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Last weeks' turbulent market is about to head into another. The intensity of the upcoming turbulence will depend on how these household names have performed in Q2 as per their earning reports. Whether they have performed poorly, in line with expectation, or extraordinarily well, the market will have a strong opinion and a possibly strong reaction.

Last week recap: Fresh highs for US indices ahead of earning reports.

NAS100

Last week started with investor jitters taking the SPX500 and NAS100 down, a non-insignificant amount, for a third straight day (and the US30 down for the second straight day). The apparent cause of the Jitters? The spread of the Delta variant of the Coronavirus picks up in Europe and APAC countries (South Korea, Thailand, Vietnam, and Australia in particular).

By Tuesday, the jitters had subsided, and investors ploughed back into the market. The SPX erased Monday losses, while the NAS100 was up by 50 points over Monday's open. By the close of the market on Friday, all three major indices were at record highs.

At the time of writing, DOW JONES E-MINI FUTURES, NASDAQ-100 E-MINI FUTURES, and E-Mini S&P 500 are all flat, half a day out from the US markets opening.

 

Too many earning reports this week

This week is the busiest Q2 earning reports week of the year. As such, this article will be broken up into several parts.

 

Monday earning reports

Companies that are worlds apart are reporting Monday. The $105B defence contractor, Lockheed Martin (NYSE: LMT) and the $13B toymaker, Hasbro (NASDAQ: HAS), are first to the batting plate.

Hasbro is forecasting annual growth in sales of 10% for the next two years as it expands its gaming portfolio. In response, analysts have HAS projected to reach a price 24% above the current stock. Unfortunately, 2021 Q2's earnings are anticipated to be down compared to Q1. However, it is good to note that the toymaker has been reporting at the top end of its estimates in the past three quarters, with last quarter beating expectations by an impressive 55%.

Lockheed Martin is expected to report earnings per share of $6.53, up by 13% over the PCP. Overall sales are forecast to have lifted to $16.9B, up by 4.5% over the PCP. A steady flow of high-value government contracts has kept Lockheed's out of any trouble all 2020 and 2021. The Company currently has an order backlog worth $150B.

Lockheed and Hasbro will both be presenting their results before the market opens on Monday.

TSLA

Tesla Inc (NASDAQ: TSLA) will be reporting after the bell on Monday. Even as it beat its earnings per share estimates, the EV manufacturer has disappointed investors in its previous two quarters. For example, TSLA has lost 11% since its last report three months ago. Tesla is again expected to beat its estimates in Q2 2021. The third consecutive earnings beat might be enough to reverse the sell-off the Company has experienced in 2021.

Tuesday to Friday earning reports

I will omit comment on every Company in this article. Instead, separate pieces will be devised for each day of this week so that the information does not become overwhelming. For now, take note of the following lists and what days companies on your watchlist are reporting their earnings.

 

Tuesday:

 

Wednesday:

 

Thursday:

 

Friday:

Risk on: Oil and Stocks up

Its risk on to the start of the US trading week as promising vaccine results amongst a resurrection in Chinese oil demand send equities and oil soaring.

Brent in blue, SP500 in red, Gold in orange on a daily chart

The SP500 is up near 3% on the back of Moderna, stating that their Coronavirus vaccine tests yielded signs it could make an immune response system in the body. As many countries start to ease restrictions on their citizens, hopes in a demand recovery have investors dipping their toes into risk-on assets. Amongst the 94% of winners recording gains today, JETS, an ETF that tracks US airlines and airline manufacturers, is up 11.6% in the risk-on rally. However, they are still down around 58% for the year.

Hopes in vaccine pushes risk-on rally

This risk-on rally may be short-lived; however, as market participants take any good news with regards to a vaccine as a reason to invest / trade. Jeffrey Kleintop told Bloomberg that “the market is very tied to measuring the success of these economic reopenings” and that “a successful vaccine would really make those reopenings very successful,” casting doubt about the risk on rally until a vaccine is fully developed. Furthermore, Fed Chairman Jerome Powell also casts some doubts on a recovery, stating that the US should “recovery steadily through the second half of this year” if US is able to avoid a “second wave of the coronavirus.” He has assured that the Fed has enough ammunition to help support the United States, with the Fed preparing to lend to middle-market businesses, allowing the central bank to extend up to $600 Billion in loans if required.

Demand in oil fueling risk on-rally

In the Commodities market, Crude breaks $35, and WTI contango closes. This is most likely on evidence pointing to Chinese demand reaching pre-coronavirus levels amongst ease in storage concerns and lockdown restrictions. Alongside previous Google mobility data showing tentative evidence of an increase in car usage, new evidence from TomTom’s traffic index showing rush hour traffic in Chinese cities at pre-coronavirus levels or above. With OPEC making good on supply cuts, an imbalance in demand eclipsing supply may push oil prices higher. However, it is not all positive for oil, as demand for jet fuel remains low, with many countries continuing with strict border restrictions even after lockdowns are lifted. Furthermore, it is worth noting that Jet fuel makes up around 8% of oil consumption globally, while gasoline makes up around 23%. Countries forming “mini bubbles” with other countries may slowly bring the demand for Jet fuel up.

