US Senate passed the $2tn stimulus package – Wall Street first day of back-to-back gains in a month

Wall Street posted its first day of back-to-back gains in a month, as the US Senate got its act together and passed the $2tn stimulus package. But Asian equities have failed to carry through and US futures are weaker.  

European shares opened a fair bit softer After moving briskly higher into the close yesterday to threaten the March 13th swing highs at 5700, the FTSE 100 came off 200 points, or 3.5%, on the open to trade below 5500 before trimming losses and driving off the lows towards 5550. Near-term support emerges around yesterday’s lows at 5400. 

Markets are fretting over the US jobless claims numbers due at 12:30 GMT. The estimate is anything from 0.8m to 4m, against a usual print around the 200k level. As mentioned last night, this is will be the first real measure of just how far and how fast the world’s largest economy has contracted because of the coronavirus. Investors are also fretting over the second wave of cases in Asia. Tokyo and Hong Kong are bracing for a second front in the war. 

The severity has been described by the Insee institute in France. It reckons French GDP would decline 6% of the lockdown currently in place lasts 2 months, or 3% if it is lifted after one month. Economic activity is currently running at 65% of normal, it said.  

US Treasury yields were negative for the first time – at least up to 3 months – but have come back since and now the curve is all in the positive again. 

Oil is pretty steady, with WTI still in a consolidation range between $23 and $25, last at $23.75.

Gold has continued to pull back to nestle on support around $1600, with the near-term resistance now formed by the 61.8% level at $1606. Bullish flag/pennant look about the hourly chart pattern. Whilst bond markets are still showing dislocation and are still rather jumpy, the broader picture of ultra-low rates and negative real yields ought to offer support longer term for gold prices. A pullback could find support at the rising trend support line around $1565.

 

Equities 

Yet more trouble on the RNS this morning. British Land is suspending dividend payments forthwith, offering no guidance for the coming year and telling occupiers to delay taking possession of newly developed office space. 

Troubled shopping centre operator Intu warns it’s received just 29% of rents due March 25th, vs 77% for the same period a year ago at the same stage. Management say they are looking at accessing the government support package. This rather goes to the heart of the potential moral hazard for the stimulus to effectively prop up failing businesses. The stimulus needs to support good companies, not allow the zombies to continue operating. 

Dixons Carphone is warning again, saying the loss of sales from store closures means it will not hit its £210 profit before tax target, while net debt will is now not going to be lower this year. 

Trading has been good this year: in the 11 weeks from Jan 5th to March 21st, Group Electricals LFL is +8%, with Electricals LFL sales growth running at +23% in the last three weeks. Clearly housebound consumers are stocking up on gadgets, TVs and baking kit to make those sourdough loaves. Dixon’s online presence is key here and should mitigate some of the losses – seen at £400m in revenues over the rest of the year – from store closures, but far from all. Mobile remains the real problem here – UK and Ireland mobile sales plunged 15% in the 11 weeks through to Mar 21st, with the decline accelerating sharply in the last 3 weeks to –24%. The planned dividend in September is under review, but it as noted recently here, it would be prudent for all businesses to put shareholders to the back of the queue right now.