Thursday, July 2, 2020

Markets held on to gains after the June jobs report

Dow rose 92 (after selling in the PM), advancers over decliners about 2-1 & NAZ climbed 53 to a new record close.  The MLP index fell 1 to 131 & the REIT index was even in the 345s.  Junk bond funds continued higher & Treasuries went up in price.  Oil climbed over 40 & gold  gained 7 to 1787 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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McDonald's (MCD), a Dow stock & Dividend Aristocrat, is pausing its US reopening plans for 21 days as coronavirus cases spike across the country.  States like Michigan, Colorado & Florida have been responding to the recent surge by delaying or rolling back efforts to reopen their economies.  About 2200 of its US dining rooms are currently open, which is roughly 15% of its total US footprint.  Franchisees who have already reopened dining rooms & are not facing any rollbacks from local officials can decide if they want to keep them open.  “To be clear: owner/operators will make the final decision in these situations,” Joe Erlinger, head of MCD's US division, & Mark Salebra, chair of the National Franchisee Leadership Alliance, wrote in a note to franchisees.  The 2 men also emphasized that franchisees should continue to be disciplined about safety measures, including wearing masks properly & adhering to wellness and temperature check procedures.  “This surge shows nobody is exempt from this virus – even places that previously had very few cases,” they wrote.  “Moving forward, we will continue to monitor the situation and adjust as needed to protect the safety of our employees and customers.”  The stock fell 1.13.
If you would like to learn more about MCD, click on this link:

McDonald’s is halting its U.S. reopening plans as coronavirus cases spike

China's gov & pro-Beijing activists in Hong Kong condemned what they called foreign meddling in the territory's affairs on Thurs, as countries moved to offer Hong Kongers refuge & impose sanctions on China over a new security law.  Chinese foreign  ministry spokesman Zhao Lijian said no amount of pressure from external forces could “shake China’s determination and will to safeguard national sovereignty and Hong Kong’s prosperity and stability.”  He urged the US to abide by intl law & stop interfering in Hong Kong's affairs & not sign a sanction bill into law.  His comments came after the House of Representatives yesterday joined the Senate in approving a bill to rebuke China over its crackdown in Hong Kong by imposing sanctions on groups that undermine the city’s autonomy or restrict freedoms promised to its residents.  If the bill becomes law, “China will definitely take strong countermeasures, and all consequences will be borne by the U.S. side,” Zhao said.  Meanwhile, dozens of pro-Beijing activists & lawmakers protested outside the US Consulate in Hong Kong to demand that the US stop meddling.  The group said it gathered 1.6M signatures online in support of its call.  Tam Yiu-Chung, Hong Kong’s sole delegate to the National People’s Congress Standing Committee, said on public broadcaster RTHK today that the new security law imposed by Beijing on Hong Kong was not harsh.  If it were, no one would dare violate the law, he said.  His comments came a day after thousands of protesters marched against the security law, which took effect in Hong Kong late Tues.  The security law outlaws secessionist, subversive & terrorist acts, as well as any collusion with foreign forces in intervening in the city's affairs.  Critics say the law effectively ends the “one country, two systems” framework under which the city was promised a high degree of autonomy when it reverted from British to Chinese rule in 1997.  The maximum punishment for serious offenses under the legislation is life imprisonment, & suspects in certain cases may be sent to stand trial on the mainland if Beijing deems that it has jurisdiction.

China threatens 'strong countermeasures' if US imposes sanctions over Hong Kong law

American Airlines (AAL) told staff it has more than 20K employees it doesn't need for its reduced fall schedule as the carrier & its competitors face weak demand for air travel during the coronavirus pandemic. The carrier & other US airlines are urging employees to take buyouts or early retirement options to reduce head count before turning to involuntary measures like layoffs.  US carriers are prohibited from laying off or cutting the pay rates of their staff thru Sep 30 under the terms of $25B in gov payroll support aimed at softening the impact of the virus on their business.  AAL had 133K employees as of the end of last year.  “We currently anticipate having 20 to 30% — or more than 20,000 — more team members on payroll than we need to operate our schedule this fall,” CEO Doug Parker & Pres Robert Isom said in a staff note.  “To be clear, this doesn’t mean 20,000 of our team members will be furloughed in October, it simply means we still have to work to do to right-size our team for the airline we operate.”  AAL & its competitors have been shoring up liquidity & cutting costs as demand remains a fraction of 2019 levels, even for the peak summer travel season.  At the depths of the demand crisis in Apr, AAL had $11M in cash receipts, which rose to $358M in May & more than $1B in Jun, the execs said.  “While that improvement is encouraging, it’s compared to an average of $4.2 billion each month during the same period in 2019, so we have a ways to go,” they wrote.  The carrier was burning less than $35M a day at the end of Jun, down from $100M a day in Apr, they added.  The stock slid back 31¢.
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American Airlines says it’s overstaffed by 20,000 employees for fall schedule

