebra Cooling after the Rally on Monday

A prevailing positive market sentiment led to the jumping of the US S&P500 stock index by 3.23% on Monday compared to Friday's close. That is almost 100 points for the previous 24 hours and more than 200 points counting from last week's bottom. Among the major factors that are affecting markets are some relief in the US-China trade and virus accusations saga, the determination of the current White House authorities to go ahead with opening up the economy, without looking too much back, and with no plans of returning to restrictions again, as well as a large-scale preparatory program for vaccines.

As a result, both S&P500 futures and the high-tech Nasdaq indices closed Monday's session at fresh ten-week highs. By Tuesday morning, the American and European equity markets rose even higher, but not for long, so they took a break and partially went down, showing mixed intraday dynamics. The combination of the fundamental background remains rather encouraging for opportunities for further growth during the week, within the framework of the V-concept on the middle-term charts. The "safe-haven" US Dollar has also become less popular over the past few days. But it's also clear that investors continue to scroll through the web feed and analytical articles, ready to correct the composition of their financial portfolio at any time. So, what's new, good or bad, from the most notable news stories?

Drugmaker Moderna Inc said its experimental COVID-19 vaccine showed promising results in a small early-stage trial. "The medicine called mRNA-1273 "elicited neutralising antibody titter levels in all eight initial participants across the 25 µg and 100 µg dose cohorts, reaching or exceeding neutralising antibody titters generally seen in convalescent [blood] sera," the official site of Moderna Inc reported. This is to say that in recovering patients, their blood resisted the virus with antibodies no worse than in those with immunity. "mRNA-1273 was generally safe and well tolerated," while it "provided full protection against viral replication in the lungs in a mouse challenge model," Moderna states.

"The fact that Moderna came out with the Phase 1 trial that seems to be positive, that certainly... ignite the storm because if there is a vaccine then all this uncertainty about the economy and the virus goes away," said Ken Polcari, chief market strategist at SlateStone Wealth LLC in Jupiter, Florida. And even travel-related stocks were among the biggest gainers with problem-sufferers like cruise line operators Carnival Corp (CCL.N), Royal Caribbean Cruises Ltd (RCL.N) and Norwegian Cruise Line Holdings Ltd (NCLH.N), all outperforming the broader market with gains of at least 15%. Airline stocks also soared as Delta Air Lines (DAL.N) said it would resume flying several major routes in June, so lying almost at the bottom the NYSE Arca Airline index gained 14.14%, with Delta up 13.91%.

"Over 100 Million in China's Northeast Face Renewed Lockdown," is the headline of one of the actual Bloomberg's articles. As was reported by Bloomberg sources, "some 108 million people in the region are being plunged back under lockdown conditions as a new and growing cluster of infections causes a backslide in the nation's return to normal. In an abrupt reversal of the re-opening taking place across the nation, cities in Jilin province have cut off trains and buses, shut schools and quarantined tens of thousands of people," so the strict measures have dismayed many residents, who had thought the worst of the nation's epidemic was over. "Children playing outside are wearing masks again, and health care workers are walking around in protective gear," said Fan Pai, who works at a trading company in Shenyang, a city in nearby Liaoning province that's also facing renewed restrictions. "It's frustrating because you don't know when it will end," he resumed.

However, the messages look somewhat sketchy, and the real situation is not clear. It is unclear whether China is really so afraid of a possible second wave of infections, or whether it is a kind of over cautiousness. Bloomberg refers to the government of Shulan, a city in Jilin, which said on WeChat yesterday it would keep its strictest measures in place in order to contain the virus. Residential compounds with confirmed or suspected cases will be closed off with only one person from each family allowed to leave his premises to purchase essentials for two hours every two days, according to this information.

