Good morning. Happy Friday.
The Asian/Pacific markets closed mostly down. New Zealand did well, but Hong Kong, South Korea, India, Indonesia, Singapore, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently very weak. The UK, France, Turkey, Germany, the UAE, Russia, Greece, Finland, Norway, Hungary, Singapore, the Netherlands, Italy, Portugal, Israel, Austria and the Czech Republic are all suffering stiff losses. Futures in the States point towards a moderate gap down open for the cash market.
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The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Loon goes pop
Alphabet (GOOG, GOOGL) is pulling the pin on Project Loon, a decade-old venture that planned to beam internet to Earth via giant balloons. While it struggled to get off the ground, the experimental business saw some successes over the years, like helping restore cell service in Puerto Rico following Hurricane Maria and getting tens of thousands of Peruvians back online after heavy flooding in 2017. Loon even launched a pilot service in Kenya last summer, sending 4G LTE signals down to an area of 30,000 square miles.
What happened? The price tag was too high. The project “was just too expensive for everyday people,” and Loon couldn’t “get costs low enough to build a long-term, sustainable business.”
Bigger picture: Loon was born out of X – Alphabet’s moonshot factory for experimental projects – but was spun out into a separate company in July 2018. Experimental projects from X are accounted for under Alphabet’s “Other Bets” division, which generated revenues of $178M last quarter, but recorded an operating loss of $1.1B. In contrast, Google – which provides nearly all of Alphabet’s profits – earned $12.6B in operating income on revenue of $46B.
Race for global internet coverage: Facebook (FB) also abandoned plans for Aquila in 2018, which aimed to deliver service via solar-powered drones, prompting companies to increasingly look to space to blanket the globe in connectivity. While those projects face steeper initial costs and take longer to deploy, they might provide more consistency with longer lifetimes. Amazon’s (AMZN) Project Kuiper and Facebook’s Athena are still mostly on paper, though SpaceX (SPACE) has launched nearly 1,000 internet satellites of its planned Starlink (STRLK) fleet into low Earth orbit.
Legacy tech giants
Investors were not impressed with the latest quarterly results from IBM (IBM) and Intel (INTC), as the two heavyweight stocks tumbled nearly 7% and 5%, respectively, after the bell on Thursday. Intel initially gained on a premature release of its earnings, but slumped after the company’s new CEO committed to in-house manufacturing. IBM meanwhile signaled its cloud bet will take longer to pay off and posted its fourth straight quarter of revenue declines.
Why did Intel publish results early? “We are investigating reports that non-authorized access may have been obtained to one graphic in our earnings material,” a spokesperson declared. “Earlier today, once we became aware of these reports, we made the decision to issue our earnings announcement a brief time before the originally scheduled release time.”
Outlook for Intel: The company has been grappling with the loss of leadership in producing ultrafast chips, ceding much of its market share to Taiwan Semiconductor Manufacturing ([[TSM]]) and Samsung Electronics (OTC:SSNLF), whose factory innovations allow computer chips to do more at a lower cost. Incoming chief executive Pat Gelsinger said yesterday that the “majority of our 2023 products will be manufactured internally,” countering growing calls from some investors to shed that part of its business. While Intel will “expand use of external foundries for certain technologies,” the company doubled down on retaking its position as the “unquestioned leader in process technology.”
Outlook for IBM: Challenges lay ahead for CEO Arvind Krishna, who took over during the pandemic, including how to revamp its business in the age of the cloud. Part of the steps Big Blue is taking involves spinning out its managed infrastructure services unit – a roughly $19B a year business – from IT infrastructure division GTS. IBM is focusing its investment on artificial intelligence and the hybrid cloud – betting that users will increasingly operate across multiple clouds, public and private.
Why is U.S. vaccine rollout taking longer than expected?
Nearly 38M vaccine doses were distributed to U.S. states as of Thursday, according to the CDC, but only about 17.5M have actually been administered. That means over half of the shipped vaccines are sitting on shelves across the country. Of the jabs given, 15M have been for a first dose, while only 2.5M Americans have been given a second round of Pfizer-BioNTech (PFE, BNTX) or Moderna’s (MRNA) inoculation.