The markets have been itching to buy the dip on any positive consensus. However, rallies in risk-on assets may be short-lived as a second wave is not out of the question given a vaccine is still months away.

Are you joining this risk-on rally?

Senior Analysts here at Blackbull Markets Phillip van den Berg and Andre Almeida have released some tremendous technical analysis on the Dow Jones rally and the USD/CAD, respectively. You can watch the videos here and here.

Wall Street Stays Flat

US stocks have not seen any major changes this week, staying uncharacteristically calm despite headlines such as the oil price crash. The Dow Jones gained 457 points on its Wednesday session, a jump of 2%. It is now trading at 23,400 points on the hourly chart. Likewise, the S&P 500 and NASDAQ indices saw similar gains, climbing 2.3% and 2,8%, respectively.

However, this is most likely as investors are also still awaiting news such as this week’s jobless claims data. Latest predictions expect around 4.2 million new unemployment claims to be filed, bringing the total up to 26 million claims in just 5 weeks.

Likewise, the US Senate just passed another bill to aid in the fight against the coronavirus in the State. After weeks of negotiations, the Senate passed a $500 billion bill in order to help small businesses, and it is expected to go to the House of Representatives later this week. This news did give some relief to the stock markets, as they now look to extend their gains for the second session in a row.

But there are reasons to continue being bearish about the stock market. Investors are vying for stocks to gain momentum again, with news such President Trump pushing state governors to ease their lockdowns and begin reopening their state borders again.
However, reopening so early, before the virus is under control, poses the risk of a wave of new infections flooding in. This poses the risk of causing more damage to the economy in the long term. Despite Trump’s eagerness to reopen the economy and start recovering the damage that virus has caused the stock market, the opposite could end up happening if he pulls the trigger too soon.

Our livestream is continuing to grow thanks to your support. We are live on our YouTube channel every day at 10.00 am GMT, and if you can’t make it then, you can always watch the recording, the latest of which is linked below.

NFP Release Non-Event

On Friday, the Non farm payroll data was finally released for the month of March. From the 8th-14th March, 701,000 jobs were lost in the United States, far exceeding predictions of 100,000. This is the highest figure of jobs lost in 11 years, and is only the start. The first state to come under lockdown, which was California, only started on the 20th. Therefore it is fully expected that the full consequences of the pandemic will only be truly reflected in subsequent months' data releases.

However despite this massive drop in jobs figures the markets reacted quite little to this news. The Dow Jones lost 3.6% on Friday, with the NASDAQ and S&P 500 both only dropping 1.5% as well. This can be explained in the fact that market sentiment is already extremely negative, and the published figures were more or less expected, as global markets prepare themselves for a recession. Dow futures are currently trading close to 22,000 points.

And in contrast, the US Dollar appreciated during all of this, rising to 100.703 points on the Dollar index, a fourth straight day of gains as investors continue to flock to its safety.

Prior to this there had been a record of 113 consecutive months of job gains, which has now been wiped out with the biggest loss in jobs since 2009. However, analysts are only anticipating these figures to become worse. Some are even predicting that April’s release could show a loss of 20 million jobs.

Released by the Department of Labor Statistics, the Non farm payrolls report is released on the first Friday of each month, and is a collection of various statistics, most importantly the number of people employed within the US, excluding agricultural and seasonal workers. As such it is a strong indication of the US economy, and as a result, the US dollar and stock indices as well. Therefore this release usually draws a lot of attention, with a lot of market movement preceding and immediately following the release as traders try to take advantage of the released data.

Just a mere month ago it seemed the US economy’s strength was unstoppable, with stock indices on record bull runs. Last month’s NFP release saw a gain in jobs of 225,000, which had far exceeded predictions of 160,000. And now after just a few weeks of being impacted by the coronavirus markets have become incredibly volatile, and futures look uncertain.

Crude Oil has also dipped for the day, following the news that Russia and the OPEC alliance had postponed their meeting to discuss the current ongoing price war between Russia and Saudi Arabia, the de facto leader of the alliance. Last week US President Donald Trump had announced on Twitter that he had talked to the Saudi Arabian Crown Prince Mohammad Bin Salman Al Saud, regarding the oil situation and that he expected the production of oil to drop between 10 to 15 million barrels between the two countries. That news caused WTI crude to spike up an astonishing 24%, and a further 11% the next day, where it peaked at $28/barrel. But now following this crude oil dropped back down to $26.58 per barrel. (Update: Russia has now reported that they are very close to a deal with Saudi Arabia to cut oil production, and that has caused optimism in oil prices once again, returning to a peak of $27.94.)

