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Beyond the Numbers

Coronavirus Concerns May Lead To Pullback On Wall Street
6/30/2020 9:02 AM

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to give back ground following the strong upward move seen in the previous session.

Lingering concerns about the spiking number of coronavirus cases in several states across the country may inspire traders to cash in on yesterday’s gains.

World Health Organization chief Tedros Adhanom Ghebreyesu warned Monday that "the worst is yet to come."

"The lack of national unity and lack of global solidarity and the divided world ... is actually helping the virus to spread," he said at a briefing in Geneva.

Traders are also likely to keep an eye on Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin’s testimony before the House Financial Services Committee regarding the response to the pandemic.

In prepared remarks, Powell notes that output and employment remain far below their pre-pandemic levels and cautions that the outlook for the economy is “extraordinarily uncertain.”

“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” Powell is due to tell the committee.

He adds, “The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.”

U.S. stocks ended on a buoyant note on Monday despite several states in the country reporting sharp spikes in new coronavirus cases over the weekend.

Investors surprisingly shrugged off concerns about the spread of the coronavirus and kept picking up stocks, betting on hopes the central bank will come with more stimulus sometime in the near future.

The major averages all ended with handsome gains. The Dow ended up 580.25 points or 2.3 percent at 25,595.80, the S&P 500 climbed 1.5 percent to 3,053.24, and the Nasdaq advanced 1.2 percent to 9,874.15.

Boeing (BA) shares soared more than 14 percent after the company got permission to test flights using the 737 Max. The Federal Aviation Authority has been reviewing the safety fixes done on the aircraft.

The Boeing 737 Max flights were grounded worldwide on safety concerns and deliveries were suspended after two fatal accidents that killed 346 people.

General Electric (GE) shares jumped 4.5 percent, while Verizon (VZ) and Goldman Sachs (GS) both gained about 2.9 percent. Apple Inc. (APPL), Caterpillar (CAT), Walt Disney (DIS), Procter & Gamble (PG) and Nike (NKE) moved up 2.3 to 2.5 percent. Facebook (FB) also closed notably higher.

In economic news, pending home sales in the U.S. fell 5.1 percent over a year earlier in May of 2020, following a record 33.8 percent plunge in the previous month due to the coronavirus crisis.

Pending home sales for the month of May spiked 44.3 percent after falling 21.8 percent a month earlier. Sales were expected to rise by 12 percent in the month.

In virus news, many U.S. states are reportedly returning to previous restrictions following a surge in new coronavirus cases in the country last week. As many as 36 states have reported large number of new cases in the past week.

Infection rates remain on the rise in countries such as Brazil and India. Australia reported 78 new coronavirus cases, the highest single-day rise since April. South Korea also reported new cases.

The resurgence of the coronavirus outbreak and concerns that Covid-19 has been badly underestimated curbed optimism for a swift recovery of the global economy.

A report from Johns Hopkins University said the number of coronavirus cases worldwide has surpassed 10 million, while the global death toll from the pandemic rose to more than 500,000.

Commodity, Currency Markets

Crude oil futures are falling $0.68 to $39.02 a barrel after jumping $1.21 to $39.70 a barrel on Monday. Meanwhile, after inching up $0.90 to $1,781.20 an ounce in the previous session, gold futures are creeping up $0.10 to $1,781.30 an ounce.

On the currency front, the U.S. dollar is trading at 107.72 yen compared to the 107.58 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1217 compared to yesterday’s $1.242.

Asia

Asian stocks rose on Tuesday as economic optimism prevailed despite a spike in global coronavirus cases. Data showing that China's manufacturing sector expanded more than expected in June bolstered sentiment.

Federal Reserve Chair Jerome Powell on Monday welcomed the return of economic activity but cautioned the outlook for the United States is still “extraordinarily uncertain.”

Japanese shares rose sharply after strong gains on Wall Street overnight on optimism over post-lockdown economic activity. The Nikkei 225 Index jumped 293.10 points, or 1.3 percent, to 22,288.14, while the broader Topix closed 0.6 percent higher at 1,558.77.

Investors shrugged off disappointing economic data released earlier in the day, including rising unemployment and weak factory activity for May.

Industrial output in Japan plummeted an annual 25.9 percent in May, the Ministry of Economy, Trade and Industry said. That was well shy of expectations for a drop of 11.3 percent following the 15.0 percent decline in the previous month.

On a seasonally adjusted monthly basis, industrial production sank 8.4 percent - again missing estimates for a drop of 5.6 percent following the 9.8 percent slide in April.

The unemployment rate in Japan came in at a seasonally adjusted 2.9 percent in May - missing expectations for 2.8 percent and up from 2.6 percent in April.

Market heavyweight SoftBank Group rose 1.3 percent and Fast Retailing advanced 1.8 percent. NTT rose half a percent on a Nikkei report that the telecom group would enter the renewable energy market.

Chinese shares rose notably after an official survey revealed the manufacturing sector in China continued to expand in June, and at a slightly faster rate with a manufacturing PMI score of 50.9. That beat expectations for 50.4 and was up from 50.6 in May.

The non-manufacturing index came in with a score of 54.4 - beating expectations for 54.1 and up from 53.6 in the previous month.

