Neil's Morning Update - 11/30/21

Neil's Morning Update - 11/30/21

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.  

SPX = S&P 500

Naz = Nasdaq Composite

NDX = Nasdaq 100 (100 largest stocks in the Naz)

RUT = Russell 2000 (smaller stocks)

DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = 14-day Relative Strength Index (basically what it sounds like)

BBG = Bloomberg

WSJ = Wall Street Journal

_______________________________________________________________________

“There is no world where [the effectiveness] is the same level ... we had with Delta,” Moderna CEO Stephane Bancel told the Financial Times. "I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to . . . are like 'this is not going to be good'.

And with that, markets reversed what had been gains premarket globally (ignoring more positive comments from the University of Oxford that there was no evidence of a material drop in effectiveness), with US and Asian futures as well as other risk assets solidly red with reopening exposed stocks and commodities bearing the brunt of the losses as we approach the open of equity trade in NY.  WTI (oil), the RUT (small cap index), and bond yields all undercut Friday's lows, with the first and last trading below those levels currently.  European stocks are near 7-week lows and much of Asia is deeply red outside of China which is holding in much better due to positively received PMI's.  The SPX is also above Friday's lows while the NDX remains comfortably above.  In percentage terms, premarket the RUT is down -1.45%, SPX -0.9% and NDX -0.5%.  

Here's the SPX futures this morning. 20-DMA was resistance again earlier in the session (green line).

 In U.S. corporate news (Argus):

Moderna (MRNA 358.71, -9.80): -2.7%% after its CEO told the Financial Times that he expects current vaccines to struggle against the Omicron variant and that it would take months to produce a new vaccine at scale. The latter observation was roughly in-line with prior comments. Pfizer (PFE 52.91, +0.51): +1.0% on news that it will soon ask the FDA for authorization for its COVID booster shot for 16-17 year-olds. Dollar Tree (DLTR 137.83, -3.52): -2.5% after the stock was downgraded to Neutral from Buy at Goldman. 

As both Canaccord (Dwyer) and Citi said buy the dip yesterday.  SA 

Stocks are rebounding today and any further declines due to worries about Omicron set up as buying opportunities, according to equity strategists.

Canaccord's Tony Dwyer says history points to a better risk-reward picture through the end of the year.

It would be a unique occurrence for the S&P 500 (SPY) to be up 18% at the end of October and then down November and December, Dwyer writes in a note.

"In the 12 prior occurrences, the median gain from the October close into year-end was 6.01%, with a median maximum loss of -1.29%," he says.

"The combination of history and the current status of our most sensitive tactical indicators suggest adding risk exposure for the year-end opportunity."

Citi says a selloff in global markets makes sense given bad COVID news added to frothy sentiment, extended valuations and fiscal tightening. But its "Bear Market Checklist" recommends investors buy the dip.

"Our global 'Bear Market Checklist' does not look especially extended (7.5/18 red flags)," strategists led by Robert Buckland write. "Valuations look stretched, but other factors (credit spreads, fund flows) are not yet especially extended. The US (9.5/18 red flags) looks more extended than EM or Europe (5 and 6 out of 18)."

In the U.S., HY and IG spreads, equity risk premium and the 10-year to 2-year yield curve look positive, according to the list. So do equity fund flows, capex growth, M&A and asset/equity.

And according to Vanda Research (and Fidelity), quite a few retail investors did exactly that (buy the dip) Friday.  Although the fact that it was still such a big down day shows how institutional flows (we talked about how volatility strategies derisked by 20% last night) can overwhelm retail.  BBG.

The day-trading crowd snapped up roughly $2 billion in assets like the SPDR S&P 500 ETF Trust (ticker SPY) and Invesco QQQ Trust Series 1 (ticker QQQ) on Friday as the buy-the-dip crowd stepped in where Wall Street didn’t, according to data from Vanda Research, a firm that tracks retail-trading flows in the U.S.

