Live Markets: As election swirl calms, industrial tailwinds pick up
07/01/2021 17:27
* US indexes gain; Nasdaq leads with advance of more than 2%
* Tech, consumer discretionary and financials lead sector
gains;
Utilities is biggest sector loser
* Dollar, oil up; gold dips, US Treasury 10-year yield
~1.08%
Jan 7 - Welcome to the home for real-time coverage of
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thoughts with us at markets.research@thomsonreuters.com
AS ELECTION SWIRL CALMS, INDUSTRIAL TAILWINDS PICK UP (1213
EST/1713 GMT)
Jefferies equity analyst Stephen Volkmann is out with a note
saying that Democratic election victories should provide more
tailwinds for industrials.
Although, there may be concerns around taxes, regulation and
interest rates, Volkmann says additional stimulus would be
positive for industrials broadly.
Volkmann says that, near-term, beneficiaries of a favorable
industrial tailwind include Caterpillar CAT.N , Terex TEX.N ,
Oshkosh Corp OSK.N , and Manitowac MTW.N , given that they
"probably have the most exposure to the infrastructure trade."
Additionally, the growth to value rotation, coupled with
additional stimulus could provide additional tailwinds, though
he cautions that concerns over defense cuts could potentially be
a drag on OSK.
In any event, he says that tax and interest rate fears are
likely over done in the medium term.
Separately, Jefferies Global Equity Strategist, Sean Darby,
is also out with a note stating that the election outcome
"should favor industrials and materials while higher inflation
and a steeper yield curve puts a bid on the banks."
Darby adds that there are no changes to Jefferies' 2021 S&P
500 .SPX target price of 4,200, or its EPS estimate of
$180.00.
Of note, the Jefferies 2021 SPX target is around 10% above
current levels.
(Terence Gabriel)
*****
JOBLESS CLAIMS, PMI, ET AL: SERVICES WITH A GRIMACE (1115
EST/1615 GMT)
Data released on Thursday provided an overview of the state
of the U.S. economy, now in its 12th month of recession, as it
trudged across the finish line of a tumultuous year amid a
raging spike in coronavirus cases.
The number of U.S. workers filing initial applications for
jobless benefits USJOB=ECI unexpectedly edged down by 3,000
last week to 787,000, according to the Labor Department.
Analysts expected an uptick to an even 800,000.
While encouraging news - especially in the wake of a
surprise loss of private sector jobs reported by ADP on
Wednesday - claims remain elevated as restrictions to contain
spiraling new cases of COVID-19 cause companies to shutter their
doors and layoff workers.
Jobless claims have been higher than the worst reading from
the nadir of the Great Recession for ten excruciating months,
with customer-facing services employees suffering the brunt of
it.
"A combination of Covid fear and state-mandated restrictions
on activity in the services sector is squeezing businesses, and
no real relief is likely until a sustained decline in pressure
on hospitals emerges," writes Ian Shepherdson, chief economist
at Pantheon Macroeconomics.
Ongoing claims USJOBN=ECI , reported on a one-week lag,
also came in below consensus at 5.072 million.
But business activity in the battered services sector defied
expectations and accelerated in December according to the
Institute for Supply Management's (ISM) non-manufacturing
purchasing managers' index (PMI) USNPMI=ECI . urn:newsml:reuters.com:*:nN9N2H700D
ISM's services PMI delivered a reading of 57.2, representing
a faster expansion than the 54.6 consensus and 55.9 from the
prior month.
However, the employment subcomponent dipped into contraction
territory, limiting the headline advance.
And the survey's participants remain apprehensive. Among the
responses:
"Starting to see demand weakening as states go back to shut
down." (Accommodation & Food Services)
"We have seen a growing number of product shortages and
increased lead times during the last quarter." (Wholesale Trade)
"Continued local and state shutdowns negatively impacting a
variety of operations." (Educational Services)
"Lack of labor continues to be a significant drag on the
business. We have plenty of work but are now considering
rejecting some orders due to shrinking capacity." (Construction)
A PMI reading above 50 indicates increased activity from the
previous month.
