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Global markets are mostly lower ahead of U.S. weekly jobless claims and the Bank of England's interest rate decision.

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August 6, 2020 8:55am EDT

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The Express | Insight Before the Bell

By Caleb Silver, Editor in Chief

& Deborah D'Souza, News Editor

Thursday, August 06, 2020 Headlines

1. Global markets mostly lower ahead of US weekly jobless claims

2. Germany sees a disturbing rise in new virus cases

3. The Bank of England holds rates, but extends recovery timeline

4. Inflation is hitting the new and used US car market

5. Trump admin. favors more relief for airlines

Markets Today

Global markets are mostly lower this morning, and U.S. futures are headed that way following four straight days of gains that have left the S&P 500 just 2% away from a record high. The Nasdaq made its 31st all-time high on Wednesday as technology stocks, especially semiconductor companies, continued to trade higher.

A disturbing rise in new COVID-19 cases in Germany, and a slightly better, but still dour economic forecast from the Bank of England, have given investors pause, as European markets are all down 1% or more.

In the U.S., lawmakers are still far apart on the next round of stimulus, and President Trump has threatened executive action on unemployment insurance and an eviction moratorium if no deal is reached with Democrats. Another 1.18 million Americans filed first-time unemployment claims last week, the first meaningful drop in over a month, but still alarmingly high. With the July nonfarm payrolls report due out tomorrow, the prospects for a jobless recovery are becoming more apparent every day.

Headlines

Germany's new manufacturing orders smashed expectations and surged 27.9% in June from May, official data showed. It's still down 11.3% from June 2019. New orders in the automotive industry increased 66.5% from May. The country's economy is recovering after shrinking 10.1% in the second quarter.
The Bank of England has kept interest rates steady at 0.1% and maintained the bond buying program at £745 billion. While the central bank warned recovery to pre-coronavirus levels would be slower than earlier expected, it also improved its GDP growth forecast for 2020 from a 14% decline to a 9.5% decline. This means it no longer expects the worst performance for the economy since 1706 (-15.3%). It would just be the worst since 1921 (-9.71%).
A federal judge has ruled in favor of Bristol-Myers Squibb and Pfizer in a patent fight with Sigmapharm Laboratories, Unichem Laboratories and Sunshine Lake Pharma. The court ruled that the generic drug makers would be infringing on patents related to the blood thinner Eliquis, and they cannot launch their anticoagulant products before 2031. Shares in both Bristol-Myers Squibb and Pfizer are rising pre-market on the victory.
Facebook and Twitter have pulled a post from President Trump's account for violating misinformation rules. The video taken down was of the president saying children are "virtually immune" to the novel coronavirus on Fox News.
Amazon CEO Jeff Bezos sold 1 million of the company's shares worth $3.1 billion this week, according to SEC filings. The sale is part of a 10b5-1 plan and the first time he has sold stock in the company since before the pandemic in February 2020, when he sold $4 billion worth. Bezos has said he sells about $1 billion worth each year to fund his Blue Origin rocket company. He still owns more than 54 million shares of the e-commerce giant.
Samsung yesterday unveiled its latest Galaxy Note20 and Galaxy Note20 Ultra flagship smartphones. At the virtual event, it also introduced the Galaxy Tab S7 series (tablet upgrade), Galaxy Buds Live (beans-shaped AirPods rival with AKG), Galaxy Watch3 and Galaxy Z Fold2 (foldable phone upgrade). "Going forward, 5G and foldable will be the major pillars of Samsung’s future," said mobile head TM Roh.
100 companies accounted for 47% of all global business R&D spending in 2018, according to a new Goldman Sachs report. Amazon led the ranking with a $22.6 billion bill, followed by Alphabet, Volkswagen, Samsung, Huawei, Intel, Microsoft, Apple, Roche and Johnson & Johnson. Combining government, business and university expenditures, the U.S. spends the most on R&D at $580 billion. It's closely followed by China's $550 billion spending in 2018, up 199% from 2009. Countries that spend the most as a percentage of GDP are Israel, South Korea and Switzerland.