What’s holding up the rollout? “We are working closely with Gen. Gustave Perna (head of logistics in Operation Warp Speed), with the manufacturers, with the states to understand exactly where the supply is,” Dr. Rochelle Walensky, the new director of the CDC, told NBC. At least 12 states have reported vaccine shortages, and officials from San Francisco and New York warned that they could be completely out of doses this week. She also said President Biden would also invoke the Defense Production Act if there were supplies that were needed in vaccine production, distribution or administration.
Quote: “We need to make sure we titrate the amount of vaccine that we have, for the people that are eligible (even expand eligibility), so we don’t have vaccines on the shelves,” added Walensky. “We also need to make sure there are enough vaccinators out there, including the Commissioned Health Corps, medical military, retirees, dentists, veterinarians, and medical and nursing students that are about to graduate. The CDC is also looking at increasing the sites where people can get vaccinated, including community vaccination centers, stadiums, gyms, mobile units, federally qualified healthcare centers and pharmacies.”
Thought bubble: Additional FDA-approved jabs can help boost supply at a time when COVID deaths across the U.S. are forecast to pass the half a million milestone by the end of February. Johnson & Johnson (JNJ) will soon send over safety and efficacy data of its Phase 3 trials, which appeared to generate a promising antibody response in earlier assessments. Health officials have high hopes for the one-shot regimen, which simplifies the process of getting it out to the public.
What it means for markets: Wall Street is hedging against possible bumps in the U.S. vaccine rollout, according to Reuters, as the CBOE Volatility Index expiring in March and beyond trades well above the index’s current levels. Uncertainty over the rollout has also seen the VIX hover above its long-term average near 20, even as the Dow Jones, S&P 500, Nasdaq and Russell 2000 rally to record highs.
Bitcoin under $30K
Bitcoin (BTC-USD) is set to notch its sharpest weekly drop since September, after slipping as much as 9% to under $30,000 in the Asia session. It was only two weeks ago that the crypto hit $42,000, but it’s now down 30% from that record high. Be on the lookout for more outsized moves, as the crypto trade never sleeps – not even nights or weekends.
What happened? Frothy rallies are always reasons for a pullback – especially for an asset that’s 700% above its 2020 lows – as well as increasing calls for regulation. At a U.S. Senate hearing this week, Janet Yellen expressed concerns that cryptos could be used to finance illegal activities, while ECB President Christine Lagarde called for global regulation of Bitcoin. There was also a report of so-called Bitcoin “double-spend,” where the same token is used by the same person in two transactions, though it turned out to be bogus.
Quote: “You wouldn’t want to rationalize too much into a market that’s as inefficient and immature as Bitcoin, but certainly there’s a reversal in momentum,” said Kyle Rodda, analyst at IG Markets. “The herd has probably looked at this and thought it sounded scary and shocking and it’s now the time to sell.”
Go deeper: In a fresh research report, analysts from JPMorgan said Bitcoin is not a hedge against market crashes. In fact, as traders use cryptocurrencies to make even more money, it would mean that it’s even more correlated with the rest of the market. Other news? UBS announced cryptos “may never be able to work as actual currencies,” given the “fundamental flaw” that supply can’t be reduced in most cases when demand is slumping.
What else is happening…
ECB sticks to its very accommodative monetary policy stance.
Facebook (NASDAQ:FB) refers Trump account suspension to oversight board.
Google threatens to pull its search engine from Australia.
Ford (NYSE:F) to recall 3M vehicles due to potential air bag issues.
Tokyo Olympics in limbo may be cancelled because of coronavirus.
Today’s Economic Calendar
9:45 PMI Composite Flash
10:00 Existing Home Sales
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Baker-Hughes Rig Count
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. Japan, China, South Korea, Taiwan and Australia did well. Europe, Africa and the Middle East currently lean down. Poland, the UAE, Russia, Portugal, Israel and the Czech Republic are weakest. Futures in the States point towards a positive open for the cash market.
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The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Response to the pandemic
On his first full day in office, President Biden will announce a dozen executive orders to combat the coronavirus pandemic and invoke the Defense Production Act to make supplies. Those include N95 masks, lab equipment, isolation gowns, gloves, swabs, syringes, raw materials used in vaccines and other items needed to quickly get shots in arms. A million a day… Biden has already set a goal of getting 100M Americans vaccinated within the first 100 days of his administration.