We are continuing to livestream on YouTube every day at 10.00am GMT. Our last stream last week on Friday talked about the market movements leading up to NFP, so take a look here:

Panic Sell Continues

Yesterday, the US Federal Reserve cut rates by a full 100 basis points, bringing the interest rate down to almost 0%. The interest rate for the US Dollar is now officially 0.25%, but is effectively zero.

In addition to this, the Fed also announced a $700 billion quantitative easing program. This is comprised of at least $500 billion in US Treasury securities, as well as another $200 billion in government mortgage-backed securities.

Both of these measures were unprecedented moves, drastic measures taken in an attempt to ease the current economic panic and stop the massive selloffs being made.

However, they did almost nothing to ease investors’ fears, as trading was temporarily halted for the second time in recent weeks on the market open, after stock indices immediately crashed. The circuit breakers that trigger after indices fall below a certain percentage were automatically activated again as the markets dropped over 7% upon opening.

The Dow Jones suffered its worst single trading day in history in terms of points drop, losing 3000 points. In terms of percentage loss it is now the second worst, at 13%. It is now rapidly approaching the 20,000 point mark, an almost 10,000 point drop for the month.

By reducing the interest rate to 0%, the Fed is incentivising spending as holding onto cash no longer generates interest. But despite this tremendous effort to bolster the economy investors recognised that it will still not have much of an impact. No matter how much incentive the Fed gives people to spend money, there is still ultimately little they can do if people are unable to actually go out and spend money, if they’re being asked to stay at home.

In fact, this move may have made investors panic more, as it is the largest set of single day moves the Fed has ever taken, and was taken ahead of the market open, instead of during its regular meeting on Tuesday and Wednesday. Investors are even pulling out of gold, the traditional safe haven asset.

As stricter measures continue to be introduced to stop the spread of the virus, this situation will only become worse as well, as people begin to prepare for a new life under quarantine.

Apart from self-isolation, social distancing is now being championed as the best way to stop the spread of the coronavirus. This is defined by staying outside of spitting distance of other people, and avoiding all non-essential contact. Also included in that are such measures as working from home, avoiding large gatherings, and not traveling unless absolutely necessary.

Many countries have closed now their borders, such as Canada, which is now stopping all foreign travellers from entering the country.

New Zealand has also introduced some of the strictest measures, requiring all travellers into the country to self-isolate for 14 days upon arrival. Prime Minister Jacinda Ardern has also called for all gatherings of 500 or more people to be cancelled, either indoors or outdoors.

For more information, check out our chart analysis on the Dow Jones by Anish Lal here at BlackBull Markets, and follow us on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.

Bank of Canada announces rate cut, US Stocks recover slightly, ADP shows positive data leading to NFP Release

In the latest development regarding US stocks, the Dow Jones, S&P 500 and NASDAQ 100 have all rebounded after last week’s catastrophic crash. The Dow has recovered almost 50% of its losses, gaining over 800 points, a rise of 3.25% for the day. The S&P 500 and NASDAQ are following closely behind, up 2.85% and 2.78%, respectively.

It is unlikely that the emergency rate cut made by the US Federal Reserve yesterday was the cause of this surge. Instead, these gains were most likely affected by the results of the US Democratic Primary elections, which saw former Vice President Joe Biden win in 8 states, giving him a boost against Vermont Senator Bernie Sanders. Biden is seen as more business friendly in his policies than Sanders, who aims to increase tax on the wealthy, and has criticised large corporations for not paying taxes.

As well as this, following on from the Fed rate cuts, the Bank of Canada has followed suit and also cut their interest rate by 50 basis points, or 0.5%, down to 1.25% from 1.75%. This move practically mirrored that of the Fed’s rate cut, which was also 50 bps and aiming to take their rate to the 1.25% range.

But while this move had been expected by investors, given that the Bank had already expressed that they were ready to take measures to stimulate the economy, it was unclear just how much the rate would be cut by.

Citing the coronavirus as the reason why they were cutting rates, the Bank said in a statement that the coronavirus had caused the Canadian dollar to drop amidst global uncertainties and expected the virus to only spread further and cause more damage to the countries GDP.

Following this news the US Dollar enjoyed a healthy rise to the upside, jumping from $1.3331 to $1.3427 against the Canadian.

In other news, as the NFP (Non-farm payroll) rapidly approaches, the ADP data was released. Usually seen as a precursor to NFP, ADP is also a payroll, but one that only measures jobs in the private sector, unlike NFP which measures all jobs in the US excluding agricultural workers. Therefore, it is a less accurate indicator of the US economy, but still useful as it usually predicts how the NFP release will turn out.

For the month of February, the ADP release reported 183,000 new jobs in the private sector, exceeding expectations of 150,000, even though the coronavirus still runs rampant. Therefore, it is possible that we won’t get to see the negative impacts of the virus until next month’s release.

For more information, watch our video here by Anish Lal at BlackBull Markets, or follow us on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.