Did COVID Kill LNG Natural Gas Dreams?

The current minimum amount of positive figures or green shoots are swiftly removed by new depressing figures of crude oil stock volumes in USA or lower estimates of OECD and MENA region GDP figures for 2020. The total impact is still unclear, but one thing has become obvious, energy demand and supply is under pressure, but not yet balancing out the right way.

At present, the main focus when talking about energy demand destruction is on crude oil and its products. Clearly, oil is struggling, but its sister, natural gas is totally on life-support.

The Golden Age of Gas, as presented by the International Energy Agency at the beginning of the 21st Century, seems to be a very short Age, as we are now entering a possible Ice Age of Gas. Demand worldwide is fledgling, main consumer markets are showing no increased demand figures, while the future demand is in doubt.

With being promoted worldwide as the energy transition fuel, natural gas and LNG have been promoted exponentially. The world’s leading oil and gas companies, such as Shell, ENI, Total, in cooperation with national oils QP, ADNOC, Gazprom and others, all have made the ‘rational’ choice to invest in the natural gas E&P sectors from the end of the 1990s onwards.

Success seemed inevitable, as natural gas or LNG was the preferred fuel of choice.

Nobody expected however a main competitor on the horizon, US shale gas. The latter’s revolutionary capture of the global market destabilized the projected gas market fundamentals and brought price levels down substantially. Demand still grew, as prices were very competitive, but supply continued to outpace it.

Still, investments in on- and offshore gas projects kept pouring in, as seen in East Med, offshore Nile Delta Egypt, Australia and Qatar. The global gas market shook on its fundamentals. The emergence of COVID-19 however could be a major shock to its total future. At present, a long list of gas producers is filing for bankruptcy, such as US company Chesapeake and more than 200 US shale producers, or are considering a total reassessment of ongoing and future investment projects.

The Golden Age of Gas has become an Ice Age of Gas.

The latter is for sure the case for LNG projects worldwide, that are not only confronted by COVID-19 but a total out of touch with the market supply volume the coming years. Without COVID-19 the market already would have been hitting a major slump due to overproduction and sluggish demand growth.

New projected production volumes, especially in East Med, Mozambique, Brazil, Australia and even in the GCC (Qatar, Saudi Arabia, Abu Dhabi), are going to be very hard to sell at commercial price levels. Some even expect that if no real measures are being taken, and production expansion continues, major LNG and gas producers could be facing the same dark scenarios as WTI in April. Negative prices are not out of reach, if the market refuses to go to a restructuring very soon.

Non-American gas producers should understand that with oil prices hovering around $40 per barrel Brent additional shale oil and gas production will come again online. Higher price settings for crude oil and NGLs will boost US shale gas production for sure. Without increased US domestic demand the only way is out, entering the global markets.

Future investment projects in Qatar, Saudi Arabia and East Med, are facing enormous challenges. Qatar’s LNG strategy has been working for decades, proponing the Peninsula into the Ivy League of gas producers, but now could become a boomerang full of pain. The end to the Qatari production moratorium, in principle a wise choice, however has come at the wrong time. Demand for these additional volumes doesn’t exist.

The multibillion investments presented by Doha in E&P and additional LNG carriers could be a major blow to its commercial existence. The same is the case for the high-profile East Med gas adventures of Egypt, Israel and Cyprus. The continuing exploration success stories presented by Italy’s ENI, French major Total and others in Egypt or Cyprus have become a new version of a Pyrrhic victory. Giant reserves are being found, LNG production is available, but customers are hiding or retreating even. Domestic regional demand will not be enough to counter supply, while European customers can receive LNG volumes at lower prices.

This time success or a Golden Age scenario has turned into a major black hole. Investments are made, commitments are there, reserves proven but demand is down, due to a virus. Not even Asia’s gigantic markets are able to take advantage, as their own situation is also dire.

Some analysts warned already in the 1990s that the high profile transition from oil to gas producer, as stated by Shell, BP and others, could backfire. Current financials are not yet showing it in full, but profit margins of the main gas producing oil majors will be lower for a longer time. No option anymore to counter lower gas prices by higher oil margins, as they have lost a pivotal oil market position since years.

National oils, especially QP, ADNOC or its counterparts Gazprom and others, are in the same boat. Gazprom reported, as shown by Russia’s Federal Customs Service (FCS), that it being hit by lower export gas prices and volumes. FCS data show that the company’s gas export revenues in the first five months of the year plunged 52.6% to $9.7 billion, while shipments declined 23% to 73 billion cubic meters (Bcm). May’s export revenues came to $1.1 billion – which is 15% lower than April. Physical exports were down 1.7% m-o-m to 11.9 Bcm. When compared to 2019 figures, Gazprom’s May 2020’s export revenues were 61% lower and volumes were 24% down.

Going for the well-known transition fuel natural gas is currently putting these companies on a rowing boat and not anymore a speedboat. Profitability of the natural gas upstream and downstream sector has always been low, especially when looking at the crude oil hey-days. Investors now also will start to reassess their involvement.

Lower ROIs, a bleaker future than presented and a still continuing immense gas supply glut, is not something investors are happy about. Seems that IOCs and NOCs are now looking at a home-made Sword of Damocles. COVID-19 even can make it worse if major economic policies, such as the EU’s Green Deal, are going to be implemented earlier. Without even the option of being the energy transition’s fuel of choice, natural gas could be put on a slow burner for the next decade. The current bearish gas market, due to prices averaging under $2/MMBtu in 2020, no light is at the end of the tunnel.

LNG’s overall situation is even worrying, as costs are higher than commercials are offering at present.

Worldwide LNG projects are also partly doomed, as LNG price settings are either putting projects on ice or major delays of FID is to expected. Global Energy Monitor reports in its Gas Bubble 2020 report that LNG projects that are still within the pre-construction phase have experienced a “widespread pullback, including the quiet abandonment of a large number of projects.” The same report reiterated that for the period between 2014 and 2020, the failure rate for proposed LNG export terminal projects is 61%.

It also identified 29 LNG export terminal projects that have since 2014 either been delayed, cancelled, abandoned or are facing substantial challenges. The report also states that in total, companies had announced plans to build $758 billion of projects that are as yet in the pre-construction phase. But with 20 projects now in jeopardy, including nine in the United States, that planned capital outlay could be reduced by $292 billion, or 38%, if the delays persist indefinitely.

Uber Beefs up for Food Fight with $2.65B Acquisition

After the announcement, Uber’s stock jumped six percent on Monday, bringing its advance to nearly 129 percent since its record low on March 18. Having gained over 10 percent since the extended 4th of July weekend, Uber’s shares have also outpaced the week-to-date gains seen respectively in the S&P 500 and the Nasdaq.

Shareholders are hoping that this acquisition would also bolster Uber’s plans for reaching its first-ever quarterly profit, with such ambitions derailed after its global ride-hailing business fell by 70 percent in the wake of the pandemic. Gross bookings registered its first-ever quarterly drop in the January-March period this year, as the orders to stay at home dealt a massive blow to the travel and transportation industry.

Growing appetite for food deliveries, and more

The pandemic however boosted demand for food deliveries, which soared by 52 percent in gross bookings to US$4.68 billion in Q1. The segment also accounted for 23.1 percent of Uber’s gross revenue for the quarter, higher compared to the 18 percent contribution in the prior three-month period, according to Bloomberg data. Postmates’s food-delivery bookings rose about 67 percent in Q2, according to Uber CEO Dara Khosrowshahi.

