Wed, 11/11/2020 – 08:02
S&P futures jumped on Wednesday, rising 0.8% or 27 points to 3,567 as covid vaccine hopes eclipsed pandemic concerns even as some states braced for new business restrictions to combat surging infections. A wide universe of shares rose in pre-market trading, from General Motors to PayPal Holdings to oil producers Exxon and ConocoPhillips.
However, unlike Tuesday when tech stocks were hammered, Nasdaq 100 futures also rose more than 1% after underperforming this week, with technology mega-cap Stay At Home stocks including Netflix, Amazon.com and Facebook Inc, gaining about 1% in premarket trading. Lyft jumped 5.5% after the ride-hailing app said it was working on a new service to take a slice of the growing food-delivery market, as it works to make up for a drop in quarterly revenue.
Despite continued chatter about a successful vaccine, the top U.S. infectious disease specialist urged caution until a vaccine can be approved and distributed, as California and several states across the U.S. Midwest tightened restrictions for residents.
Investors have pivoted to riskier plays in equities, foreign exchange and bonds after Pfizer Inc said on Monday its COVID-19 vaccine candidate, developed with BioNTech, showed a 90% success rate in preventing infection during trials. Nearly $2 trillion changed hands on Monday alone, one of the heaviest trading days since the height of the pandemic crisis. Tech stocks, among the major winners in the pandemic, have lost out, as have safe-haven currencies like the Japanese yen.
“The market is not wrong – we know who benefited during COVID, and it was almost inevitable that if COVID comes to an end, you would have a reversal on that,” said Luca Paolini, chief strategist at Pictet Asset Management.
“We have really liked what we’ve been calling the have-nots – those sectors that were left behind, whether it’s small caps, whether it’s value, whether it’s financials,” Peter Tchir, head of macro strategy at Academy Securities, said on Bloomberg TV. “Those are going to do very well and I think big tech is going to be challenged a little bit.”
“You have seen a big rotation which highlighted how skewed positioning was, as people sheltered in the work-from-home plays,” said Richard Saldanha, a portfolio manager at Aviva Investors. “For names geared towards so-called normalisation of activity, (the rally) could continue to play out in coming days.”
Further cementing the bullish mood, this morning Goldman followed in the footsteps of JPMorgan, and lifted its 2020 S&P 500 target to 3,700 points as the vaccine news added momentum to a stock market rally sparked by Joe Biden’s U.S. election win. It sees the S&P 500 hitting 4,300 at year-end 2021, a fifth higher than Tuesday’s closing levels. This is comparable to JPM’s 4,500 price target.
The MSCI world equity index, which tracks shares in almost 50 countries, gained 0.2% to move close to its record high touched on Monday. The European Stoxx 600 index climbed 0.9%, led by defensive shares including healthcare stocks, and gaining steam through the morning and building on a 5% rally this week to hit its highest since early March. Beaten-down equities were in demand, with travel-related stocks gaining 1.2%. Tech companies turned positive after opening in the red.
Earlier in the session, Asia-Pacific shares ex-Japan nudged up 0.2%, even as Chinese tech stocks fell sharply over concerns about tighter regulation after Beijing escalated it crackdown on Internet and fintech firms. Chinese technology giants from Alibaba Group Holding to Tencent shed almost $290 billion of market value over two days of frantic selling, as investors scrambled to assess the fallout from Beijing’s broadest attempt to rein in its most powerful private-sector firms.
Markets in Asia were mixed, with Australia’s S&P/ASX 200 and Japan’s Topix gaining, while China’s Shanghai Composite and Thailand’s SET slid. Trading volume for MSCI Asia Pacific Index members was 48% above the monthly average for this time of the day. The Topix added 1.7%, with Toyota and Daikin contributing the most to the move. The Shanghai Composite Index retreated 0.5%, driven by Will Semiconductor and Kweichow Moutai.
Meanwhile, the coronavirus is roaring back in U.S. cities, with hospitalizations in the country reaching a record and cases topping 1 million in the first 10 days of November. A public vaccination campaign could begin by spring, Health and Human Services Secretary Alex Azar said.