Image courtesy: Goldman Sachs

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Image courtesy: US National Archives

The Big Story

Driving Is Back

Online used car retailer Carvana's stock is falling today because despite a smaller than expected loss and "seeing more demand than ever before." It missed revenue estimates and has warned that inventory constraints are "meaningfully limiting sales" and hampering growth. There aren't enough used cars to meet demand.

Somewhere the polarizing master builder Robert Moses is smirking as the pandemic makes us think twice before gripping a subway pole, brushing past others on a bus or jumping into an Uber Pool. Besides, interest rates are extremely low right now. Below is the google search interest in the U.S. for the phrase "buy a car" over the last five years. It hit an all-time high at the end of May and has stayed elevated.

Americans do seem very comfortable traveling outside their cities in cars right now. Airbnb says hosts in rural areas of the U.S. earned over $200 million in June 2020, a 25% increase from the same period a year ago. As comedian Sebastian Maniscalco put it, everyone he knows is on vacation while he's too scared to touch a doorknob.

Image courtesy: Google Trends

Below you'll see routing requests on Apple devices since January 13, 2020. Driving is up the highest from baseline with walking and transit lagging.

Image courtesy: Apple

Online used car sellers have gained from customers' contamination fears. Used car prices are spiking to historic levels since demand is up and fewer owners have been selling during to the pandemic. The average listing price for all used vehicles climbed to $21,558 in July, marking a $708 increase compared to June, as "inventory has been severely limited on the new side," said car-shopping website Edmunds. (see chart below) Used-car inventory at dealerships fell below 2.2 million vehicles by late July, down 22% from July 2019, according to research firm Cox Automotive. If you've been thinking of selling, this is your market.

Exacerbating the used car shortage is production struggling to keep up the supply of new cars due to the coronavirus. Companies are seeing labor shortages in factories and deliveries, and outbreaks at plants. The Detroit News spoke to dealers in motor-obsessed Texas while it saw a spike in cases, and they complained not of slowing sales, but of vehicle shortages. J.D. Power says that 41% of all new vehicles sold in July spent fewer than 20 days on the lot, up from 35% a year ago. According to Wards Intelligence, final inventory numbers are expected to register an eight-year low for the month.

While new vehicle sales improved for the third consecutive month in July, they still are lower from the same time last year. The National Automobile Dealers Association expects "inventory constraints in popular segments will be a headwind for new-vehicle sales for the rest of the summer."

Image courtesy: Edmunds

Image courtesy: Airlines for America

The Big Number: $25 Billion

That's how much more airline payroll support President Trump wants to provide. An extension of the emergency funding that was part of the CARES Act has also received backing from more than 200 members of the House of Representatives and at least 16 senators who addressed a letter on the subject to Senate leaders yesterday.

"We don’t want to lose our airlines," Trump told reporters at a White House briefing on Wednesday. "If they’re looking at that, whether they’re Republican or Democrat, I’d certainly be in favor." The news has sent airline stocks higher this morning. Companies have said they will have to begin laying off tens of thousands of workers in October once funds run out.

As seen in the chart above, U.S. airline passenger volume recovered in June but is now staying sharply lower than it was last year. Goldman Sachs says U.S. passenger numbers won't recover to pre-pandemic levels until 2023. TSA checkpoint travel numbers were 73% lower year over year in July, an improvement from the 95% decline seen in April, but still a long way to go. On Tuesday, it recorded 543,601 people traversing checkpoints, down from 2.38 million on the same day last year.

Hedge fund manager David Einhorn recently revealed he bought a "new, large equity position" in Atlas Air Worldwide Holdings in the second quarter. His rationale: There is a "historic shortage" of air freight capacity since passenger planes, which used to carry 50% of cargo, are now grounded. "Over the next three years, we don’t expect many large freighters to be either produced or converted from passenger service given the cost and lead-times involved," Greenlight Capital told partners.