Daily Markets: On U.S. Fiscal Stimulus, Investors Ask -- Deal or No Deal?
Today’s Big Picture
Equities in Asia finished trading today on a mixed note with China’s Shanghai Composite finishing up 0.5% while Hong Kong’s Hang Seng eked out a 0.1% gain, and Japan’s Nikkei slumped 0.4%. By mid-day trading, European equities were also mixed while U.S. futures point to a positive pop when those markets open later this morning.
The dichotomy between U.S. and non-U.S. equity markets this morning reflects the continued increase in new coronavirus cases and fresh lockdowns in Europe - see Data Download for more - while U.S. equities are once again trading on hopes that some sort of U.S. fiscal stimulus agreement can be reached before Speaker Pelosi’s deadline later today. As much as we would like to see a deal be struck, the reality is that any progress would still need to navigate its way through the U.S. Senate, where Republicans remain a likely obstacle. The risk we see is another melt-up in the market that turns out to be a “buy the rumor, sell the news” event.
There are now over 40.6 million cases worldwide after just under 340,000 new cases were reported yesterday. The U.S. will hit 8.5 million cases today, with over 57,000 new cases reported yesterday and a loss of more than 225,000 lives to Covid-19. The U.S. is now back seeing new daily cases at the same pace it was during the summer surge. The number of hospitalized Covid-19 patients is just under 38,000, which is the highest level since late August.
The worst outbreaks of the coronavirus worldwide are currently found in the Dakotas with North Dakota nearing 900 cases per million. Belgium and the Czech Republic are seeing record-breaking daily new cases, and Ireland just implemented another lockdown, closing much of its economy for a second time as it moves into its highest lockdown level for six weeks starting midnight Wednesday. France reported 146 deaths in hospitals from Covid-19, the highest death toll since the end of the prior lockdown in May. Over the past week in France, the number of people going on life support is up nearly 55% YoY, to over 200 a day.
Argentina has become the fifth country in the world with over 1 million coronavirus infections after reporting nearly 13,000 cases yesterday.
Another global leader has been affected. Poland’s de facto leader, Jaroslaw Kaczynski, has gone into quarantine after being in contact with an individual who has tested positive for Covid-19.
The CEO of Moderna (MRNA), Stéphane Bancel, told the audience at the Wall Street Journal’s annual Tech Live conference that if the company gets positive interim results in November from a large clinical trial of the company’s experimental Covid-19 vaccine, the federal government could authorize emergency use in December.
The IMF expects to see Middle East economies contract by over 4% in 2020, a decline from the 2.7% contraction estimate in April.
China’s central bank kept its prime rates steady, as expected, with the 1-year at 3.85% and the 5-year at 4.65%. China’s House Price Index slowed in September to 4.6% YoY from the prior 4.8%.
Germany’s Producer Price Index (PPI) came in stronger than expected, though still in contraction territory YoY, rising 0.4% MoM in September, but down 1% YoY, a slight improvement from the prior -1.2% and less negative than the expected slowing to -1.4%.
Italy’s Construction Output improved significantly in August, rising 12.8% YoY from the prior 0.3%.
Following last Friday’s better-than-expected retail sales report, U.S. Homebuilder confidence hit a record high in October as record-low interest rates and pandemic-induced remote working has boosted demand for homes. The National Association of Home Builders’ Housing Market Index rose to 85, the highest on record going back to 1985, besting expectations for an increase to 83.
More than 1 million travelers passed through U.S. airport security checkpoints on Sunday, the first time that threshold has been crossed since March. While an important milestone, it is still well below the 2.6 million passengers flying on the same day in 2019.
Later today the Census Bureau will report on new residential construction data from September with expectations for a seasonally adjusted annual rate of 1.47 million housing starts, an increase from August’s 1.42 million. Building permits are expected to increase from 1.48 million to 1.53 million. We will also get the usual weekly Redbook retail sales and API Crude Oil stock report.
Yesterday the S&P 500 had its worst day in almost a month, closing near session lows, down 1.6%. The Dow dropped 1.4% and the Nasdaq Composite lost 1.2%, its fifth consecutive decline, and its longest losing streak since August 2019, while the CBOE S&P 500 Volatility Index (VIX) rose 6.5%, nearing a five-week high.
Stocks to Watch
Proctor & Gamble (PG) reported September quarter EPS of $1.63, well ahead of the $1.42 consensus led by organic sales growth of 9% vs. the 4.1% consensus. The company boosted its FY21 core EPS growth forecast to 5%-8% from 3%-7%, which implies EPS of $5.38-5.53 vs. the $5.39 consensus. Proctor also boosted its outlook for organic sales growth from a range of 2%-4% to 4%-5%.
UBS (UBS) reported September quarter EPS of $0.45 per share, $0.16 better than the consensus forecast; revenue for the quarter similarly crushed expectations, clocking in at $9.02 billion vs the $7.91 billion consensus.