Bonds also adjusted to the prospect of a post-pandemic world, with the yield on German Bunds, a benchmark for euro zone sovereign debt, rising to their highest for two months at -0.456%, while the yield on benchmark 10-year U.S. Treasuries posted on Tuesday its highest close since March, though U.S. bond cash markets are shut on Wednesday for Veteran’s Day. Treasury 10-year note futures off session lows, following bunds higher after sale of Germany’s EU1b 0% 2050 bond. Early futures drop saw ultra 10-year contracts approach an implied 1% yield level before retreating. Global bonds sharply sold off in Asia which weighed on Treasury futures; N.Z. 10-year yield closed 14bps higher while Aussie 10- year yields touched 1%, highest since September. U.S. auctions resume Thursday with record size $27 billion for 30-year; there has been added focus on low indirect bids at this week’s auctions despite aggressive stop-out yields, which may increase the error band for Thursday’s supply.
A rotation of sorts is also underway in fixed income markets, as bonds in Japan, South Korea, Singapore and Thailand fell while higher-yielding, riskier debt of countries like Indonesia held gains.
In FX, the dollar steadied against a basket of six major currencies and by late morning was up 0.2% at 92.927. Turkey’s lira gained 3% to pass 7.9 to the dollar as President Tayyip Erdogan said his government was forming a new growth strategy, financed in part by international investment. Sterling hit its highest level in more than two months versus the euro as traders bet a vaccine would boost the UK economy. It was last flat at $1.3265. The euro fell 0.3% to $1.1786 ahead of a speech from European Central Bank President Christine Lagarde at 1300 GMT.
In commodities, Brent oil rose to a more than two-month high above $45 a barrel, fuelled by vaccine prospects and an industry report showing U.S. crude inventories fell more than expected. Brent futures were up $1.41, or 3.2%, at $45.02 — the first time they have cleared the $45 threshold since early September.
Looking at the day ahead now, attention will be on the ECB’s Forum on Central Banking, which includes an introductory speech from ECB President Lagarde.
- S&P 500 futures up 0.8% to 3,567
- STOXX Europe 600 up 0.4% to 386.13
- MXAP up 0.7% to 184.54
- MXAPJ up 0.2% to 608.73
- Nikkei up 1.8% to 25,349.60
- Topix up 1.7% to 1,729.07
- Hang Seng Index down 0.3% to 26,226.98
- Shanghai Composite down 0.5% to 3,342.20
- Sensex up 0.6% to 43,549.50
- Australia S&P/ASX 200 up 1.7% to 6,449.68
- Kospi up 1.4% to 2,485.87
- Brent futures up 2.9% to $44.86/bbl
- Gold spot up 0.1% to $1,878.58
- U.S. Dollar Index up 0.2% to 92.90
- German 10Y yield rose 0.6 bps to -0.479%
- Euro down 0.1% to $1.1799
- Italian 10Y yield rose 0.5 bps to 0.65%
- Spanish 10Y yield rose 1.3 bps to 0.199%
Top Overnight News
- Trade talks between the U.K. and European Union are set to be extended beyond this weekend’s informal deadline and continue in Brussels next week, according to two people familiar with the matter
- Joe Biden used his first phone call with Boris Johnson as U.S. president-elect to warn the British leader not to compromise peace in Northern Ireland in his pursuit of Brexit
- The European Central Bank must introduce additional monetary policy stimulus in December to stave off the risk of deflation in the euro zone, the Bank of Spain’s chief economist said
- European Union negotiators reached a deal on the bloc’s long-term spending plans, moving a step closer to finalizing its landmark 1.8 trillion-euro ($2 trillion) budget and stimulus accord
- The U.K. plans sweeping powers to intervene in foreign takeovers of British assets if deemed a threat to national security
- President-elect Joe Biden said Donald Trump’s refusal to accept the result of the election was an “embarrassment” that will stain his White House legacy. Biden warns Johnson of Brexit upset to Northern Irish peace
- New Zealand’s central bank will begin offering cheap loans to lenders within weeks to further reduce borrowing costs and stimulate the economy as it recovers from the coronavirus pandemic
