Markets shudder, Fed chairman and Treasury secretary at odds

Shares in the US fell overnight after a virtual congressional hearing yesterday, where Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell set out differing views of the US’ economic outlook.

Republican Mnuchin argued that there is a risk of permanent economic damage if there are delays in bringing states out of lockdown and said that the Treasury is anticipating taking losses on its $500bn lending programs to support businesses. Mnuchin’s comments echoed those of President Trump, who has already predicted a V-shaped recovery — a viewpoint that the vast majority of professional investors disagree with.

Powell’s perspective took a different tone. The central banker argued that fear of the coronavirus is the biggest barrier to economic recovery, and so ensuring Americans feel safe about resuming normal economic activity should be the priority. He also suggested that additional Federal intervention may be required to prevent permanent damage to the economy. Powell and the Trump administration’s views being in conflict is not new territory, as the President repeatedly criticized the Fed for not providing more economic stimulus while the economy was growing.

Markets shudder, Fed chairman and Treasury secretary at odds

Powell and Mnuchin testimonies send stocks lower

US stocks sank late in the trading day on Tuesday after Powell and Mnuchin’s testimony, with the S&P 500 closing the day 1.1% lower and the Dow Jones Industrial Average down 1.6%.

In earnings news, Walmart reported that its e-commerce sales grew by 74% during the first quarter of 2020, as shoppers turned to online options during the pandemic lockdown and stocked up on household staples. CEO Doug McMillon told analysts that for some items the supermarket giant was selling in two or three hours what it normally sells in two or three days, and that the company had hired 200,000 employees to handle the demand. Total expenses related to Covid-19 hit $900m during the quarter, most of which went to employee bonuses and benefits. The firm’s earnings beat Wall Street expectations, but it withdrew its financial guidance. In other online retail news, Facebook hit the headlines after announcing the launch of Facebook Shops, which will let individuals become sellers and set up digital stores on Facebook and Instagram, similar to Amazon.

In the Dow Jones Industrial Average, only two stocks out of 30 posted a positive day, with Intel and Nike both closing marginally higher.

S&P 500: -1.1% Tuesday, -9.5% YTD

Dow Jones Industrial Average: -1.6% Tuesday, -15.2% YTD

Nasdaq Composite: -0.5% Tuesday, 2.4% YTD

FTSE 100 closes down after unemployment figures spike

The FTSE 100 closed 0.8% lower on Tuesday after unemployment figures were released showing that the number of people claiming unemployment benefits jumped to 2.1 million in April. Chancellor Rishi Sunak warned that it is “not obvious there will be an immediate bounceback” for the UK economy, and said that the country is facing a “severe recession, the likes of which we haven’t seen”. Sunak also warned that there would be more hardship to come, and that once reopening occurs it will take time for normal economic activity to resume.

The biggest losers in the FTSE 100 were tobacco giant Imperial Brands Group, plus energy firms Centrica and SSE, which closed 6.5%, 5.4% and 4.8% lower respectively. Imperial Brand’s slumped after cutting its dividend, the yield on which had reached as high as 13% thanks to the market pullback, by a third. The FTSE 250 index of smaller and mid cap UK companies gained 0.6% yesterday, led by events business Hyve Group, Hoschild Mining and Hammerson.

FTSE 100: -0.8% Tuesday, -20.4% YTD

FTSE 250: 0.6% Tuesday, -25.4% YTD

What to watch

Lowes: Following rival Home Depot’s earnings report yesterday, Lowes reports its own quarterly earnings today. Home Depot said that sales had risen sharply, but costs related to the coronavirus pandemic weighed the firm down. Analysts will be watching Lowes for how the balance of potential additional sales versus additional costs has panned out for the firm. Lowes stock is down 2.4% year-to-date, following a rally of more than 25% over the past month. Analysts are anticipating an earnings per share figure of $1.32 for the company’s Q1 2020, and 23 rate the stocks as a buy or overweight, six as a hold and one as an underweight.

Target: Target is one of the major retailers that has been able to remain in operation during the pandemic, given the essential nature of many of the goods it sells. Similar to Walmart, the company has been successful in recent years at building its online business, and investors will be looking closely at its online sales figures when the firm reports its first quarter earnings on Wednesday. As with Home Depot, Walmart and Lowes, analysts will also be watching any additional expenses incurred by Target due to the pandemic, such as pay boosts and additional staffing. Analyst expectations for the company’s Q1 profit figure have tumbled in recent months; currently Wall Street has 17 buy or overweight ratings, 10 hold ratings and one underweight rating on Target stock.

McKesson: Medical supply and pharmaceutical distribution firm McKesson’s share price has gained 4.6% year-to-date. The company, which reports its latest set of quarterly earnings today, has likely seen increased demand from hospitals for supplies during the pandemic, but may have suffered from a drop off in more routine healthcare procedures and visits. Analysts are anticipating an earnings per share figure of $4.10 for the quarter, broadly in line with expectations from three months ago.

Crypto corner: Automatic Bitcoin payments enabled on Sqaure

Mobile payments company Square, owned by Twitter CEO Jack Dorsey, has enabled users to make automatic Bitcoin purchases.

Dorsey himself said via Twitter on Tuesday that the Cash App allowed users to make automatic purchases of Bitcoin for as little as $10, recurring on either a daily, weekly or fortnightly basis.

Cash App launched to facilitate app-to-app payments in fiat currencies, allowing users to both buy and trade Bitcoin and also deposit Bitcoin.

All data, figures & charts are valid as of 20/05/2020. All trading carries risk. Only risk capital you can afford to lose.

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