In more ancient economic news, the Commerce Department
reported the U.S. trade gap USTBAL=ECI widened more than
anticipated in November to $68.1 billion, a 14-year high and the
second-highest ever. urn:newsml:reuters.com:*:nL1N2JH2QC
The gaping deficit, a drag on GDP, was driven by surging
imports as U.S. businesses sought to rebuild depressed
inventories, a surge which handily offset an uptick in the
export of U.S.-made goods.
The global health crisis, which now includes more contagious
variants of the coronavirus, continues to inhibit the
international movement of goods.
"Total trade in goods has now climbed above its pre-virus
level, while services trade is still 22% below its peak amid
travel restrictions and virus fear," says James Watson, senior
economist at Oxford Economics. "With the global recovery at risk
from fresh lockdowns and new Covid variants, US trade flows are
likely to stay subdued in coming months."
The closely-watched bilateral trade deficit between the
United States and China inched higher to $30.7 billion.
And finally, executive outplacement firm Challenger, Gray &
Christmas said planned layoffs by U.S. firms USCHAL=ECI jumped
by 18.9% in December to 77,030.
For 2020, pre-announced job cuts hit a bruising 2.3 million,
289% higher than 2019's final tally, more than half of which
were directly related to COVID-19.
Continuing a sad theme, customer-facing workers suffered
most. The subsectors hit hardest were entertainment/leisure,
retail, transportation and services.
"In the final months of the year, companies that may have
survived the initial impact of the pandemic in March and April
determined staffing adjustments based on increasingly difficult
market conditions," says Andrew Challenger, senior vice
president at Challenger Gray. "While some segments were up ...
many others were hurt considerably."
Market observers now focus their gaze on the Labor
Department's employment report expected on Friday, which is
expected to show the U.S. economy added a paltry 70,000 jobs
last month, the weakest showing since the recovery began.
Investors strode past the data, as a broad rally appeared to
reflect relief as president-elect Joe Biden was confirmed by
Congress and violent protests on Capitol Hill ended, removing
any potential for an overhang of uncertainty.
(Stephen Culp)
*****
A VULNERABLE EURO? (1045 EST/1545 GMT)
Euro correction? The pullback in the euro/dollar today has
already prompted some analysts to question further gains for the
single currency, with some even suggesting scope for a near-term
correction.
Rabobank sees scope for a correction in euro/dollar in the
first quarter, as investors work through the implications of a
new administration and short dollar and long euro positions from
year end get shaken out.
What's more, Europe's lag in rolling out vaccines compared
to the U.S. and the UK may unsettle euro bulls.
Prospects for a euro zone recovery may be impacted given
several countries including Germany announce fresh restrictions
to curb the spread of the virus, Rabobank's head of FX strategy
Jane Foley said.
"In view of the uncertainty about the news around covid-19,
the various restrictions, the vaccine roll-out and indeed the
degree and effectiveness of any fiscal policy responses there is
every reason to suspect that volatility in euro/dollar could be
high in the coming months," she said.
"That said, while we are looking for a pullback in
euro/dollar in Q1, the weakness of real interest rates should be
sufficient to keep the dollar on the back foot through most of
the year and we will be looking for any changes of this front
before calling for a broad-based, sustained dollar recovery."
Citi's Economic Surprise Index for the euro zone has tapered
off its highs in recent days as new daily COVID-cases show no
signs of a slowdown.
Bank of America Merrill Lynch said it is "skeptical" about
substantial further strength in the euro, "particularly during a
Eurozone recession that is more severe than in most of the rest
of the world."
BofA added that the euro long positions makes it one of the
most vulnerable G10 currencies "to an overall market risk-off",
while its quant models are seeing more limited euro/dollar
upside from current long positions.
(Ritvik Carvalho)
*****
DOW INDUSTRIALS: HURDLES STILL LOOM LARGE (1010 EST/1510
GMT)
The Dow Jones Industrial Average .DJI has hit a fresh
record high in early trade Thursday, but that doesn't mean there
aren't hurdles to clear. The blue-chip average has a protracted
monthly momentum issue as it once again nears a major long-term
resistance line. (Click on chart below)
Indeed, although rising, the Dow's monthly RSI remains below
its December 2019 high, which was well shy of its January 2018
peak.
