Weekly Market Update: Markets unfazed by US election drama
As advertised it was a wild week of trade around the US election as stock markets looked to bounce back from last week’s drubbing. Equity futures swung violently into the early morning hours on Wednesday before global risk-on flows gathered momentum ahead of the US open. Votes were still being tallied across key battleground states, but relatively quickly markets appeared to embrace a narrative that the Senate would likely stay in the hands of the Republicans by a narrow margin, and VP Biden was getting enough late support to overtake President Trump’s leads in key swing states to eventually win the Electoral College. US stock markets surged Wednesday and Thursday and the VIX index plunged after running up to 40 last week. After spiking on election eve, Treasury yields dropped aggressively, perhaps on the notion that a large, sweeping fiscal stimulus package will be more difficult to attain given the expected congressional composition. Vote counting continued into Friday and with two run-off Georgia Senate elections not slated until January, and Trump’s apparent desire to mount various legal challenges contesting the election results, it may be some time before the US political landscape is confirmed.
Outside of election headlines, the pandemic continued with Covid case counts rising to new daily records in the US and EU, with many European nations taking additional lockdown measures to fight the virus spread. Third quarter earnings reports continued to come in generally much stronger than analysts had expected. US economic data was also encouraging with the October ISM data hitting its highest level in more than two years, while the October jobs report revealed sharp declines in both the unemployment and underemployment rates. The BOE met and delivered more stimulus as promised ahead an FOMC press conference where Chairman Powell looked to reassure markets by noting Fed officials discussed various ways they could offer additional stimulus going forward should things deteriorate. Gold prices slipped, bitcoin surged to two year highs above $15K, and the US dollar fell to a two month low. For the week, the S&P rebounded 7.3%, the DJIA gained 6.9%, and the Nasdaq surged 9%.
In corporate news this week, GM reported Q3 EPS that blew away estimates amid a 15% EBIT margin and robust truck sales. Qualcomm shares lifted after it beat on the top and bottom line, guiding FY21 handsets significantly higher year-over-year. PayPal earnings came in above consensus while its account and total payment volume growth hit multi-year highs. Costco notched 14% same store sales growth in October as the pandemic continued to boost in-person and online shopping. China halted Ant Group’s planned $34B stock debut in Shanghai and Hong Kong, citing the need to maintain regulation in the fintech industry, and the IPO could face a six-month delay. Inspire Brands confirmed it would enter merger agreement to acquire Dunkin’ Brands for $11.3B in cash, adding the coffee chain to its roster of other casual eateries. In the California election, the Uber- and Lyft-backed Proposition 22 passed easily, allowing drivers to remain as independent contractors and boosting the shares of the ride-share leaders. Other US states granted various degrees of legalization to cannabis sales, leading to a rally in the pot-related stocks.
SUN 11/1 (HK) Macau Oct Casino Rev (MOP): 7.3B v 2.2B prior; Y/Y: -72.5% v -90.0% prior
MON 11/2 *(IT) ITALY OCT MANUFACTURING PMI: 53.8 V 53.7E (4th month of expansion and highest since Mar 2018) (DE) German Chancellor Merkel: Facing a difficult winter with an aggressive virus; will likely have to limit contacts between people in private for ALL winter months; Light at the end of the tunnel is very far away *(US) OCT ISM MANUFACTURING: 59.3 V 56.0E (highest since Aug 2018); PRICES PAID: 65.5 V 61.5E (US) Treasury quarterly financing estimates: to borrow $617B in Oct-Dec quarter v $550-600Be (prior estimate to borrow $1.216B) (AU) RESERVE BANK OF AUSTRALIA (RBA) CUTS CASH RATE TARGET BY 15BPS TO 0.10%; LOWERS 3-YEAR YIELD TARGET BY 15BPS TO 0.10%; BOTH AS EXPECTED; Announces new A$100B bond buying program of 5 and 10 year maturities 992.HK Reports Q2 Net $310M v $202.2M y/y, Op $565M v $441.7M y/y Rev $14.5B v $13.5B y/y
