Early Look

Tuesday, March 31, 2020

Stock futures have slipped off overnight highs, but remain modestly higher following a strong day of returns Monday, with major averages rising over 3% as markets appeared to take comfort from a more sober tone from the White House about the coronavirus epidemic, which extended its social distancing recommendation until April 30 (from prior hopes by President Trump by Easter),. U.S. stocks got a boost yesterday from tech stocks and healthcare names as medical industry breakthroughs in the industry included progress on Johnson & Johnson’s coronavirus vaccine and Abbott’s five-minute detection kit. The 10-year Treasury note yield tumbled 7.7 bps to a three-week low of 0.667% while the two-year note rate was down 3.1 bps to 0.226%, its lowest since May 2013 and the 30-year bond yield slumped 5.5 bps to a 3-week low of 1.277%. In Asian markets, The Nikkei Index fell -167 points to 18,917, the Shanghai Index was up slightly to 2,750 and the Hang Seng Index jumped 428 points to 23,603. In Europe, stock markets are on track for their seventh gain in nine sessions as the German DAX is up about 150 points to move near the 10,000 level (now well-off lows of 8,255 on 3/16), while the FTSE 100 is higher by over 75 points to 5,640. China manufacturing data also helping commodity prices overnight as oil bounces off 18-year lows.

Market Closing Prices Yesterday

·     The S&P 500 Index jumped 85.18 points, or 3.35%, to 2,626.65

·     The Dow Jones Industrial Average rose 690.70 points, or 3.19%, to 22,327.48

·     The Nasdaq Composite surged 271.77 points, or 3.62%, to 7,774.15

·     The Russell 2000 Index advanced 26.33 points, or 2.33% to 1,158.32

Economic Calendar for Today

·     7:45 AM EST      ICSC Weekly Retail Sales

·     8:55 AM EST      Johnson/Redbook Weekly Sales

·     9:00 AM EST      S&P CoreLogic 20-city MoM for January…est. 0.4%

·     9:45 AM EST      Chicago PMI for March…est. 40.0

·     10:00 AM EST    Consumer Confidence for March…est. 110.0

·     4:30 PM EST       API Weekly Inventory Data

Earnings Calendar:

·     Earnings Before the Open: CAG, CSU, MKC

·     Earnings After the Close: LNDC, PUMP, VRNT

World News

·     China manufacturing purchasing managers index (PMI) jumped to 52.0 for March, up from 35.7, and the services PMI rose to 52.3 from 29.6

·     The European Union’s statistics agency said prices were 0.7% higher than a year earlier, down from a 1.2% rate of inflation in February. That slide was largely due to energy prices, which were 3.1% lower

·     Japan’s ruling party proposed the country’s biggest-ever stimulus package worth 60 trillion yen ($554 billion) as the spreading coronavirus locks the economy in a recession. The sum includes 20 trillion yen in fiscal measures with private initiatives and other elements likely making up the rest

·     The coronavirus economic freeze could cost 47M jobs and send the unemployment rate past 32%, according to the latest projections from the St. Louis Fed

Sector News Breakdown

Consumer

·     Domino’s (DPZ) withdrew forecasts saying the virus has impacted its business in ways “that we cannot yet fully quantify”; said the impact was felt in February and ramped up into March

·     RH (RH) Q4 adjusted EPS $3.72 on revs $665M vs. est. $3.59 and $708.6M; 4Q adjusted operating margin 17.4% vs. 15.9% YoY and said it is withdrawing guidance for FY2020

·     McCormick (MKC) Q1 adj EPS $1.08 on sales $1.21B vs. est. $1.03 and $1.23B; withdraws yearly forecast citing uncertainty

·     Ford Motor Co. (F) said that it has reached a deal to begin manufacturing ventilators needed by hospitals to treat COVID-19 patients; expects to produce 50,000 ventilators within 100 days, by July 4, and then 30,000 a month as needed using paid volunteers represented by the UAW

·     Penske Automotive Group (PAG) has updated on actions it’s taking in the COVID-19 pandemic, including postponing of about $150M in capital expenditures; has also implemented a companywide hiring freeze, “significant” expense reductions, staff level adjustments

Energy, Industrials & Materials

·     PG&E Corp. (PCG) said the satisfaction of the $4 million in fines and expenses associated with the plea agreement with the Butte County district attorney will not reduce the amount of funds available to satisfy wildfire victim claims under PG&E’s plan of reorganization

·     Pioneer Natural Resources (PXD) and Parsley Energy (PE) ask Texas oil regulators for an emergency meeting to consider curbs on production in the state in response to the collapsing oil market; the co CEO’s seeks a virtual meeting among the three-member Texas Railroad Commission no later than April 13, Bloomberg reports

·     Royal Dutch Shell (RDS.A) said the impact of COVID-19 and the OPEC price war was “primarily reflected in March with a relatively minor impact in the first two months.” Upstream production is expected to be between 2,650 and 2,720 thousand barrels of oil equivalent per day in the first quarter; said it signed a new $12 billion credit facility on top of its existing $10 billion facility

·     Helix Energy Solutions (HLX) withdrew previously issued guidance for 2020 and anticipates implementing cost reduction plans consistent with levels of work activity and expects to cut 2020 capital spending by ~20%

·     Sanchez Energy’s (SNEC) top lenders have agreed to take a majority stake in the bankrupt company after the oil price collapse wiped away their chances of being fully repaid, WSJ reported

·     Nutrien (NTR) said it continues to expect solid demand for crop inputs for the coming spring season, despite some recent wet weather in the U.S., which has caused modest delays in field activity in some areas.

Financials

·     New Residential (NRZ) cuts its dividend to 5c from 50c to preserve liquidity

·     Regional Management (RM) noted it had $365M of capacity to absorb losses while maintaining positive shareholder equity at 2019-end and will generate additional margin this year to absorb losses; said it drew down $50M on its senior revolving credit facility

Healthcare

·     Amarin (AMRN) shares plunged over 60% after U.S. District Court for the District of Nevada ruled in favor of generic companies Dr. Reddy’s (RDY) and Hikma Pharmaceuticals (HKMPF) in the patent litigation for its Vascepa capsule franchise

·     CytomX Therapeutics (CTMX) earned a $40M milestone payment from collaboration partner AbbVie (ABBV) triggered by the achievement of pre-specified criteria for the dose-escalation portion of the ongoing Phase 1/2 clinical trial, PROCLAIM-CX-2029

·     Cronos Group (CRON) EPS beats by $1.31, misses on revenue at $23.75M (+96.0% Y/Y) misses by $8.96M, while says to restate Q1-Q3 2019 financial statements which lowers revs

Technology, Media & Telecom

·     New York Attorney General Letitia James is looking into the data privacy and security practices of videoconferencing app Zoom Video (ZM), whose traffic has spiked amid the COVID-19 outbreak – NY Times

·     WPP Group (WPP) pulled its dividend, share buyback and withdrew its guidance for 2020 saying “it is clear that the impact of COVID-19 on the business will increase but it is not possible at this stage to quantify the depth or duration of the impact