Individual investors showed conviction not only buying ETFs that track the major U.S. averages, but bought airline stocks like Delta Air Lines Inc., United Airlines Holdings Inc., as well as cruise operator Carnival Corp., Vanda data show. The trio were among the 10 most-bought stocks on Friday with each seeing at least $39 million in buying, according to the data.   Friday marked the third largest day of net retail buying since the pandemic began with non-tech single stocks seeing the largest inflows, according to Vanda data.

With the buying skewing toward airline and reopening stocks, “animal spirits are clearly still alive in this cohort of investors,” according to Eric Liu, the co-founder of Vanda Research. “Friday’s session was mostly about shooting first and asking questions later,” he said. 

The jump in retail trader buying was apparent on Fidelity’s platform where Apple Inc., Boeing Co. and Nvidia Corp. were the most purchased stocks on Friday. Buying for stocks that would benefit from a reopened economy far outpaced the number of sell orders, according to data provided by the brokerage. 

 

 

Asia

Major Equity indices in the Asia-Pacific region ended Tuesday on a mostly lower note. Japan's Nikkei: -1.6% Hong Kong's Hang Seng: -1.6% China's Shanghai Composite: UNCH India's Sensex: -0.3% South Korea's Kospi: -2.4% Australia's ASX All Ordinaries: +0.3%.

In news:China's Manufacturing PMI returned into expansionary territory in November while Non-Manufacturing PMI was above 50.0 for the third month in a row. Japan's Industrial Production showed its first monthly increase since June. United Microelectronics announced plans to raise prices on long term contracts by up to 12%

In economic data, Chinese PMI's came in better than expectations, while Japanese and S Korean industrial production missed.

China's November Manufacturing PMI 50.1 (expected 49.6; last 49.2) and Non-Manufacturing PMI 52.3 (last 52.4)

Japan's October Industrial Production 1.1% m/m (expected 1.8%; last -5.4%). October jobs/applications ratio 1.15 (expected 1.17; last 1.16) and October Unemployment Rate 2.7% (expected 2.8%; last 2.8%). October Construction Orders 2.1% yr/yr (last 27.3%) and Housing Starts 10.4% yr/yr (expected 5.2%; last 4.3%)

South Korea's October Industrial Production -3.0% m/m (expected 0.4%; last -1.1%); 4.5% yr/yr (expected 3.0%; last -1.8%). October Retail Sales 0.2% m/m (last 2.4%) and October Service Sector Output -0.3% m/m (last 1.4%)

Hong Kong's October Retail Sales 12.0% yr/yr (last 7.3%)

Australia's October Building Approvals -12.9% m/m (expected -2.0%; last -3.9%) and October Private House Approvals 4.3% (last -16.0%). October Private Sector Credit 0.5% m/m (expected 0.6%; last 0.6%). Q3 Current Account surplus AUD23.90 bln (expected AUD27.80 bln; last AUD22.90 bln)

New Zealand's November ANZ Business Confidence -16.4 (last -13.4) and November NBNZ Own Activity 15.0% ( last 21.7%)

Europe

As of 8 am Eastern, major European indices trade in the red as renewed fears about the effectiveness of current coronavirus vaccines against the new variant weigh on sentiment. STOXX Europe 600: -1.0% Germany's DAX: -1.3% U.K.'s FTSE 100: -0.7% France's CAC 40: -1.1% Italy's FTSE MIB: -1.1% Spain's IBEX 35: -1.6%.

In news, European Central Bank policymaker De Guindos said that asset purchases could be restarted once they end in March, adding that the central bank must maintain an accommodative stance even after pandemic purchases end. Italy's Prime Minister Draghi said that his government is prepared to continue interventions to limit the impact of high energy prices on consumers. Italy sold 5- and 10-yr debt to good demand. 

In economic data, EU and Italian CPI decelerated m/m but came in above expectations, German employment beat, while French and Spanish consumer spending missed.