Gold futures settled higher as investors showed concern over the economic impact of the rising numbers of new COVID-19 cases in the US & around the world, despite improving economic data.  A drop in the US unemployment rate & a better-than-expected job growth in Jun only briefly managed to pull prices lower during today's session.  The US added 4.8M jobs in Jun & the unemployment rate fell for the 2nd straight month to 11.1%.  The increase in new jobs easily exceeded the 3.7M forecast.   However, the economy's recuperation from the coronavirus might already be suffering a setback from a renewed surge in COVID-19 cases.  New US coronavirus cases hit a single-day record yesterday of more than 52K while the global total reached 2.64M & death toll of 128K.  In the longer run, though, gold also could receive support from easy monetary policy, after minutes of the Federal Reserve’s most recent monetary-policy meeting revealed an expectation that the economy likely will require support in the form of highly accommodative monetary policy for “some time.”

Gold settles higher with investors casting a wary eye on upbeat U.S. jobs data as cases of COVID-19 continue to rise

Oil futures rose for a 2nd session to mark their highest finish since Mar, buoyed by better-than-expected US job growth in Jun, after data a day earlier showed the biggest weekly domestic crude supply decline since 2019.  The US added 4.8M jobs in Jun & the unemployment rate fell for the 2nd straight month to 11.1%, according to gov data.  West Texas Intermediate (WTI) crude for Aug rose 83¢ (2.1%) to settle at $40.65 a barrel after gaining 1.4% yesterday.  For the holiday-shortened week, oil saw a weekly gain of 5%, based on the most-active contract close last Fri.  Global benchmark Brent oil for Sep picked up $1.11 (2.6%) at $43.14 a barrel which will hold an abbreviated trading session Fri.  Brent oil traded 5.2% higher this week.  Both WTI & Brent futures marked their highest settlements since Mar 6.  The Energy Information Administration reported yesterday that US crude inventories fell by 7.2M barrels for last week, coming after 3 consecutive weeks of increases.  The forecast called for a crude supply decline of 2.7M barrels.  Energy markets have also been keying in on increases in cases of COVID-19, however, with the US hitting a single-day record of infections of more than 52K, injecting some concern into crude markets about the impact of protocols to limit the spread on the economy & oil uptake.

Oil climbs for a second session, settles at highest since March

Stocks opened with a strong advance, followed by sellling in the PM.  The gut reaction to the employment data was positive, but after thinking about problems relating to higher virus cases & retreating by some states on reopening businesses, investors took profits ahead of the long holiday weekend which begins tomorrow.  Demand for safe haven gold continues strong around 100 below record levels.  Have a good holiday!!

Dow Jones Industrials

Markets jump on a better than expected jobs report

Dow climbed 179 (but off highs at the opening), advancers over decliners 3-1 & NAZ gained 76 to another record.   The MLP index was off fractionally in the 131s & the REIT index fell 2+ to 352.  Junk bond funds crawled higher &Treasuries were purchased.  Oil rose in the 39s & gold went up 7 to 1787.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil40.55

GC=FGold   1,784.60

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The US unemployment rate dropped to 11.1% in Jun as businesses shuttered by the coronavirus pandemic earlier this year rehired Ms of idled workers.  The Labor Dept report was released today because of tomorrow's holiday, said that employers added 4.8M jobs in Jun — the biggest increase on record.  The forecast expected the report, to show that unemployment dropped to 12.3% &  that employers added 3M jobs.  May's figure was revised up by 130K for the addition of 2.7M jobs last month.  Still, the nation's jobless rate is up 7.6 percentage points compared to the start of the year, when it sat at a ½-century low.  There are 12M more out-of-work Americans than compared to Feb.  Over the course of the past month, every state has started to navigate reopening their economies.  But the unemployment level, which is still at the highest level in decades, is expected to remain elevated as social distancing guidelines remain in place, particularly as states fight a resurgence in COVID-19 cases.  New cases surpassed 50K for the first time this week, reaching a single-day record.  Arizona, Florida, Texas & California are among the states that have seen a spike in infections.  If the outbreak intensifies, forcing businesses to shut down again, economists the consequences could be dire.  Because the report was conducted in mid-Jun, it does not capture the recent closures in some states that have seen a spike in cases.  Disney (DIS), a Dow stock, postponed the scheduled Jul reopening of its California parks, Apple (AAPL), a Dow & NAZ stock. re-closed 32 stores in 5 states, & Macy's (M) announced that it would cut 3900 corp jobs -- roughly 3% of its total workforce.  Texas Gov Greg Abbott hit pause Thurs on the state's reopening plans & on Fri, he ordered all bars in the state to close & scaled back restaurant capacity by 50%.  Leisure & hospitality once again accounted for the biggest bulk of jobs created last month, with more than 2M new positions added.  About 1.5M of those jobs were added by food services & drinking places — one of the sectors hit hardest by the pandemic as states ordered restaurants & bars to close & directed Americans to stay at home — while the accomodation sector added about 238K.  Retail saw a gain of 740K & manufacturing increased by 356K.  Education & health services rose 568K.  But state govs, which face significant budget shortfalls as a result of the virus-induced recession, lost 25K jobs.

