Dow Futures Slip Amid Renewed COVID-19 Concerns, Fading U.S. Stimulus Hopes; July Retail Sales Disappoint

With Britain imposing quarantine restrictions on travel from France, Spain mulling fresh lockdown rules and Presidential candidate Joe Biden calling for a national mask mandate, the steady resurgence in coronavirus cases around the world is finally hitting investor sentiment.
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The Friday Market Minute

  • Global stocks slide as coronavirus flare-ups trigger new travel restrictions in Europe, and U.S. lawmakers leave town without a stimulus deal.
  • Britain issues quarantine orders on all travelers arriving from France and the Netherlands, pulling airline stocks lower around the region as global coronavirus caess top 21 million.
  • Senate lawmakers follow House Democrats in adjourning for the summer break, leaving little chance of a stimulus deal before September - and 30 million Americans without emergency unemployment benefits.
  • China retail sales post a surprise July decline, while industrial output extends its slump, raising questions about the pace of recovery in the world's second-largest economy.
  • Oil prices slide after the IEA follows OPEC in trimming its 2020 demand outlook, which it pegs at 91.9 million barrels per day.
  • U.S. equity futures suggest a weaker open on Wall Street after weaker-than-expected July retail sales data.

U.S. equity futures traded lower Friday, while the dollar held steady and oil prices retreated, as investors avoided risk markets in the face of growing concern for a coronavirus resurgence and the fading chances of a stimulus agreement from lawmakers in Washington. 

July retail sales rose 1.2% from last year, the Commerce Department said, well shy of the 2.3% Street consensus forecast, and down from the upwardly-revised 8.4% recorded in June.  Stripping out volatile auto and gasoline sales puts the gain at 1.5% versus the 7.7% rebound over the previous month.

The dollar value of July sales, however, hit $536 billion, the highest on record, the Commerce Department said.

Weaker-than-expected economic data from China, which included a surprise decline in July retail sales within the world's biggest consumer market, added to the cautious tone, which continues to reflect concern for COVID-19 flare-ups in Asia, Europe and North America.

Britain, in fact, added France and the Netherlands to a list of country's from which travelers must quarantine for at least 14 days upon arrival, a decision that hit airline stocks in European trading and raised questions as to how and when the global pandemic -- which has reached 21 million cases with nearly 760,000 deaths -- will ultimately be brought under control.

Around 285,000 new cases were confirmed around the world yesterday, with Germany adding the most since May 1 and France warning of a worsening outlook in Europe's second-biggest country. 

In the U.S., the Senate's decision to adjourn for the summer break, following a similar move by House Democrats, both dismayed investors hoping for a breakthrough on a fresh stimulus package and triggered a more conservative approach to market risk heading into the final trading day of the week.

Futures contracts tied to the Dow Jones Industrial Average, which is up more than 5.5% for the month, are priced for a 55 point retreat while those linked to the SP 500, which came within a few points of its all-time closing high during yesterday's afternoon session, are indicating a 3 point pullback.

Benchmark 10-year Treasury bond yields edged higher in the overnight session, to 0.703%, following a disappointing sale of $26 billion in 30-year bonds yesterday that drew modest international demand and a yield that was around 8 basis points higher -- and thus more expensive for the Treasury -- than the prevailing market rate.

The yield moves did, however, increase the attraction of the U.S. dollar, which edged 0.06% higher against a basket of its global currency peers to trade at 93.341 in early European dealing.

European stocks were weaker, as well, with airlines pulling benchmarks lower around the region and a stronger euro clipping any gains for export-focused stocks.

The Stoxx 600 benchmark was marked 1.4% lower by mid-day trading in Frankfurt while Britain's FTSE 100 slumped 2% in London, lead by a 6.6% slide for British Airways owner International Consolidated Airlines. 

Global oil prices were on the back foot, however, as the dollar booked modest gains and the International Energy Agency, a Paris-based think tank, trimmed its 2020 demand forecast to around 91.9 million barrels per day -- a figure that would be more than 8 million barrels below 2019 levels -- following a similar move by OPEC earlier in the week.

WTI contracts for September delivery, the U.S. benchmark, traded 22 cents lower from their Thursday close in New York and were changing hands at $42.02 per barrel in early European dealing while Brent contracts for October, the global benchmark, were seen 24 cents lower at $44.68 per barrel.

Overnight in Asia, a modestly weaker yen helped support export stocks, while the follow-on from yesterday's tech-lead rally for the Tokyo benchmark provided a second wind for the Nikkei 225, which closed 0.17% higher at a six-month high of 23,289.36 points.

China's triple-set of July data, however, which included firmer government investment figures but weaker industrial output, kept stocks in the region lower even as the Shanghai Composite snapped a three-day losing streak with a 1.2% gain, as markets in South Korea, India and Hong Kong pushed the region-wide MSCI ex-Japan index to a 0.1% decline heading into the close of the week.