Morning Minutes 4/15/2020

Morning Minutes

Oil Demand and US Retail Sales Plunges, Bank of Canada, and Earnings Season In Focus

April 15, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

The Bank of Canada is scheduled to release its latest monetary policy decision at 10:00 am EDT today. In addition to commentary on its outlook for the Canadian economy, investors may also be watching for whether the bank increases and/or broadens its asset purchase program which started at $5B per week of federal government bonds. Reports suggest another interest rate cut is unlikely with the bank at a 0.25% lower boundary.

More bad news for the oil patch has sparked another selloff in energy commodities and appears to be having a wider impact on investor sentiment. Confirming fears in some investor camps that the recent OPEC+ deal to cut production by 9.7 mmbbl/d wasn’t enough to offset the fall in demand, the International Energy Agency forecast this morning that oil demand could fall by 29 mmbbl/d. Also overnight the American Petroleum Institute reported a 13.1 mmbbl increase in weekly US oil inventories, adding to last week’s 11.9 mmbbl build and renewing concerns that the world could run out of storage capacity in the coming weeks. On this news, the US crude oil price has dropped back under $20.00/bbl, falling 2.5% toward $19.60, while Brent Crude is down 4.0% toward $28.40.

The oil drop has reignited concerns about the impact of coronavirus containment measures potentially dragging on longer and tipping the global economy into a recession, sending stock markets lower overnight. Asia Pacific trading saw the Hang Seng fall 1.1% and the Nikkei slide 0.4%. In Europe today, the FTSE and Dax are both down about 2.25%.

US index futures are down 2.0%-2.8% with Dow futures down 576 points or 2.5% as investors digest the oil price drop, weak US economic data, and another round of earnings reports centered on more of the big banks. Highlights of today’s US business news includes:

US retail sales fell 8.7%% in March, which was worse than the 8.0% the street was expecting. Retail sales excluding Autos were down 4.5%, not quite as bad as the 4.8% drop the street had anticipated. The Empire State Manufacturing Index plunged to -78.2, far worse than the street estimate of -35.0, and last month’s -21.5 reinforcing the particularly severe impact of COVID-19 on New York. US industrial production fell by 5.4% in March, which was worse than the 4.0% drop the street was expecting.

Citigroup reported an increase in loan loss reserves of $4.9B, and a drop in EPS to $1.05 from $1.87 a year ago. Surprisingly, revenues increased by 12% over year to $20.7, driven by a 39% increase in stock and bond trading income.

Bank of America posted EPS of $0.40, short of the $0.48 street estimate and down 45% from a year ago. Results differed between divisions with banking earnings falling 45%, wealth management earnings falling 17%, but trading revenues increasing 33%.

Goldman Sachs reported EPS of $3.11, down 46% over year and below the $3.35 street estimate. Revenues of $8.7B beat the $7.9B street estimate driven by increased trading business.

UnitedHealth beat the street on both EPS ($3.73 vs street $3.63) and sales ($64.4B vs street $62.2B). Management maintained its EPS guidance for this year of $16.25 to $16.55, which remains higher than the $16.21 street estimate.

Las Vegas Sands is expected to release results later today with Honeywell and Blackrock headlining tomorrow.


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