Economy adds record-breaking 4.8M jobs in June as unemployment rate falls

The number of Americans filing for unemployment benefits for the first time rose more than expected last week as a resurgent coronavirus added pressure to the US economy.  The Labor Dept said  that initial jobless claims rose by 1.4M.  The forecast was for a rise of 1.38M.  This marked the 15th straight week in which initial claims remained above 1M.  The data also showed the number of continuing claims — the number of people receiving unemployment benefits for consecutive weeks — rose to 19.3M, an increase of about 59K. 

Weekly jobless claims rise more than expected in final week of June

California, Michigan & New York City became the latest areas yesterday to pause some aspects of their reopening efforts as new cases spike across the country.  Amid the surge, Pres Trump said he’s “all for masks,” but he doesn't think the US needs a national mandate for people to wear them during the pandemic.  The latest news on the coronavirus a outbreak:
  • Global cases:    More than 10.7M
  • Global deaths:   At least      517K
  • US cases:          More than  2.7M
  • US deaths:         At least      128K
The US coronavirus outbreak will come to an end by Jan “one way or the other,” thanks to a vaccine or because enough people will have already been infected & have some immunity to it, former Food & Drug Administration Commissioner Dr Scott Gottlieb said.  “Either we’ll get to a vaccine or we’ll just have spread enough it’s just going to stop spreading efficiently, so we have a short period of time to get through,” Gottlieb added.  “We should do everything we can to preserve what we want of our way of life over that time period to just get through it.”  Gottlieb's hopes for an effective vaccine or for the US population to achieve herd immunity to curb the outbreak both depend on what scientists learn about the role of antibodies.  Unfortunately, there/s still no clear evidence that antibodies give people any protection against being reinfected.

Coronavirus live updates: U.S. reports a record 50,000 new cases in a day

The Dow in early trading surged, but dropped 300 from the peak after the report of a daily record of 50K for new virus cases.  It is not going away without a fight & that will be a drag on the economic recovery.  Also, unemployment claims remain at troubling levels.  In the booming economy they were about 0.2M.  Last week there were still above 1M!  The bulls may have difficulty maintaining investor optimism.  The Dow back to where it was a month ago.

Dow Jones Industrials

Wednesday, July 1, 2020

Markets hesitate after investors digest Fed comments

Dow fell 77 with sellloing into the close, advancers over decliners 5-4 & NAZ went up 95 (good enough for a new record.  The MLP index fell 1 to 132 & the REIT index jumped 9 to 355.  Junk bond funds were little changed & Treasuries declined in price.  Oil continued higher in the 39s & gold pulled back 19 to 1781 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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US construction spending fell for a 2nd month in May with both home building & nonresidential activity declining.  The Commerce Dept said May activity dropped by 2.1% following an even larger 3.5% fall in Apr as the construction industry was rocked by the shutdowns triggered by the coronavirus pandemic.  Home building dropped 4% with construction of single-family homes down 8.5%.  Nonresidential construction dropped 2.4% with office building & the category that covers shopping centers both down.  Spending on gov construction projects rose 1.2% in May.