Eurozone's November CPI 0.5% m/m (last 0.8%); 4.9% yr/yr (expected 4.5%; last 4.1%). November Core CPI 0.5% m/m (last 0.8%); 2.6% yr/yr (last 2.0%)

Germany's November Unemployment Change -34,000 (expected -25,000; last -39,000) and November Unemployment Rate 5.3%, as expected (last 5.4%)

France's Q3 GDP 3.0% qtr/qtr, as expected (last 3.0%). November CPI 0.4% m/m (last 0.4%); 2.8% yr/yr (last 2.6%). October PPI 2.9% m/m (last 1.7%) and October Consumer Spending -0.4% m/m (expected 0.3%; last 0.2%)

ING - Inflation rose in November, reaching its highest level since 2008, and this increase is expected to continue in the coming months, which may impact household consumption. In addition, new risks linked to the latest wave of the pandemic, and the new Omicron variant, have led us to revise our forecasts downwards 

Italy's November CPI 0.7% m/m (expected 0.1%; last 0.7%); 3.8% yr/yr (expected 3.2%; last 3.0%). Q2 GDP 2.6% qtr/qtr, as expected (last 2.6%); 3.9% yr/yr (expected 17.3%; last 17.3%)

Spain's October Retail Sales -0.7% yr/yr (last -0.1%) and September Current Account surplus EUR2.22 bln (last surplus of EUR980 mln)

Swiss November KOF Leading Indicators 108.5 (expected 109.0; last 110.2) 

Turkey GDP (Y/Y) Q3: 7.4% (est 7.4%, prev 21.7%), GDP SA/WDA (Q/Q) Q3: 2.7% (est 3.3%, prev 0.9%)

Commodities/Currencies/Bonds

Bonds - Yields falling again this morning, breaking Friday's lows with the 10-year testing the November lows.  2-year yield is down four basis points to 0.47, and 10-year is down almost ten basis points to 1.43%.  

As the market continues to price out 2022 rate hikes.

Dollar (DXY) - As we saw Friday, falling apparently on the pricing out of interest rate hikes as noted above.  Now below Friday's lows.  Currently at $95.69.  Remains in intermediate-term uptrend.  Daily technicals very close to turning negative. 

VIX - Spiking back up this morning but remains below Friday's highs.  Absent even worse headlines on this new strain, I still see this moving lower soon.  Currently at 26.31.

Crude (/CL) -  Has now given back all of yesterday's rally and trades below Friday's lows down over -4%.  Currently at $67.01 WTI.  Daily technicals remain negative.

Nat Gas (/NG) - After big losses on some technical factors and a bearish weather forecast yesterday (it was down -11%), after breaking an uptrend line that has been rock solid since April as well as the 100-DMA, looks like stops kicked in and it quickly dropped another -6%.  Did find support at the $4.50 level.  We'll see if that can hold.  Currently at $4.59.  Daily technicals have turned back to negative, and its intermediate term uptrend is in jeopardy..

Gold (/GC) - Gaining this morning but remains below yesterday's highs.  Currently at $1798.  Daily technicals remain negative.

Copper (/HG) - Testing Friday's lows, remains above for now.  Daily technicals remain neutral.  Remains in intermediate term uptrend.

US Data

Fed Chair Powell and Treasury Secretary Yellen will testify before the Senate Banking Committee today and the House Financial Services Committee tomorrow at 10:00 a.m. ET both days. In his prepared remarks, Mr. Powell said the Omicron variant poses downside risks to the labor market and economy and increased uncertainty for inflation.

On the data front, investors will receive the FHFA Housing Price Index for September and the S&P Case-Shiller Home Price Index for September (Briefing.com consensus 19.3%) at 9:00 a.m. ET, and the Consumer Confidence Index for November (Briefing.com consensus 111.00) at 10:00 a.m. ET. 

Misc.

Random stuff:

As Regeneron's antibody drug is found in initial tests to lose some effectiveness while those from competitors appear to not.  WSJ.

