Mid-Morning Look: March 12, 2020

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Mid-Morning Look

Thursday, March 12, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities are now down around 25% from record highs, ending its more than decade long bull-run and now considered a bear market (defined as down 10% form highs) as fears grow the U.S. is now in a recession amid the impact of the coronavirus impact to the economy. U.S. stock markets were halted for 15-minutes (second time this week) after falling over 7% just moments after the open, while the Nasdaq Composite fell over 8% to lows of 7,279 (dropping below its prior 52-week low in June 2019 of 7,29). The market uncertainty of the coronavirus gains momentum each day, raising more fears as schools, businesses, sporting events and in some cases, even countries are closing to prevent the further outbreak of the virus that as of last night has killed more than 4,700 people from COVID-19 and over 127,000 have been infected, according to data from Johns Hopkins University. Overnight, President Trump did little to ease fears of the nation while also instituting a 30-day ban on some travel from Europe into the U.S., though clarified that the ban would apply only to people and not cargoes, grains futures are also trading lower on the CBOT pre-market. The fact that the WHO declared the virus a pandemic midday yesterday put the markets on their heels. The coronavirus is deeply hurting demand for transportation, especially air travel, as well as entertainment and recreation, and leisure and hospitality services. Companies in the energy sector have also been affected as crude prices have tumbled, a plunge that also exacerbated by an oil price war between Saudi Arabia and Russia earlier this week. Central banks continue to try and help liquidity issues as the Fed increases size of overnight REPO, while last week slashed its benchmark overnight interest rate by 50 bps to range of 1.00% to 1.25% (and expected to cut another 50 bps next week), while the ECB today announces new LTRO, boosting liquidity, while keeps rates unchanged (adds 120B of net asset purchases through end of 2020) – additional longer-term refinancing operations (LTROs) will be conducted, temporarily, to provide immediate liquidity support to the euro area financial system. Unusual times calling for unusual measures, which at this time markets have not seen from the gov’t, which has added to the panic seen in global markets with Emerging Markets (Brazil) Europe and Asia plunging as well overnight.


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar holding stronger vs. most rival currencies as the dollar index (DXY) tops the 97.50 level, though falls vs. the safe haven Japanese yen to around the 104 level (touched overnight lows of 103.09 – lowest since late 2016 before rebounding back to 105), while the dollar rises vs. the euro, pound and other emerging market rivals. Bitcoin prices also flash crash today with crypto currency space plunging over 20% this morning (Bitcoin around $6,000)

·     Commodity prices plunge as even safe-haven gold prices dropping over 3% to below $1,600 an ounce while oil prices dropped another 6% overnight following the travel ban from Europe to the U.S., slowing demand concerns and the price war between Saudi Arabia and Russia

·     Treasury market’s rally as yields erase yesterday’s surprising gains, as the 10-year yield drops back below the 0.7% level (down about 17 bps) touching lows around 0.63% and off highs 0.84% as markets continue to reflect an ongoing panic flight to safety with Treasuries There wasn’t a big reaction to the ECB’s decision to boost liquidity and QE, but not cut rates.


Economic Data

·     Producer Price Index (PPI) for final demand dropped -0.6% last month, the biggest decline since January 2015, after surging 0.5% in January and more than the expected (-0.1%) decline, while YoY, the PPI increased 1.3% after gaining 2.1% in January (est. 1.8%). Excluding the volatile food, energy and trade services components, PPI slipped (-0.1%), the first drop since June, after climbing 0.4% in January (vs. est. +0.1%) and PPI core advanced 1.4% YoY vs. est. 1.5%

·     Weekly jobless claims unexpectedly fell to 211K in the latest week, below prior week revised 215K level and below the 220K estimate, but could rise in the coming weeks as the coronavirus pandemic causes companies to lay off workers amid supply chain disruptions; the four-week moving average of initial claims rose 1,250 to 214,000 last week.







WTI Crude















10-Year Note





Sector Movers Today

·     Airline industry extends declines, hurt by the 30-day travel ban by the U.S. overnight to Europe as well as the cancellation of major sporting events in the U.S., as near-term demand has fallen off a cliff (LUV, DAL, AAL, UAL, plunge); UAL discloses that it entered into a $2B term loan facility to pay certain transaction fees and expenses and for general corporate purposes; JBLU falls after coronavirus-positive passenger takes flight

·     Energy stocks tumble on growing fears as APA announced plans to cut 2020 capital spending to $1B-$1.2B from previous guidance of $1.6B-$1.9B, a ~37% drop at the midpoint, and cut its quarterly dividend by 90% to 2.5c from 25cand will reduce its Permian rig count to zero, limiting exposure to short-cycle oil projects; MUR cut its capital expenditure forecast for the full year to $950M from prior view $1.45B-$1.5B; DVN cuts 2020 capex by 30% to ~$1.3B from $1.8B, joining shale peers as the industry battles a slump in crude prices – says while the spending cut will affect entire portfolio, assets in the STACK play of Oklahoma and Powder River basin in Wyoming will be the most hit; PDCE reduced its 2020 capex guide by 20-25% due to a weak commodity price environment, though PDCE cut its 2020 oil production guide by 8.8%

·     Casino & Leisure movers; cruise industry pummeled again as CCL announced its Princess cruises announces a voluntary and temporary pause of its global ship operations for 60 days; in autos, industry down on slowing production fears (F, GM, FCAU, TSLA), while China’s vehicle sales plunged 79.1% yr/yr in February; MANU drops in soccer world as Real Madrid soccer team in quarantine after basketball player for club tests positive for coronavirus; casinos drop again on reduced traffic, quarantines, flight travel bans (WYNN, MGM, LVS), which continues to hit hotels and lodging names (HLT, MAR, HST)

·     Retailers; sector hurt by slowing traffic, impacting revenues and travel bans; news overnight that the NBA suspended it season and the NHL saying likely to follow suit and the NCAA holding games for its tournament (as of now) without fans, also hurting retail; NKE, UAA, FL among names likely to see impact on game news, while overall retail department stores also dropping


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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