Company / Analytics

Analytics, 16 May 2020

Week 20 in Brief

Global stocks marked their worst weekly losses since mid-March as rising U.S.-China tensions added to concerns that a global economic downturn may be here longer than feared.

United States

U.S. markets ended the week lower as investors assessed the economic toll of the outbreak. The Dow Jones Industrial Average was down 2.7% for the week, closing at 23,685; the S&P 500 lost 2.3% this week and closed at near 2,864; while the Nasdaq Composite Index declined by 1.2%, closing the week near 9,015.

U.S. Economic reports this week continued to reflect an economic downturn of breathtaking speed and scope. In April, consumer prices — excluding volatile food and energy prices — posted their fastest month-on-month collapse in records going back to 1957; industrial production fell 11.2% in April, the largest drop in the 101-year history of the index; manufacturing output fell 13.7%, also a record; and retail sales dropped a record 16.4%. On the other hand, over 36 million Americans have filed for unemployment benefits in the last two months, even as stocks soared.

Uber in talks to acquire Grubhub: Uber approached Grubhub, with a potential all-stock takeover bid. Uber aims to create one giant player in the food delivery business as more people turn toward those services in the wake of the Coronavirus outbreak. In response, Grubhub asked for two Uber shares for each of its shares. That would value Grubhub’s stock at more than $60 a share, pegging a deal at around $6.1 billion, or roughly a 25% premium to Grubhub’s closing price on Monday ($46.81). Shares of Grubhub surged 25% to more than $58 per share after a trading halt due to volatility, following the report of a potential takeover by Uber on Tuesday. The negotiations are ongoing and could potentially collapse. Read more on our analysis of what the deal would mean for both companies.

Facebook has acquired Giphy, a popular search engine for short, looping videos and animations called GIFs. The service will become part of Facebook’s Instagram team, making it easier for people to find relevant GIFs for their Stories and direct messages. The deal is reportedly worth $400 million.

Micron, Intel, Broadcom — Chip stocks fell following news that the Commerce Department announced that it was restricting the sale of semiconductors to Chinese telecom giant Huawei. The move reflects the Trump administration’s latest effort to crack down on the Chinese technology giant, which has come under strict scrutiny from US national security officials and risks further heightening tensions between the United States and China at an already tense moment, with the potential for retaliation against American businesses.

J.C. Penney became the latest US retailer to fall casualty to the coronavirus pandemic. J.C. Penney filed for bankruptcy protection on Friday, and its collapse follows other retail bankruptcies this month including J. Crew, the Neiman Marcus Group. J.C. Penney represents the biggest casualty by far based on the number of locations. It’s more than 800 stores are anchors at many American malls, with nearly 85,000 employees. The company’s sales have steadily shrunk in recent years to $10.7 billion for the year ended Feb. 1, when it posted a net loss of $268 million from continuing operations. At the time, it said it had 846 stores in the United States, according to the New York Times.

Warren Buffett dumps most of his shares of Goldman Sachs. Warren E. Buffett sold 84% of his stake in the Wall Street bank. Buffett is holding shares of two giant banks with stronger consumer operations, JPMorgan Chase and Wells Fargo. Goldman Sachs shares are down more than 30% from their peak this year in January at $249.72, but their price has recovered somewhat from its lowest point, reached on March 23, when the stock closed at $134.97.

Europe

European stocks closed higher on Friday, with shares in Germany leading the region. The DAX is up 1.24% while London’s FTSE 100 is up 1.01% and France’s CAC 40 is up 0.11%. The pan-European STOXX 600 index ended 0.5% higher, with miners rising 2.8% after data showed China’s industrial production climbed by a faster-than-expected 3.9% in April.

The German economy contracted by 2.2% in the first quarter, its steepest three-month slump since the 2009 financial crisis as shops and factories were shut in March to contain the spread of Covid-19, preliminary data showed on Friday.

Asia

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.62%, while the Hang Seng led the Shanghai Composite lower. They fell 0.13% and 0.07% respectively. The Nikkei 225 of Japan’s largest companies ended the week down overall for the first time since April.

Commodities

Oil prices rose to their highest levels in more than a month on signs that demand from China is picking up. Production in China’s factories is growing for the first time since the coronavirus pandemic began. But there are still major challenges ahead for the country’s economy. Industrial output increased 3.9% in April from a year ago, according to data released Friday by the National Bureau of Statistics. That’s well above the 1.5% uptick that analysts polled by Refinitiv expected, and the first time output has grown since December.

The price of US crude rose 6.8% to settle at $29.43 a barrel on Friday, amid a rise in Chinese demand as the economy emerges from lockdown. In April, China processed a total of 53.85 million tonnes of crude oil, equivalent to about 13.1 million barrels per day and higher than 11.78 million barrels per day in March, official data showed.

Saudi Aramco’s net income shrunk by 25% in Q1 2020. However, the world’s largest oil company still earned $16.7 billion — an amount that may allow it to retain the title of the world’s most profitable company. However, not all traditional assets are performing poorly.

Prices of other “safe” investments — such as Treasury bonds and gold — continue to be high. This suggests some investors continue to be unconvinced that the market rally is sustainable. Gold is up 2.8% for the week with June gold futures going up by $4.90 an ounce at $1,746.00. July Comex silver prices were last up $0.609 at $16.77 an ounce.

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