Weekly Market Update: Hope still alive for stimulus and Brexit deals
Stock markets forged higher this week despite a rising second wave of coronavirus infections globally. President Trump’s condition appeared to improve dramatically thanks to, in his opinion, a promising new antibody treatment which he described as a “cure.” Trump is set to resume attending campaign events next week. The drama in DC was not just confined to intrigue surrounding Trump’s Covid diagnosis but also the fate of a second fiscal stimulus package. Sentiment seesawed following a series of tweets from the President who called off the talks on Tuesday, only to do a complete reversal by Friday calling on negotiators to go big and find a much larger aid package than either side of Congress is currently offering. Regardless of the mixed signals coming out of Washington, markets and investors alike appear to holding out hope some sort of aid deal can be reached in the neighborhood of a $2T package.
Brexit talks continued but progress remained extremely limited ahead of next week’s UK-imposed EU summit deadline. Both sides agreed to intensify talks yet again, but the fisheries issue remains a key stumbling block. EU and French PMI services data fell back into contraction territory for the first time in several months while US weekly jobless claims remained elevated above 800K. The squishy data was reflected in a deluge of dovish remarks from central bank speakers. For example, Fed Chairman Powell reiterated that the FOMC was nowhere near worrying about overdoing it on the stimulus side given the current outlook. Treasury yields still managed to drift higher, helped in large part by another historic dose of coupon supply. The Greenback lost ground late in the week and WTI crude futures recouped a good portion of the recent weakness seen coming into the week. For the week, the S&P gained 3.8%, the DJIA rose 3.3%, and the Nasdaq added 4.6%.
In corporate news this week, Domino’s saw sales jump but pandemic-related costs crimp profits, sending shares lower. Levi’s blew away estimates and guided above consensus as its online sales surged. Morgan Stanley announced it would acquire investment manager Eaton Vance for $56.50/share in a $7B deal as the banking giant moves to buy up another fee-based business, following its E-Trade acquisition earlier this year. Bristol Myers Squibb agreed to pay $225.00/share in cash for Myokardia, in a deal valued at $13.1B, in order to acquire its pipeline of cardiovascular drugs. AMD reportedly is in late-stage talks to acquire Xilinx for over $30B, a deal that would be only the latest M&A in a rapidly consolidating sector. On the energy front, Fuelcell disclosed an $8M award from the Department of Energy to advance the commercialization of its solid oxide electrolysis high efficiency hydrogen generation technology.
MON 10/5 AIR.FR COO: Outlook for the aviation industry deteriorated again; expects at least 15,000 job cuts - press CINE.UK Confirms to suspend operations at 536 theaters in US and 127 theaters in UK from Thursday, Oct 8th *(FR) FRANCE SEPT FINAL SERVICES PMI: 47.5 V 47.5E (confirms 1st contraction in 4 months and lowest reading since May 2020) *(DE) GERMANY SEPT FINAL SERVICES PMI: 50.6 V 49.1E (3rd month of expansion but lowest since June 2020) *(EU) EURO ZONE SEPT FINAL SERVICES PMI: 48.0 V 47.6E (confirms 1st contraction in 3 months) *(UK) SEPT FINAL SERVICES PMI: 56.1 V 55.1E (confirms 3rd month of expansion) MYOK Confirms to be acquired by Bristol Myers Squibb for $225.00/shr in cash valued at $13.1B *(US) SEPT FINAL MARKIT SERVICES PMI: 54.6 V 54.6E (US) Said that the US House Panel will propose a break up of the US tech giants - press *(US) SEP ISM SERVICES INDEX: 57.8 V 56.2E
TUES 10/6 (EU) EU Commission to allow budget rules to remain suspended in 2021 - financial press (NO) Norway Central Bank (Norges) Gov Olsen: Reiterates stance that willing to contemplate negative interest rates if financial markets are hit by a renewed wave of turmoil (EU) ECB chief Lagarde: Reiterates stance that recovery is bumpy and uneven; prepared to add more monetary support, including cutting a key rate further below zero - CEO Summit comments (US) Fed's Bullard (non-voter): Does not expect Fed to change policy stance through 2021; US Q3 GDP growth of 30% likely *(US) PRESIDENT TRUMP: I HAVE DIRECTED REPUBLICANS TO STOP NEGOTIATING ON FISCAL STIMULUS UNTIL AFTER THE ELECTION (US) House Antitrust Subcommittee Democratic report seeks break-up of giant internet platforms; calls for sweeping antitrust reforms for big tech (US) Fed's Mester (FOMC voter): disappointed that fiscal talks have been halted; timing of fiscal stimulus is less important than approving a package; recovery will continue but it will be slower - CNBC interview
WEDS 10/7 (UK) UK intends to leave Brexit trade talks if there's no deal seen by Oct 15th, according to source familiar with UK Brexit position - press *(US) DOE CRUDE: +0.5M V -1ME; GASOLINE: -1.4M V -1ME; DISTILLATE: -1.0M V -1ME (US) Association of American Railroads weekly rail traffic report for week ending Oct 3rd: 518.8K, +0.8% y/y *(US) AUG CONSUMER CREDIT: -$7.2B v +$14.0Be C Fed announces enforcement action against Citigroup that requires the firm to correct several longstanding deficiencies; cease and desist order requires Citigroup to enhance its firm-wide risk management and internal controls (US) Pres Trump tweets recorded video message: says Regeneron antibody drug was 'the key' to feeling good again; mentions similar Lilly treatment being developed; wants Regeneron and Lilly drugs to be available free to Americans 005930.KR Reports Q3 prelim (KRW) Op 12.3T v 10.5Te, Rev 66.0T v 64.1Te (62.0T y/y)
THURS 10/8 066570.KR Reports Q3 prelim (KRW) Op 959.0B v 781.1B y/y, Rev 16.9T v 15.7T y/y IBM To spin-off Managed Infrastructure Services Unit; Guides Q3 adj $2.58 v $2.55e, Rev $17.6B v $17.6B v $17.6Be (DE) German Bundesrat (upper house) approves tax raise on greenhouse emission - press (US) President Trump: feeling perfect; he will not participate in virtual debate against Biden following earlier Commission recommendation - Fox News interview *(US) INITIAL JOBLESS CLAIMS: 840K V 820KE; CONTINUING CLAIMS: 10.98M V 11.40ME (CN) Pres Trump: I plan to use tariffs on China in a second term - Fox Business interview (US) Treasury Sec Mnuchin reportedly floated the idea of restarting stimulus talks with Speaker Pelosi - Politico (CN) SEC Chair Clayton: Directed staff to actively consider Trump's working group recommendations to strengthen protections for investors from EM risks, including investments in US-listed Chinese firms (US) House Speaker Pelosi: there is no standalone airline bill without a bigger aid plan *(US) TREASURY $23B 30-YEAR BOND REOPENING DRAWS 1.578%; BID TO COVER 2.29 V 2.31 PRIOR (US) Pres Trump reportedly indicated he was worried by stock market reaction to his tweet calling off coronavirus relief talks; told House Min Leader McCarthy that he wanted a "big deal" with Speaker Nancy Pelosi - Axios XLNX Speculated that co. is in advanced talks to be acquired by AMD, the deal could be worth over $30.0B [vs Xilinix's closing market cap of ~$25.9B] - US financial press
FRI 10/9 *(UK) AUG MONTHLY GDP M/M: 2.1% V 4.6%E FCEL Discloses $8M DoE award to advance the demonstration and commercialization of FuelCell Energy’s solid oxide electrolysis high efficiency hydrogen generation technology (US) Aug Final Wholesale Inventories M/M: 0.4% v 0.5%e