Neil's Morning Update - 11/29/21
Neil's Morning Update - 11/29/21
Please excuse typos. Mornings are tilted more international, evenings more U.S. Continuing to try to make this more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated. Also, I don't discuss crypto extensively as I don't consider myself knowledgeable enough to talk intelligently on the subject (and there are plenty of other sources for that). Remember, this is a free blog I put out to try to help people get information, so keep that in mind.
A small glossary.
Moderna (MRNA 364.55, +34.34): +10.4% after the company's Chief Medical Officer said that a variant-specific vaccine could be ready early next year if needed. Bumble (BMBL 35.48, +1.65): +4.9% after being upgraded to Outperform from Market Perform with a $48 target at Raymond James. Norwegian Cruise Line (NCLH 20.74, +0.68): +3.4% bouncing from Friday's slide. TJX (TJX 71.09, +1.73): +2.5% after being upgraded to Buy from Neutral at Citigroup. Merck (MRK 77.54, -1.62): -2.1% after being downgraded to Neutral from Buy with an $85 target at Citigroup. BT Group Plc jumped as much as 9.5% following a report that India’s Reliance Industries may offer to buy U.K. phone company, though it pared the gain after Reliance denied it’s considering a bid.
"Yesterday may have been a half day of trading but some volumes ran close to a full day. So sure it may have been thin, but there were sellers out there, not just thin trading.
For example, QQQs traded 51 mil shares. Avg full day volume: 41 mil."
As Brian Gilmartin updates on earnings noting a nice bump up (of a buck) in the 4-quarter estimate.
- The forward 4-quarter estimate jumped to $216.03 this week from last week’s $215.03;
- The PE ratio on the forward estimate jumped to 21.3x versus last week’s 21.8x;
- The S&P 500 earnings yield jumped to 4.70% from last week’s 4.58%, still lower than the 10/1 EY of 4.90%
- The Q3 ’21 quarterly bottom-up S&P 500 estimate is now $53.82 vs the start of the quarter’s $49.11;
- The Q3 ’21 quarterly bottom-up estimate is $51.15, almost identical to the 10/1 estimate of $51.08.
Also, here is part of a larger chart showing solid increases this week in 2022 earnings and revenues.
Asia
Major Asian markets ended mostly lower. Japan's Nikkei -1.6%, Hong Kong's Hang Seng -1.0%, and China's Shanghai Composite was flat.
In news, Japan is banning entry to all foreign travelers starting Nov. 30 in a preemptive move to control the spread of the omicron variant. An RBNZ official said omicron would have to be a "game changer" to affect a policy trajectory that many participants think will include another rate hike in February. China is setting up a China-Africa cross border "renminbi center" to provide credit of $10B to African nations.
In economic data, October Japanese retail sales improved but missed estimates as Chinese industrial profits
Japan's October Retail Sales +0.9% yr/yr (expected +1.1%; last -0.5%)
China's October Industrial Profit unchanged yr/yr (last +16.3%)
Australia's Q3 Business Inventories -1.9% (expected -0.6%; last +0.3%)
As China industrial profit continued its rebound in October. BBG.
Profit growth at China’s industrial firms rebounded for a second month in October, driven by companies in sectors including mining and manufacturing of raw materials.
Industrial profit climbed 24.6% to 818.7 billion yuan ($128 billion) in October from a year earlier, the National Bureau of Statistics said Saturday, compared with a 16.3% increase in the previous month. For the first 10 months of the year, profits increased 42.2% from a year earlier to 7.16 trillion yuan.
“Operations of industrial firms have continued to improve thanks to the policies to secure supplies and stabilize prices,” Zhu Hong, a senior statistician with the statistics bureau, said in a statement accompanying the release.
Profitability of consumer goods manufacturing turned positive in October with a rise of 3.6%, after plunging in recent months, Zhu said, as companies prepared for Single’s Day shopping spree.
Profits at companies in the mining industry have been soaring this year as prices of commodities from coal to oil surged. Coal production companies saw profits increased by 438% year-on-year, about 69.6 percentage points higher than the previous month, as the government urged companies to ensure supply amid a power crunch.
As Macron leads in initial polling. BBG.
French President Emmanuel Macron would get 25% or more of the votes in the first round of the election if voting were held today, according to a poll carried out by Ifop-Fiducial for Le Journal du Dimanche newspaper and Sud Radio.Nationalist Marine Le Pen would win 19% to 20% of the first-round vote, depending on who else is running. Far-right commentator Eric Zemmour would come third, with 14% to 15%. Macron and Zemmour haven’t yet announced their candidacy for the April vote.
