(02 April 2020)DAILY MARKET BRIEF 1:Stocks recover but data is a big threat to improved appeti

Major US stock indices lost circa 4.40% on Wednesday, but this time the sell-off was driven by European markets amid major European banks announced they will not pay dividends in 2020. Investors who have already suffered colossal losses during the recent market selloff were further disenchanted to hear that they would be losing their revenues from dividend payouts as well. However, the banks as other companies, must hold onto the cash to survive the unprecedented slowdown in activity. This is the only way they can maintain a healthy balance sheet faced with significant decline in expected revenues and perhaps an increased need for expanding their loans.

Axing dividends hatched havoc for European bank stocks. In the UK, Lloyds (-11.66%), Barclays (-11.95%), HSBC (-9.52%) and Royal Bank of Scotland (-5.23%) slumped. In France, Credit Agricole (-5.17%), BNP Paribas (-5.96%) and Societe Generale (-9.53%) displayed a similar performance. Deutsche Bank (-5.54%0 led losses in Frankfurt.

Now despite the negative kneejerk reaction, sitting on cash is the right decision from a business perspective medium to long-term. Hence, we expect to see a certain level of tolerance for ditched dividends, and recovery.

Trading in Asia was flat-to-positive. Activity in US and European futures hint at a flat to positive session on Thursday.

But the market mood will likely remain clouded by undesirable news regarding the progress of the coronavirus spread in Europe and across the US. Despite WHO’s announcement that Europe may be approaching a peak, France and Spain recorded their deadliest days this week and we do not yet see a reversing pattern in cases and deaths. Meanwhile, fatalities in New York and New Jersey double up over the past three days. 2000 deaths were recorded in New York alone, and cases reported in the US were surprisingly younger than elsewhere.

Economic data on the other hand was mixed. The ADP report surprised with a 27’000 decline in private jobs last month versus 150’000 job losses expected by analysts. The ISM manufacturing PMI printed a touch below the 50 mark in March, a surprisingly good performance but with the risk of seeing a deferred slump in the coming weeks due to the halted economic activity. Today’s weekly jobless claims could however print another cataclysmic week. Analysts expect a second week jump over 3 million in latest claims, and there is even potential for a bigger slump as US businesses gradually halted their activity to stop the virus contagion last week.

Yet so far, the most shocking for investors came from the weekly crude inventories. According to the latest EIA data, the US crude stockpiles soared 13.84-million-barrel last week, the biggest weekly jump since 2016, as gasoline inventories surged 7.5-million barrel. These figures were significantly higher than 3.7 million and 1.95 million penciled in by analysts respectively. Meanwhile, OPEC supply increased in March as Saudi ramped up production to flex its muscles after Russia’s veto to lower production led to an all-out price war among leading oil producers.

By Ipek Ozkardeskaya