Weekly Market Update: Central banks reinforce commitments to prolonged easy policy in the face of uncertainty over new Covid spikes
US stock markets came under modest pressure this week. The NASDAQ led the way lower punching below its 50-day moving average and the S&P followed suit. The Transports and Russel 2000 experienced significantly better performance suggesting further rotation out of the big cap technology names that powered indices to fresh all-time highs this summer. Snowflake’s white hot IPO went down as the biggest software IPO in history by a wide margin, and may ultimately prove as the high water mark for investors’ frenzy into the cloud. Late in week sentiment was further damped by ongoing uncertainty related to President Trump’s TikTok saga and a growing belief that governments in Europe were mulling revisiting lockdown measures to stem resurgent Covid-19 infection rates.
We also heard from a host of central banks highlighted by the Fed. Chairman Powell discussed a sobering update of the FOMC’s outlook along with a heavily revised policy statement that included what he deemed as “powerful” forward guidance that should enable the Fed to meet its newly instituted average 2% inflation target. Meanwhile, the BOE acknowledged members specifically discussed the effectiveness of negative rates when they met on Thursday amid Brexit talks mired in stagnation following the House of Commons passage of PM Johnson’s internal markets bill. Overnight lending rates in Europe slipped further with Euribor falling below the ECB’s deposit rate for the first time and sovereign treasury yields remained capped. Crude oil prices moved up after OPEC+ producers met and made no mention of changes to oil output targets. For the week the S&P fell 0.7%, the DJIA slipped less than 0.1%, and the Nasdaq shed 0.6%.
In corporate news this week, after back-and-forth offers from multiple parties, reports indicated Oracle had reached a deal to partner with TikTok and bring its US operations under majority American ownership, but the White House had yet to sign off on the arrangement and set a Sunday deadline for its removal from app stores. FedEx posted an eye-popping quarter as COVID boosted deliveries and express margins, but the company refrained from offering FY guidance. Nvidia announced a deal to acquire Softbank’s chipmaker ARM for $40B, which would be the largest semiconductor deal in history, though regulatory hurdles still remain. Walmart confirmed its long-awaited Amazon Prime rival ‘Walmart+’ membership plan is now available, priced at $98/year or $12.95/month. Gilead Sciences announced a $21B deal for antibody therapy specialist Immunomedics at $88.00/share in cash, seeking to acquire its prized breast cancer treatment Trodelvy. Verizon bought Miami-based disposable phone service TracFone for $6.3B from America Movil as the telecom giant fortifies its position in the prepaid wireless space.
SUN 9/13 9984.JP Confirms it will sell ARM to NVIDIA for up to $40B [cash and stock transaction], $2.0B will be paid to Arm in cash; Softbank Group and Vision fund to receive $10B in cash; to receive $21.5B worth of NVIDIA shares NVDA ARM transaction to be immediately accretive to non-GAAP gross margin and EPS
MON 9/14 (US) US Ambassador to China Branstad said to resign - CNN DAL Cuts Q3 system capacity -60% y/y (prior -25% to -20% y/y) - filing LEN Reports Q3 $2.12 v $1.51e, Rev $5.87B v $5.33Be; expect home sales to remain strong for the foreseeable future
TUES 9/15 *(DE) GERMANY SEPT ZEW CURRENT SITUATION SURVEY: -66.2 V -72.0E; EXPECTATIONS SURVEY: 77.4 V 69.5E MMM Reports Aug Rev $2.7B +2% y/y; Guides Q3 Rev $8.2-8.3B v $8.0Be WMT Confirms Walmart+ membership is now available costing $98/yr or $12.95/month *(US) SEPT EMPIRE MANUFACTURING: 17.0 V 6.8E *(US) AUG INDUSTRIAL PRODUCTION M/M: 0.4% V 1.0%E; CAPACITY UTILIZATION: 71.4% V 71.4%E FDX Reports Q1 $4.87 v $2.54e, Rev $19.3B v $17.5Be
WEDS 9/16 *(UK) AUG CPI M/M: -0.4% V -0.6%E; Y/Y: 0.2% V 0.0%E (annual pace the slowest since Jan 2016) *(US) AUG ADVANCE RETAIL SALES M/M: 0.6% V 1.0%E; RETAIL SALES (EX-AUTO) M/M: 0.7% V 1.0%E *(US) DOE CRUDE: -4.4M V +1ME; GASOLINE: -0.4M V -1ME; DISTILLATE: +3.5M V +0.5ME (US) Association of American Railroads weekly rail traffic report for week ending Sep 12th: 509.6K, +8.6% y/y SNOW IPO opens for trade at $245 (US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25%; AS EXPECTED; FED WILL MAINTAIN LOW RATES UNTIL JOB AND INFLATION GOALS MET; 13 OF 17 MEMBERS PROJECT NO RATE RISE THROUGH AT LEAST 2023 (US) New York Fed: plans to continue to increase SOMA holdings of Treasury securities by approximately $80B/mo and to increase SOMA holdings of agency MBS by $40B/mo *(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%, AS EXPECTED
THURS 9/17 *(EU) EURO ZONE AUG FINAL CPI Y/Y: -0.2% V -0.2%E; CPI CORE Y/Y: 0.4% V 0.4%E *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATE UNCHANGED AT 0.10%; AS EXPECTED; Discussed effectiveness of negative rates *(UK) BOE SEPT MINUTES: VOTED 9-0 TO LEAVE INTEREST RATES UNCHANGED AT 0.10% *(US) INITIAL JOBLESS CLAIMS: 860K V 850KE; CONTINUING CLAIMS: 12.63M v 13.00ME *(US) AUG HOUSING STARTS: 1.416M V 1.483ME; BUILDING PERMITS: 1.470M V 1.512ME *(US) SEPT PHILADELPHIA FED BUSINESS OUTLOOK:15.0 V 15.0E
FRI 9/18 *(UK) AUG RETAIL SALES (EX-AUTO/FUEL) M/M: 0.6% V 0.4%E; Y/Y: 4.3% V 4.2%E (US) Commerce Dept officials: confirm Americans will not be able to download WeChat or TikTok apps by Monday; US to ensure WeChat Pay will not be available in the US; WeChat ban prohibits replicating code in a new app; TikTok app will be removed from US app stores on Sunday (US) SEPT PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 78.9 V 75.0E (US) AUG LEADING INDEX: 1.2% V 1.3%E MRNACurrently anticipates production of coronavirus vaccine mRNA-1273 will be 20M doses by end of 2020, anticipates total production of mRNA-1273 will be 0.5-1.0B doses during 2021