In addition, for some reason, the article shares only the private experience of some individuals, who cancelled business trips to the province to avoid possible quarantine, or faced restrictions in restaurants where again only two people are allowed to sit at each table, an order that had been eased weeks ago before being re-instated. Delivery services have been mostly halted and anti-fever medication is banned at drugstores to prevent people from hiding their symptoms, which is alarming, but it may well be rumours. The authors of the article provide statistics with overall Jilin province's cases standing at 127. This is a small number by the standards of today's Europe or America, for example. "The number of Coronavirus cases is strongly trending downward throughout the United States, with few exceptions. Very good news, indeed!" US President Donald Trump tweeted yesterday, on the day when the number of new cases was 22630 people.

According to a written message from Apple senior Vice President Deirdre O'Brien, nearly 100 Apple stores around the world have reopened their doors to their customers. She noted that data, such as each region's coronavirus statistics, near-and long-term forecasts, and recommendations from state and local health officials were taken into account when choosing to launch each specific point. The fact that the store has started working again does not mean that it can't be closed at any time if the epidemiological situation requires it, the top Apple Manager emphasised. However, the news immediately supported Apple shares, the price rose above $315 at yesterday's close after moving almost $7.5 lower at the end of the last week. Relatively successful opening of the first entertainment parks by Disney with all the restrictions threw up the shares of the company from just over $109 on Friday to $119.70 on Monday at one moment, and later they closed in around the $117 area.

On Friday, Democrats in the House of Representatives passed an additional $3 trillion coronavirus relief package. However, the package is not expected to pass the Republican-majority Senate. Nevertheless, markets did not really count on this additional support for the economy since the project was expected to be rejected by Donald Trump. Actually, the existing aid packages and financial infusions of more than $5 trillion seem to be more than enough.

The American home-builder confidence rebounded in May from its historic decline. It signals that the industry's mood about the prospects for post-pandemic home sales is generally optimistic. The National Association of Home Builders' (NAHB) monthly confidence index rose seven points to a reading of 37 in May, as it was just reported on Monday, while April's figures had represented the lowest index value since June 2012. "The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey," Dean Mon, the association's Chairman and a home builder from Shrewsbury, N.J., said in the report. The indicator that measures current sales conditions increased six points to 42, while the component that gauges sales expectations in the next six months jumped ten points to 46. The index that follows traffic of prospective buyers rose eight points to 21.

Late Monday France and Germany proposed a €500 billion recovery fund that would offer grants to EU regions and sectors hit hardest by the pandemic. This represents a major shift in the position of Germany, which previously rejected the idea of nations sharing debt. The proposal needs to be put forward to all EU nations, and sharing debt as an idea is encouraging for the mostly suffered countries, but still discouraging for "donor countries". There are a lot of doubts about the size of the fund and how quickly and fairly the money would be dispensed, and many fear that the purpose of using money could be unduly restricted. French Finance Minister Bruno Le Maire said on Tuesday that the fund would not be available until 2021. European markets have not yet realised whether they should take this news with enthusiasm or maybe a wiser approach is to cool down the Monday's rally at least for several days.

The German ZEW economic sentiment indicator showed today at 51.0 actual May level after 32.0 in April in vs -49.5 in March. Similar data for the entire Eurozone is also improving on positive expectations, and is at 46.0 after 25.2 a month earlier. It means that expectations continue to improve, but the assessment of current conditions is still depressed at the -93.5 level. That is even worse than -91.5 in April, and the average -88.0 forecasts in the market polls.

The whole picture consists of the black and white stripes when they alternate like on the back of a zebra, creating mixed intraday sentiment while markets ponder whether to continue yesterday's record-breaking rally to new heights. Additionally, the US Building Permits, Housing Starts and Redbook reports are expected to be published today, as well as the results of EU finance ministers meeting. The Federal Reserve Chairman Mr Powell is going to testify before the Joint Economic Committee in Congress, as his co-workers Kashkari and Rosengren would make their public remarks during some other events. The People's Bank of China (PBoC) actual Loan Prime Rate decision is due on tomorrow's early morning. The data on Consumer Confidence in Eurozone provided by European Commission statisticians is expected tomorrow in the afternoon. The market now is still consolidating at previously reached levels and continues to accumulate new information.


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