Set against such a context, it’s of little wonder that Uber is willing to place a bigger bet on the food deliveries segment, as its core offerings contend with the strong headwinds stemming from the pandemic. And with this consolidation in the food deliveries space, there could eventually be some upward pressure on prices as the market discovers its new equilibrium, which bodes well for this Uber segment’s top line.

Beyond bolstering its food deliveries segment, Uber is also hoping to leverage on Postmates’s strength in its online delivery offerings, which brings groceries and daily essentials, among other things, right to customers’ doorsteps. Also this week, Uber rolled out its in-app grocery delivery services for select Latin American and Canadian cities, as it partners with Cornershop, the Chile-based grocery delivery startup in which Uber agreed to take up a majority stake last year.

Uber’s emphasis on delivery-as-a-service should give the company another leg to stand on in its quest for profitability, especially if changed consumer habits from the lockdown-era (i.e. customers are less wiling to venture out of their homes) become sticky.

A sure path to profitability?

Back in May, Khosrowshahi said that the initial timeline for churning out the company’s first-ever adjusted quarterly profit has been pushed back from this year to 2021. To hasten its path to profitability, Uber has reduced over US$1 billion in expenses, getting rid of some non-core businesses while having shed more than a quarter of its staff.

While awaiting the potential synergies to materialize from this combo of profitless companies, with the deal only expected to be sealed in the first quarter of 2021, shareholders are likely to keep themselves busy in the interim, assessing how Uber is faring amid the double-edged sword that is the global pandemic. The impact of Covid-19 is likely to be more pronounced in Uber’s Q2 earnings release slated for August.

It remains to be seen whether shareholders will have the patience to wait for the promise of things to come, and potentially send Uber’s shares much higher from current levels. If it’s anything like I’ve discovered during quarantine, the wait can sometimes be agonizing, akin to trying to supress one’s hunger pangs while waiting for the food delivery order to arrive.

Written on 07/09/20 09:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Twitter Shares Climb On Subscription Service Speculation

Twitter, Inc. (TWTR) climbed over 7% Wednesday on speculation that the San Francisco-based company plans to launch a subscription service. The social media giant posted a job advert for an engineers to work on a subscription platform. “We are building a subscription platform, one that can be reused by other teams in the future,” the listing stated, per The Verge. The new web engineers will work on the company’s Gryphon team, which collaborates closely with the payroll team and the Twitter.com group.

According to Bloomberg, a person familiar with the matter said the company is exploring alternative revenue sources. The social media firm currently generates about 85% of its revenue from advertising. Therefore, a subscription service would help diversify the top line as businesses rein in their marketing budgets amid ongoing uncertainty. Despite Twitter adding 14 million new users in the first quarter, its revenues rose just 3% from the March 2019 quarter, the smallest increase in over two years.

Through July 8, Twitter stock is up 10.48% year to date, with the shares surging 27% in the past three months alone. The company looks fully priced from a valuation front, given it trades 52% above its five-year forward earnings multiple.

Wall Street View

Rosenblatt Securities analyst Mark Zgutowicz outlined to clients what a Twitter subscription service may look like. For instance, he believes the firm would be more likely to launch an offering utilizing its data and analytics, rather than moving to paid tiers for Twitter usage.

Sentiment among analysts skews toward a bullish outlook, with 24 ‘Hold’ ratings and nine ‘Buy’ ratings. Only four research gurus recommend selling Twitter stock. Furthermore, look for a string of analyst upgrades if the company does indeed announce a subscription service. Wall Street has a 12-month consensus price target of $33.14 – indicating 6% downside from Wednesday’s $35.41 close.

Technical Outlook

Twitter shares have formed a loosely constructed inverse head and shoulders pattern over the past nine months. The price tested the formation’s neckline in Wednesday’s trading session on the highest volume in nearly two years. Also, a likely cross of the 50-day simple moving average (SMA) above the 200-day SMA early next week adds to the bullish technical landscape. A clean breakout above $37 could see buyers run the stock up to around $46, where price encounters resistance from the 52-week high. Alternatively, a failure to push through this closely-watched resistance level could trigger a fall to horizontal trendline support at $28.5.

TWTR Chart

Rolls Royce drags on the FTSE100, as SAP Boosts the DAX

Investors appear to be making the conscious decision to find safety in the US trillion-dollar big caps rather than move their capital into the traditional safe haven of government bonds.

Asia markets have taken their cues from yesterday’s positive US session, despite the continued rise in coronavirus cases across the US, and which US Federal Reserve President Loretta Mester expressing concern that the rising virus count is introducing increased downside risks to the US economic recovery. On Wednesday we saw Texas set a new record for daily cases, hospitalisations hit a new high in California, while Arizona posted a new record number of deaths.

After two successive negative European sessions, markets here in Europe have taken their cues from yesterday’s recovery in US markets and this morning’s positive Asia session, opening modestly higher, though still well off their peaks from Monday, and struggling to make much in the way of headway early on.

If anything, the rising coronavirus case count in the US, is helping to weigh down any confidence in a more global recovery in equity markets, however on the plus side there doesn’t appear to be any evidence of a second wave here in Europe so far as various lockdown measures continue to get eased.

While this is positive for markets in Europe the lack of any imminent agreement between EU leaders on any pandemic recovery fund appears to be deterring a wholesale move of capital back into European markets for the time being.

The problems in the aerospace sector continued to be laid bare this morning as Airbus the European plane maker reported that it had failed to obtain any new aircraft orders for the third month in succession. This is equally bad news for Rolls Royce who have been having difficulties of their own, as they reported their latest first half numbers this morning.

Last Friday there were reports that Rolls Royce was looking at reinforcing its balance sheet further by raising additional capital, or disposing of some of its assets with ITP Aero, its Spanish operation one likely option. There was no mention of raising additional capital in todays’ Q2 update which has seen management say that they expect a better performance in the second half of the year.

Good progress has been made in reducing one-off costs with £300m achieved in H1, with another £700m expected by the end of 2020. The company also said it would be taking a charge of £1.45bn over the next 6 years, in respect of reducing the size of its hedge book, with £100m of that charge being taken this year and £300m in 2021 and 2022, and then £750m spread over 2023 to 2026.

The company also said that they had pro-forma liquidity of £8.1bn, including an undrawn credit facility of £1.9bn, and commitments for a new 5-year term loan facility of £2bn underwritten by a syndicate of banks and a partial guarantee from UK Export Finance. The company also took a £1.45bn write down in respect of hedges spread over 6 years.

Not all sectors are in the doldrums, with the increasing focus on cloud technology, helping to benefit the tech sector, as more and more business moves on line. This morning German software giant SAP reported an improvement on its Q1 numbers, with cloud revenues rising 21% in Q2, driven by improvements in its Asia markets.  This outperformance in SAP has helped underpin the DAX in early trade this morning.

Rio Tinto this morning announced it was closing its New Zealand operations as an aluminium supply glut takes its toll on its profits.

In the wake of yesterday’s budget measures on stamp duty, house builder Persimmon announced its latest first half update.

Unsurprisingly given the lockdowns in April total revenues fell to £1.19bn, down from £1.75bn in 2019, with completions sharply lower at 4,900, down from 7,584. On the plus side average selling prices were modestly higher at £225k, however higher costs are likely to eat away at overall margins in the months ahead, which could act as a drag on profitability.

Much will depend on whether the removal of stamp duty for properties up to £500k will offset any loss of confidence prospective buyers have about the economic outlook. Recent mortgage approvals data suggests that consumers are becoming much more cautious.

In terms of future expectations there does appear to have been a fairly strong rebound since sales offices reopened with forward sales up 15% from the same period last year, helping to push the shares higher in early trade.