- Oil extended gains toward $42 a barrel in New York after an industry reported pointed to a bigger-than-expected decline in U.S. crude stockpiles, adding to bullish momentum after a vaccine breakthrough
A quick look at global markets courtesy of NewsSquawk
Asian equity markets traded mostly higher as the region continued to benefit from the recent vaccine hopes which helped bourses shrug off the mixed performance on Wall Street where there was a negative bias as tech stocks suffered again from the rotation out of growth and into value and cyclicals. ASX 200 (+1.7%) extended on recent gains with the energy sector spearheading the broad advances and financials were also boosted with shares in Australia’s largest lender CBA unfazed despite a 16% Y/Y decline in Q1 cash profit, as there were also reports that the RBNZ further delayed the start of bank capital increases until 2022 which eases the burden on the Big 4’s New Zealand operations. Nikkei 225 (+1.8%) was also lifted amid a slew of earnings and with financials underpinned after the BoJ’s introduction of a Special Deposit Facility to support regional banks and bolster the resilience of the sector. Hang Seng (-0.2%) and Shanghai Comp. (-0.5%) were indecisive amid lingering US-China tensions and a tepid liquidity injection by the PBoC, while the tech names continued to suffer after China recently drafted new antitrust regulations to rein in tech giants which pressured Tencent and Alibaba, despite the latter posting strong early numbers for Singles Day sales which reached CNY 6bln in the first minute and CNY 372bln of sales in the first 30 minutes. Finally, 10yr JGBs were softer amid similar weakness in T-notes following a soft US 10yr auction and with prices also pressured by the gains in Japanese stocks, although losses in JGBs were cushioned by the BoJ’s presence in the market for nearly JPY 1.4tln of JGBs in mostly 1yr-10yr maturities
Top Asian News
- Thailand Asks Central Bank to Manage Currency to Aid Exports
- Philippine Central Bank Sees Room to Cut Reserve Ratio
- Honda Wins Approval to Offer Automated Driving in Japan
- China Credit Growth Slows on Holidays, Drop in Bond Sales
European cash equities kicked-off the mid-week session with modest gains (Euro Stoxx 50 +0.4%) following on from a mixed APAC session, however the growth to value rotation theme that has dominated the market this week is showing signs of a pause. In Europe, the sectoral performance at the open has recalibrated from the value/cyclical outperformance to a more growth/momentum led session. Meanwhile, this shift is also reflected in US equity futures, as the NQ (+0.9%) erased all earlier losses and now stands as the outperformer. Delving deeper into European sectors, the session kicked off with Oil & Gas and Travel names as the top gainers whilst Healthcare and Tech stood as laggards, but since then the environment has somewhat flipped with Healthcare and Travel topping the charts. That being said, Oil & Gas has now staged a recovery on the back of rising crude prices, however value/cyclical peers remain on the other end of the spectrum with Auto & Parts alongside Banks not faring well – with the latter also pressured by ABN AMRO (-3.8%) post-earnings despite reporting better-than-expected numbers, as the Dutch bank remains wary of the pandemic’s impact. Elsewhere, following Monday’s PFE/BNTX vaccine update, Goldman Sachs has raised its 2020 S&P 500 target to 3,700 from 3,600, and sees it reaching 4,200 end-2021 and 4,600 by end-2022. The bank has also raised their 12-month Stoxx 600 target to 430 from 395 and FTSE 100 target to 7,200 from 6,300. It is also worth noting that Chinese stocks were pressured overnight amid developments in Hong Kong, whereby under a new NPCSC resolution, lawmakers immediately lose their seats if they are ruled to have promoted or supported the notion of Hong Kong independence, which has also resulted in reports that all Hong Kong pro-Democracy lawmakers are to resign in protest against the ousting of four legislators. Thus, giants Alibaba and JD.com closed HK trade lower by almost 10% apiece, whilst US listed Chinese ADRs are also pressured in the pre-market.
