Daily Markets: Cautious Optimism Over Stimulus Progress

Today’s Big Picture

Equity markets in Asia-Pacific closed mostly lower today amidst concerns over accelerating coronavirus cases. China’s Shenzhen component gained 0.5% while Japan’s Nikkei 225 and South Korea’s Kospi both fell 0.2%, Australia’s S&P/ASX 200 lost 0.4%, and Hong Kong’s Hang Seng dropped 0.6%. By midday trading, European equity markets were flat to slightly in the green with U.S. equity futures pointing to positive moves at the open.

Fueling U.S. futures is the increased likelihood of a pandemic stimulus bill following comments from House Speaker Nancy Pelosi (D-CA) that disagreements in omnibus government spending bill will be resolved "easily." Helping stoke that renewed hope, a bipartisan group of lawmakers introduced two stimulus bills - for more on that, see today’s Data Download. And we suspect, following the Electoral College vote in favor of Joe Biden and the growing Republican acceptance of that win, things will hopefully (fingers crossed!) move past the 2020 election, get back to governing, and focus on the strategies to quash the pandemic.

Data Download

Coronavirus

The U.S. broke out to yet another record high of 110,549 Covid-19 hospitalizations, according to the Covid Tracking Project. This was the ninth consecutive record high. Over the past week, the country has averaged 213,428 new cases per day and 2,440 deaths.

A New York City nurse was one of the first Americans to receive the Pfizer (PFE) Covid-19 vaccine yesterday as 145 hospitals and other sites received doses with another 425 on Tuesday and 66 on Wednesday, according to the chief operating officer of Operation Warp Speed. Pfizer is expected to ship out nearly 3 million doses in this first round with 25 million going out by the end of the month.

On Monday, the UK announced that it had identified a new, fast-spreading variant of the virus, which is clearly not great news. This came as London heads into the highest level of restrictions with infections rising rapidly.

Germany enters into a hard lockdown Wednesday that Commerzbank expects will depress the economy an additional 1.5 percentage points which would translate into Q4 GDP that is 1% below Q3 and Q1 2021 0.5% below Q4. This comes as the German biotech company CureVac (CVAC) launches its final-stage trial for is Covid-19 vaccine, which is expected to include 35,000 participants across Europe and Latin America. The vaccine is based on a similar mRNA platform as the one developed by Pfizer and BioNTech (BNTX).

In its latest quarterly report released yesterday, France’s central bank reported that it does not expect the country’s economy to return to its pre-pandemic level of output until mid-2022. The report stressed that there remains a high level of uncertainty around any economic outlook.

International Economy

Later today the European Commission, which is basically the executive branch of the European Union, will unveil its plans for policing tech firms, introducing new regulations, the Digital Markets Act, and the Digital Services Act. The rules won’t be implemented for at least a year or two and are likely to the subject to intense debate and lobbying efforts in the coming months, which could alter them.

As was widely expected, the Reserve Bank of Australia kept its cash rate unchanged at a record low of 0.1% during its December meeting, after dropping it from 0.25% in November, adding that it did not expect to increase the cash rate for at least three years. The committee added that the rate will not be increased until actual inflation is sustainably within the 2% to 3% target and that recent economic data has generally been better than expected.

China continues to lead the world with the pace of its economic recovery. Industrial Production in the nation accelerated, as expected, to 7.0% YoY in November after rising 6.9% in October. Retail Sales also accelerated to 5.0% YoY after the prior 4.3% increase but missed expectations for an increase to 5.2%. The nation’s Unemployment Rate stood at 5.2% for November, down from 5.3% in October.

The unemployment rate in the UK rose to 4.9% in October from 4.8% in September, beating expectations for an increase to 5.1%. There are 280,000 fewer people in paid work than a year ago, putting the employment rate at 75.2% and marking the largest annual decline in employment in a decade. Average Earnings excluding bonuses rose 2.8% YoY in October from 1.9% in September versus expectations for a 2.6% increase.

Little to no signs of inflation in much of the European Union, leaving the European Central Bank room for additional monetary stimulus.

• The Inflation rate in France rose to 0.2% YoY in November from flat in October, matching expectations.
• In Italy the Inflation rate rose to -0.2% YoY from -0.3% in October, also matching expectations.

Domestic Economy

A bipartisan group of U.S. senators presented a new fiscal stimulus package totaling $748 billion which includes aid to small businesses and funding for unemployment benefits. The plan has the backing of the Senate minority whip, Dick Durbin (D, IL) and in a speech on the floor of the Senate yesterday, Senate majority leader Mitch McConnell (R, KY) appeared to also be supportive of the measure.

Later today in the U.S. we will get Import and Export Prices for November, NY Empire State Manufacturing Index, Industrial Production, IBD/TIPP Economic Optimism, Overall Net Capital Flows, and Net Long-Term TIC Flows.

Markets

U.S. equity markets couldn’t maintain their strong open yesterday with the exception of small caps and tech. The Russell 2000 added 0.1%, the Nasdaq 100 0.7%, and the Nasdaq Composite 0.5%. The S&P 500 fell 0.4%, the NYSE Composite 1.0%, and the Dow 0.6%.

The VIX closed higher for the fourth consecutive day to sit at the highest level since November 10. It has closed above 20 for 206 consecutive days. Only three other streaks have been longer, in 1999, 2003, and 2009.

As of yesterday, there is a record-high $18.4 trillion of negative-yielding debt worldwide. That is up from less than $8 trillion in March and the 5-year average of $10.3 trillion. According to the financial historians Sidney Homer and Richard Sylla, before the current era, there has never before been a material level of negative-yielding debt. The yield on the U.S. 10-year Treasury bond, widely considered the gold-standard for the risk-free rate, dropped to 0.895%, well above the 10-year rates for Spain at 0.003%, Portugal at -0.039%, Italy at 0.548%, and France at -0.370%.