Vistry Group also posted a positive first half update, delivering a total of 1,235 completions in H1, down from 3,371 a year ago, with an average selling price of £290k. Revenue was sharply lower at £344m, down from £854m in 2019. Forward sales saw an improvement to £1.66bn, up from £1.5bn at the end of May.

Real estate investment trusts have had a rough time of it recently, with Intu going into administration only recently. Workspace Group has been one of those companies that have done things a little differently over the last ten years, in terms of how it sold its office space, and that has helped cushion it to some extent, due to its focus on small or micro businesses, selling flexible office space, and short-term leases with superfast connectivity.

This does appear to be reflected in this morning’s Q1 update, which has seen the company report cash collection of rents at 75%, net of rent reductions and deferrals. The company has received 65% of rents due in Q2, compared to 80% a year ago. Activity in its business centres has remained low at 15% of normal. Demand is now picking up as lockdowns get eased further.

Building materials and DIY retailer Grafton Group has seen its shares rise in early trading after it reported H1 numbers, which saw revenues fall 19.4% to just over £1bn. June trading has proved to be more resilient, with revenues 11.4% higher than the same period last year.

Boohoo shares are also sharply higher this morning as buyers start to return after the precipitous falls of earlier this week, with some saying that the declines have been too severe, when set against the underlying long-term fundamentals.

US markets look set to open modestly lower against this morning’s rather indifferent European session, with the main focus once again set to be on the latest weekly jobless claims numbers, and in light of the recent re-imposition of lockdowns, the main focus will once again be on continuing claims and whether that number starts to edge up again in the weeks ahead. This could take some time to be reflected in the numbers with continuing claims expected to fall below 19m to 18.95m.

Weekly jobless claims are expected to fall to 1.37m.

Bed Bath and Beyond shares are also expected to be in focus after the company announced the closure of 200 stores over 2 years due to a 50% fall in sales.

Delta Airlines is also expected to give its latest Q2 update and it’s not expected to paint a pretty picture. Delta had a standout 2019 largely due to its reliance on sales of Premium class tickets. Business travel, which a lot of national carriers rely on, is likely to see a big drop off in the months ahead as companies realise that lots of meetings can take place just as easily on Zoom and other remote conferencing facilities.

Year on year revenue for Q2 is expected to decline by 90%, with the carrier losing 85% of its flight capacity at the height of the pandemic, while losses are expected to come in at $4.43c a share. Delta expects to add 1,000 new flights to be scheduled this month, and another 1,000 in August.

Dow Jones is expected to open 60 points lower at 26,007

S&P500 is expected to open 4 points lower at 3,166

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Stop Believing The “Economy” Is The Same As The Stock Market

Of late, almost all the “analysis” or comments you read or hear is based upon a superficial understanding of the market propagated through “common-speak.” And, that is exactly why they all seem to be so confused:

“The stock market is confusing a lot of people right now. It seems simple: news is bad, there’s a pandemic for the first time in generations, people are dying, and the economy has taken a beating for the ages. Stocks should go down, right? But they’re not. They’ve recovered so much of their March slide that they’ve produced the shortest bear market in history. The Dow Jones Industrial Average was in a bear market for just three days.”

”Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession.”

”Cramer says he and hedge fund billionaire David Tepper are confused by the market’s recent rally.”

One of the many fallacies confusing the masses seem to be the expectation that one can invest in the stock market based upon their expectations for the economy. Many believe that if they follow unemployment, or GDP, or myriad other factors they will be able to glean what the stock market will do.

So, then why are those that invest in the market based upon the economy so confused?

All their confusion is based upon the fallacy of their underlying assumption that understanding the economy will allow you to understand the market. To be honest, the exact opposite is true. But, very few understand the truth of this perspective.

In the past, I have tried to explain why many view the causality chain backwards, but I will reiterate it here, since so many seem to be confused of late.

First, I want to start with the premise that the market is driven by mass sentiment more so than fundamentals. Rather, fundamentals follow the market, and do not lead it. This is why we often hear that the stock market is a leading indicator for the stock market.

So, taking this one step further, we understand that when a market reaches a maximum point of relative bullishness, it will top and turn in the opposite direction. The same applies when the market reaches a maximum point of bearishness, where it will bottom and turn in the opposite direction.

Even the “Maestro himself, Alan Greenspan, has stated the same:

“The cause of economic despair, however, is human nature’s propensity to sway from fear to euphoria and back, a condition that no economic paradigm has proved capable of suppressing without severe hardship. Regulation, the alleged effective solution to today’s crisis, has never been able to eliminate history’s crises.” Alan Greenspan – Financial Times – 2008

“It’s only when the markets are perceived to have exhausted themselves on the downside that they turn.” – Alan Greenspan – ABC interview – December 2007

With this in mind, let’s review how the stock market and economy relate to each other, and it will likely be quite eye opening, at least for those of you that have an open mind and seek intellectual honesty in your analysis. And, if you are closed minded to what I am saying (assuming you have even read this far), consider why your perspective has been so confused of late, and maybe then you will be willing to entertain another perspective.

I feel the following narrative explains the causality chain in a more accurate fashion:

During a negative sentiment trend, the market declines, and the news seems to get worse and worse. Once the negative sentiment has run its course after reaching an extreme level, and it’s time for sentiment to change direction, the general public then becomes subconsciously more positive. You see, once you hit a wall, it becomes clear it is time to look in another direction. Some may question how sentiment simply turns on its own at an extreme, and I will explain to you that many studies have been published to explain how it occurs naturally within the limbic system within our brains.

When people begin to turn positive about their future, they are willing to take risks. What is the most immediate way that the public can act on this return to positive sentiment? The easiest is to buy stocks. For this reason, we see the stock market lead in the opposite direction before the economy and fundamentals have turned. In fact, historically, we know that the stock market is a leading indicator for the economy, as the market has always turned well before the economy does. This is why R.N. Elliott, whose work led to Elliott Wave theory, believed that the stock market is the best barometer of public sentiment.

Let’s look at the same change in positive sentiment and what it takes to have an effect on the fundamentals. When the general public’s sentiment turns positive, this is the point at which they are willing to take more risks based on their positive feelings about the future. Whereas investors immediately place money to work in the stock market, thereby having an immediate effect upon stock prices, business owners and entrepreneurs seek loans to build or expand a business, which takes time to secure.

They then place the newly acquired funds to work in their business by hiring more people or buying additional equipment, and this takes more time. With this new capacity, they are then able to provide more goods and services to the public, and, ultimately, profits and earnings begin to grow – after more time has passed.

When the news of such improved earnings finally hits the market, most market participants have already seen the stock of the company move up strongly because investors effectuated their positive sentiment by buying stock well before evidence of positive fundamentals are evident within the market. This is why so many believe that stock prices present a discounted valuation of future earnings.

Clearly, there is a significant lag between a positive turn in public sentiment and the resulting positive change in the underlying fundamentals of a stock or the economy, especially relative to the more immediate stock-buying activity that comes from the same causative underlying sentiment change.

This is why I claim that fundamentals are a lagging indicator relative to market sentiment. . . This lag is a much more plausible reason as to why the stock market is a leading indicator, as opposed to some form of investor omniscience. This also provides a plausible reason as to why earnings lag stock prices, as earnings are the last segment in the chain of positive mood effects on a business growth cycle. It is also why those analysts who attempt to predict stock prices based on earnings fail so miserably at market turns.

