Neil's Morning Update - 12/30/21 - moving to Substack

Neil's Morning Update - 12/30/21

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). As are reminder, this is a free blog I put out to try to help people get information, so no editors, etc.

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)

Also, on my charts, the lines are 20-DMA (green), 21-DEMA (red), 50-DMA (purple), 100-DMA (blue), 200-DMA (brown)

Source abbreviations: BBG = Bloomberg; WSJ = Wall Street Journal; RTRS = Reuters; SA = Seeking Alpha; HR = Heisenberg Report 

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Looks like I'll be moving over to Substack for now.  Nice thing is you can just subscribe (free) and you'll get full emails right in your inbox.  

Global stocks continued for a third day to digest big gains of the week through Monday as we enter the fourth day of the seven (or eight depending on who you ask) days of the "Santa Rally" period.  Asian shares closed mixed while European shares and US futures trade modestly positive.  In the US the SPX and NDX futures are up around a tenth of a percent while RUT is basically flat.  Commodities are generally red (mildly), the dollar is bouncing, bonds are little changed.

Here's the SPX futures this morning around 8.30 ET.  Remaining near all time highs.  

 In U.S. corporate news (Argus):

Biogen (BIIB 241.12, -17.19): -6.7% after Samsung Group denied yesterday's report that it was in talks to acquire the company. Micron (MU 94.49, -1.68): -1.8% after warning of possible delays for its DRAM memory chips because of China's lockdown of Xi'an, according to CNBC. JetBlue (JBLU 14.34, -0.04): -0.3% after reducing its flight schedule in January amid weather and Omicron issues, according to The Wall Street Journal. Lucid Motors (LCID 36.75, -0.22): -0.6% despite being resumed with a Buy rating at Citigroup.

As Jim Paulson and Jay Peloski (two heavyweights) stay bullish with earnings estimates continuing to rise.  BBG.

“Healthy economic and EPS growth acts as a foundation under a market which is driven by chronic fears,” said Jim Paulsen, chief investment strategist at Leuthold Group, who expects 2022 profits to come in at $240 a share. “You can be worried about Covid, inflation, the Fed, China, Robinhood, SPACs, valuations, etc. But every quarter, EPS keep coming in better than expected, forcing the consensus to upgrade forecasts. And this brings ‘dip buyers’ whenever we have any meaningful pullback.”

For the fourth-quarter earnings season that’s about to start in coming weeks, S&P 500 companies are expected to report a 19% jump in profits, data compiled by Bloomberg Intelligence show. 

If the recent history is any guide, analysts may have again underestimated the earnings potential -- S&P 500 firms have crushed estimates by at least 10% for six quarters in a row. One case for the upside: At $51.29 a share, the estimated income represents a 5% decline from the previous three months. That’s at odds with an economy that’s projected to expand 6% this quarter. 

“I don’t think the time to be bearish is now at all. The question for those who have already de-risked -- and many have -- is, when do you get back in?” Jay Pelosky, founder and president of TPW Investment Management, said in an interview with Alix Steel on Bloomberg TV. “Q4 earnings are going to be awesome. I don’t think you can wait until early January. That, in hindsight, would be a mistake.”

Asia

Major equity indices in the Asia-Pacific region ended Thursday on a mixed note. China’s CSI 300 index climbed on expectations of more steps to bolster economic growth amid an extension of some personal income-tax breaks and calls for policy easing. Japan's Nikkei: -0.4% Hong Kong's Hang Seng: +0.1% China's Shanghai Composite: +0.6% India's Sensex: UNCH South Korea's Kospi: -0.5% Australia's ASX All Ordinaries: UNCH.