Commodities/Currencies/Bonds
Bonds - As noted, bonds retracing a little of Friday's move with yields rising across the curve in a bear steepener (longer rates rising more than shorter). 2-year yield up two basis points to 0.52% (but it fell fourteen on Friday), and 10-year is up seven basis points to 1.56%.
But BMO says to fade the curve steepening - "The narrative for a steeper curve was the story at the start of this year when the Fed was telling investors they would let inflation run hot,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “The moment for the steepener has passed by. Now the Fed is focused on maintaining its inflation credibility, and you trade that by flattening the curve.”
As some traders at least think it's unlikely the new variant will change the path the Fed and BoE are on. The RBZ said already this morning that they remained on track to continue their rate rise campaign. BBG.
“With the likes of the Fed and Bank of England already behind the curve, it is unlikely that the new variant will change their direction of travel at this stage,” said Leandro Galli, senior portfolio manager at Amundi Asset Management. “Financial conditions remain easy and inflation continues to surprise on the upside, giving the Fed limited room to delay the withdrawal of unprecedented monetary support.”
“The market and the Fed are very data dependent, and if the next few inflation reports show no sign of significant moderation” then Powell and Brainard have “the job of bringing the Fed towards the bond market in 2022,” said Kevin Flanagan, head of fixed income strategy at Wisdom Tree Investments. “The first step is to get more aggressive with tapering, and January is on the table for reducing more of their current extraordinary policy accommodation.”
Dollar (DXY) - After falling sharply on Friday, up a little this morning. Currently at $96.36. Remains in short and intermediate-term uptrends. Daily technicals remain positive but overbought.
Crude (/CL) - Has gotten back about half of the decline from Friday, up over 6% to $72.65 WTI. Daily technicals remain negative, but RSI has gone from under to over 30 which is seen as bullish.
In terms of Friday's move, there's little question it was, as Heisenberg Report noted, a confluence of "demand jitters, hedging, systematic selling pressure, low liquidity and expectations around OPEC+’s next move". In that regard, Goldman was out with a note "The fall in Brent prices [was] exacerbated by low trading activity on Black Friday (with similar moves in 2014, 2016 and 2018), the breach of key support levels (50-, 100- and 200-day moving averages) as well as likely negative gamma effects,” Damien Courvalin wrote. He went on to conclude that “[a]t $74/bbl Brent, we estimate, based on our pricing model, that the market is pricing a c.4 mb/d negative demand hit over the next three months, with no offsetting OPEC+ response.” As that sort of demand shock would be much more than we've seen from any previous restrictions other than the very initial reactions at the start of the pandemic, it seems unlikely.
And JPM was also out with a similar note (although they imputed a little higher demand shock that GS did).
Russia’s oil-output growth has slowed this month, as the nation’s producers are running out of spare capacity. This could give OPEC’s main ally a reason not to oppose any move by the producer group to ditch its plan to raise output next week.Average daily crude oil and condensate output was 1.486 million tons on Nov. 1-24, according to the data from the Energy Ministry’s CDU-TEK unit, seen by Bloomberg. That equates to 10.89 million barrels a day, based on a 7.33 barrel-per-ton conversion rate.That is a modest 0.49% increase month-on-month, and compares to a 1% rise for October and 2.8% in September. August output fell, when Gazprom capped output at its largest condensate-treatment plant in West Siberia after the fire.
Until now, Russian producers have been raising output mainly by restoring production at wells closed in 2020 or increasing flows from operating wells. To ramp up output next year, they will need to focus on drilling new wells.
Earlier this week Lukoil PJSC, the second-largest producer in Russia, said that it has restored its production to almost 90% of pre-crisis level of the first quarter 2020. “We’re close to full utilization of spare capacity and further production growth will be supported by additional drilling,” Vice President for Finance Pavel Zhdanov said Nov. 24.
OPEC+ is moving two technical meetings to later this week after oil’s rout last Friday and to give its committees more time to evaluate the impact of a new strain of the coronavirus.The Organization of Petroleum Exporting Countries is moving its joint technical committee meeting to Wednesday, instead of the planned date Monday, according to delegates from some member countries. The joint ministerial monitoring committee, which comprises representatives of the broader group, will meet on Thursday instead of on Tuesday.The OPEC and broader OPEC+ meetings will go ahead as planned on Wednesday and Thursday with ministers set to decide on whether to go ahead with planned output increases.