Top European News
- Israeli Startup That Fights Online Fraud to List in London
- Russia Says Tests Prove Its Covid-19 Vaccine Over 90% Effective
- Italy Police Arrest Autostrade Managers in Genoa Probe
- ABN Amro Falls on Weak Lending Income, Cautious Outlook
In FX, it remains to be seen whether the Kiwi can extend gains convincingly beyond 0.6900 and 1.0600 vs its US and Aussie counterparts, but for now the former is proving a bit more resistant than the latter in wake of the RBNZ maintaining rates and QE in contrast to the RBA last week. Moreover, the RBNZ rolled back on negative rates by retaining guidance for an unchanged OCR until the end of Q1 next year having confirmed the provision of additional policy stimulus via the FLP in December. Meanwhile, Aud/Usd has revisited 0.7300+ territory, but not quite the heady heights reached on Monday when risk appetite was more pronounced on the Pfizer vaccine and Biden bandwagon.
- GBP – More whip-saw moves in Sterling with Cable breaching a Fib level at 1.3291 after a few attempts, but not tripping as many stops through 1.3300 as one might imagine amidst mixed Brexit reports, while Eur/Gbp has seen more LHS interest, but the cross is holding just above early September lows (0.8866) having made a more decisive break below the 200 DMA (circa 0.8922) yesterday. In short, some concessions are said to have been made on both sides, but yet again not on the really crucial issues and the UK-EU teams are likely to miss the mid-month ‘deadline’ – see 9.32GMT and 8.45GMT updates on the headline feed for more. Cable has subsequently pulled back to test bids/support around 1.3250 and Eur/Gbp offers ahead of 0.8900, with little reaction to latest pro-NIRP remarks from BoE’s Tenreyro.
- USD – Aside from all the above, rangebound trade on US Veteran’s Day is keeping the Dollar in check vs most majors as the DXY hovers below 93.000 within a 92.969-607 band eyeing broad risk sentiment and further post-US Presidential election developments.
- CHF/EUR/JPY/CAD – The Franc is marginally underperforming towards the bottom end of 0.9183-40 parameters and the Euro has lost grip of the 1.1800 handle after fading around decent option expiry interest between 1.1830-35 (1.1 bn) and the post-weekend peak circa 1.1920 awaiting comments from the annual ECB Sintra gathering in the hope of something more specific about what might be in store for December in terms of the policy ‘recalibration’. Elsewhere, the Yen has retreated from 105.00, but keeping its head above this week’s 105.65 lows and the Loonie deriving some traction from buoyant oil prices around the middle of 1.3008-57 extremes.
- SCANDI/EM – Crude’s ongoing revival to almost Usd 43/brl and a few cents above Usd 45 in WTI and Brent respectively, is also helping to underpin the Nok, Rub and Mxn, but the Try is back on the recovery path following recent CBRT and Turkish Finance Minister revelations on the prospect of more aggressive action to arrest the Lira’s sharp depreciation rather than a fractionally narrower than expected current account deficit.
In commodities, WTI and Brent front month futures continue on their upward trajectory with WTI Dec eyeing USD 43/bbl to the upside (vs low 41.45/bbl) and Brent Jan extending gains above USD 45/bbl (vs low 43.60). The complex remains underpinned on hopes that effective vaccines will provide a rosier demand outlook, whilst on the supply side, the latest Private Inventory report printed a significantly larger than expected draw of 5.1mln bbls vs Exp. -0.9mln bbls, with the DoE due to release their weekly report tomorrow on account of today’s Veterans’ Day holiday. Sticking with the supply-side, sources note that Libya’s oil production has reportedly exceeded 1.1mln BPD as it continues to pose a headache for OPEC and allies, whilst NOC’s head earlier in the week stated that Libya will not join OPEC quotas until its production reaches 1.7mln BPD. Looking ahead, the OPEC MOMR is to be release later today following the EIA’s STEO yesterday which raised its 2020 global demand growth forecast by 10k BPD, however the release may prove to be stale given the vaccine developments earlier in the week. Elsewhere, spot gold and silver have largely moved in lockstep with the Dollar, with the precious metals flat intraday but experiencing a choppy session. Spot gold remains sub-USD 1900/oz around 1880/oz having had found an interim base at 1874/oz, whilst spot silver staddles just above the USD 24/oz mark. Finally, LME copper ekes mild gains amid the performance in stock markets, but with gains capped by a firmer Dollar.