The benchmark Shanghai Composite Index climbed 23.16 points, or 0.8 percent, to 2,984.67. while Hong Kong's Hang Seng Index ended up 0.5 percent at 24,427.19.

U.S. Commerce Secretary Wilbur Ross said on Monday that regulations for providing preferential treatment to Hong Kong over China were suspended.

Local media reported that China has passed a controversial security law giving it new powers over Hong Kong after months of protests last year.

Australian markets rallied as investors hoped for a stimulus-backed economic rebound. The benchmark S&P/ASX 200 Index surged up 82.90 points, or 1.4 percent, to 5,897.90, while the broader All Ordinaries Index ended up 85.70 points, or 1.5 percent, at 6,001.30.

The big four banks rose between 0.4 percent and 1.2 percent, while energy companies Woodside Petroleum and Santos soared around 5 percent each.

Industrial stocks also gained ground, with toll-road operator Transurban Group rising 2.8 percent. Collins Foods spiked 12.7 percent after it reported strong full-year revenue and underlying net profit.

On the economic front, the Reserve Bank of Australia said that private sector credit issued in Australia was down 0.1 percent sequentially in May, shy of expectations for 0.2 percent following the flat reading in April.

Seoul stocks closed higher despite fears of economic setbacks stemming from the recent surge in new coronavirus cases and renewed political tensions between Beijing and Washington. The benchmark Kospi rose by 0.7 percent to 2,108.33.

Industrial output in South Korea fell a seasonally adjusted 6.7 percent month on month in May, Statistics Korea said - missing expectations for a fall of 1.4 percent following the 6.0 percent decline in April.

On a yearly basis, industrial output sank 9.6 percent - also missing forecasts for a fall of 4.5 percent after sinking 5.1 percent in the previous month.

Another report showed that the total value of retail sales in South Korea was up a seasonally adjusted 1.7 percent month on month in May, beating expectations for an increase of 1.2 percent.

On a yearly basis, retail sales climbed 4.6 percent - shy of expectations for a gain of 4.8 percent and down from the 5.3 percent annual gain in the previous month.

Europe

European stocks have moved to the downside on Tuesday as fears surrounding a surge in coronavirus cases around the world have offset encouraging factory activity data from China.

World Health Organization chief Tedros Adhanom Ghebreyesu warned Monday that "the worst is yet to come."

"The lack of national unity and lack of global solidarity and the divided world ... is actually helping the virus to spread," he said at a briefing in Geneva.

In economic news, Eurozone inflation accelerated in June as prices of energy decreased at a slower pace, preliminary data from Eurostat showed.

Inflation rose to 0.3 percent from 0.1 percent in May. Economists had forecast the rate to remain unchanged at 0.1 percent.

U.K. GDP numbers for the first quarter came in far gloomier than expected. Gross domestic product fell 2.2 percent sequentially instead of the 2 percent decrease estimated initially. The latest drop was the largest contraction since the third quarter of 1979.

While the U.K.’s FTSE 100 Index has slumped by 1 percent, the French CAC 40 Index is down by 0.5 percent and the German DAX Index is down by 0.1 percent.

Royal Dutch Shell has come under pressure. The oil and gas company expects post-tax impairment charges to be in the range of $15 billion to $22 billion in the second quarter, after revising its outlook for commodity prices and margin outlook amid the Covid-19 pandemic.

Electronics manufacturer Filtronic has also tumbled. The company said there is considerable uncertainty in the markets in which it operates.

InterContinental Hotels Group has also moved notably lower. The company confirmed around 10 percent of its hotels worldwide are now closed.

Meanwhile, tech stocks are moving higher after an upbeat revenue forecast from U.S. firm Micron Technology. ASM International and STMicroelectronics are posting notable gains.

Infrastructure group Balfour Beatty has also moved to the upside after bagging a Hong Kong contract worth around £577 million.

U.S. Economic Reports

Standard & Poor's is scheduled to release its report on home prices in major metropolitan areas in the month of April at 9 am ET.

At 9:45 am ET, MNI Indicators is due to release its report on Chicago-area business activity in the month of June.

The Chicago business barometer is expected to climb to 45.0 in June from 32.3 in May, although a reading below 50 would still indicate a contraction.

The Conference Board is scheduled to release its report on consumer confidence in the month of June at 10 am ET. Economists expect the consumer confidence index to rise to 90.0 in June from 86.6 in May.

At 11 am ET, New York Federal Reserve President John Williams is due to participate in a live-streamed "In Conversation - Federal Reserve Bank of New York" event at the Institute of International Finance "Central Banking in the Age of COVID-19 Summit.”

Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin are scheduled to testify before the House Financial Services Committee beginning at 12:30 pm ET.

At 2 pm ET, Atlanta Fed President Raphael Bostic and Minneapolis Fed President Neel Kashkari are due to speak at a National Association for Business Economics webinar on "Race, Mobility, and Fairness in the U.S. Economy."

Stocks In Focus

Shares of Micron Technology (MU) are moving sharply higher in pre-market trading after the chip maker reported fiscal third quarter results that exceeded estimates and provided upbeat revenue guidance.

Food producer Conagra Brands (CAG) may also see initial strength after reporting better than expected fiscal fourth quarter results.

On the other hand, shares of Boeing (BA) may give back ground after Norwegian Air said it cancelled orders for 97 aircraft made by the aerospace giant.
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