Iran’s chief nuclear negotiator said world powers must secure full, guaranteed and verifiable sanctions removal for Tehran when they resume talks on Monday aimed at reviving a landmark 2015 deal and ending a standoff with the U.S.“The West needs to pay a price for having failed to uphold its part of the bargain,” Ali Bagheri Kani, Iran’s deputy foreign minister and the official leading the country’s nuclear negotiating team in Vienna, wrote in an op-ed in the Financial Times published on Sunday, referring to former U.S. President Donald Trump’s decision to abandon the nuclear accord in 2018.“We are ready for a fair and careful discussion, based on the principles of ‘guarantee’ and ‘verification.’ This must prioritize compensation for the violation of the deal, which includes the removal of all post-JCPOA sanctions,” Bagheri Kani added, referring to the Joint Comprehensive Plan of Action, the official name of the nuclear deal.The piece appears to reaffirm his team’s position before indirect negotiations with the U.S. -- mediated by the European Union, China and Russia -- start after months of delays.
This has many expecting no progress from the talks until Iran's stance changes.
But it's unclear what happens if they do break down. WSJ.
Western officials say they are unlikely to pull the plug on negotiations even if progress over the next week is minimal. But in the absence of a breakthrough, U.S. and European officials are grappling with a complex set of choices.They will need to keep diplomacy alive while also finding a way to raise pressure on Iran.Among the options: an effort to strike a partial deal in which the U.S. would provide some sanctions relief in exchange for partial restrictions on Iran’s nuclear program akin to the 2013 interim deal with Iran. Israeli officials have warned against a partial deal, calling it a gift for Tehran.“I don’t think the Biden team has yet coalesced around a particular game plan for the post-JCPOA period,” said Robert Einhorn, a former special adviser for nonproliferation at the U.S. State Department. Any effort to enlist Russia and China to pressure Iran, he said, “is going to take time.”
China is drawing a link between nuclear non-proliferation talks and a western submarine pact in the Pacific that it opposes, potentially adding another obstacle to the tortured process of reaching a deal with Iran.
Beijing had already emerged as a linchpin to the success or failure of talks resuming Monday in Vienna on how to restore the 2015 nuclear accord between Tehran and world powers.
The decision by China’s envoy at the International Atomic Energy Agency this week to elevate Beijing’s concerns over the so-called Aukus atomic submarine deal between the U.S., U.K. and Australia alongside international worries about Iran’s nuclear program suggests Chinese ambitions are growing.
“Why do the U.S. and U.K. say Iran can’t enrich uranium above 3.7%, while on the other hand they plan to transfer tons of highly enriched 90% material to Aukus?” China’s envoy to the IAEA, Wang Qun, said on Friday. “This is an example of a double standard.”
With the world’s No. 2 gas and No. 4 oil reserves, Iran has been cultivating tighter integration with Beijing to help replace sanctioned trade with Western economies. Tehran joined the Shanghai Cooperation Organization, a Chinese-and Russian-led economic-security alliance across central Asia. Iran and China have also entered into a 25-year trade deal potentially worth billions of dollars.
By permitting Australia to obtain weapons-grade uranium to fuel its submarines, the U.K. and U.S. are potentially opening the door to other countries to do the same thing, degrading the global monitoring regime.
US Data
Misc.
Random stuff:
Interesting piece from the Telegraph (which at this point has been widely discussed but I wrote this originally on Sunday morning) on the doctor who "discovered" the Omicron variant. I believe this fits with the "standard" evolution of viruses to become more transmissible but less deadly? That said, importantly, S Africa has a very low older population, so even if Omicron is milder for younger people, we don't know if that holds true for older populations.
The first South African doctor to alert the authorities about patients with the omicron variant has told The Telegraph that the symptoms of the new variant are unusual but mild.
Dr Angelique Coetzee said she was first alerted to the possibility of a new variant when patients in her busy private practice in the capital Pretoria started to come in earlier this month with Covid-19 symptoms that did not make immediate sense.
They included young people of different backgrounds and ethnicities with intense fatigue and a six-year-old child with a very high pulse rate, she said. None suffered from a loss of taste or smell.
“Their symptoms were so different and so mild from those I had treated before,” said Dr Coetzee, a GP for 33 years who chairs the South African Medical Association alongside running her practice.