Of note, over the past 90 years or so, periods of monthly
RSI divergence preceded significant Dow declines. As stands, it
has now been 2 years since the Dow's RSI peak, which was its
highest in history. Of course, major declines in late 2018, and
early 2020 can be included in this latest on-going divergence
pattern.
Meanwhile, the Dow is once again nearing a long-term
log-scale resistance line from its 1929 high. The line now comes
in around 32,750 for January, or only about 5.4% above
Thursday's 31,081.06 intraday high. urn:newsml:reuters.com:*:nL1N2JH19X urn:newsml:reuters.com:*:nL1N2JG14G
That said, it remains to be seen if the line will actually
be formally tested. Tops in early 2018, late 2018, and early
2020 formed when the Dow came within around 6.5%-9.5% of the
resistance line.
(Terence Gabriel)
*****
DOWNSIDE RISKS FOR EZ CREDIT RATINGS (0938 EST/1438 GMT)
Debt which has been piling up during the pandemic is a major
concern for markets and if something goes wrong the first
warning sign will probably come from rating agencies.
So it might be useful to take a look at some predictions for
this year.
BofA says that 2021 would be consistent with significant
credit rating downgrades it wasn’t for ECB quantitative easing
and the new generation EU fund.
If the ECB and the implementation of EU funds “manage to
keep investor risk propensity supported (as we expect they
will), we think rating agencies can justify holding an
overall neutral outlook for euro zone credit sovereigns".
Downgrades are more likely for semi-core, BofA says in a
research note.
On the side of significant downside risks agencies seem to
be focusing on the contingent liabilities accumulated on banks’
loan books, it adds.
As government support gradually pulls back "banks may run
the risk of being under-provisioned with losses potentially
spilling over to public finances in the most extreme cases.”
(Stefano Rebaudo)
*****
WALL STREET POINTS UP AFTER BIDEN WIN CERTIFIED, DEMOCRATS
WIN CONGRESSIONAL CONTROL (0901 EST/1401 GMT)
Wall Street stock index futures are gaining ground across
the board on Thursday after Congress formally certified Democrat
Joe Biden’s Presidential election victory hours after hundreds
of President Donald Trump's supporters stormed the U.S. Capitol
in a harrowing assault on American democracy. urn:newsml:reuters.com:*:nL1N2JI0JO
The White House released a Trump statement pledging an
"orderly transition" when Biden is sworn in on Jan. 20, although
the President repeated his false claim that he won the election.
urn:newsml:reuters.com:*:nL1N2JI0JO
Also on Thursday data showed the number of Americans filing
first-time claims for jobless benefits unexpectedly dipped last
week while staying extremely high, with the labor market
recovery appearing to stall as a raging COVID-19 pandemic
threatens to overwhelm the country. urn:newsml:reuters.com:*:nL1N2JH2AV
With Democrats also winning control of both houses of
Congress investors were also betting on the introduction of
heftier fiscal stimulus to counter the impact of the pandemic.
.N
While the S&P and Dow closed higher on Wednesday, afternoon
trading was volatile after the mob of Trump supporters forced
their way into Capitol Hill in what Biden and some Republicans
called an insurrection during election certification
proceedings.
Here is your premarket snapshot:
(Sinéad Carew)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE: urn:newsml:reuters.com:*:nL1N2JI13H
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Wall St futures point to higher open https://tmsnrt.rs/2Xm0If0
rating https://tmsnrt.rs/3orW3Ej
Dow01072021 https://tmsnrt.rs/3nj9W6h
Euro topping out? https://tmsnrt.rs/35kCTbT
Jobless claims https://tmsnrt.rs/39e6Kns
ISM PMI https://tmsnrt.rs/35jkQD0
Trade balance https://tmsnrt.rs/2JVQBKY
Challenger Gray https://tmsnrt.rs/2XiYblT
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
((sinead.carew@thomsonreuters.com; +1 (646) 223 6186; Reuters
Messaging: sinead.carew.thomsonreuters.com@reuters.net))