US Event Calendar
- Nothing major scheduled due to veteran’s day
DB’s Jim Reid concludes the overnight wrap
The vaccine news could do with being even more accelerated than the tantalising prospect dangled in front of us this week by Pfizer, as yesterday our household entered our fifth period of isolation/quarantine since March. The first three were for two painful weeks, the fourth luckily for only three days due to a negative covid test and now we wait more covid test results as both twins had really bad continuous coughs yesterday morning thus grounding all three from school/nursery. Given they usually have multiple episodes of these coughs each winter how on earth do you break the cycle? What are other parents doing with children that have probably got colds? Any answers gratefully received. Ironically they were much better after my wife got them tested but she didn’t want to hold off at the time as if they didn’t get better it wastes a day waiting for test results. It’s horrible for my wife as the only time the twins don’t fight is at school where they are sweetness and light. At home they tear up the place and each other!! I hide upstairs in my study as much as I can.
Staying with all things vaccine related, yesterday we heard from Dr Fauci, the top U.S. infectious-disease expert, that lower-risk Americans could have access to a vaccine by April 2021 while healthcare workers and high-risk groups could see vaccinations by the end of 2020. So things are moving behind the scenes. While a vaccine can’t come quickly enough for me, even the accelerated hope of it will allow us to start speculating as to how we can start to rebuild better after covid has gone. On that note yesterday we released the latest edition of our flagship Konzept magazine, looking specifically at how economies, businesses and societies should rebuild from the Covid-19 pandemic. The articles include ones on ensuring we redistribute to the young to save capitalism, how to build a better European economy, at changing the way we stimulate labour markets, implementing digital currencies, and even taxing those who work from home. Some of our ideas may seem radical, but we hope they’ll inspire decision makers as we rebuild from this bracing and tragic period. You can read all of them here , and if you want to forward on to your friends and family, we also have a link on our public website that’s available to a wider audience here .
Though Monday saw the vaccine news propel some markets to intra-day all time highs, US equities have struggled to push on beyond the initial surge with rotation being the main story which makes some sense given there are so many mega stay-at-home stocks. By the close, the S&P 500 had slipped -0.14% thanks to a decline among big tech stocks, with Amazon (-3.46%), Microsoft (-3.38%) and Facebook (-2.27%) all losing ground, not helped by the European Commission informing Amazon that its preliminary view was that the company had breached EU antitrust rules. Unsurprisingly, the NASDAQ also ended the session -1.37% lower, though the Dow Jones rose +0.90%. Interestingly the equal weight S&P 500 was +0.55%. Yesterday it rose +4.21% to the main market weighted index +1.17% gain. That was the biggest gap since October 2000 and highlights the mega cap tech bias in US markets. Pandemic lagging cyclicals tried to play catchup with Autos (+3.48%) and Energy (+2.52%) leading the S&P at the expense of Semiconductors (-3.43%) and Software (-2.36%). However even with a steeper curve and higher rates, US Banks (-0.15%) could only consolidate after Monday’s big move.
The more cyclically exposed STOXX 600 was up a further +0.90% and at a fresh post-pandemic high, as other indices across the continent also gained ground. While bank stocks were flat in the US, European Banks led the STOXX 600 yesterday, gaining +4.39%. Much like the US, Energy (+3.92%) and Autos (+3.16%) also gained strongly at the expense of Technology (-2.27%). The news-flow has become a little more positive on the pandemic case numbers in Europe over recent days, not something we can say for the US at the moment. Also supporting Europe was the news that there had been agreement between the European Parliament and EU member states in the Council on the recovery fund and the next long-term budget.
