Company / Analytics

Analytics, 23 May 2020

Week 21 in Brief

Global stocks finished higher on optimism over the reopening of the economies and some positive news about progress on vaccine trials. Later during the week some caution returned that raised geopolitical tensions, as China planned to impose a new security law on Hong Kong and as a U.S. Senate bill was introduced that could force Chinese firms to delist from the U.S. exchanges. Events of the week indicate that investors can be confident in a longer-term recovery but should position portfolios and expectations to weather periods of volatility along the way.

United States

U.S. markets ended the week slightly unchanged as investors assessed the economic toll of the outbreak and fears of rising U.S.-China tensions. Each of the three major U.S. equity indices posted weekly advances of about 3%, with investors largely factoring in the fallout from the COVID-19 crisis into asset prices. Wall Street was encouraged throughout the week as all 50 states relaxed some of their coronavirus-induced lockdown restrictions ahead of the Memorial Day weekend.

The Dow Jones Industrial Average surged 3.29% to post its best weekly performance since April 9, closing the week at 24,465.16 points. Both the S&P 500 and the Nasdaq Composite Index rose by 3% to close at 2 955,45 and 9 324,59 points respectively. The Russell 2000, which tracks small-cap stocks, trounced the large-cap indexes this week with a more than 7% jump.

News about a potential vaccine from Moderna sent equities flying earlier in the week. Moderna’s shares went up by 20%, putting the company’s market capitalization at almost $30 billion. Analysts pegged different targets for the stock, the most enthusiastic being from the investment bank BMO Capital which put a target price hike of $112, which would suggest Moderna’s $80 run on Monday is an indication of the onset of a much larger run-up. Moderna shares have surged roughly 255% year-to-date. The shares surged again by 5% on Friday after Dr. Anthony Fauci made a series of positive comments on Moderna’s early COVID-19 vaccine data but closed the week at $69,00. We looked at whether the Moderna stock is worth the money.

Renewed tensions between Washington and Beijing affect sentiments. China proposed new security legislation for Hong Kong that could threaten the financial hub and cause further issues with the US. The new law is expected to increase Beijing’s hold over Hong Kong. On Thursday, President Donald Trump said the US would react strongly if China were to enact the legislation, and on Friday, US Senators introduced a bipartisan bill that would sanction Chinese officials and organizations that enforce the new measures on Hong Kong.

The US Senate passed a bill that would make it more difficult for Chinese companies to list on U.S. stock exchanges. The bill would require companies to certify that “they are not owned or controlled by a foreign government” and could potentially delist Chinese stocks from U.S. exchanges. U.S.-listed shares of e-commerce giant Alibaba fell more than 3% Thursday. Analysts worry that Chinese companies could opt for London instead, even though they are already deeply embedded in the US stock market. The legislation builds in a three-year grace period, meaning New York will remain home to Chinese companies’ listings for some time.

Earnings season continued. Hewlett Packard fell to $9.05 on Friday after the tech giant reported an $821 million loss, but then corrected up and closed on $9.20. China’s Alibaba dropped 5.9%, closing at 199.70 on Friday, facing some tough cross-currents after its fiscal fourth-quarter report. Earnings and revenue topped forecasts for the quarter, although guidance came in just below expectations. Alibaba has been attempting to break out above a 216.20 buy point in a cup-with-handle base. Palo Alto Networks (PANW) punched up 4.9% on a strong fiscal third-quarter win. Mizhuo also raised Palo Alto’s target, to 265, from 240.

The coronavirus outbreak continues to spread across the U.S. Cumulative cases have topped above 1.6 million. Despite the rising total, the daily number of new cases is trending lower amid the sharp increase in testing. Wall Street has been reacting to economic reopening by States which are expected to continue. White House health advisor Dr. Anthony Fauci said this week that stay-at-home orders intended to curb the spread of the coronavirus could end up causing “irreparable damage” if imposed for too long. With the daily number of new cases falling, investors in the U.S. are turning attention to the economic impact of the coronavirus outbreak and how fast the country reopens for business.

Europe

European shares fell on Friday as a deterioration in U.S.-China ties compounded fears of slower recovery from the economic damage wreaked by the COVID-19 pandemic. The pan-European STOXX 600 was down 1.6%, with Asia-exposed stocks such as HSBC Holdings Plc tumbling 5.5% and Prudential Plc falling 8.4%. UK’s FTSE 100 lagged its European peers with a 2% drop. Luxury goods makers including LVMH and Kering SA, who draw a major part of their revenue from China, fell more than 2%.

Renault may not survive the shock of the coronavirus pandemic without help from the French government. Shares in France’s Renault SA slid 4.3% and closed at $17.50 after Finance Minister Bruno Le Maire said he had not signed off on a 5 billion euros ($5.47 billion) state-guaranteed loan to help the company cope with the pandemic fallout, Reuters reported. The company delivered its worst financial performance in a decade in 2019 and the pandemic has piled on the pressure, and the company is in serious financial difficulty.

Asia

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.62% at at 20,037.47, 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.

Overseas listings of Hong Kong shares fell as Chinese authorities prepared to pass national security measures, threatening to reignite violent protests in the city. The prospect of fresh turmoil in Hong Kong following sweeping national security legislation introduced by China comes as the relationship between the world’s two biggest economies appears to be souring. The iShares MSCI Hong Kong ETF, the biggest listed exchange-traded fund, fell 3.7% in New York, the biggest drop since the global market volatility two months ago. Hang Seng Index futures for May delivery were off 1.6%, as reported by Bloomberg.

Chinese officials declined to provide an annual GDP target for the first even as they unveiled a $500 billion stimulus for the economy. The decision to withhold economic forecast since the practice began about three decades ago, underscores the economic impact from the coronavirus pandemic. During the first quarter, China’s quarterly GDP growth turned negative for the first time on record, plunging by 6.8%. Chinese Premier Li Keqiang said China would not be able to set a target for growth in the world’s second-biggest economy for 2020 because of the “great uncertainty” caused by Covid-19 and “the world economic and trade environment.”

Commodities

Gold rallied toward its highest close in 7 years. Gold rallied for the second time this year, with prices rising sharply on Monday. Bullion has oscillated between a high of $1,788 to a low of $1,676 an ounce in recent weeks, underpinned by higher worries about the harm of COVID-19 pandemic to the global economy and the monetary-policy response by central banks to limit the impact of business closures. This week’s rally followed the US Federal Reserve chairman’s pessimistic views on the US economic recovery and Covid-19 pandemic, and last week’s upward move of ‘safe investments. The moves suggest that some investors remain convinced the current market rally is unsustainable. Our piece this week looked at whether a bigger rally for gold is to be expected.

Oil prices slumped, snapping a six-day winning streak. West Texas Intermediate crude futures fell as much as 9.4%, to $30.72 per barrel, before paring those losses to roughly 1.5% at settlement. Brent crude fell 2.3%, to $35.23 per barrel.

Next Week?

The U.S. markets will be closed on Monday for the Memorial Day holiday.

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