Closing Stock Market SummaryThe major indices posted modest gains on Monday, as the market remained resilient to selling pressure and enthused by reopening prospects. The S&P 500 (+0.4%) and Nasdaq Composite (+0.4%) both increased 0.4%, while the Russell 2000 (+0.8%) and Dow Jones Industrial Average (+0.7%) pulled ahead.
Early in the day, investors showed little conviction following the nationwide protests over the death of George Floyd and a Bloomberg report that suggested Chinese officials instructed major state-run agricultural companies to pause their purchases of some U.S. agricultural products. Despite the negative backdrop, reopening optimism slowly pushed stocks higher.
Shares of beaten-down small-caps, banks, airlines, cruise lines, and energy companies were among the biggest gainers. At the same time, investors assumed some defensive positioning within the mega-caps and the S&P 500 real estate (+2.1%) and utilities (+1.0%) sectors, which outperformed alongside the financials (+1.2%) and energy (+1.7%) sectors.
Today's sector laggards were the health care (-1.0%) and information technology (unch) sectors. Pfizer (PFE 35.46, -2.73, -7.2%) was a noticeable drag on the health care space after the company provided a disappointing update for its Phase 3 breast cancer trial.
On a related note, Eli Lilly (LLY 152.45, -0.50, -0.3%) initiated the first study of a potential COVID-19 antibody treatment in humans. LLY shares, however, closed lower amid the intraday weakness in the sector.
Separately, reports indicated that OPEC moved up its production meeting to June 4 and that it's close to reaching an agreement with Russia to extend production cuts by another two months. WTI crude futures declined 0.6%, or $0.21, to $35.28/bbl despite the news.
U.S. Treasuries ended the session little changed. The 2-yr yield and the 10-yr yield were flat at 0.15% and 0.65%, respectively. The U.S. Dollar Index declined another 0.5% to 97.82, as reopening optimism increased demand for foreign currencies.
Reviewing Monday's economic data, which included the ISM Manufacturing Index for May:
- The ISM Manufacturing Index for May ticked up to 43.1% (consensus 44.0%) from 41.5% in April. This the third straight reading below 50.0%, which is the dividing line between expansion and contraction.
- The key takeaway from the report is that upticks were seen in the key measures of new orders, production, employment, prices, backlog of orders, and new export orders. All were still below 50.0%, yet they corroborate the view that the downturn in manufacturing activity wasn't as bad as the downturn seen in April.
- Construction spending declined 2.9% m/m in April (consensus -6.0%) on the heels of a downwardly revised flat reading (from +0.9%) for March. Total residential spending was down 4.5% while total nonresidential spending decreased 1.8%.
- The key takeaway from the report is that total construction spending is still up 3.0% yr/yr, underpinned by a 3.8% yr/yr increase in total private construction spending and a 0.8% yr/yr increase in total public construction spending.
Looking ahead, investors will receive auto and truck sales throughout the day on Tuesday.
- Nasdaq Composite +6.5% YTD
- S&P 500 -5.4% YTD
- Dow Jones Industrial Average -10.7% YTD
- Russell 2000 -15.8% YTD
Early premarket gappers
- Gapping up:
- IMMP +32.5%, CYAD +14.2%, COTY +7.4%, MESO +3.8%, RRGB +3.3%, BYND +2.7%, LVS +1.8%, MRNA +1.7%, MLCO +1.6%, UAL +1.2%, MYOV +0.9%, HPQ +0.7%, MGM +0.5%
- Gapping down:
- NBRV -17.5%, ADAP -11.5%, LVGO -6.6%, ALLO -6%, PFE -5.8%, ATHX -4.1%, AUPH -1.7%, AZN -0.9%, WYNN -0.5%
Beyond Meat partners with Yum China (YUMC) to introduce Beyond Burger at select KFC, Pizza Hut and Taco Bell restaurants (128.29)
Yum China Holdings (YUMC) today announced that it is partnering with Beyond Meat (BYND) to introduce the Beyond Burger as a limited time offering at select KFC, Pizza Hut and Taco Bell locations in mainland China starting June 3. This partnership marks the introduction of Beyond Meat's Beyond Burger in mainland China.