By the time earnings are affected by a change in social mood, the social mood trend has already been negative for some time. And this is why economists fail as well – the social mood has shifted well before they see evidence of it in their “indicators.”

In fact, one commenter to one of my past articles noted the following:

“Having worked for many listed companies and regarded as an insider with access to company confidential information, I have sometimes struggled to understand the correlation between business results and the share price.”

So, for those of you that have been confused of late as to why the economy and the market are seemingly “disconnected,” I hope you begin to consider the significance that market sentiment plays within our market.

And, to drive home this point, allow me to provide you with one more quote. Bernard Baruch, an exceptionally successful American financier and stock market speculator who lived from 1870-1965, identified the following long ago:

“All economic movements, by their very nature, are motivated by crowd psychology. Without due recognition of crowd-thinking … our theories of economics leave much to be desired. … It has always seemed to me that the periodic madness which afflicts mankind must reflect some deeply rooted trait in human nature – a trait akin to the force that motivates the migration of birds or the rush of lemmings to the sea … It is a force wholly impalpable … yet, knowledge of it is necessary to right judgments on passing events.”

For those that have tracked our work for years, you would likely know that we have been extremely accurate in our analysis. While we certainly have not been perfect, we have provided our subscribers with forecasts which have protected them from major market downturns (like February and March of 2020), along with identifying where major market upturns will likely take hold (like at the end of March 2020).

While these are just two examples of how we have successfully used market sentiment to identify major turns in markets, we have been equally successful in identifying the major top in gold in 2011 and the major bottom in 2015, the major bottom in the US dollar in 2011 along with the major top in 2018, the major bottom in bonds in November 2018, and many other larger degree turning points across all major markets.

So, if you would like to learn a bit more about our methodology, I penned the following 6-part series to explain what we do in more detail. Here’s the first article.

In the meantime, I am expecting much more bad news to hit the wires in the coming months. And, if you continue to buy into those headlines and follow the “economy,” then you will likely miss out on the next major buying opportunity I expect to see as we head towards the fall of 2020. In fact, I am still of the belief that this buying opportunity will likely be your last before we begin our next multi-year stock market rally before we strike the top to the bull market which began in 2009.

By Avi Giburt, ElliottWaveTrader.net

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

Rolls Royce Share Price: Rolls Royce Expects Better H2 as it Bolsters Liquidity

In 2016 the Rolls Royce CEO took the decision to execute a turnaround plan that saw underperforming areas trimmed back and the business focus on key growth areas of civil aviation and maintenance.

At the time it seemed the perfectly sensible thing to do with airlines expanding their fleets, and switching to new greener and leaner models of aircraft.

Soon after this it became apparent that its Trent 1000 engine, which powered the Boeing 787 Dreamliner was starting to develop problems, with cracks forming on the turbine blades, the costs of which started to spiral out of control, causing the company to post a £2.9bn loss in last year’s full year numbers. To compound this there appears to be another issue with this power unit in reports yesterday that suggested a problem elsewhere, within the turbine itself.

In 2018 this strategy of focussing its energies on civil aviation started to develop further problems, with the decision by Airbus to stop production of its A380 aircraft, resulting in further write-downs, of nearly £250m.

Recent events due to Covid-19 have compounded these problems as the wholesale grounding of aircraft across the world, and its customers taking steps to delay or cancel future aircraft orders, saw its revenue base clobbered hard.

The collapse in air travel has seen nearly half of its projected revenue disappear, as airlines ground their fleets, and the various travel bans bite.

In order to shore up its finances and preserve its cash flow the company had to defer bonuses for its CFO and CEO, pull the dividend for the first time since 1987, as well as securing an additional $1.5bn revolving credit line in April, in addition to the $2.5bn it secured in March.

Throughout all of this, the company also announced plans to cull 9,000 jobs in its civil aerospace division, out of a global workforce of 52,000. These plans drew the ire of the trade unions, however if the cash isn’t coming in and isn’t likely to either, furloughing staff merely delays the inevitable.

It is these concerns about the long-term durability of the company’s aerospace division, against a backdrop of much lower spending from Boeing and Airbus, that caused investors to take fright last Friday on reports that Rolls Royce was looking at reinforcing its balance sheet further by raising additional capital, or disposing of some of its assets with ITP Aero, its Spanish operation one likely option.

There was no mention of raising additional capital in todays’ Q2 update which has seen management say that they expect a better performance in the second half of the year.

Good progress has been made in reducing one-off costs with £300m achieved in H1, with another £700m expected by the end of 2020. The company also said it would be taking a charge of £1.45bn over the next 6 years, in respect of reducing the size of its hedge book, with £100m of that charge being taken this year and £300m in 2021 and 2022, and then £750m spread over 2023 to 2026.

The company also said that they had pro-forma liquidity of £8.1bn, including an undrawn credit facility of £1.9bn, and commitments for a new 5-year term loan facility of £2bn underwritten by a syndicate of banks and a partial guarantee from UK Export Finance.

With airlines likely to remain in defensive mode for at least another 12 months Rolls Royce cash flow is likely to remain constrained for a while yet, with full year revenues look set to be £4bn lower than last year, and unlikely to improve much in 2021.

In a sign that life can come at you fast, it was only at the end of February that CEO Warren East was proclaiming that free cash flow would be positive to the tune of £1bn by the end of this year.

Given recent events the company won’t even get close to that, with current estimates expected to see a total cash outflow of approximately £4bn.

While the defence business has remained resilient, the civil aerospace division is likely to remain constrained for some time to come, and while wide body engine flying hours are showing signs of picking up, they are still down 50% in the first half of this year.

As long-haul flights have started to increase in China, and the Asia Pacific region this figure should improve in the second half, however it is unlikely to improve significantly with flying hours expected to be down 55% over the rest of the year, and only at 70% of 2019 levels in 2021.

In terms of deliveries Rolls Royce continues to plan for 250 wide body engine deliveries in 2020, however as Boeing and Airbus have found out recently, and Airbus announced this morning, new orders are becoming hard to come by, and that’s before we consider the prospect of further cancellations, as airlines cut costs.

Rolls Royce defence has continued to perform well, last year the company won a new £350m contract from the Ministry of Defence to maintain and repair the engines of RAF Typhoon aircraft. Last month the company also won a host of US Navy contracts totalling $115.6m to build a variety of engines, propulsion units and services.

Today’s update goes some way to alleviating investor concerns about the company having to raise extra capital in the short term, however it is clear that a lot of things will have to go right over the next 12 months, for these concerns not to come back. There is also the prospect of further job losses, unless management can get better control of the company cash flow, with management targeting £750m of free cash flow by 2022.

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Wall Street Gains after Overcoming Mid-Session Weakness

The major U.S. stock indexes closed slightly higher in choppy trading on Wednesday, once again supported by technology shares as early signs of an economic rebound offset concern about further lockdowns due to a jump in coronavirus cases across the country.

In the cash market, the benchmark S&P 500 Index settled at 3169.94, up 24.62 or +0.82%. The blue chip Dow Jones Industrial Average finished at 26067.28, up 177.10 or +0.70% and the technology-based NASDAQ Composite closed at 10492.50, up 148.61 or 1.57%.

Quick Recap

The markets opened under pressure early Wednesday as investors stayed on the sidelines in the face of an alarming rise in coronavirus caseloads across the country that poses a risk to a recovery in business activity. However, new buying came in shortly after the opening to turn stocks higher as we approached the mid-session.

Stocks gave back those earlier gains and turned lower for the session shortly before 16:00 GMT after a senior Fed official said the central bank may slow the pace of its corporate bond purchases. This news spooked traders because the announcement by the Fed on March 23 that it would start buying corporate debt helped put in the bottom of the stock market.