Scientists at the Fred Hutchinson Cancer Research Center in Seattle found that individual mutations from Omicron reduced or eliminated the ability of Regeneron’s and Lilly’s drugs to attach to the virus, said Allie Greaney, a Ph.D. candidate at the center and the University of Washington in Seattle.

More comprehensive tests of the drugs against the entire variant are needed to fully understand the impact, she said. “I’m not certain what the exact magnitude of effect would be, but probably less effective,” said Ms. Greaney.

Lilly is in the process of testing the new variant against its drug, a combination of two antibodies called bamlanivimab and etesevimab, said Nicole Kallewaard, a Lilly virologist and research adviser.

She declined to comment on the results showing reduced effectiveness against individual Omicron mutations, because the results may differ when all of the mutations are combined.

“I think that we need to wait for confirmation of the whole virus,” said Dr. Kallewaard. “Hopefully, the data will come in the next few weeks.”

A rise in the prevalence of Omicron could present an opportunity for competitors who say their drugs don’t appear in preliminary testing to be affected by the variant, including Vir Biotechnology Inc. and GlaxoSmithKline PLC, whose drug sotrovimab was authorized for emergency use earlier this year.

Fred Hutchinson researchers also said their initial testing indicated the Vir-GSK antibody drug retained its effectiveness.

Adagio Therapeutics Inc., a biotech with a Covid-19 antibody drug in clinical trials, said its antibody also appears to be unaffected by the new variant.

Vir, Glaxo and Adagio said they are conducting further tests 

As Liz Ann Sonders notes that we did in one year what took us a decade to do pre-Covid (increase goods spending by around 50%).

And Justin Timmer notes the P/E currently isn't all that unusual compared to most cyclical recoveries.

As non-US diplomats (as the US and Iran apparently can't talk directly) were "upbeat" as the seventh round of talks kicked off, although I can't wonder what the "new political sensibilities" means (probably a reference to the new hard-line President which would seem to be an issue unless the US is intent on caving on their earlier requirements for a deal).

VIENNA, Nov 29 (Reuters) - EU, Iranian and Russian diplomats sounded upbeat as Iran and world powers held their first talks in five months on Monday to try to save their 2015 nuclear deal, despite Tehran taking a tough stance in public that Western powers said would not work.

Diplomats say time is running out to resurrect the pact, which then-U.S. President Donald Trump abandoned in 2018 in a move which infuriated Iran and dismayed the other powers involved - Britain, China, France, Germany and Russia.

European Union, Iranian and Russian delegates to the talks offered optimistic assessments after the new round began with a session of the remaining parties to the deal, without the United States - whom Iran refuses to meet face-to-face.

"I feel extremely positive about what I have seen today," Enrique Mora, the EU official chairing the talks, said after the meeting - the seventh round of talks aimed at reviving a deal under which Iran limited its disputed uranium enrichment program in return for relief from U.S., EU and U.N. economic sanctions.

Mora told reporters the new Iranian delegation had stuck to its demand that all sanctions be lifted. But he also suggested Tehran had not rejected outright the results of the previous six rounds of talks held between April and June.

"They have accepted that the work done over the first six rounds is a good basis to build our work ahead," he said. "We will be of course incorporating the new political sensibilities of the new Iranian administration."

However, it was not clear whether Iran had agreed to resume the talks where they had off in June - as demanded by Western powers - nor that the optimism was justified.

A European diplomat struck a pessimistic note, saying the Iranians stuck to their positions and at times toughened them, which was hardly encouraging. Matters would become clearer when detailed talks on sanctions and nuclear issues occur this week. 

"All parties in the meeting accepted Iran’s demand that first the situation of illegal and unjust U.S. sanctions ... should be cleared and then (we) discuss other issues and decide on those issues," he told reporters.

There was no immediate comment from the big powers on Bagheri Kani's remarks about the sequencing of topics. 

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://seekingalpha.com/user/15085872/instablogs for more recent or https://sethiassociates.blogspot.com for the full history.