Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for May 14, 2020.
Markets have taken another leg down this morning as fears over a second wave of infections continue to grow and the outlook for economic recovery appears increasingly bleak.
US stocks sank on Wednesday afternoon after Federal Reserve chairman Jerome Powell said that further interventions may be required in order to support the US economy, in the face of an unemployment rate that stands at close to 15%. Powell played down the rumblings that the Fed was seriously considering negative interest rates, and said that additional fiscal support from Congress may be required and would be “worth it”, despite the United States’ rising debt burden. “This tradeoff is one for our elected representatives, who wield powers of taxation and spending,” he said. Powell’s speech sent the S&P 500 tumbling; the index closed out the day 1.8% lower with all 11 sectors in the red.
In other news, the US Commodity Futures Trading Commission took the unusual step of warning brokers and exchanges that they should be ready for the price of oil futures contracts to drop below zero again. WTI crude oil contracts for June delivery will expire next week, and investors will be nervous of a repeat of last month, when all hell broke loose in the last few days before expiration. Despite this, an unexpected drawdown in US crude inventories has seen prices hold firm.
United sinks after linked Colombian airline goes under
In the S&P 500 the energy sector was the hardest hit in the Wednesday afternoon rout, sinking 4.4%, with the energy equipment and services subsector losing 7.7%. Smaller energy names fell hardest, with National-Oilwell Varco, Noble Energy, Halliburton and Apache all closing the day more than 9% lower.
United Airlines also continued its slump, falling 9% and taking its loss this week close to 20%. The airline has been the hardest hit by the current crisis out of all the major US carriers, with its stock down more than 75% year-to-date. United has been under particular pressure this week, as Colombian airline Avianca — in which United is a stakeholder — filed for bankruptcy. Comments from Boeing’s CEO on Tuesday predicting that some airlines will go bankrupt also affected sentiment towards airline stocks.
In the Dow Jones Industrial Average, for the second day running, 29 of the index’s 30 stocks were in the red, with American Express, Walgreens Boots Alliance and ExxonMobil falling hardest.
- S&P 500: -1.8% Wednesday, -12.7% YTD
- Dow Jones Industrial Average: -2.2% Wednesday, -18.5% YTD
- Nasdaq Composite: -1.6% Wednesday, -1.2% YTD
Stocks slip after UK GDP data
London-listed stocks slipped yesterday after the Office for National Statistics reported that UK GDP fell by 2% in the first quarter of 2020, including a 5.8% drop in March alone — when widespread lockdowns hit. The biggest weights on the economy were a drop in consumer spending and net trade. Investors were also digesting comments from Bank of England governor Andrew Bailey, who said in an ITV interview that financial markets are expecting the central bank to conduct more quantitative easing.
The FTSE 100 fell by 1.5%, with cruise firm Carnival, turnaround specialist Melrose Industries and InterContinental Hotels Group the biggest losers, falling 10.8%, 9.2% and 8.6% respectively. Carnival sank in advance of Norwegian Cruise Lines reporting its latest quarterly earnings this morning. Investors have also been wary this week of the prospects for the travel industry, following a warning from the director of the US National Institute of Allergy and Infectious Disease. Dr. Anthony Fauci warned that a vaccine or treatment for Covid-19 is not likely to be ready by the autumn.
The FTSE 250 also fell yesterday, closing 1.8% lower; luxury car maker Aston Martin Lagonda continued its slide with a 16% loss.
- FTSE 100: -1.5% Wednesday, -21.7% YTD
- FTSE 250: -1.8% Wednesday, -27.4% YTD