Investors Rattled after Fed Official Said Central Bank May Slow Pace of Corporate Bond Purchases

According to Dow Jones Newswires that broke the story, “A senior official at the New York Federal Reserve said the U.S. central bank could slow its pace of corporate debt purchases if financial markets continued to improve.”

Daleep Singh, head of the New York Fed’s markets group, noted the functioning of corporate credit markets had strengthened since the Fed unrolled its emergency lending backstops. Still, Singh said the central bank stood ready to tweak its approach given the uncertainty around a potential wave of bankruptcies from the economic impact of the coronavirus.

The reaction in the markets was swift especially by sellers who recognize we wouldn’t have a recovery in the stock market if it weren’t for the Fed’s swift interventions that helped stabilize the financial markets.

Singh went on to insure investors that a slowing in purchases “would not be a signal that the SMCCF’s (the Fed’s corporate purchase plan) doors were closed, but rather that markets are functioning well. Should conditions deteriorate, purchases would increase.”

Corporate News

Biogen Inc jumped 6.9% in premarket trading after the company said it submitted the marketing application for its experimental Alzheimer’s disease therapy, aducanumab, to the U.S. Food and Drug Administration.

Allstate Corp slipped 2.6% as the U.S. insurer said it would buy National General Holdings Corp for about $4 billion in cash, scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims.

Levi Strauss & Co fell about 5% as the denim apparel maker cautioned its business would be hit in the second half of the year, even as its sales have been improving at its reopened stores.

For a look at all of today’s economic events, check out our economic calendar.

Ford Motor’s China Vehicle Sales Rebound 3% in June Quarter as Coronavirus Restrictions Ease

Ford Motor Co, an American multinational automaker, said that its vehicle sales in mainland China rebounded in the June quarter, growing 3% from the same period last year, driven by strong demand following the lifting of COVID-19 pandemic restrictions.

That would be the first time in nearly three years, the automaker has registered a rise in quarterly sales. Total of 158,589 vehicles were sold during the second quarter, representing a 3% growth year-over-year and 78.7% sales increase compared to the first quarter of 2020.

Transit commercial vehicles experienced solid y/y growth of 60.9%, as did Lincoln luxury vehicles on gains of 12.0%, the company said. In the U.S., where business has been hit hard by the coronavirus pandemic, Ford’s sales fell more than 30% during the quarter.

On the other hand, Ford’s rival, General Motors’ sales declined 5.3% during the quarter in the world’s second-largest economy. Ford’s sales plunged 26% in 2019 and 37% in 2018.

Ford outlook and price target

Eleven analysts forecast the average price in 12 months at $6.24 with a high forecast of $8.00 and a low forecast of $3.50. The average price target represents a 2.46% increase from the last price of $6.09. From that eleven, three analysts rated ‘Buy’, six rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Ford Motor had its price target lifted by UBS Group from $4.30 to $6.70. UBS Group currently has a neutral rating on the auto manufacturer’s stock. JP Morgan raised the target price to $7 from $6. Ford Motor was given a $7.50 price target by analysts at Jefferies Financial Group Inc. The firm currently has a buy rating on the stock.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst view

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.

European Equities: Economic Data and COVID-19 to Test the Majors

Economic Calendar:

Thursday, 9th July

German Trade Balance (May)

The Majors

It was another bearish for the European majors on Wednesday, with no stats or positive news to shift the mood from Tuesday. The CAC40 fell by 1.24%, with the DAX30 and EuroStoxx600 declining by 0.97% and 0.67% respectively.

Rising COVID-19 cases across the U.S drew more attention than normal, as the number of cases rose to beyond 3m.

Reuters also published an article reporting that the WHO acknowledged “evidence emerging” of the airborne spread of the virus.

The accelerating spread of the virus brings into question the market’s optimistic outlook on economic recovery. All of this before earnings season kicks in next week…

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Wednesday. There were no material stats to provide the European majors with direction.

From the U.S

It was also quiet through the U.S session, with no major stats from the U.S to shift sentiment late in the day.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Wednesday. Continental slid by 2.54% to lead the way down. Daimler and Volkswagen saw more modest losses of 0.52% and 0.86% respectively, while BMW bucked the trend, with a 0.41% gain.

It was also another mixed day for the banks. Deutsche Bank rose by 0.89%, while Commerzbank slipped by 0.94%.

WIRECARD AG slid by 15.53% to partially reverse a 32.51% gain from Tuesday.

From the CAC, it was a bearish day for the banks. BNP Paribas and Soc Gen fell by 2.39% and 2.23% to lead the way down. Credit Agricole ended the day with a 1.42% loss.

The French auto sector struggled after a bullish start to the week. Peugeot and Renault slid by 4.20% and by 4.61% respectively.

Air France-KLM and Airbus SE fell by 2.21% and by 2.18% respectively, following on from a pullback on Tuesday.

On the VIX Index

A run of 2 consecutive days in the green came to an end for the VIX on Wednesday. Partially reversing a 5.33% gain from Tuesday, the VIX fell by 4.59% to end the day at 28.08.

After a bearish start to the day, the major U.S indexes bounced back to wrap up the day in positive territory.

Hope overshadowed the dire COVID-19 numbers from the U.S on the day, with no economic data to influence. Tech stocks led the way, delivering the NASDAQ with a solid gain on the day.

The S&P500 rose by 0.78%, with the Dow and NASDAQ ended the day with gains of 0.68% and 1.44% respectively.

VIX 09/07/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. May’s trade figures for Germany are due out later this morning.

We won’t expect too much influence from the numbers, however, which are now dated.

With the stats unlikely to garner too much attention, expect updates on Brexit and COVID-19 news to remain key drivers.

From the U.S

It’s also a relatively quiet day on the economic calendar, though we do expect the weekly jobless claims to influence.

Following a record jump in nonfarm payrolls in June, we have yet to see the weekly claims fall back to sub-1m levels.

With a number of the most populous U.S states hitting pause on reopening, this week’s figures could be alarming…

Anything under 1m initial jobless claims and the markets may breathe a sigh of relief.

The Latest Coronavirus Figures

On Wednesday, the number of new coronavirus cases rose by 222,368 to 12,130,571. On Tuesday, the number of new cases had risen by 227,176. The daily increase was lower than Tuesday’s rise while higher than 210,499 new cases from the previous Wednesday.

Germany, Italy, and Spain reported 986 new cases on Wednesday, which was up from 776 new cases on Tuesday. On the previous Wednesday, 1,062 new cases had been reported.

From the U.S, the total number of cases rose by 62,416 to 3,162,416 on Wednesday. On Tuesday, the total number of cases had increased by 67,655. On Wednesday, 1st July, a total of 51,607 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the DAX was up by 127 points, while the Dow was down by 28 points.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Price Forecast – Stock Markets Have Volatile Session Again

The S&P 500 has been very choppy during the trading session on Wednesday, as we continue to see a lot of volatility overall. The market seems to be paying quite a bit of attention to the 3150 handle, which breaking above there could open up the possibility of a move towards the 3200 level still. I see a lot of noise underneath, so keep in mind that the market has a lot of potential to find buyers between here and the 3000 level. Quite frankly, I like the idea of buying dips when they occur, with the 3000 level being thought of as a bit of a “floor” in the market. To the upside, the 3200 level continues to be very resistive, so I think we are carving out a sloppy range in 200 point increments.