She said, in total, about two dozen of her patients have tested positive for Covid-19 with symptoms of the new variant. They were mostly healthy men who turned up “feeling so tired”. About half of them were unvaccinated.
Dr Coetzee, who was briefing other African medical associations on Saturday, made clear her patients were all healthy and she was worried the new variant could still hit older people – with co-morbidities such as diabetes or heart disease – much harder.
And further hopeful news was from Barry Schoub, chair of South Africa’s ministerial advisory committee on COVID vaccines, who told Sky News on Sunday that “we can be fairly optimistic” that the vaccines will prove effective against severe disease. “The cases that have occurred so far have all been mild-to-moderate cases,” he added, calling that “a good sign.” That said, the WHO noted that hospitalizations have been increasing in S Africa.
As Democrats have a big "to do" list as they return from the Thanksgiving break.
WASHINGTON—Democrats will sort through a heavy pile of to-do items when they return to Washington, including ironing out disagreements over their Build Back Better bill, keeping the government funded and boosting the debt limit before the U.S. runs out of money to pay its obligations.
The party’s $2 trillion education, healthcare and climate package, which passed the House before the Thanksgiving recess, now heads to the 50-50 Senate, where Senate Majority Leader Chuck Schumer (D., N.Y.) is hoping to approve the legislation before Christmas.
Senate Democrats need to reach unanimous agreement on the policy proposals and work through expected procedural challenges, both of which could mean changes to the package.
Meanwhile, funding for current government programs runs out after Friday, Dec. 3, giving lawmakers just days to pass legislation preventing a government shutdown. Some Democrats have pushed for a very short-term extension of government funding, possibly through Dec. 17, while Republicans are seeking an extension that lasts into 2022.
Lawmakers will also have to address the government’s borrowing limit. Treasury Secretary Janet Yellen has told lawmakers that the government could run out of resources to meet the nation’s obligations as soon as Dec. 15, setting up another tight deadline for Congress.
Unlike earlier this year, when Democrats and Republicans warred publicly over the issue, Mr. Schumer and Senate Minority Leader Mitch McConnell (R., Ky.) have privately discussed how to address the issue. Republicans have sought to make Democrats use the reconciliation process to raise the debt limit without GOP support, while Democrats have insisted that Republicans cooperate in raising the debt limit through regular order.
Possible paths forward include Republicans agreeing to let Democrats raise the debt limit along party lines through regular order—rather than through reconciliation—or Democrats raising it through reconciliation in an expedited process that the GOP endorses.
And Black Friday wasn't quite as black (meaning positive, as that's what the term refers to (retailers going from "red" for the year to "black")) this year according to Adobe. SA.
Fresh shopping numbers over the weekend suggest that more Americans stretched out their holiday shopping this year given concerns about COVID-19 and supply chain disruptions. Retailers have also spread out their promotional offers, giving another reason to start shopping earlier. The developments could spell some trouble for investors, if the trends dent Q4 sales and results fall short of holiday guidance.
Statistics: Online and brick-and-mortar retailers rang up $8.9B in sales on Friday, down from the record of about $9B spent during Black Friday 2020, according to data from Adobe Analytics. That's the first time ever that growth reversed from the prior year. The latest survey from the National Retail Federation even found that 61% of consumers started purchasing holiday gifts before Thanksgiving, and 28% of their holiday shopping was done by early November.
Meanwhile, traffic at retail stores on Black Friday dropped 28.3% compared with 2019 levels, though consumers may spend more online with flashy e-commerce sales coming on Cyber Monday.
As Israel institutes a 2-week ban of foreign entrants.
JERUSALEM, Nov 27 (Reuters) - Israel on Saturday said it would ban the entry of all foreigners into the country, making it the first country to shut its borders completely in response to a new and potentially more contagious coronavirus variant, and said it would usecounter-terrorism phone-tracking technology in order to contain the spread of the Omicron variant.
Prime Minister Naftali Bennett said in a statement that the ban, pending government approval, would last 14 days. Officials hope that within that period there will be more information on how effective COVID-19 vaccines are against Omicron, which was first detected in South Africa and has been dubbed a "variant of concern" by the World Health Organization.
"Our working hypotheses are that the variant is already in nearly every country," Interior Minister Ayelet Shaked told N12's "Meet the Press," "and that the vaccine is effective, although we don't yet know to what degree."
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