London Capital Group | Jun 26, 2020 11:11
European markets open high, Asia mostly up.
Futures point to lower open on Wall St.
US reports highest daily rise in virus cases.
Banks pass Fed stress tests but buybacks deferred.
“Remember that stocks are never too high for you to begin buying or too low to begin selling.” – Jess Livermore
Shares in Europe look soft at the open. The first weekly rise in European coronavirus cases “in a long time”(according to the WHO) weighing on optimism. At the same time, Wall Street looks on course for a weaker open. Banks passed stress tests but the Fed capped dividend payments and deferred buyback schemes, while Nike (NYSE:NKE) earnings disappointed. Chinese markets are closed today but the rest of Asia fared better. That’s baring Quantas airlines, which dived over 9% after announcing plans to issue new shares.
Everybody knew COVID-19 cases were likely to rise again when lockdowns were eased but share prices had gotten so overbought when we got there that it’s still causing some jitters. The concept that governments will not commit to new national lockdowns in a second wave is still keeping a floor under shares.
But the record daily rise in US cases at best shows the recovery will not be a V-shape because reopening is delayed. The weekly rise in cases in Europe stems mostly from countries who are still in the middle of the first wave, but does risk pushing back the timeline for further easing travel restrictions.
It was not exactly a clean bill of health for US banks from the Fed. Our assessment in yesterday’s note about the dividends staying but buybacks being deferred happened. The cap on dividends and the conclusion that some banks would “get close to minimum capital levels” under pandemic scenarios was a negative surprise. Major US bank shares look on course for opening declines in around 3-4%.
US bank shares ticked higher after passing Fed stress tests, and being given the green light to pay dividends. BUT they still way behind the S&P 500 this year. Lots of room to makeup.
Written By: London Capital Group
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