S&P 500 Video 09.07.20

We do have earnings season coming in a little over a week, so that could have an effect on what happens in the market next, but I think at this point you still have to think about the Federal Reserve more than anything else and they are clearly helping out Wall Street as much as they can. As the Federal Reserve works for Wall Street, it is obvious that even if we get some type of major meltdown there would be multiple areas where they might step in by adding more “liquidity measures.” As we had had several green candles in a row, it should not be thought of as overly bearish to pull back a bit from here. A little bit of patience could reap rewards by finding value underneath.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Lower on Corporate Bond Purchase News

September E-mini S&P 500 Index futures are trading higher shortly after the opening on Wednesday after rebounding from pre-opening losses. Shares of major tech companies such as Apple and Microsoft gained 2% and 1.7%, respectively. Netflix and Alphabet both climbed at least 0.8%.

Names that would benefit from the economy reopening turned around and added to the gains. Carnival Corp, Norwegian Cruise Line and Royal Caribbean gained 2.4%, 1.7% and 2.3%, respectively. Retailer Kohl’s climbed more than 5%.

At 14:57 GMT, September E-mini S&P 500 Index futures are trading 3152.75, up 16.25 or +0.54%.

Heightened volatility remains at the forefront with the economic data continuing to indicate a V-shaped recovery, while the rise in COVID-19 cases suggests this is the beginning of new economic headwinds.

“No one’s denied we’ve had a huge jump in cases in certain hot spots,” Kudlow said Wednesday. However, “one cannot rule out:  There’s a lot of scenarios here. We really don’t have any real experience in econometrics modeling for this type of thing. Because so much is generated by the virus. At the moment, we’ve created 8 million new jobs the last couple of months…Virtually every piece of data shows a V-shaped recovery.”

There is breaking news that the Fed is limiting the amount of its corporate bond purchases. This news is bearish.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum may be starting to shift to the downside with the formation of the potentially bearish closing price reversal top on Tuesday.

A trade through 3184.00 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through 2983.50.

The closing price reversal top will be confirmed by a break through yesterday’s low. This won’t change the main trend, but it could lead to a 2 to 3 day correction.

The first downside target zone and potential support is 3107.00 to 3072.00.

The second downside target is the 50% level at 3053.75.

Daily Swing Chart Technical Forecast

A confirmation of the closing price reversal top will signal that the selling is greater than the buying at current price levels. If this continues to generate enough downside momentum then look for a minimum break to 3107.00.

We could see a technical bounce on the first test of 3107.00. However, it is also the trigger point for an acceleration to the downside with 3072.00 and 3053.75 the next potential downside targets.

For a look at all of today’s economic events, check out our economic calendar.

Walt Disney Struggling To Rebuild Lost Revenue Streams

Dow component Walt Disney Co. (DIS) will reopen Florida’s Disney World resort and theme park this weekend, despite a raging COVID-19 epidemic in the Sunshine State. The decision highlights the entertainment giant’s struggle to rebuild lost revenue, with movie production, sporting events, live broadcasting, cruise ships, theme parks, and theater chains still closed or operating with limited capacity in many parts of the world.

Disney Pandemic Headwinds

The pandemic’s perfect storm forced Disney to suspend payment of its semi-annual dividend when it reported a mixed first quarter in May. The company earned just $0.60 per-share in fiscal Q2 2020, missing Wall Street estimates by $0.30, while revenue beats expectations with a 20.7% year-over year increase. However, the bulk of revenue was booked in the first half of the quarter, before the closing of major income sources.

Wells Fargo’s Steven Cahill recently offered a sobering view of Disney’s profit outlook, despite raising their price target from $107 to $118. He warned that “we think financial progress could be choppy. Nationwide hot spots could render Walt Disney World (WDW), the driver of Parks operating income, severely capacity-constrained for some time. WDW and Disneyland park-goers may spend fewer hotel nights with rates softer due to recession, and cruises are unlikely anytime soon.”

Wall Street And Technical Outlook

Wall Street consensus is evenly divided, with 8 ‘Buy’ and 11 ‘Hold’ ratings, while two analysts recommend that investors hit the sidelines. Price targets currently range from a low of $85 to a street high $146, with the stock trading about 8 points below the median $122 target on Wednesday morning. These numbers look high after factoring in the current state of the pandemic in the United States, with many venues reporting out-of-control infections that have forced local officials to shut down all but essential operations.

Disney’s technical outlook looks bearish because the first quarter decline triggered a failed breakout though 4-year resistance around 120. The stock bounced back to that price level in the second quarter and reversed, reinforcing a barrier than could take several years to overcome. In addition, accumulation readings are stuck in the mud despite the oversold bounce, indicating that many investors are sitting on their hands, waiting for the pandemic to run its course.

Levi’s Outlook for Revenue Growth And Margin Opportunities Appear Intact: Morgan Stanley

Levi Strauss & Co, an American clothing company known worldwide for its Levi’s brand of denim jeans, warned after its net revenue plunged over 60% in the second quarter that the effect of the coronavirus would negatively impact their businesses even in the second half of this year.

Net revenue declined 62% to $497.5 million, largely due to the temporary closure of company-operated, franchise and wholesale customer retail locations as a result of the COVID-19 pandemic, partially offset by the company’s e-commerce business which grew 25% for the quarter, with sequential month-over-month acceleration to nearly 80% growth for May, the company said.

The company recorded a net loss for the quarter of $364 million and an adjusted net loss of $192 million. Gross margin decreased 19.2 percentage points on a reported basis to 34.1%. Adjusted EBIT was a loss of $206 million.

The company also said that it would reduce our non-retail, non-manufacturing workforce by about 700 positions, or roughly 15%, which we expect will generate annualized savings of $100 million.

“Below-expectation 2Q20 results and challenging 2H20 likely pressure the stock near-term. However, e-commerce acceleration and expense cutting initiatives leave us constructive on Levi’s long-term margin story. Raise price target $1 to $18; remain equal-weight (EW),” Kimberly C Greenberger, equity analyst at Morgan Stanley noted.

“The company is in early innings as it executes its LT growth strategy and navigates softer U.S. wholesale. Levi’s experienced senior management team has proven it can deliver results. DTC, international, and underpenetrated category growth all present runways for revenue growth. Gross margin is the likely driver of EBIT margin expansion, though we do not expect further SG&A deleverage. Levi’s strong balance sheet and FCF growth should allow it to increase share buybacks and/or engage in potential organic M&A,” the analyst added.

While Levi has not yet re-closed any retail doors, the company closely monitors coronavirus trends for signals that may prompt re-closing. At this time, management indicates 40 doors are in areas of worsening virus trends. Even if stores do not re-close, deteriorating virus trends may dissuade consumers from shopping in-store – a potential headwind to expected 3Q revenue performance, Morgan Stanley noted

Morgan Stanley target price is $18 with a high of $25 under a bull scenario and $6 under the worst-case scenario. However, Telsey Advisory Group lowered its target price to $17 from $20 and UBS cuts price target to $25 from $27.

Three analysts forecast the average price in 12 months at $20.50 with a high forecast of $25.00 and a low forecast of $16.00. The average price target represents a 48.23% increase from the last price of $13.83. All those three analysts rated ‘Buy’, none rated ‘Hold’ or ‘Sell’, according to Tipranks.

However, we expect it is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

U.S. Stocks Mixed After Yesterday’s Sell-Off

U.S. Crosses The 3 Million Confirmed Cases Mark

The coronavirus situation shows no signs of improvement as the U.S. has just crossed the 3 million confirmed cases mark while a number of states reported record daily increases in the number of coronavirus cases.

