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Top 5 Things to Know in the Market on Tuesday, May 5th

By Geoffrey Smith 

Investing.com -- Germany's top court fires a shot across the ECB's bows, FEMA is expecting a big surge in U.S. infections and deaths as states ease their lockdown measures and oil prices are rebounding on more signs that the market is coming back into a semblance of balance. Walt Disney (NYSE:DIS), Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) lead the day's earnings roster. Here's what you need to know in financial markets on Tuesday, May 5th.

1. German court rules ECB QE partially unlawful

Germany’s top court threatened to stop German participation in the European Central Bank’s government bond-buying, ruling that that parts of its 2015 quantitative easing program went beyond its competence.

The ruling doesn’t affect the 750-billion-euro ($815 billion) Pandemic Emergency Purchase Program directly, but heavily implies that it would find that program unconstitutional, given that the ECB has abandoned its earlier restrictions on how much it can buy of an individual government’s debt.

While the court dismissed a suit to have the program declared illegal, its ruling was shot through with arguments sympathetic to the plaintiffs, threatening to revive German popular resentment of ECB policy, which had become more conciliatory since the Covid-19 pandemic erupted.

The euro and STOXX 600 weakened in response.

2. FEMA reportedly sees big rise in infections

The Federal Emergency Management Agency predicts that the U.S. death toll from Covid-19 will rise to 3,000 a day and an eight-fold rise in new infections to 200,000 a day by June 1, the NYT reported, citing an internal FEMA study.

The document, which is only one of a number of studies being considered by the federal government, highlights the risks of reopening the economy prematurely, the NYT said.

Separately, the Institute for Health Metrics and Evaluation at the University of Washington has revised its forecasts for the trajectory of the disease and now estimates there will be nearly 135,000 U.S deaths by the beginning of August, more than twice what it forecast in April.

3. Stocks set to open higher

U.S. stock markets are set to open higher, extending gains made on Monday amid signs that the acute imbalance in the global oil market is correcting itself.

By 6:30 AM ET (1030 GMT), the Dow Jones 30 Futures contract was up 227 points, or 1.0%, while the S&P 500 Futures contract was up 0.9% and the Nasdaq 100 contract was up 1.0%.

The dollar index, which measures the greenback against a basket of developed market currencies, was up 0.3%, thanks largely to gains against the euro. It was mixed against emerging market currencies, against a backdrop of concern that Argentina will default on its sovereign debt later in the month. That would be the country’s ninth default.

4. Disney, games makers lead earnings roster

Walt Disney leads Tuesday’s earnings roster. Its report will show to what extent the new income stream from Disney+ can offset the massive losses in revenue from closed theme parks, suspended cruises and cancelled advertising against live sports on ESPN.

Long-time Disney bull Michael Nathanson of MoffattNathanson downgraded his recommendation for the stock to neutral on Monday, saying that the market underestimated the long-term threat to the key parks business from the coronavirus.

Also reporting Tuesday are games publishers Electronic Arts and Activision Blizzard, two stocks expected to gain from lockdown orders across the globe that have pushed more consumers towards video games.

Beyond Meat will also update after the closing bell, at a time when the pandemic is threatening the supply chain of traditional meat companies.

5. Oil extends rally; API data eyed

Crude oil prices extended a vigorous rebound amid signs that shut-ins at U.S. producers are easing the short-term imbalance between supply and demand.

By 6:30 AM ET, U.S. crude futures were up 10.3% at $22.49 a barrel, while the international benchmark Brent was up 7.7% at $29.30, its highest in three weeks.

Futures had rallied on Monday after a report by data company Genscape indicated that inventories at the national hub at Cushing, Oklahoma had risen by only 1.8 million barrels last week. If confirmed by American Petroleum Institute data later Tuesday and government data on Wednesday, that would represent a sharp drop in stockbuilding from the trend of recent weeks.

Reports from individual companies continue to add to evidence of the taps being turned off. Centennial Resource Development, Parsley Energy (NYSE:PE) and Diamondback (NASDAQ:FANG) all announced sharp cuts in production for the current quarter in their updates on Monday, adding to bigger cuts announced by Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) on Friday.

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