US construction spending fell 2.1% in May

The Federal Reserve on released the minutes from its Jun 9-10 meeting, during which it held interest rates steady & said it expects loose policy to prevail until the economy gets back to normal.  Officials also had an in-depth discussion about capping bond yields & strengthening its guidance about where policy will be set in the future.  Central bankers on the FOMC voted to hold their benchmark short-term borrowing at 0%-0.25%.  That’s where the Fed took the rate in mid-Mar as it sought to provide support for an economy reeling from the coronavirus.  Officials at the meeting noted that “the current stance of monetary policy remained appropriate” but said the Fed should strengthen the guidance it provides to markets.  The minutes noted a need for “highly accommodative monetary policy for some time” & said the conditions for that should be spelled out clearly.  “In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate & provide more clarity regarding purchases of Treasury securities & agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available,” the minutes said.  Members at the meeting indicate that they would prefer future policy moves tied to inflation, while just “a couple” said they would rather unemployment be the guide.  In addition to the rate move, the committee also released its expectations for various data points.  The median GDP projection for 2020 was a contraction of 6.5%, followed by a 5% increase in 2021 & 3.5% the following year.  “Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook,” the minutes stated.  Despite the comparatively bright outlook for 2020, officials noted that the fiscal help Congress provided for households, businesses and state and local govenrnments “might prove to be insufficient.”

Federal Reserve releases minutes for June meeting

The Arizona Dept of Health reported nearly 4900 new coronavirus cases & 88 new deaths, a record single-day jump in both grim markers ahead of VP Mike Pence's visit to the state later in the day.  The coronavirus has infected a total of 84K killed 1720 in Arizona.  The state's previous single-day high in the number of additional cases was 3593 on Jun 23.  While an increase in Covid-19 testing & a potential lag in data reporting of the daily case numbers could account for the rise in positive cases, the number of hospitalizations in Arizona have steadily increased over the past weeks.  Arizona reported 2516 currently hospitalized on a 7-day average, a 35% increase compared with a week ago.  Arizona is nearing max capacity of intensive care unit beds with 1495 (89%) of the state's ICU beds in use.  The number of ventilators being used at hospitals also reached a record high of 795, according to the state's dept of health.  Arizona Gov Doug Ducey rolled back the state’s reopening plans & closed all bars, gyms, movie theaters & water parks.  He said Arizona will try to restart the businesses in 30 days.  “We can’t be under any illusion that this virus is going to go away on its own. Our expectation is that next week our numbers will be worse. It will take several weeks for the mitigation that we have put in place and are putting in place to take effect,” Ducey added. 

Arizona reports record spike in new coronavirus cases and deaths

The coronavirus outbreak across the US is getting worse & could threaten New York's recovery after stringent lockdowns across the state helped suppress the fast-spreading infection, New York Gov. Andrew Cuomo said.  “We have to be careful. We have dark clouds on the horizon and we’ve made tremendous progress,” Cuomo added.  “We’ve been through Hell and back, but this is not over and this can still rear its ugly head anywhere in this nation and in this state.”  Cuomo pointed to states like Texas, Florida & Arizona, which have all seen new cases & hospitalizations surge in recent days, as places that reopened too fast & now have to close again.  “Now they’re all singing a different tune,” Cuomo said.  “Now they’re all starting to say, ‘We better take this seriously. We better start wearing masks.’ They’re going backwards on their reopening plan.”  He cited comments from White House health advisor Dr Anthony Fauci, who projected that the US could surpass 100K new infections per day, as a sign that current reopenings have exacerbated the outbreak.  Cuomo criticized local leaders for not enforcing compliance of the state's face covering requirements & social distancing measures.  “Citizen compliance is slipping. That is a fact,” Cuomo said.  “Look at pictures. Look at any street in Manhattan, go to the East Village, go to the West Side, go to Brooklyn, go to Queens, go to the Bronx, citizen compliance is slipping.”

Cuomo warns of resurgence of coronavirus: ‘We have dark clouds on the horizon’

US vehicle sales in Q2 for General Motors (GM), Toyota (TM) & Fiat Chrysler (FCAU) plunged by more than 30% as the coronavirus caused consumers to stay at home, & dealerships & factories to shutter.  The hefty declines are in line with what was expected.  Nissan, Hyundai & Porsche also reported significant drops in sales in Q2 compared with a year earlier.  US vehicle sales were forecast to fall by 34% in Q2 & the 2nd qtr is expected to be the worst of the year for the automakers due to the pandemic.  YTD, GM reported a 34% decline in sales in Q2, while FCAU said vehicles sold fell 38.6%.  TM sales dropped 34.6% during the last 3 months compared with a year ago.  Both GM & FCAU said full-size pickup truck sales performed exceptionally well, & overall sales showed signs of recovery, especially deliveries to retail customers.  “GM entered the quarter with very lean inventories and our dealers did a great job meeting customer demand, especially for pickups,” Kurt McNeil, GM's US VP, sales operations, said.  “Now, we are refilling the pipeline by quickly and safely returning production to pre-pandemic levels.  Jeff Kommor, head of US sales for FCAU, said retail sales to consumers have been rebounding since bottoming in Apr, however fleet sales to govs & businesses have been canceled or delayed.  “This quarter demonstrated the resilience of the U.S. consumer,” Kommor said . “Retail sales have been rebounding since April as the reopening of the economy, steady gas prices, and access to low-interest loans spur people to buy.”  He added that the company has built “a strong fleet order book” that will assist its sales in H2.