TUES 11/3 6688.HK Shanghai Stock Exchange reportedly suspends Ant Group's IPO - press (update) (IN) India RBI said to explore increasing Gold and dollar buying in order to further diversify FX reserve investments - press 6688.HK Hong Kong IPO of Ant Group has also been suspended (SA) Saudi Arabia and others in OPEC reportedly considering deeper cuts amid oil turmoil; further cuts among several possibilities being considered - press LPX Overall, expect Q4 to look a lot like Q3 - earnings call comments
WEDS 11/4 *(FR) FRANCE OCT FINAL PMI SERVICES: 46.5 V 46.5E (confirms 2nd straight contraction) *(DE) GERMANY OCT FINAL PMI SERVICES: 49.5 V 48.9E (confirms 1st contraction in 4 months) *(EU) EURO ZONE OCT FINAL PMI SERVICES: 46.9 V 46.2E (confirms 2nd straight contraction) *(UK) OCT FINAL PMI SERVICES: 51.4 V 52.3E (confirms 4th month of expansion) *(US) OCT ADP EMPLOYMENT CHANGE: +365K V +650KE; Significant slowdown in Manufacturing gains *(US) OCT FINAL MARKIT PMI SERVICES: 56.9 V 56.0E *(US) OCT ISM SERVICES INDEX: 56.6 V 57.5E *(US) DOE CRUDE: -8.0M V +1ME; GASOLINE: +1.5M V -1ME; DISTILLATE: -1.6M V -2.5ME (US) Trump campaign manager Stepien: plan to immediately request a recount in Wisconsin; irregularities have been reported in several counties in that state (US) Trump campaign files suit in Michigan to halt counting of ballots - press (US) Trump campaign to file two legal challenges in PA around poll observers and voter ID rules COST Reports Oct SSS +14.4% v +11.6%e
THURS 11/5 MT.NL Reports Q3 Net -$0.3B v -$0.5B y/y, EBITDA $901M v $1.06B y/y, Rev $13.3B v $16.6B y/y *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.10%; AS EXPECTED *(UK) BOE RAISES TOTAL ASSET PURCHASE PROGRAM (APT) BY £150B TO £895B; NOT EXPECTED; indicates ready to increase QE again if functioning worsens AZN.UK Reports Q3 Core EPS $0.94 v $1.00e, Rev $6.58B v $6.65Be (UK) BOE Gov Bailey: Believed there is value in acting quickly and strongly to support the economy with asset purchases -post rate decision press conference GILD Remdesivir shows superior to placebo in shortening time to recovery in adults hospitalized with COVID-19 - New England Journal of Medicine FAST Reports Oct net sales $488.2M -3.9% y/y GM Reports Q3 $2.83 v $1.47e, Rev $35.5B v $38.0Be *(US) Q3 PRELIMINARY NONFARM PRODUCTIVITY: 4.9% V 5.6%E; UNIT LABOR COSTS: -8.9% V -11.0%E (US) Pres Trump tweets: "STOP THE COUNT!...ANY VOTE THAT CAME IN AFTER ELECTION DAY WILL NOT BE COUNTED!" (US) Pres Trump tweets: will challenge election results in 'Biden claimed states', alleging voter fraud and election fraud (US) Second Georgia Senate race now likely to go to runoff as Sen Perdue falls below 50% threshold *(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25%; AS EXPECTED; REMAINS COMMITTED TO USING FULL RANGE OF TOOLS TO SUPPORT ECONOMY; TO CONTINUE BOND BUYING AT LEAST AT CURRENT PACE 7203.JP Reports H1 Net ¥629.4B v ¥1.3T y/y; Op ¥520B v ¥1.4T y/y; Rev ¥11.4T v ¥15.3T y/y; Raises Dividend to ¥105/shr v ¥100/shr prior
FRI (US) Presidential candidate Joe Biden said to now have the lead in Georgia vote count by almost 1,000 - financial press *(US) OCT UNEMPLOYMENT RATE: 6.9% V 7.6%E *(US) OCT AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.2%E; Y/Y: 4.5% V 4.5%E; AVERAGE WEEKLY HOURS: 34.8 V 34.7E (US) Joe Biden takes lead in Pennsylvania by 5,587 votes; NBC declares Joe Biden 'President Elect' (US) SEPT FINAL WHOLESALE INVENTORIES M/M: 0.4% V -0.1%E (US) SEPT CONSUMER CREDIT: $16.2B V $7.8BE (US) Trump campaign spokesperson: This election is not over; We've said all legal ballots must be counted and all illegal ballots must not be counted; We'll pursue this process through every aspect of the law