Morning Minutes 5/4/2020

Morning Minutes

Rising US-China Tensions and Falling Airlines Drag Stocks Downward

May 4, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

The new trading week is off to a rocky start with the Hang Seng dropping 4.2% and the Dax dropping 3.5% as they return to trading for the first time since Thursday. Markets which were open and fell on Friday are showing more moderate declines today with the FTSE slipping 0.5% and US Index futures falling 0.75%-1.00%. Dow Futures are down 263 points, adding to Friday’s 622-point plunge.

Investors appear to be turning cautious once again with defensive havens like Gold, the Japanese Yen and the US Dollar climbing in currency action. Commodities have come under pressure once again with WTI crude oil down 2.9%, Brent Crude down 1.0% and copper down 0.4%.

Two developments over the weekend appear to be rattling investor confidence. First, the prospects that growing tensions between the US and China could hamper the recovery from coronavirus or have other impacts on global trade have increased amid press reports that the White House and US intelligence think that outbreak may have come from a mistake or accidental release from China’s research facility in Wuhan, and/or that China’s government may have made things worse by downplaying the initial outbreak.

Second, airline stocks have been under pressure following developments on both sides of the border. Over the weekend in the US, Warren Buffett announced that his Berkshire Hathaway company has sold all of its airline stocks. This morning, Air Canada announced that its EBITDA fell by 90% over year in March, that it has cut capacity by 90% and that it could take three years to get back to 2019 levels of revenue and capacity.

US meatpacker Tyson Foods highlighted several of the impacts of COVID-19 on the economy. EPS of $0.77 came in well short of the $1.04 the street had been expecting. Production continues to be disrupted by outbreaks at facilities but management also forecast volumes to decline in the second half with higher demand from grocery stores not enough to offset falling demand from restaurants.

Economic news is more weighted to the back half of the week when US and Canada monthly employment reports are due along with China trade figures. It’s another big week for earnings particularly in Canada headlined by gold producers, insurance companies, telcos, software and auto parts.

 

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