Stocks that could be affected by the DPA order include 3M (NYSE:MMM), Honeywell (NYSE:HON), Alpha Pro Tech (NYSEMKT:APT), Owens & Minor (NYSE:OMI), Eastman Kodak (NYSE:KODK), MSA Safety (NYSE:MSA), DuPont (NYSE:DD), Becton, Dickinson (NYSE:BDX) and Cardinal Health (NYSE:CAH).
The full strategy is centered around seven goals: 1) Restoring trust with the American people; 2) Mounting a safe and effective vaccination campaign; 3) Expanding masking, testing, data and treatments; 4) Expanding emergency relief and exercising the Defense Production Act; 5) Safely reopening schools, businesses and travel while protecting workers; 6) Protecting those most at risk and advancing equity; 7) Restoring U.S. leadership globally and building better preparedness for future threats.
Quote: “The National Strategy provides a roadmap to guide America out of the worst public health crisis in a century. America has always risen to the challenge we face and we will do so now.”
Other executive actions: Increasing federal reimbursement to states and tribes from 75% to 100% of the cost for National Guard personnel and emergency supplies. Another executive order will create a Pandemic Testing Board, which will aim to increase testing capacity, expand the public health workforce, support COVID-19 screening in schools and collect data on reopenings, while a further action will direct studies to identify COVID-19 treatments, especially antivirals like Gilead’s (NASDAQ:GILD) remdesivir. Biden also plans to require masks on public transportation and negative COVID-19 tests for anyone entering the country from overseas.
Amazon offers to help in vaccine effort
Among one of the biggest challenges of the national vaccine rollout is completing the “last mile.” Distribution efforts in the U.S. have also been complicated by fractured access to vaccine signups and eligibility, only to see appointments canceled and shortages. Looking to help out in the fight against COVID-19, Amazon (AMZN) has reached out to the newly installed Biden administration about prioritizing its essential workers and even has a third-party health provider in place to administer vaccines at its facilities.
Quote: “As the nation’s second largest employer, Amazon has over 800,000 employees in the United States, most of whom are essential workers who cannot work from home,” wrote Dave Clark, Amazon’s worldwide consumer CEO. “We are prepared to move quickly once vaccines are available…. leveraging our operations, information technology, communications capabilities and experts to assist your administration’s vaccine efforts.”
Why is Amazon reaching out now? The company also advocated for its essential workers in December, when Clark penned a letter to the CDC about access to the vaccine “at the earliest appropriate time.” Others sent similar requests, including Uber (UBER) for its drivers, and the National Retail Federation for the retail industry. Don’t forget about Amazon’s relationship with the previous administration, which was strained by former President Trump’s grudge against Jeff Bezos.
Outlook: While Operation Warp Speed under the Trump administration helped fund a coronavirus vaccine in record time, states have complained about inadequate supply and the distribution process has been mired in turmoil. President Biden is attempting to counter that by ramping up the federal government’s involvement in the vaccination process, using the National Guard and FEMA to distribute doses, though time will tell if those efforts will bear fruit.
What happened to fears of regulation and taxes?
U.S. stock index futures are pointing to another positive open this morning after the major averages ended the session higher on Wednesday following Joe Biden’s inauguration in Washington. Shares were buoyed by hopes of his mega stimulus plan, all but forgetting the once prominent fears of regulation and corporate taxes that followed his election in November.
What happened? Treasury Secretary nominee Janet Yellen said this week that Biden’s current focus is relief for American families hit by the coronavirus pandemic, not raising taxes, and it could be quite some time before that discussion resurfaces. U.S. business leaders have also backed the new president, signaling open dialogue will ensue that can shape policy, while Corporate America has been increasingly embracing different economic models.
Examples: Automakers that had fought against tighter fuel economy standards for decades had a change of heart in 2019, when Ford (F), Volkswagen (OTCPK:VWAGY), Honda (HMC), and BMW (OTCPK:BAMXF) struck a surprise deal with California that would raise the fuel economy of their fleets to the state’s standards rather than the Fed’s. Similar backlash was seen with methane rules and energy efficiency deregulation. Social media has further welcomed some stronger regulation of the Internet and has gone through great lengths in recent weeks to police its platforms.
Thought bubble: Going along with social trends generates big publicity for companies and shareholder value in the long term – think Nike (NKE) and Colin Kaepernick. An attractive image not only appeals to investors, but employees and the public as a whole, and firms that have invested significant resources in complying with existing requirements continue to reap benefits. Big companies can afford it, while small businesses and startups cannot, and societal shifts are on their side.