Stocks to Watch

Yesterday the U.S. issued an emergency warning after discovering that “nation-state” hackers had hijacked SolarWinds’ (SWI) Orion platform, which is used by almost all Fortune 500 companies and many federal agencies to monitor and manage their networks. The U.S. Department of Homeland Security ordered all federal agencies to disconnect from the platform. FireEye (FEYE) fell victim to the hack last week and reported that it had already found numerous other victims.

Ireland’s Data Protection Commission announced today that it is fining Twitter (TWTR) €450,000 for failing to document or properly notify the regulator within 72 hours of learning of a data breach disclosed in January 2019 that exposed some users’ private tweets. This is the first fine for a U.S. tech company under the European Union’s privacy laws enacted two-and-a-half years ago.

Nikkei Asia reports Apple (AAPL) plans to produce up to 96 million iPhones for the first half of 2021, a nearly 30% year-on-year increase after the demand for its first-ever 5G handsets surged amid the pandemic. Shares of key suppliers including Qualcomm (QCOM), Skyworks (SWKS), Broadcom (AVGO), and others are likely to see some lift on this news.

Eli Lilly (LLY) issued upside revenue and EPS guidance for 2020 with EPS in the range of $7.46-$7.65 vs. the $7.20 consensus and revenue of $24.2-24.7 billion vs. the $23.89 billion consensus. The company also issued guidance for 2021 includes revenue above the $26.39 billion consensus and EPS of $7.75-8.40 that bookends the $8.00 consensus.

Infusion pump company InfuSystem Holdings (INFU) boosted its revenue outlook for the current year to $107-110 million vs. the $106.4 million consensus.

JPMorgan Chase (JPM) reported November card metrics with U.S. net credit losses of 1.59% vs 1.89% in October with 30+ day delinquencies of 1.02% in November vs 1% for the prior month. Capital One (COF) also reported its November card metrics, which included a domestic net charge-off rate of 2.57%, down from October’s 3.11%, with a delinquency rate of 2.29% in November, a tick higher than 2.19% the prior month.

Restaurant company J. Alexander's Holdings (JAX) has seen its business impacted by the second wave of required dining room closures and increased capacity restrictions in certain of the markets in which it operates, including in Illinois, Kentucky, Michigan, Missouri, Pennsylvania, Maryland, and Colorado.

The world’s second-biggest fashion retailer H&M (HNNMY) shared its local-currency sales fell 10% in its fourth quarter, with a pronounced slowdown in the final month as the second wave of coronavirus restrictions curbed spending.

Pinterest (PINS) has agreed to pay $22.5 million to its former COO Francoise Brougher to settle a gender discrimination lawsuit she brought against the company. In the agreement, Brougher will receive $20 million, and $2.5 million will be “used towards advancing women and underrepresented communities in the technology industry.”

Reuters reports the Alliance for Automotive Innovation, which includes General Motors (GM), Volkswagen AG (VLKAY), Toyota Motor (TM), Ford Motor (F), and nearly all major automakers, is calling for a series of steps to boost the EV market and to revamp regulatory oversight of self-driving vehicles.

Daimler Truck AG (DDAIF), IVECO, OMV, Shell (RDS.A), and AB Volvo (VOLVF) have committed to work together to help create the conditions for the mass-market roll-out of hydrogen trucks in Europe.

Adidas AG (ADDDF) is considering strategic options, including a potential sale for Reebok. The decision will be announced on March 10, when the company officially presents its new strategy.

Alarm.com (ALRM) acquired Shooter Detection Systems, a provider of indoor gunshot detection technology.

Eaton (ETN) announced it will acquire a 50% stake in HuanYu High Tech, a subsidiary of HuanYu Group that manufactures and markets low-voltage circuit breakers. The transaction is expected to close in Q2 2021.

Chinese online food retailer Wunong Net Technology (WNW) priced its IPO of 5 million shares at $5 with net proceeds of $25 million, down from the expected $37 million.

After today’s market close, American Outdoor Brands (AOUT) and Nordson (NDSN) are expected to report their quarterly results. Investors looking to get a jump on those and other such reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• December 16: Retail Sales, Markit Manufacturing PMI, Business Inventories, NAHB Housing Market Index, EIA Energy Stocks, FOMC Economic Projections & Press Conference
• December 17: Weekly jobless claims, Building Permits, Housing Starts
• December 21: Chicago Fed National Activity Index
• December 22: Corporate Profits Q3, GDP Q3 Final, Existing Home Sales, API Crude Oil Stocks
• December 23: Personal Income & Spending, PCE Price Index, New Home Sales, Michigan Consumer Sentiment EIA Energy Stocks
• December 24: Durable Goods, Weekly Jobless Claims, and markets close early
• December 25: Ho ho ho!
• December 28: CB Consumer Confidence, Dallas Fed Manufacturing Index
• December 29: S&P/Case-Shiller Home Price Index, API Crude Oil Stocks
• December 30: Goods Trade Balance, Wholesale Inventories, Chicago PMI, Pending Home Sales, EIA Energy Stocks
• December 31: Weekly Jobless Claims and good riddance to 2020!
• January 6: Joint session of Congress counts electoral votes and declares results
• January 20: Chief Justice Roberts swears in the President

Thought for the Day

"Christmas is the season for kindling the fire of hospitality." — Washington Irving

Disclosures

• Broadcom (AVGO), Qualcomm (QCOM), Skyworks (SWKS) are constituents in the Tematica BITA Digital Infrastructure and Connectivity Index.
• FireEye (FEYE) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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