Diversified industrial manufacturing company Pentair (PNR) crushed September quarter consensus expectations with EPS of $0.70 on revenue of $799 million. Consumer Solutions sales rose 25% YoY while revenues at the company’s Industrial & Flow Technologies business fell 3% YoY. Pentair issued upside guidance for FY20 with EPS of $2.35-$2.40 vs. the $2.22 consensus and full-year free cash flow of greater than 100% of net income.
IBM (IBM) reported September quarter EPS of $2.58 matching the consensus forecast as revenue for the quarter fell 2.6% YoY to $17.56 billion, also in line with expectations. Total cloud revenue for the quarter rose 19% YoY to $6.0 billion with Cloud & Cognitive Software revenue up 7% = YoY to $5.6 billion. Cloud & Data Platforms, grew 20% led by Red Hat while Cognitive Applications grew 1%, led by Security and Supply Chain. Last week, IBM announced plans to spin off the managed infrastructure unit of the Global Technology Services business into a new company, allowing the legacy company to focus on the high-margin cloud business. The spinoff won’t finalize until the end of 2021.
Logitech International (LOGI) handily beat top and bottom-line expectations for its September quarter, delivering EP of $1.87 vs. the expected $0.54. The company issued issues upside guidance for its FY21 with revenue up 35-40% YoY to ~$4.02-4.17 billion vs. the $3.32 billion consensus.
Fabless semiconductor company Nordic Semiconductor (NDCVF) reported its quarterly revenue rose ~45% YoY to $119.4 million, vs. the $114.67 million consensus. Bluetooth revenues increased 56% YoY to $97.1 million and Cellular IoT revenue was more than $1.6 million for the quarter. The company expects current-quarter revenue in the range of $115-$125 million vs. the $111.4 million consensus. Also this morning, Nordic announced it is partnering with Qorvo (QRVO) to develop cellular IoT solutions using Qorvo’s RF front-end modules.
Alibaba Group (BABA) kicked off its 11.11 Global Shopping Festival with "double" the number of shopping windows that will spotlight more brands, products, and special offers. The company will also use live streaming technology to create “more fun and engagement for Chinese consumers.” Separately, Alibaba announced it is taking a 6.1% stake in Swiss duty-free retailer Dufry AG (DUGRY).
Verizon (VZ) announced the launch of its international private 5G platform for global enterprises located in Europe and the Asia-Pacific region. Delivered in partnership with Nokia (NOK), the offering will enable businesses to deploy a private industrial-grade dedicated 5G network capability within their premises.
Ahead of their 5G spectrum auctions scheduled for November, Swedish regulators have laid shared several guidelines including "New installations and new implementation of central functions for the radio use in the frequency bands must not be carried out with products from the suppliers Huawei or ZTE (ZTCOY). This would pave the way for Ericsson (ERIC), Nokia, Samsung (SSNLF), and other mobile infrastructure companies.
Intel (INTC) is reportedly nearing a deal to sell its flash memory business to SK Hynix (KXSCL) for 9 billion. The transaction includes the NAND SSD business (including NAND SSD-associated IP and employees), the NAND component and wafer business, and the Dalian NAND memory manufacturing facility in China. Intel will retain its distinct Intel Optane business.
Volkswagen (VLKAF) announced it has adopted NXP Semiconductors' (NXPI) battery management system (BMS) into its MEB platform to help increase battery electric vehicle range, extend battery longevity, and enhance safety. This brings the number of leading carmakers that have designed in NXP battery management solutions to 16.
In a regulatory filing, Starboard Value disclosed a 9% stake in electronic payments software company ACI Worldwide (ACIW).
The EU is set to vote today on the labeling of products like "veggie burger" and "veggie sausage," as well as "yogurt-style" and "cheese-like" for plant-based alternatives to dairy products. If passed, implementation of the proposals would then be negotiated with the member state governments in the European council, with a final decision potentially coming before the end of the year.
After today’s market close, iRobot (IRBT), Netflix (NFLX), Snap (SNAP), and Texas Instruments (TXN) are reporting, among many others. Those looking to get a head start should visit Nasdaq’s earnings calendar page.
On the Horizon
- October 21: MBA Mortgage Applications, Fed Beige Book
- October 22: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Manufacturing
- October 23: Preliminary Markit PMIs
- October 26: Chicago Fed Activity, New Homes Sales, Dallas Fed Manufacturing Activity
- October 27: Durable/Capital Goods, FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
- October 28: MBA Mortgage Applications, Wholesale Inventories, Retail Inventories
- October 28: Facebook (FB), Google (GOOGL), and Twitter (TWTR) testify before the Senate Commerce Committee
- October 29: Initial Jobless Claims, Bloomberg Comfort, GDP, Personal Consumption, Pending Home Sales
- October 30: Personal Income, Personal Spending, PCE Deflator, Employment Cost, MNI Chicago PMI, University of Michigan
- October 31: Boo!
Thought for the Day
“I love people that have no idea how wonderful they are, and just wander around making the world a better place” ~Anonymous
- ACI Worldwide (ACIW), Ericsson (ERIC), Intel (INTC), Nokia (NOK), NXP Semiconductors (NXPI), Qorvo (QRVO) are constituents in the Tematica BITA Digital Infrastructure and Connectivity Index.
- IBM (IBM) 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.