BlackRock’s entrance to the Bitcoin market
The world’s largest asset manager is adding Bitcoin futures as an eligible investment to two of its funds – the Blackrock Funds V and Blackrock Global Allocation Fund (MDLOX). The decison marks the first time the money manager, which oversees $8.7T, is offering clients exposure to cryptocurrency and the latest instance of a major financial institution dipping its toes into cryptocurrencies.
Flashback: In a 2018 interview, BlackRock (BLK) CEO Larry Fink called Bitcoin (BTC-USD) an “index of money laundering,” but has since changed his tune. A year earlier, JPMorgan (JPM) CEO Jamie Dimon called bitcoin a “fraud” and threatened to fire any bank employee dealing with it, but leading analysts at the bank recently suggested Bitcoin could rise to $146K if it were to match gold in terms of market capitalization.
The regulatory filings are not a guarantee that BlackRock will add bitcoin futures to the new funds, but it’s certainly more evidence for the institutionalization thesis. Traders have seen the recent moves as a theme for the recent bull market, along with other factors like easy money policies, inflation fears, availability and momentum.
Go deeper: Fink recently said it’s possible for “cryptocurrencies in general and Bitcoin specifically” to “evolve” into a global market asset, while Blackrock recently posted a job opening for VP of Blockchain in New York.
What else is happening…
United Airlines (NASDAQ:UAL) posts major quarterly loss, sees 2021 as transition year.
Morgan Stanley (NYSE:MS) ups targets after blowout trading quarter.
Will the Keystone (NYSE:TRP) cancellation end U.S. interstate oil pipelines?
Elderly begin to drop out of Novavax (NASDAQ:NVAX) vaccine trial.
Guggenheim’s Minerd sees Bitcoin (BTC-USD) going back to $20,000.
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Housing Starts
8:30 Philly Fed Business Outlook
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday.
The Asian/Pacific markets closed mostly up. China, Hong Kong, South Korea, India and Indonesia led while Japan, the Philippines and Thailand were weak. Europe, Africa and the Middle East currently lean up. Germany, the UAE, Russia, South Africa, Finland, Sweden, the Netherlands and Switzerland are doing well. Futures in the States point towards a moderate gap up open for the cash market.
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Online Course: Jason Leavitt’s Masterclass in Trading
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The dollar is up. Oil is up; copper is down. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Sizing up stocks on Inauguration Day
Last minute preparations are underway in heavily fortified D.C., where Joe Biden will be sworn in as the 46th President of the United States. His inauguration speech will focus on the need to bring the country together following the storming of the US Capitol and extreme partisanship in both chambers of Congress. Some significant executive orders are already anticipated, as well as policy changes to combat the coronavirus pandemic.
Be on the lookout for further information on his $1.9T stimulus plan. On Tuesday, Treasury Secretary nominee Janet Yellen endorsed higher aid spending, urging lawmakers to “act big” and to look at the feasibility of issuing longer-term debt, including a 50-year bond. The funding would expand the current vaccine rollout, improve testing and treatment, and provide more economic aid to Americans, though many Republicans have grown alarmed over the price tag of the bill.
Details may also be revealed on ways to combat climate change as Biden rejoins the Paris climate accord. Clean energy and infrastructure are big priorities for the incoming administration and investors will be eyeing what policies may prompt changes to their portfolios. Those include electric vehicles, battery storage, chips used in clean energy, hydrogen fuel cells and upgrading buildings to make them more energy efficient.
Outlook: A new administration’s first 100 days are typically analyzed for signs of a president’s governing style and priorities. Even though Democrats control Congress, it’s not an overpowering majority and Biden will likely tread carefully with Republicans with an eye on the 2022 midterm elections. Biden is also focused on immigration, where he’ll propose a shortened pathway to citizenship for the 11M undocumented migrants in the U.S, and is likely to continue with some hardline policies toward China.
What’s next for markets?
Traders are still trying to figure out how the market will perform in the coming months and years after the election of Joe Biden sparked outsized rallies in everything from cyclical stocks to sustainable energy. That’s on top of a massive surge seen since the coronavirus-induced selloff in March 2020, which pushed the “retail bros” into the market and was later fueled by vaccine optimism and gigantic stimulus. Stock futures are again in the green this morning, boosted by Netflix (NFLX), which soared 12% AH on strong subscriber growth and possible share buybacks (see more below).