In news, a former People's Bank of China official called for an immediate loosening of macroeconomic policy to "boost vitality of participants." An official with China's Finance Ministry said that China is planning record bond issuance in 2022. Also, Chinese centrally owned state firms must cut their energy consumption per 10,000 yuan ($1,570) of output value by 2025 to 15% below their 2020 levels, the state-asset regulator said on Thursday. A poll conducted by Nikkei showed that only about 18% of Japanese companies plan to raise wages by 3.0%, which is Prime Minister Kishida's wage growth goal. Japan's Nikkei will be closed tomorrow while markets in Australia and Hong Kong will close early.

In economic data: South Korea's November Industrial Production 5.1% m/m (expected 2.5%; last -2.9%); 5.9% yr/yr (expected 3.2%; last 4.5%). November Retail Sales -1.9% m/m (last 0.1%) and November Service Sector Output 2.0% m/m (last -0.4%)

President Joe Biden plans to talk by phone with Russian President Vladimir Putin on Thursday as the U.S. and its allies raise alarm about Russia’s troop buildup on the Ukraine border. The leaders will “discuss a range of topics, including upcoming diplomatic engagements with Russia,” National Security Council spokeswoman Emily Horne said in a statement.  The call is scheduled at 3:30 p.m. Washington time, said another American official. 

As India looks to keep rates low while "sponging away liquidity".

India’s central bank will likely go slow on normalizing its monetary policy settings, breaking step with hawkish global peers to ensure a durable recovery in Asia’s third-largest economy, according to economists.

Policy makers will stick to their resolve of keeping their stance easy to achieve the growth goal for now, said economists, including Standard Chartered Plc’s Anubhuti Sahay. They will instead focus on the tricky task of sponging away liquidity, leaving just enough to keep the economy ticking without adding to inflationary pressures.

Reserve Bank of India Governor Shaktikanta Das, who last year called for coordinated policy response to the pandemic, this month cited risks from Omicron for continuing support to the economy despite calls from a colleague for abandoning the accommodative bias. India’s stance is at variance with the hawkish turn at key global central banks from the U.S. Federal Reserve to the Bank of England as they battle inflationary concerns.

“Relative to other central banks, it might seem RBI has neither started hiking nor talking about the possibility of rate increases,” said Sahay, head of South Asia research at Standard Chartered. “We need to consider that such countries did not have strict lockdowns like India or have much higher inflation relative to their historical trend.”

Although the RBI kept its growth projection unchanged at 9.5% for the current fiscal year ending March, it is forecasting a slower expansion of 7.8% next year. It sees inflation peaking in the January-March period before stabilizing in the next two quarters at 5% -- within its 2%-6% target band -- allowing it room to support growth. And a huge buffer of nearly $650 billion in foreign exchange reserves, gives policy makers the space to insulate an emerging economy like India from the volatility that comes with almost every Fed tightening cycle.

Europe

As of 8 am Eastern, major European indices trade on a modestly higher note. STOXX Europe 600: +0.3% Germany's DAX: +0.1% U.K.'s FTSE 100: +0.1% France's CAC 40: +0.3% Italy's FTSE MIB: +0.2% Spain's IBEX 35: +0.3%.

In news, Bank of Italy Governor Visco said that he expects inflation in the eurozone to average 3.0% in 2022 and slip below the ECB's 2.0% target in 2023/24. Austrian National Bank Governor Holzmann said he expects inflation to peak around the turn of the year and slowly ease through 2022, adding that the ECB should take steps to abandon negative rates in 2022. Markets in Germany, Italy, and Spain will be closed tomorrow while markets in France and the U.K. will close early.  

In economic data, UK HPI came in well above estimates while Spain's CPI increased at its fastest yr/yr pace in 30 years in the December reading. 

U.K.'s December Nationwide HPI 1.0% m/m (expected 0.5%; last 0.9%); 10.4% yr/yr (last 10.0%)

Spain's December CPI 1.3% m/m (last 0.3%); 6.7% yr/yr (last 5.5%). October Current Account surplus EUR2.14 bln (last surplus of EUR1.21 bln)

Swiss December KOF Leading Indicators 107.0 (expected 106.4; last 107.5)

As Vladimir Putin says Nord Stream 2 is ready to go.