Sovereign bonds continued to lose ground on both sides of the Atlantic, with yields on 10yr US Treasuries up a further +3.6bps to 0.960%, their highest level since March, and there was a further steepening in the Treasury yield curve, as the 2s10s curve steepened +2.6bps to its steepest level in nearly 3 years. In Europe, yields on 10yr bunds were up +2.4bps, as those on gilts (+2.9bps) and OATs (+1.5bps) also climbed. The Greek 10yr spread to bunds (132.7bps) hit its tightest for almost exactly 11 years.
Asian markets are largely trading higher this morning with the Nikkei (+1.79%), Hang Seng (+0.38%), Kospi (+1.32%), Asx ( +1.72%) and India’s Nifty (+0.79%) all up along with futures on the S&P 500 (+0.25%). Meanwhile, the Hang Seng Tech index (-4.92%), the Shanghai Comp (-0.10%) and the more tech oriented Shenzhen Comp (-1.13%) are all down on a continued selloff in China’s technology sector after the country unveiled regulations to root out monopolistic practices in the internet industry. According to Bloomberg, the move has led to Chinese technology giants shedding c. $260bn of markets value over the last 2 days selling. In FX, the New Zealand dollar is up +0.89% after the RBNZ projected a more upbeat view of the economic recovery at today monetary policy meeting which in turn lowered the probability of the central bank going for negative rates next year. Yields on 10y USTs are up a further +1.7bps this morning to 0.978%.
Moving on to geopolitics, the SCMP reported overnight that China has passed a measure requiring Hong Kong lawmakers to be “patriots.” This resolution gives the Hong Kong government power to disqualify lawmakers without going through the courts and this morning the HK government has immediately moved to oust four opposition politicians. Earlier, Hong Kong’s 20 opposition lawmakers had said that the complete block would resign if the above resolution was used to disqualify any of them.
On the US election, there were still no signs that any concession would be forthcoming from President Trump, who issued further tweets yesterday about ballot counting abuse. This was in spite of the fact that world leaders have continued to move to congratulate Joe Biden, including UK Prime Minister Boris Johnson in a call yesterday. Mitch McConnell indicated that this could go on for another month, when he said “anyone who is running for office can exhaust concerns about counting” until the Electoral College casts their ballots on December 14. We also learned yesterday that the Democratic Party will officially control the House of Representatives for the next two years, having won 218 seats, though they are still set to have lost a portion of their majority coming into the election. Currently, Republicans have flipped a net 6 seats with 16 contests still to be decided.
Staying on the US election, our CEEMEA research colleagues are hosting a Zoom seminar tomorrow looking at how the region might be affected by the new Biden administration. It’s an important question for the region, considering how US foreign and economic policy has played a key role in CEEMEA local markets over the last four years, from sanctions on Russia and Turkey which caused severe pressure on local assets in 2018, to the Iran nuclear and Israel/GCC deals, and finally disputes over auto tariffs with the EU. Please join them on Thursday, 12 November 2020 at 3pm GMT/10am ET for a Zoom seminar with Ben Judah, outside informal counsel to the Biden campaign on the region and former fellow at the Hudson Institute, and European Council for Foreign Relations to chart the path ahead. Click here for the registration details.
Before the day ahead a quick recap of the data. In the UK, the unemployment rate for the 3 months to September rose to 4.8% as expected, while redundancies rose to a record high of 314k over the same period. Over in France, industrial production in September rose by a stronger-than-expected +1.4%, though the German ZEW survey for November showed the expectations reading falling to 39.0 (vs. 44.3 expected). In the US, the NFIB small business optimism index for October remained at 104.0, while the number of job openings in October rose to 6.436m in September (vs. 6.5m expected).
To the day ahead now, attention will be on the ECB’s Forum on Central Banking, which includes an introductory speech from ECB President Lagarde.
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Author: Tyler Durden