GM, Fiat Chrysler U.S. auto sales tank in second quarter as coronavirus saps demand

Macy's (M)  booked a $3.18B Q1 writedown as the COVID-19 pandemic shuttered stores & curtailed business.  The department store chain took a pre-tax, non-cash goodwill impairment charge of $3.1B & a long-lived asset impairment charge of $80M.  As a result, Macy's lost $3.58B ($11.53 a share) as revenue plunged 45% from a year ago to $3.02B.  On an adjusted basis, the loss was $630M ($2.03 a share).  The adjusted results were in-line with the updated preliminary results the company released last month.  “The first quarter of 2020 was challenging for the country, the industry and Macy’s,” CEO Jeff Gennette said.  “While our stores are re-opened, we expect that the COVID-19 pandemic will continue to impact the country for the remainder of the year,” he added.  “We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level.”  Macy's has reopened almost all of its stores, which the company says have performed better than anticipated in May & June.  Digital sales have been strong across its markets.  The stock fell 29¢.
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Macy's takes $3.2B coronavirus hit

Gold futures settled with a loss after topping $1800 & marking the highest finish since in nearly 9 years a day earlier, as uncertainty about the economic recovery from the coronavirus pandemic underpinned demand for the safe haven.  Concerns about the spread of COVID-19 & stimulus from govs & global central banks to limit the harmful impact of the contagion is expected to foster an environment ripe for the rise of gold to further records, gold bulls predict.  Aug gold lost $20 (1.1%) to settle at $1779 an ounce after trading as high as $1,807 overnight.  A day earlier, it notched the highest finish, at $1800, for a most-active contract since Sep 2011.  In Aug 2011, gold futures settled at a record $1891.  In H1 (just completed), gold futures based on the most-active contracts rose just over 18%.  For Q2, the commodity gained nearly 13% & it climbed almost 3% in the month of Jun.  After the settlement for futures prices, an account of the Federal Reserve’s most recent monetary-policy meeting revealed that officials noted that the economy is likely to need support from highly accommodative monetary policy for “some time” & that it's important in coming months to provide”greater clarity” regarding the path for interest rates.  In electronic trading shortly after the meeting minutes were released, Aug gold was little changed.

Gold settles with a loss to start July after the notching the highest finish since 2011

Oil futures ended higher after a gov report showed the largest weekly decline in domestic crude inventories so far this year.  The Energy Information Administration (EIA)  reported that US crude inventories fell by 7.2M barrels last week.  That followed 3 consecutive weeks of increases.  The forecast forecast called for a supply decline of 2.7M barrels, while the American Petroleum Institute on yesterday reported a fall of 8.2M barrels. The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged down by about 200K barrels for the week.  The decrease in US supplies has injected some optimism in crude markets, which have been whipsawed by anxieties around the growing spread of COVID-19 & the impact of the contagion on crude demand.  West Texas Intermediate crude for Aug rose 55¢ (1.4%) to settle at $39.82 a barrel.  In H1, prices based on the front-month contracts, were nearly 36% lower.  For Q2, however, prices rose nearly 92% from depressed levels.  Meanwhile, global benchmark Brent oil for Sep picked up 76¢ (1.8%) to $42.03.   Front-month contract prices fell by 38% in H1, but were up nearly 81% in Q2.

Oil futures end higher as U.S. supply marks biggest weekly decline of the year

The economic news was less not cheery & investors wavered today.  The Dow remained near break-even after it pulled back from the brief rally at the opening.  However, tech stocks are in strong demand, along with gold.  That's a strange combination.  The virus does not want to admit defeat & finds new ways to make its presence known while the economy struggles to return to its winning ways.  The hopes for a V-shaped recovery are all but dashed.  It looks like the economy will turn in a mediocre performance in H2 with the unemployment rate expected to be 9½% by year end.  That has been a peak rate during last recessions.  Gold continues to attract nervous investors.

Dow Jones Industrials