MOSCOW, Dec 29 (Reuters) - Russian President Vladimir Putin said on Wednesday the Nord Stream 2 undersea gas pipeline would help to calm a surge in European gas prices and was ready to start exports now a second stretch of the pipeline has been filled.

Nord Stream 2, completed in September but awaiting regulatory approval from Germany and the European Union, faces resistance from the United States and several countries including Poland and Ukraine, which say it will increase Russia's leverage over Europe.  Putin said on Wednesday the second stretch of the twin pipeline has been filled with gas.  The certification of the link along the bed of the Baltic Sea from Russia to Germany is not expected before the end of the first half of 2022.

Commodities/Currencies/Bonds

Bonds - Yields are little changed this morning with 2-year bond yields flat at 0.75%, while the 10-year is down one basis point to 1.53%.  

Dollar (DXY) - After falling to lowest levels of the month yesterday, bounced but hit resistance again at the 20-DMA.  Currently at $96.00.  Remains in intermediate-term uptrend.  Daily technicals negative.  

VIX - Trading around flat levels at 17.07.  

Crude (/CL) - Continues to struggle with the 50-DMA.  Currently at $76.37 WTI. Daily technicals are positive.  

And mentioned yesterday there's an OPEC meeting next week. It's likely as part of that that a new head is elected to succeed current secretary general Mohammad Barkindo who is expected to step down.

LONDON, Dec 29 (Reuters) - Kuwait's candidate to lead the Organization of the Petroleum Exporting Countries (OPEC) has widespread support from the group, with current secretary general Mohammad Barkindo not expected to seek re-election, two sources told Reuters.

Haitham al-Ghais, a former Kuwaiti governor to OPEC, is the only candidate for the role of secretary general, the two sources added. OPEC is expected to elect a new secretary general at its meeting on Jan. 4, a third source said.

As a quake in the Permian adds pressure to cease wastewater injections.

Dec 28 (Reuters) - A magnitude 4.5 earthquake that rattled the Permian basin in Texas on Monday night is likely to add pressure on oil producers in the region to slow or stop underground wastewater injections that regulators believe may cause the tremors.

The quake, the third-largest to hit Texas this decade, occurred near Stanton and was the latest in a surge of temblors linked to the disposal of wastewater, a byproduct of oil and gas production. Wastewater injection can trigger quakes by changing pressures around fault lines.

It also comes shortly after the state Railroad Commission, which regulates its oil industry, halted the injection of water into deep wells in an area northwest of Midland amid the jump in seismicity. The Commission on Tuesday said it had been in contact with disposal well operators in the affected area of the Permian and was sending inspectors to the facilities. The affected area "has a higher utilization of deep disposal - about 50% higher - than other areas in the Permian basin," said Kelly Bennett, CEO of B3.

And Saudis may cut prices "deeply" for February delivery.

SINGAPORE, Dec 29 (Reuters) - Top oil exporter Saudi Arabia may implement deep price cuts for the crude it sells to Asia in February after Middle East benchmarks and spot prices slumped this month, industry sources said. The producer is expected to cut official selling prices (OSPs) of all grades by more than $1 in February from the previous month, dropping prices back to their lowest levels in three to four months, a Reuters survey of seven crude buyers showed.

This comes after spot premiums for February-loading Middle East and Russian grades fell by more than half this month as tight supplies eased following higher output from the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, and oil releases from strategic reserves at top consumers. read more

On the other hand, Asia's demand is set to slow as refineries prepare for seasonal maintenance in the second quarter. The region accounts for more than half of Saudi's exports. Saudi crude OSPs set the trend for Iranian, Kuwaiti and Iraqi prices, affecting about 10 million barrels per day (bpd) of crude bound for Asia.

As second tranche of import quotas for 2022 in China shows clear preference for larger refiners.  BBG.