These states include the populous and economically important California and Texas. Yesterday, virus worries led to a sell-off closer to the end of the trading session.

Today, traders stay reasonably optimistic and bet that serious virus containment measures will not be implemented. The world markets are rather nervous but there is no sell-off.

With no important economic reports scheduled to be released today, S&P 500 futures are swinging back and forth in the premarket trading session and stay mostly unchanged.

Gold Gets Above $1800

The rally in gold continues. Previously, gold futures have tested the $1800 level but spot gold settled below this psychologically important level. Today, spot gold has gained more upside momentum and managed to get above $1800 per ounce.

This is a major development for gold mining stocks, many of which continue to trade below their highs reached back in May. I’d expect to see an influx of new money into the segment which will provide material support to gold-related equities.

The fundamental setup is very favorable for gold, and all-time high levels that were reached back in 2011 are now in sight. In my opinion, gold has decent chances to test the $1900 level due to problems on the virus front and rampant money-printing from the world central banks.

Oil Manages To Stay Above $40 Despite The Increase In Inventories

API Crude Oil Stock Change report showed that crude inventories have increased by 2.05 million barrels in a week. Meanwhile, gasoline inventories declined by 1.83 million barrels while distillate fuel inventories declined by 0.85 million barrels.

This report was not very optimistic for the oil market since we are in the middle of driving season and inventories should decline more aggressively given the implementation of production cuts.

However, oil managed to stay above the $40 level which indicates the strength of the current bullish trend. Today, this trend will be tested by the EIA Weekly Petroleum Status report which will provide estimates of inventories and U.S. domestic oil production.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Bearish Under 25938

September E-mini Dow Jones Industrial Average futures are expected to open lower based on the pre-market trade. The selling is in response to yesterday’s potentially bearish closing price reversal top that could be signaling a shift in momentum and the start of a minimum 2 to 3 day correction.

The catalyst behind the selling pressure is the fear that the current surge in coronavirus cases could derail the economic expansion after several Fed officials issued a warning.

At 09:54 GMT, September E-mini Dow Jones Industrial Average futures are trading 25700, down 70 or -0.27%.

Investors have become increasingly concerned about a second-wave of demand destruction after large parts of the United States reported tens of thousands of new coronavirus infections. New York expanded its travel quarantine for visitors from three more states, while Florida’s greater Miami area rolled back its reopening.

Meanwhile, three Fed officials expressed concern that the surge in infections threatens to curtail consumer spending and job gains just as some stimulus programs are set to expire. One Fed policymaker, Loretta Mester, pledged more support ahead from the U.S. central bank.

Among the best Dow component performers were Microsoft Corp and Apple Inc. Walmart jumped 6.2% after a report that the retailer is close to launching its membership program, a direct competitor for Amazon.com’s Prime service.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower following yesterday’s closing price reversal top and subsequent confirmation.

A trade through 27466 will signal a resumption of the uptrend, while a move through 24409 changes the main trend to down.

The minor trend is also up. A trade through 25438 changes the minor trend to down. This will confirm the shift in momentum.

The short-term range is 27466 to 24409. Its retracement zone at 25938 to 26298 is resistance. This area stopped the buying on Tuesday.

The minor range is 24743 to 26280. Its 50% level or pivot at 25512 is potential support.

The main range is 22640 to 27466. Its retracement zone at 25053 to 24484 is the primary downside target.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average futures contract on Wednesday is likely to be determined by trader reaction to the 50% level at 25938.

Bearish Scenario

A sustained move under 25938 will indicate the presence of sellers. The next downside targets are 25512 and 25438. Since the trend is up, we could see a technical bounce on the first test of these levels.

Taking out 25438 will change the minor trend to down. This could trigger an acceleration into the main 50% support at 25053.

Bullish Scenario

A sustained move over 25938 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into the resistance cluster at 26280 to 26298. The latter is a potential trigger point for an acceleration into the minor top at 26658.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – May Be Setting Up for 2-3 Day Correction

September E-mini NASDAQ-100 Index futures are trading slightly better on Wednesday after posting a potentially bearish closing price reversal top the previous session. The chart pattern doesn’t change the trend to down, but it could be signaling a shift in momentum to the downside. Basically, there are more sellers than buyers at current price levels and a short-term correction may be in order to alleviate some of the upside pressure.

At 07:25 GMT, September E-mini NASDAQ-100 Index futures are trading 10558.75, up 26.50 or +0.25%.

Technology stocks eased on Tuesday as investors took profits amid new U.S. coronavirus cases and a warning about the economy from Federal Reserve officials. The NASDAQ was outperforming the other two main indexes, hovering between gains and losses but claiming another record high. Boosting the E-mini NASDAQ-100 Index were shares of technology heavyweights Microsoft Corp and Apple Inc.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum may be getting ready to shift to the downside, following yesterday’s closing price reversal top. This won’t change the main trend, but it could lead to a 2-3 day break or at least a 50% correction of the last rally.

A trade through 10694.50 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a move through 9728.75.

A move through 10505.75 will confirm the closing price reversal top.

The short-term range is 9728.75 to 10694.50. If the closing price reversal top is formed and momentum starts to build to the downside then look for a break into its retracement zone at 10211.25 to 10097.50.

Daily Swing Chart Technical Forecast

Based on yesterday’s closing price reversal top, the direction of the September E-mini NASDAQ-100 Index futures contract on Wednesday is likely to be determined by trader reaction to yesterday’s low at 10505.75.

Bullish Scenario

A sustained move over 10505.75 will indicate the presence of buyers. If this is able to generate some upside momentum then look for a rally into a minor pivot at 10600.25. We could see some counter-trend selling on the first test of this level. Overcoming it, however, will indicate the buying is getting stronger with 10694.50 the next potential upside target.

Bearish Scenario

A sustained move under 10505.75 will signal the presence of sellers and confirm the closing price reversal top. If the move is able to generate enough downside momentum then look for the selling to possibly lead to a 2 to 3 day correction into the short-term retracement zone at 10211.25 to 10097.50.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Insurer Allstate to Acquire National General for $4 Billion in Cash

Allstate Corporation, the largest publicly held personal lines property and casualty insurer in America, has announced the acquisition of National General Holdings Corp for approximately $4 billion in cash, or $34.50 per share, expanding its auto insurance business amid the COVID-19 pandemic.

Allstate, which is also one of the largest U.S. auto insurers, said the National General shareholders will receive $32.00 per share in cash, including dividends anticipated to be $2.50 per share, providing $34.50 in total value per share. The auto insurer will also fund the share purchase by deploying $2.2 billion in combined cash resources and, subject to market conditions, issuing $1.5 billion of new senior debt.

National General’s board of directors has approved the transaction, which includes customary terms and conditions, including a breakup fee of $132.5 million. A voting agreement has also been signed with entities controlling 40% of National General’s common shares to vote for the transaction, the company added.

The above-mentioned offering is expected to close in 2021.

Ardea Partners LP was the exclusive financial adviser to Allstate, and Willkie Farr & Gallagher LLP was the company’s legal adviser. J.P. Morgan Securities LLC was the exclusive financial adviser to National General, and Paul, Weiss, Rifkind, Wharton & Garrison LLP was National General’s legal counsel.

Executives’ comments

“Acquiring National General accelerates Allstate’s strategy to increase market share in personal property-liability and significantly expands our independent agent distribution,” Tom Wilson, Chair, President and CEO of the Allstate Corporation said in a press release.

“The acquisition increases personal lines premiums by $4.0 billion and market share by over 1 percentage point to 10%. National General’s business and technology platforms will be utilized to further strengthen Allstate’s existing independent agent businesses. The transaction will be accretive to adjusted net income earnings per share and return on equity beginning in the first year.”

