News: Stocks drift amid virus jitters, stimulus deadlock


Investors mull continued talks over US stimulus and fresh restrictions over virus resurgence
Newsfeed16 Oct 2020
Photo credit: AFP Photo


US

Asia stocks and US futures were mixed Friday (16 October) as investors mulled continued talks over US stimulus and the economic impact of fresh restrictions against the resurgent coronavirus in some parts of the world.

US President Donald Trump said he is willing to go beyond the USD1.8t offer for relief that has already been offered, but Senate Majority Leader Mitch McConnell rejected that. Earlier, small-cap shares pushed higher while the Nasdaq underperformed. Elsewhere, Treasuries and the dollar were steady, while crude oil ticked lower.

With fresh US stimulus remaining elusive for now, investors are monitoring clampdowns in Europe’s biggest cities as concern grows that measures aimed at containing the virus’s spread could cause more damage to a fragile global recovery. Data showed an unexpected surge in US jobless claims to the highest since August – a troubling sign for a labour market whose recovery was already slowing.

Friday brings the expiry of options contracts on US equities, indices, and exchange-traded funds, lifting the chances for intraday volatility. – Bloomberg News.

The S&P 500 Index fell 0.15% to 3,483.34 on Thursday, the Dow Jones Industrial Average remained little changed at 28,494.20, and the Nasdaq Composite Index dropped 0.47% to 11,713.87.

 

EUROPE

Londoners will be banned from mixing with other households indoors and Paris is set for a curfew, as France and other countries post record infections, leaving leaders across Europe struggling to get the virus under control.

Prime Minister Boris Johnson’s government mandated tighter restrictions in the UK capital starting this weekend, while French President Emmanuel Macron will confine residents of nine of the country’s biggest cities to their homes between 9:00 pm and 6:00 am for four weeks from Saturday (17 October). France reported a record 30,621 new positive test results on Thursday.

German, Italian, and Irish daily infections also hit a record on Thursday and Spain recorded the most new cases since April. While France is imposing curfews, German Chancellor Angela Merkel implored citizens to abide by distancing rules and avoid groups, and the varied approaches around Europe to deal have caused confusion and stoked unrest amid the pandemic-weary public.

Leaders have little recourse but to tell people to knuckle down. Johnson was adamant he did not want a second lockdown but now the prospect of a so-called “circuit breaker” with schools closed for two weeks is in the air. From midnight on Friday, millions of residents in the UK capital will not be able to socialise with other households behind closed doors, including in pubs and restaurants.

This latest development comes as Germany, Italy, Austria, and the Czech Republic all reported record increases in cases, and London approached an average of 100 infections per 100,000 people.

European authorities are grappling with how to devise targeted strategies that slow the spread of the disease without resorting to the kind of broad national lockdowns which decimated economic activity in the second quarter.

European infections began a resurgence in the late summer, fuelled by returning travellers and young partygoers. Local family, work, and social gatherings have since spurred further contagion. On Thursday, Germany declared that that all of continental France, the entire Netherlands, and all of Slovenia will be considered a coronavirus risk area from 17 October onwards.

Italian Prime Minister Giuseppe Conte warned that the nation will “be in trouble again” if the rising trend persists and for the first time declined to rule out a new nationwide lockdown. In the Naples area, authorities signed a decree ordering schools to close until 30 October, newspaper Corriere della Sera reported. The decree also bans parties, with guests from different households. – Bloomberg News.

The Stoxx Europe 600 Index closed 2.08% lower at 362.91.

 

JAPAN

Asia’s largest retailer Fast Retailing Co Ltd sees profits growing slightly beyond analysts’ expectations this fiscal year, driven by a robust recovery from the COVID-19 pandemic in the Uniqlo owner’s key China and Japan markets.

Operating profit will probably be JPY245b (USD2.3b) for the year through August 2021, the Japanese company said in a statement Thursday (15 October). That compares with the average analyst estimate of JPY242.4b compiled by Bloomberg. Sales are seen at JPY2.2t, roughly in line with average analyst expectations of JPY2.28t.

While operating profit for the year just ended fell 42% and revenue declined 12%, Fast Retailing’s projections for 2021 represent a return to pre-pandemic levels. The company said revenue will continue to decline in the first half due to the pandemic, with a recovery kicking in after that.

Retailers have been reeling as COVID-19 upends shopping habits. Fewer people are venturing outside amid lockdowns and fear of crowds, while shoppers are tightening purse strings amid job losses and economic upheaval. Apparel retailers from Brooks Brothers to J Crew have filed for bankruptcy protection, though some brands are weathering the storm better thanks to heavy e-Commerce traffic.

Analysts say Fast Retailing is in a position to recover faster compared with its global peers, with its geographic focus on Asia, where coronavirus cases are more subdued at present, and its emphasis on affordable, basic clothing suitable for working from home.

Investors are already betting on Fast Retailing’s ability to recover. The company’s stock has bounced back from a March low, closing at a record high on Thursday before earnings were announced. Hennes & Mauritz AB and Zara operator Inditex’s shares are both down more than 15% for the year.

Fast Retailing is seeing business improve in China at a faster pace than expected, as the economy reopens and coronavirus outbreaks remain largely under control. The company said Uniqlo’s revenue in China, where it has almost 800 stores, will be strong in 2021, including double-digit growth in e-Commerce.

Uniqlo’s merchandising focus on casual and functional basic wear continues to draw customers. The brand also scored a win as it adapted its AIRism breathable fabric to make face masks, creating a buzz and drawing customers back to stores in Japan after a state of emergency was lifted. Uniqlo Japan’s operating profit rose for the year, while same-store sales have increased every month since June compared to a year ago.

Although Fast Retailing has been investing heavily into its e-Commerce operations, its long supply chain – which has the company placing orders for goods up to a year before they hit shelves – could be a challenge amid uncertainty over how long the pandemic will go on. – Bloomberg News.

The Nikkei 225 Index opened 0.11% lower at 23,480.52 on Friday, adding to Thursday’s 0.51% slide to 23,507.23.


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