The market crashed in March and its rebound is about to reach heavy resistance as the earnings reports for Q1 start next week. The reaction by the Federal Reserve and US Treasury have been historic as they are providing several trillion dollars of stimulus in a matter of weeks. Is it enough and how will all of this end?
Don’t feel too bad as they don’t know either. The earnings reports over the next several weeks will highlight those companies that have saved for a rainy day and those that borrowed too much and are now a credit risk. There will be much uncertainty from these reports as getting back to business is an unknown until the governments around the world give the all-clear.
In the chart below, I have highlighted two major points of resistance which the market will have to overcome as the earnings reports roll out. If the market fails to break resistance then you will have a new low on the year in the coming months and a longer than expected recession. The next two weeks will be very telling so stay tuned.
Chart of the Week!
Economic & Central Banking Snippets
- Financial regulators have freed up about $500bn of capital for lenders around the world to help them absorb the impact of the Covid-19 pandemic, according to calculations by the Financial Times. By relaxing capital requirements in the past few weeks, central bankers have aimed to keep credit flowing to businesses and households and mitigate the economic turmoil caused by mass quarantines put in place to slow the spread of the virus. The freed-up capital provides lenders with the capacity to make an extra $5tn of loans globally. (FT)
- The Federal Reserve announced a set of new programs Thursday that will provide $2.3 trillion in loans to reach small and midsize businesses and U.S. cities and states. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible,” said Fed Chair Jay Powell in a statement. (Investopedia)
- The Bank of England will directly finance the U.K. government’s spending on the coronavirus health crisis as costs mount. This arrangement to provide additional liquidity through the Ways and Means facility will be temporary and short-term, the government will continue to use bond markets as its primary source of funds, and the amount will be repaid before the end of the year, said the press release. (Investopedia)
- Only 69% of U.S. apartment households paid rent in April, according to The National Multifamily Housing Council (NMHC), a landlord trade group. This is down 82% from April last year and 81% last month. (Investopedia)
Macro Snippets
- The value of passenger fares for Uber and Lyft has plummeted in recent weeks due to the coronavirus pandemic, according to The Information sources. Uber could take a softer blow since it’s paying drivers a lower share of fares than it did last year. The company’s revenue from passenger rides (minus driver pay) could total under $450M/month, down from the $800M/month in last year’s Q1. Lyft’s passenger revenue will likely come in below $150M/month, down from $260M/month. (Seeking Alpha)
- Goldman Sachs seized and sold shares from the chairman of Luckin Coffee after he defaulted on the terms of a $518m margin loan. Goldman said it was seizing the shares of the scandal-hit chain as collateral. (FT)
- ExxonMobil is slashing this year’s capital spending plans by $10bn – from $33bn to $23bn – and will cut cash operating expenses by 15% as it seeks to preserve its dividend in the face of the crude oil price collapse sparked by coronavirus. The biggest cuts will be in the Permian Basin, the heart of the US shale boom, where Exxon’s drilling will slow. It is also postponing a decision on whether to go ahead with a large liquefied natural gas project in Mozambique and will delay some chemical and refining expansions. (FT)
- Lufthansa is to permanently decommission more than 40 aircraft and axe its Germanwings low-cost subsidiary. The airline, which has already furloughed almost 90,000 workers and scrapped its dividend, is also reducing long-haul operations at Eurowings and accelerating the restructuring of its Austrian Airlines and Brussels Airlines subsidiaries. (FT)
- Singapore banned all gatherings of any kind, and said schools would stay closed until May 4. Violators can be fined $7,000 and jailed for six months for a first offense.
- Starbucks cut its Q2 2020 earnings forecast by half and withdrew its full year guidance due to the COVID-19 crisis. In a new SEC filing, the world’s largest coffee chain said it saw a 50% decline in comparable store sales in China for the quarter. In the U.S., sales began declining mid-March and were down 60-70% during the last week of the month when 44% of stores were operating. (Investopedia)
That is all for now until next week’s Market Update and Happy Easter to those who are celebrating!
Regards,
President – Kisco Capital