The bulls: Goldman says the market is in the early stages of a bull phase following an “explosive” valuations-led rebound in equities that tends to mark the start of a new cycle. While the risk of a correction in stocks is increasing, the firm recommends using any dips to buy more shares. “You do have elevated valuations, no question about it, but value is comparatively cheap and we don’t think a 6% GDP growth rate this year is fully priced in,” added Ernesto Ramos of BMO Global Asset Management.
Middle ground: Bank of America cautioned that stocks are already trading as if the vaccine rollout and economic rebound will be smooth over the spring and summer. Given the limiting further upside, the bank kept its year-end target for the S&P 500 at 3,800, flat with current levels.
The bears: Not many are taking this position for 2021, but see possible hazards in the years ahead. Vanguard estimates equities over the next decade will produce returns that are roughly half of what their historical average has been, while GMO and Research Affiliates are even more bearish. LPL Financial also thinks traders are not pricing in the risk of a potential double-dip recession in 2022. “Historically, the average recession has lasted about one year, which suggests perhaps more time may have been needed for the economy to properly reset.”
Some statistics: The S&P 500 has gained about 13% since Election Day 2020, marking the best post-election market performance for a new president in modern history, according to CFRA Research. Other performances? From Election Day to Election Day, the S&P 500 rose 57% under President Trump, and climbed 53% and then another 52% under President Obama.
Tale of two streaming giants
After nearly a decade of borrowing $15B to fund original content, Netflix (NASDAQ:NFLX) on Tuesday said it planned to be cash flow positive after 2021 and would no longer need to tap debt markets to fund its programming. Netflix also said it will consider share buybacks, a practice it hasn’t done since 2011, which was the last time the company was cash flow positive. The announcements came as part of Netflix’s earnings announcement, which saw shares surge 12% AH as the streamer surpassed 200M global subscribers for the first time (it topped 100M subs in 2017).
On the other side of the screen, Disney (NYSE:DIS) temporarily halted its dividend last year following calls from Dan Loeb to permanently end the $3B annual shareholder payment. The activist investor urged Disney to plunge that cash into original content, as it centers its operations around streaming, with plans to roll out dozens of Star Wars, Marvel and Pixar movies. Disney+ has gained an explosive 86M subscribers within a year and now expects 230M-260M on its flagship streaming service by 2024.
Comments: “It’s super impressive what Disney has done,” Netflix co-CEO and co-founder Reed Hastings said during yesterday’s earnings call. “It’s incredible execution for an incumbent to pivot to take on the insurgent. It shows members are willing and interested to pay for more content because they’re hungry for great stories. And Disney does have great stories.”
Go deeper: There are more earnings on the radar this morning, with results from Procter & Gamble (NYSE:PG) and UnitedHealth (NYSE:UNH), while Morgan Stanley (NYSE:MS), U.S. Bancorp (NYSE:USB) and Bank of New York Mellon (NYSE:BNY) continue the parade for banks.
Jack Ma resurfaces
Investors rushed to offload Alibaba (NYSE:BABA) shares back in October after China began an investigation into alleged antitrust practices at the e-commerce colossus. Local regulators also pulled the listing of Ant Group, set to be the world’s biggest IPO, in which Alibaba owns a one-third stake. The disappearance of company leader Jack Ma, one of the most powerful businessmen in the world, also didn’t help sentiment, especially after he found himself at odds with the Chinese government by criticizing state-owned banks.
While Ma hasn’t made any public appearances since Oct. 24, he addressed teachers last night in an online ceremony of the annual Rural Teacher Initiative. Wearing a navy pullover, Ma spoke from a room with grey walls, a large painting and floral arrangements. The 50-second video was enough to send shares in the e-commerce giant surging, with Alibaba up 8% in premarket trade.
Quote: “Jack Ma’s reappearance has given investors peace of mind after a lot of rumors, allowing them to pile into the stock which had been a laggard in the market,” said Steven Leung, sales director at brokerage UOB Kay Hian.
Go deeper: While Ma has stepped down from corporate positions and earnings calls at Alibaba, he retains significant influence over the company and promotes it at business and political events. The billionaire, who commands a cult-like reverence in China, also continues to mentor management talent in the “Alibaba Partnership,” a 35-member group of company managers.
