By Peter Nurse
Investing.com -- Wall Street is set to bounce back from Thursday’s sharp selloff, while oil has stabilised. There’s an abundance of data due later Friday that could put this tone to the test. The U.K. suffered a record drop in output in April, in the height of its lockdown, while Tesla’s stock is losing some investment banking friends after its meteoric rise. Here’s what you need to know in financial markets on Friday, June 12th.
1. Stocks set to rebound strongly after reality check
U.S. stock markets are set to surge Friday, rebounding after Thursday’s sharp selloff which has acted as a reality check given the strong gains on Wall Street over the last couple of months.
By 6:30 AM (1030 GMT), the Dow Jones 30 Futures contract was up 587 points or 2.3%, while the S&P 500 Futures contract was up 1.9% and the Nasdaq 100 futures contract was 1.6% higher.
Wall Street tumbled in a broad sell-off on Thursday, with the Dow suffering its biggest one-day decline since the middle of March, as a jump in new Covid-19 infections threatened to slow down the pace of the reopenings prompting investors to ditch stocks and flee to safety.
The Dow Jones Industrial Average fell 6.9%, or 1,861 points. The S&P 500 fell 5.9%, while the Nasdaq Composite slumped 5.3%.
The indices are on track to end a spell of three winning weeks, with the DJIA down 7% so far, the S&P 500 down 6% and the Nasdaq Composite 3% lower.
“Equities had been trading in large part due to three factors: a V-shaped recovery of the real economy and earnings, optimism on the medical and public health front, and the likelihood of additional support from both the Fed and the fiscal authorities,” said John Velis, FX and Macro Strategist, Americas, BNY Mellon (NYSE:BK) in a note to clients.
2. U.K. suffers record output drop
Britain's economy suffered a record collapse in April, shrinking by 20.4% in April from March as the country spent the month in a tight coronavirus lockdown.
"Record GDP falls in today’s figures. When taking April and March together the economy is 25% smaller. The economy in April the same size as it was in 2002," ONS statistician Rob Kent-Smith said on Twitter.
"Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall," said Jonathan Athow, deputy national statistician for economic statistics.
These figures are particularly weak when compared with the U.K.’s main European rivals.
The Bank of France estimated Thursday that the French economy would show a 15% quarterly contraction in the April-June period, while German industrial output dropped by 17.9% in April from March.
The Organisation for Economic Co-operation and Development did warn on Wednesday that Britain was on course for the worst downturn among all the major economic powers, forecasting its economy would contract 11.5% this year.
3. Heavy economic data slate
There are a number of economic indicators due for release Friday, with the Michigan Consumer Sentiment survey, due at 10:00 AM ET (1400 GMT), the main release.
Expectations are for a number of 75 for June, up from 72.5 the prior month, with sentiment likely on the rise as businesses are reopening and individual restrictions are being loosened in much of the country.
That said, the number of cases of the virus continues to rise in a number of the more populous states, while Federal Reserve Chairman Jerome Powell was downbeat in his assessment of the economic outlook earlier this week.
Before this, May's import price index, which measures the change in the price of imported goods and services purchased in the U.S., is expected to come in at 0.6% compared with a contraction of 2.6% for the prior month.
May's export price index is also due and is expected to be a gain of 0.6% compared to a contraction of 3.3% the prior month. The figure tracks changes in U.S. exports to determine whether there was an increase in goods sold abroad or merely an increase in the price of exported goods.
Both indices are due at 8:30 AM ET (12:30 GMT).
4. Crude prices set for weekly drop
Crude oil prices were mixed Friday after Thursday’s sharp losses amid fears a surge in new coronavirus infections in many U.S. states could hinder a fragile recovery in demand at the world’s largest consumer, while swelling stockpiles raised fresh concerns about excess supply.
However, Treasury Secretary Steven Mnuchin said the U.S. shouldn’t shut down the economy again even if there is another jump in coronavirus cases, helping the tone Friday.
“In our view, the bar for turning to lockdowns again seems very high,” said Danske Bank, in a note to clients. “Not least in the U.S., where there is strong opposition to this.”
Additionally, “the oil market has been overdue a pullback, with prices getting somewhat ahead of actual fundamentals,” said Warren Patterson head of commodities strategy at ING Bank NV in Singapore. “While the market is moving from a surplus to deficit environment, inventories remain at elevated levels and refinery margins are still very weak.”
Oil is heading for the first weekly loss since late April, also weighed by an increase in American crude stockpiles to a record high which raised fresh concerns about a potential supply glut.
Attention will turn Friday to the weekly release of the Baker Hughes rig count, an important business barometer for the oil drilling industry.
By 6:30 AM ET, U.S. crude futures were down 0.2% at $36.26 a barrel, while the global benchmark Brent was 0.2% higher at $38.61 a barrel.
5. Time to ditch Tesla (NASDAQ:TSLA) stock?
Tesla stock has been one of the most desired on Wall Street over the last year or so, climbing around 145% this year, making the California-based electric-vehicle maker the top performer on the Nasdaq.
The stock climbed above $1,000 for the first time ever on Wednesday, resulting in a market capitalization of $120 billion, nearing that of Toyota, the biggest automaker in the world.
However, this may be the time for investors to think carefully about owning the stock, at least that what a couple of investment banking giants think.
Morgan Stanley (NYSE:MS) downgraded Tesla to underweight earlier Friday, saying its elevated price doesn’t properly reflect emerging risks, citing price cuts in China and the U.S..
Goldman Sachs (NYSE:GS) also cut its investment stance on the car maker Friday to neutral on a 12-month basis, citing a lofty valuation. However, it remained positive on the stock over the longer term.