“National General’s operating expertise has enabled us to serve customers and independent agents well as we have grown both organically and through acquisition,” Barry Karfunkel, Co-Chairman and CEO of National General said in a press release.

“We are excited about combining our team’s expertise and commitment with Allstate to become a top-five personal lines carrier for independent agents while offering a broader array of products. National General’s shareholders are also benefiting by unlocking the value created over the last decade.”

Allstate price target and outlook

Eight analysts forecast the average price in 12 months at $118.86 with a high forecast of $138.00 and a low forecast of $101.00. The average price target represents a 28.29% increase from the last price of $92.65, according to Tipranks. From those eight, four analysts rated ‘Buy’, four rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley lifted their target price on shares of Allstate from $111.00 to $115.00 with a high of $136 under a bull scenario and $67 under the worst-case scenario and gave the company an “equal weight” rating. Deutsche Bank lifted their target price on shares of Allstate from $115.00 to $120.00 and gave the company a “hold” rating.

Credit Suisse Group upgraded shares of Allstate from an “underperform” rating to a “neutral” rating and lifted their target price for the company from $94.00 to $101.00 in a report on Thursday, June 25th. Piper Sandler raised the target price to $112 from $108.

Morgan Stanley’s view on the acquisition

“The acquisition of National General, given its focus on nonstandard auto coverage in the independent agency channel, is likely a surprise to investors. Recent acquisitions have focused away from the traditional personal lines space to diversify Allstate’s offerings, rendering this transaction all the more surprising. In recent years, the direct channel has taken greater share from captive agencies in personal auto than independent agencies,” Michael W. Phillips, equity analyst at Morgan Stanley noted in April.

“As such, National General provides Allstate with another method of combatting the challenge to the captive agency model, given its market share declines in recent years. Likewise, National General has presence in lender-placed homeowners insurance, which benefits during recessions. As such, entering LPI could further insulate Allstate during a downturn, making the deal incrementally more attractive given current challenges in the macro environment,” the analyst added.

Upside and Downside risks


Auto loss trends improve further, unit growth drives top-line acceleration, continued strong share repurchase, benign cats, and interest rates rise.


Personal auto loss costs turn higher, lack of unit growth, performance volatility, unpredictable losses from catastrophes and investments.

European Equities: DAX Set to Open in the Red, with No Stats to Provide Direction

Economic Calendar:

Thursday, 9th July

German Trade Balance (May)

The Majors

It was a bearish day for the European majors on Tuesday. The DAX30 fell by 0.92%, with the CAC40 and EuroStoxx600 seeing losses of 0.74% and 0.61% respectively.

Following the bullish sentiment on Monday, some caution hit the markets as summer economic forecasts rolled out.

On Tuesday, the European Commission projected an 8.7% contraction for 2020 followed by 6.1% growth in 2021. For the markets, the 1 percentage point downward revision will have been of concern when considering both fiscal and monetary policy support.

A continued rise in new coronavirus cases will also not have helped the majors on the day.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Tuesday. Key stats included Germany’s industrial production figures for May.

According to Destatis,

  • Industrial production increased by 7.8% in May, partially reversing a 17.5% slide from April.
  • Production in industry excluding energy and construction was up by 10.3%.
    • Within industry, the production of intermediate goods showed a 0.1% decrease.
    • The production of consumer goods increased by 1.4%, while the production of capital goods jumped by 27.6%.
  • Outside industry, energy production was up by 1.7%, with the production of construction up by 0.5%.

From the U.S

It was also a relatively quiet day on the economic calendar, with May’s JOLTs job openings in focus.

In May, job openings rose from 4.996m to 5.397m. Economists had forecast a fall to 4.85m.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Tuesday. Continental and Volkswagen slid by 1.00% and by 1.16% to lead the way down. Daimler fell by a more modest 0.20%, while BMW bucked the trend, with a 0.12% gain.

It was also a mixed day for the banks. Deutsche Bank fell by 0.68%, while Commerzbank rallied by 3.56% following on from Monday’s 4.26% gain.

WIRECARD AG rallied by 32.51% to reverse Monday’s 25.55% tumble.

From the CAC, it was a bearish day for the banks. Soc Gen fell by 1.26% to lead the way down. BNP Paribas and Credit Agricole saw more modest losses of 0.28% and 0.25% respectively.

The French auto sector saw further gains on Tuesday. Peugeot and Renault rose by 0.34% and by 0.54% respectively.

Air France-KLM and Airbus SE fell by 1.17% and by 0.59% respectively.

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Tuesday. Following on from a 0.94% gain on Monday, the VIX rose by 5.33% to end the day at 29.43.

A pullback across the major U.S equity markets came on Tuesday as investors turned cautious ahead of a busy week next week. With economic data limited to JOLTs job openings, some profit-taking weighed ahead of earnings season.

A continued rise in new coronavirus cases across the U.S will have also weighed on risk appetite on the day.

The S&P500 fell by 1.08%, with the Dow and NASDAQ ended the day down by 1.17% and 0.86% respectively.

VIX 08/07/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. There are no material stats to provide the majors with direction.

A lack of stats will leave the majors in the hands of the news wires and COVID-19 numbers. Following the 2nd quarter rebound in the majors and a positive start to July, the markets may remain relatively cautious.

Plenty of downside risks remain that could hit the majors, including a widespread reintroduction of lockdown measures. There are also rising tensions with a number of G7 countries and China to also consider…

From the U.S

There are no material stats due out later today. This will likely give the weekly crude oil inventory numbers, COVID-19, and geopolitics greater airtime.

The Latest Coronavirus Figures

On Tuesday, the number of new coronavirus cases rose by 227,176 to 11,940,258. On Monday, the number of new cases had risen by 177,554. The daily increase was higher than Monday’s rise and 201,507 new cases from the previous Tuesday.

Germany, Italy, and Spain reported 776 new cases on Tuesday, which was down from 1,876 new cases on Monday. On the previous Tuesday, 934 new cases had been reported.

From the U.S, the total number of cases rose by 67,655 to 3,096,516 on Tuesday. On Monday, the total number of cases had increased by 45,706. On Tuesday, 30th June, a total of 53,471 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the DAX was down by 14.5 points, while the Dow was up by 124 points.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Price Forecast – Stock Markets Cotinue to Show Life

The S&P 500 has pulled back initially during the Globex trading, but as you can see on the daily chart, we have turned around to show signs of strength again as the market seems all but destined to go looking towards the 3200 level. With that in mind, I like the idea of buying dips as they occur, because quite frankly with the Federal Reserve out there doing everything they can to pump out the asset bubble, it is difficult to imagine that stocks will sell off for a meaningful amount of time.

S&P 500 Video 08.07.20

Even if we do break down from here, the 3000 level should be rather supportive, as the 50 day EMA is right in that neighborhood as well. Not only is it a large, round, psychologically significant figure, but it is also where we have seen support in the past. With that, I like the idea of buying “hand over fist” in that area if we see some signs of a bounce, assuming that we can even get there. One thing is for sure, the market has been extraordinarily resilient, and it certainly seems as if 3200 is the main focus of the market right now. As long as the Federal

Reserve has the back of Wall Street, there is no reason to think that anything is going to change. Even with coronavirus numbers going up, the market seems impervious to anything remotely close to bad news. As my mentor tells me occasionally, “embrace the stupidity.” We simply cannot fight this type of momentum.

For a look at all of today’s economic events, check out our economic calendar.