Houston, we have a problem…
The first key test for NASA’s Space Launch System didn’t go as planned over the weekend and the space agency is now debating what to do. SLS, about 10 years in development and billions of dollars over budget, is crucial to plans to send people to the surface of the Moon by 2024 (Artemis program) and for NASA’s deep space ambitions and beyond. Many publicly traded companies are involved in SLS, including a booster built by Northrop Grumman (NYSE:NOC), RS-25 engines made by Aerojet Rocketdyne (NYSE:AJRD) and core/upper stages and avionics manufactured by Boeing (NYSE:BA). SLS also intends to carry astronauts inside an Orion capsule built by Lockheed Martin (NYSE:LMT).
What happened? Engines were supposed to remain ignited for eight minutes, but instead shut down after slightly more than a minute, and well short of the four minutes program officials had said would be the minimum time needed to stay on track for a first launch in November. Just before the rocket shut down, a mission controller said there was a major component failure with the fourth engine, but NASA is still looking into the root cause of the issue.
Quote: “We don’t know what we don’t know,” NASA administrator Jim Bridenstine said at a presser. “It’s not everything we hoped it would be.”
Outlook: The problem could be relatively easy to solve if it’s a component issue (meaning a possible SLS flight by the end of the year), but if it’s a bigger structural issue, it could be a potentially major setback to NASA’s deep space goals. Critics have long argued against the rocket’s shuttle-era core technologies – which have launch costs of $1B or more per mission – in favor of newer commercial alternatives like SpaceX’s (SPACE) Falcon Heavy and United Launch Alliance’s legacy Delta IV Heavy.
What else is happening…
A Biden presidency could make these stocks attractive – Kiplinger.
Court strikes down Trump EPA rollback on power plant restrictions.
Microsoft (NASDAQ:MSFT) teams with GM’s Cruise on autonomous vehicles.
J.P. Morgan fights ‘FANG fatigue’ with rested internet picks.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:55 Redbook Chain Store Sales
10:00 NAHB Housing Market Index
1:00 PM Results of $24B, 20-Year Bond Auction
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Good morning. Happy Tuesday.
The Asian/Pacific markets closed mostly up. Japan, Hong Kong, South Korea, India, Taiwan and Australia did great. China and Indonesia were weak. Europe, Africa and the Middle East currently lean up. Denmark, Taiwan, the UAE, Greece, Norway and Austria are leading; Poland is weak. Futures in the States point towards a moderate gap up open for the cash market.
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Online Course: Mini Masterclass in Trading
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The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Spotlight on spending at Yellen confirmation hearing
President-elect Joe Biden’s pick for Treasury Secretary, Janet Yellen, is set to testify today before the Senate Finance Committee, which is considering her nomination as key member of the cabinet. She’s set to call for “big” action on the COVID-19 pandemic after Biden unveiled a $1.9T economic stimulus plan last week. Yellen served as top White House economist in the 1990s and Fed Chairwoman in the 2010s, meaning a confirmation would make her the first person to achieve such a trifecta of economic leadership roles.
Quote: “Economists don’t always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later. Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job,” Yellen will say in her testimony. “Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
Bigger picture: Stock index futures are pointing to gains as traders mull the stimulus plans: Dow +0.6%; S&P 500 +0.8%; Nasdaq +1%. While Yellen is also expected to affirm America’s commitment to market-determined exchange rates on Capitol Hill, concerns are surfacing over the national debt, which is currently at its highest level relative to the American economy since the end of WWII. At 100.1% of GDP, the debt already exceeds the annual output of the economy, putting the U.S. in company with economies like Greece, Italy, France and Japan.
Outlook: Yellen’s approach to financial regulation and protecting the economy against systemic risks is also likely to differ from her predecessor’s. Two years ago, Yellen co-signed a letter urging Treasury Secretary Steven Mnuchin not to move forward with plans to relax oversight of big financial firms, and last year, she called for a “new Dodd-Frank.” Along with the Biden administration, Yellen has emphasized the need to create “equitable growth” and could use the tools of the Treasury Department to combat climate change and rebuild regulatory institutions like the Financial Stability Oversight Council.
Go Deeper: Goldman boosts U.S. economic outlook on $1.9T stimulus proposal.
