The U.S. is in recession, the World Bank predicts a hefty 5.2% hit to global output in 2020 and yet the Nasdaq is at an all-time high. Crude oil is expected to give back some of its recent gains, while the IPO market is set to welcome Vroom in a busy week. Here’s what you need to know in financial markets on Tuesday, June 9th.
1. U.S. is in recession – official
The economic downturn in the U.S. triggered by the social distancing measures adopted to combat the Covid-19 virus has been officially declared a recession, which started in February – bringing to an end the longest period of economic expansion in U.S. history.
The National Bureau of Economic Research, the body which acts as the arbiter for determining U.S. business cycles, said late Monday “the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
The designation has not come as a surprise, after all U.S. gross domestic product fell 4.8% annualized in the first three months of the year and the next quarter is expected to be much worse. At the same time, the unemployment rate rose from a record low of 3.5% in February, hitting 14.7% in April and 13.3% last month.
This puts the spotlight on the two-day meeting of the Federal Reserve, concluding Wednesday, for signs of more stimulus ahead.
2. Global output faces 5.2% coronavirus hit in 2020
The Covid-19 outbreak may be past its peak. New York City, regarded as the epicenter of the outbreak in the U.S., started the slow process of reopening for business on Monday.
But it’s important not to forget the damage caused, with over seven million having been infected and more than 400,000 dead to date.
And there’s also the economic impact.
Global economic output is set to contract by 5.2% in 2020 due to the coronavirus, the World Bank said on Monday, in its latest Global Economic Prospects report.
Advanced economies are expected to shrink 7.0% in 2020, the report said, while emerging market economies will contract 2.5%, their first since aggregate data became available in 1960.
These forecasts predict a deeper slowdown than the estimates released in April by the International Monetary Fund, which predicted a 3.0% global contraction in 2020.
3. Stocks set to open lower, after bull market confirmation
U.S. stock markets are set to open lower, with investors set to take profits after Monday’s gains confirmed a bull market in the tech-driven Nasdaq Composite index.
The Nasdaq has climbed over 40% from its March 23 bottom, making a new high and confirming a bull market, which is considered to have begun at the index’s low, just 16 weeks after the coronavirus outbreak pushed the U.S. economy into recession.
Stocks in focus Tuesday include spirits maker Brown Forman (NYSE:BFb), which is expected to report fiscal fourth-quarter earnings of 28 cents a share on revenue $695 million. The company makes liquor brands including Jack Daniel’s and Finlandia. And online pet food and grooming product supplier Chewy (NYSE:CHWY) is scheduled to report profit of 18 cents a share on revenue of $1.5 billion.
4. Oil prices retreat; More losses ahead?
Crude oil prices have sold off Tuesday, retreating from the three-month highs achieved after a group of major producers agreed to extend a deal on record output cuts to the end of July.
And more losses look likely going forward, according to Goldman Sachs.
“This rebound has been fueled by a macro risk-on backdrop and a policy induced Chinese crude import binge, yet fundamentals are turning bearish,” Goldman said.
With demand expectations running ahead of a more gradual and still uncertain rebound, the oil market faces a big challenge of normalising a billion barrels of excess inventories, analysts at the bank wrote.
The investment bank expects Brent prices to reach $35 per barrel in the short term.
By 6:30 AM ET, U.S. crude futures were down 2.3% at $37.30 a barrel, while the global benchmark Brent was down 1.8% at $40.06 a barrel.
5. Vroom to start trading after IPO
Online used-car seller Vroom (NASDAQ:VRM) is set to start trading Tuesday after pricing its initial public offering at $22 a share late Monday, above its previous range of $18-$20.
The company is offering about 12.25 million shares, for a market capitalization of around $2.48 billion.
Vroom has not been profitable since its start in 2012, but is looking to benefit from the shift to online shopping accelerated by the pandemic. That said, the car industry, as a whole, has been suffering and Vroom has already had to cut prices and its profit margins have shrunk.
Investors will be watching this deal carefully, given the week is expected to see eight IPOs launched, raising about $2 billion.
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