China’s government cut the amount of crude oil import quota awarded to independent oil refiners and favored large, complex processors as it seeks to reform the sector. Beijing granted 109 million tons of allowances to 42 private refiners in the first batch for 2022, according to officials from companies that received notification of the allowances. That was 11% less than in the first tranche for this year. 

Almost 40% of the quota was awarded to three mega-refineries: Zhejiang Petroleum & Chemical Corp., Hengli Petrochemical Co. and Shenghong Group. These companies operate large, sophisticated plants that are less pollutive than the smaller so-called teapots, most of which are in Shandong province.

The allocations fit with Beijing’s strategy to reform the sector to cut pollution and crack down on unethical practices. The government is currently probing several teapots over tax irregularities. The Ministry of Commerce, which oversees the quota system, didn’t immediately respond to a fax seeking comment. 

Nat Gas (/NG) - Down this morning back to the middle of the trading range it's been in since 12/6.  Under 20 and 200-DMA's.  Currently at $383. Daily technicals positive.  

Gold (/GC) - Continues to meander above support and around the $1800 level, down a little this morning.  Currently at $1803.  Daily technicals positive.  

Copper (/HG) - Flat this morning trapped between support and resistance.  Daily technicals remain positive.

US Data

In the US, only real data point for today are weekly unemployment claims numbers.  They came in below expectations back under 200k (seasonally adjusted).  I'll do a quick update to the report later today.

*US Jobless Claims -8K To 198K In Dec-25 Wk; Survey 205K

*US Dec-18 Week Continuing Claims -140K to 1,716,000

Misc.

Random stuff:

And more evidence that while Omicron can avoid antibodies it should still be recognized by T-cells (so vaccination or previous infection should help keep you out of the hospital).

And new research shows two doses of the JNJ vaccine is highly protective against Omicron.  BBG.

Two doses of Johnson & Johnson’s Covid-19 vaccine slashed hospitalizations caused by the omicron variant in South Africa by up to 85%, a critical finding since the shot is being increasingly relied upon across the continent, researchers said. 

The study from the South African Medical Research Council found that protection levels rose in the weeks and months after a booster dose was given to those who previously received the J&J vaccine. It prevented 85% of hospitalizations one to two months after the second shot was given, up from 63% for people who received the booster within the past two weeks. 

Which is all good as the number of Covid-19 cases soared 32% to a record 1.73 million on Wednesday, marking the third day in a row with more than a million new infections worldwide

As IPO's haven't been so hot in 2021.  WSJ.

Looming behind a record-breaking run for IPOs in 2021 is a darker truth: After a selloff in high-growth stocks during the waning days of the year, two-thirds of the companies that went public in the U.S. this year are now trading below their IPO prices.

Traditional initial public offerings raised more money than ever before in 2021, as startup founders and early investors tried to cash in on sky-high valuations. In the first eight months of the year, IPO shares rose. In November, 2021’s class of IPOs were trading up 12% on average, according to Dealogic. By late December, they traded 9% below their IPO prices.

Nearly 400 traditional IPOs—along with an additional 600 special-purpose acquisition company launches—inundated fund managers and analysts this year, with many saying not a day went by without a formal call or pitch.

“While it’s a boon for the bankers to have a record number of IPOs, it’s an environment to tread very cautiously as an investor,” said Denny Fish, portfolio manager at Janus Henderson Investors. The $7.2 billion Janus Henderson Global Technology and Innovation Fund that Mr. Fish manages bought shares of Toast Inc. and GitLab Inc. in their 2021 IPOs. Toast has fallen 8% from its IPO while GitLab is up more than 20%.

The pipeline is strong for 2022 IPOs, with more than 900 private companies globally that are worth $1 billion or more. Several companies looking at early 2022 stock-market debuts are re-evaluating the price they are trying to fetch, but few are abandoning their plans to launch, lawyers and bankers say.

“None of the companies we’re working with have gone pencils down,” said Josh Bonnie, co-head of Simpson Thacher & Bartlett LP’s Global Capital Markets Practice.

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