Keystone goes green to woo Biden
On his first day in office, President-elect Joe Biden is planning to cancel the controversial $8B Keystone XL Pipeline, which restarted work in 2019 under the Trump administration. Environmentalists, Native American groups and farmers have fought the pipeline led by TC Energy (NYSE:TRP) for more than a decade, who fear that it might one day leak into rivers or aquifers or desecrate sacred sites. The project would carry oil nearly 1,200 miles from the Canadian province of Alberta down to Nebraska, to join an existing pipeline.
In a bid to save the project, TC Energy is committing to spend $1.7B on solar, wind and battery power to operate the partially completed system. Generating 1.6 gigawatts of power would rival the country’s biggest corporate renewables purchases by companies like Amazon (NASDAQ:AMZN) and Google (GOOG, GOOGL) that have become common in recent years. TC Energy is also pledging to hire a union workforce and eliminate all greenhouse-gas emissions from operations by 2030.
Thought bubble: TC Energy’s latest maneuvering reflects new realities at a time when Democrats are taking commanding positions in Washington. During his campaign, Biden joined with progressives calling for a transition away from oil to address climate change, in an era of growing environmental activism and social concerns. Other pipelines and mega projects for oil, natural gas and minerals have also started dying under pressure from financiers and environmentalists.
Bigger picture: Canceling the project would threaten Canadian jobs and the U.S.-Canadian relationship as Prime Minister Justin Trudeau tries to turn the page on trade protectionism seen during the Trump era. The news also prompted Alberta Premier Jason Kenney to urge Canadian Prime Minister Justin Trudeau to reach out to the incoming Biden administration in the next 48 hours. Shares of TC Energy are off nearly 5% in premarket trade as the drama unfolds.
Go Deeper: Total buys stake in world’s largest solar developer for $2.5B.
Only major economy to grow in 2020
Taking the data at face value, GDP numbers from China have confirmed what many analysts have been forecasting – the country will be the only major economy to have grown in 2020 despite dealing with the coronavirus pandemic. GDP growth expanded by 2.3% this past year vs. a significant contraction expected in the U.S. and elsewhere. While outside experts have long expressed skepticism over the veracity of the reports, many are weighing in on the new data, given the rate of China’s export boom and the tumultuous trade war between Washington and Beijing under the Trump administration.
“The Q4 number is remarkable,” said Haibin Zhu, chief China economist at JPMorgan. “If you look at Q4’s 6.5% – that’s even higher than the pre-pandemic growth path. From that perspective, China’s V-shape recovery is complete.” He still warned that a new COVID outbreak in Hebei Province could hurt the recovery of consumption and the service sector, as China reported more than 100 new coronavirus cases for the sixth consecutive day.
Consumer spending has been weak in the Chinese economy, with the latest figures showing year-on-year growth in retail sales slowed from 5% in November to 4.6% in December. Retail sales for 2020 were also 3.9% lower than the year before, according to official data. “Despite the latest dip in retail sales, we see plenty of upside to consumption as households run down the excess savings they accumulated last year,” added Julian Evans-Pritchard, senior China economist at consultancy Capital Economics.
Outlook: Several economists expect double-digit growth rates for China in the first quarter of 2021. Iris Pang, chief economist for Greater China at Dutch bank ING, forecasts the economy to grow by 12%, partly owing to a low base of comparison, and even projects a 7% total growth rate for 2021. According to a recent report from the Center for Economics and Business Research, China will even overtake the U.S. to become the world’s biggest economy by 2028, due to contrasting recoveries from the coronavirus pandemic.
Go Deeper: China risk to tech sector expected to fade.
Stella-what?
The merger between Fiat Chrysler Automobiles and Peugeot began trading today under the name Stellantis. Shares rose as much as 7.7% in Milan, where the ticker STLA replaced Fiat Chrysler’s symbol, while the stock also gained in Paris, where the company listed in place of Peugeot. The fourth-largest automaker in the world by volume will also trade on NYSE under ticker symbol “STLA,” instead of “FCAU.”
What kind of name is that? The automakers said it draws from the Latin word “stello,” meaning “to brighten with stars.” While that may be better suited for a space company, the Latin root reflects the combined companies’ French and Italian heritage.