Launching on June 3, KFC will offer the Beyond Burger as a 3-day limited time offer at five locations in Beijing, Chengdu, Hangzhou and Shanghai. The Beyond Burger will provide Chinese consumers an exciting and delicious plant-based twist on the iconic beef burger patty.
Saudi foreign reserves fall as sovereign wealth fund spends overseas
Drop of $21bn after PIF transfers as kingdom tackles worst economic crisis in decades
Saudi Arabia’s net foreign reserves fell by about $21bn in April after Riyadh transferred billions of dollars to its sovereign wealth fund to finance its overseas spending spree.
Figures released by the central bank late on Sunday revealed that the country’s foreign reserves had fallen to $444bn, the second consecutive monthly decline. Net reserves fell by about $24bn in March.
The decline in April was expected after Mohammed al-Jadaan, the finance minister, said on Friday that $40bn in foreign reserves had been transferred to the Public Investment Fund, which is aggressively buying stakes in US and European blue-chip companies as it seeks to take advantage of the global Covid-19 crisis to snap up assets cheaply. The transfer to the fund took place in March and April.
The use of Saudi Arabia’s reserves to finance the PIF’s activities is contentious as the kingdom grapples with its worst economic crisis in decades, some analysts say. The world’s top oil exporter has been battered by the twin shocks of coronavirus and the fall in crude prices.
It is also indicative of the radical changes that have taken place in the kingdom under the leadership of Crown Prince Mohammed bin Salman, who chairs the PIF. Traditionally, the kingdom conservatively invested its reserves, which are managed by the Saudi Arabian Monetary Authority, and predominantly bought US Treasury bills and other low risk and liquid assets.
“Risking the sovereign’s reserves for uncertain returns is a very high stakes game rarely done,” said an analyst, who did not want to be named.
Economists estimate that the kingdom needs to keep its reserves above $300bn to preserve the riyal’s dollar peg. The government, which insists it will maintain the peg, has introduced tough austerity measures, including cutting state spending, suspending civil servants’ cost of living allowances and tripling VAT to 15 per cent.
It is also ramping up its borrowing as it grapples with a ballooning budget deficit that is forecast to hit double-digits this year.
The PIF, meanwhile, has spent at least $8bn buying stakes in global companies in the first three months of the year, including BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney, Facebook and Carnival, the cruise line operator.
John Sfakianakis, a Gulf expert at Cambridge university, said that Mr Jadaan’s explanation on Friday for the decline of reserves was welcome.
“But on the other hand, the decline brings attention to the [potential] rate of reserve depletion in the months to come and the ability of the government to raise revenue in a crisis and contain fiscal excesses,” he added. “The decline in foreign reserves is always a worry, especially for pegged currencies such as in Saudi Arabia.”
Mr Jadaan, who sits on the PIF’s board, told the Financial Times last week that the foreign currency transfer would provide dollar liquidity to the $325bn PIF to allow it to continue investing overseas, both “tactically” and for the “long term”.
Saudi officials have said the global market volatility has created opportunities for the PIF to invest and build up its portfolio, insisting the investments will benefit the kingdom in the long run.
“They [the PIF] are obviously looking for the right time and the right market,” Mr Jadaan said last week. “They have finished part of their investment and they may be waiting for opportunities to come in the weeks and months to come.”
He said Riyadh had conducted a lot of stress testing and that the authorities believed the foreign reserves “level is very high compared to what we think we need to maintain the peg and support the economy”.
However, the scale of transfers to the PIF could raise unease among Saudis at a time when they are enduring painful austerity measures.
Saudi companies have been struggling since the last oil price drop in 2014-15 and hopes of a pick-up in non-oil activity have been dashed by the coronavirus outbreak.
State spending is the prime driver of economic activity in the kingdom, but the government is being forced to delay projects and reprioritise its allocation of funds.
After the oil decline five years ago, the kingdom’s foreign reserves plummeted from $726bn to about $500bn.