The hopes: Brands housed under Stellantis include Peugeot, Citroën, DS, Opel, Vauxhall, Alfa Romeo, Fiat, Lancia, Maserati, Dodge, Jeep, Chrysler, RAM and Abarth. It’ll utilize Fiat’s Ram and Jeep divisions in North America, revitalized Peugeot and Citroen brands that have excelled in Europe, as well as greater resources to compete with electric carmakers that are reshaping the sector. The new entity expects to save $5.9B through combined platforms, increased purchasing power, supply-chain scale and other merger benefits.
Many challenges await: Neither company has much of a foothold in the luxury car business or China’s vast auto market. The prior merger of Fiat and Chrysler also did little to improve the fortunes of Alfa Romeo and Maserati, while PSA’s purchase of Opel only made the company more reliant on Europe. The splashy entrance for Stellantis also comes at a busy time for the automobile industry with GM (GM) making a huge electric vehicle push and Tesla (TSLA) forecast to deliver 1M vehicles in 2021.
Vaccine distribution
At the opening of the World Health Organization’s Executive Board meeting, Director-General Tedros Adhanom Ghebreyesus warned that current trends of vaccine distribution are pushing the world to the brink of a “catastrophic moral failure.” Not only is the “promise of equitable access at serious risk,” he added, but it is a “strategic and economic imperative” that would ultimately prolong the pandemic. He noted that 56 bilateral supply deals were signed over the past year, instead of distributing vaccines through the COVID-19 Vaccines Global Access Facility (COVAX).
What is COVAX? The program is part of a global scheme co-led by an international vaccine alliance called Gavi, the Coalition for Epidemic Preparedness Innovations, as well as the WHO. It was established to ensure equitable vaccine access for every country in the world, and aims to deliver 2B doses of safe, effective vaccines by the end of 2021. Only after each nation receives vaccine doses for 20% of its population would countries’ COVID risk profiles be considered in a subsequent phase of vaccine distribution.
Backdrop: Nations participating in COVAX are permitted to pursue bilateral contracts with vaccine manufacturers like Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA), though the WHO has urged an end to these deals. While some countries and companies speak the language of “equitable access,” they continue to prioritize bilateral agreements, thereby driving up prices and vaccine nationalism, according to Tedros. “This could delay COVAX deliveries and create exactly the scenario COVAX was designed to avoid, with hoarding, a chaotic market, an uncoordinated response and continued social and economic disruption.”
Quote: “More than 39M doses of vaccine have now been administered in at least 49 higher-income countries. Just 25 doses have been given in one lowest-income country. Not 25M; not 25K; just 25. It’s not right that younger, healthier adults in rich countries are vaccinated before health workers and older people in poorer countries.”
How to change the rules of the game? Tedros called on nations with bilateral contracts (and control of supply) to be transparent with COVAX, including contract volumes, pricing and delivery dates. He also called on vaccine producers to provide the WHO with full data for regulatory review in real time.
Thought bubble: Even if one were to convince wealthier nations to put aside their individual interests, other challenges remain. Most current vaccines need to be stored at extremely cold temperatures, so transportation and distribution in poorer countries are a hurdle, while storage is another big impediment and enough healthcare workers need to be on the ground to deploy the inoculations. One also doesn’t have to look too far for criticism of the WHO, which some fault with mishandling the pandemic, or assert the election of Tedros took place with Chinese behind-the-scenes support.
Outlook: Observers of the WHO board meeting (which lasts until next Tuesday) say it is one of the most important in the U.N. health agency’s more than 70-year history. On the agenda is reform of the agency, as well as its financing system, which could shape its role in global health well after the pandemic ends. The U.S., the largest donor to the WHO, announced its withdrawal last year, but President-elect Joe Biden has said he will rejoin the health body when he takes office.
Go Deeper: New York explores buying COVID-19 vaccine directly from Pfizer.
What else is happening…
To lockdown or not? The Swiss hold a referendum.
Facebook (NASDAQ:FB) bans weapon accessory ads, NRA goes bankrupt.
Intel (NASDAQ:INTC) has licenses to do business with Huawei revoked – Reuters.
Tesla (NASDAQ:TSLA) Model Y deliveries in China have officially begun.
New lockdowns prompt IEA to cut oil demand forecast.
Bumble (BMBL) formally files for IPO, sees strong online dating industry.
Today’s Economic Calendar
4:00 PM Treasury International Capital
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