Today’s Big Picture
Equities in Asia finished the day’s trading lower across the board, erasing a portion of the week’s gains even though all of the region’s market indices finished higher week over week. By mid-day trading, European equities were also lower across the board following January Flash PMI data that revealed the economic impact from renewed coronavirus lockdowns. U.S. futures point to a weak start to the trading day ahead and soon after the market opens investors will receive the U.S.-facing January Flash PMI data from IHS Markit. That data will likely set the tone for the day’s trading and raise further questions over the timing of President Biden’s economic and stimulus plans.
Data Download
Coronavirus
The UK’s famed largest music festival, Glastonbury Festival, which is typically held in late June, has been canceled for the second year in a row thanks to the pandemic. The event usually hosts over 200,000 guests and has seen performers such as Beyoncé and David Bowie. Organizers said the event will occur in 2022 at the earliest – yet another gut punch for music lovers around the world.
Let’s file these next two under stuff you just cannot make up. In north Wales, emergency services worked through the night on Thursday to save stocks of the Oxford/AstraZeneca (AZN) coronavirus vaccine from floodwaters. As if that wasn’t bad enough, a fire broke out at a Serum Institute of India plant that is under construction to help produce more coronavirus vaccine. We really are in the 53rd day of December 2020.
Johnson & Johnson (JNJ) announced that it has sufficient data from its late-stage trial to begin analysis soon. According to Dr. Anthony Fauci, if the vaccine gets approved, with the earliest estimate being in March, it would be a very big deal as it requires only one shot.
Nissan Motor (NSANY) will pause production at one of its British production lines today due to supply chain disruption caused by the pandemic and expects to resume production on Monday.
Finally some much-needed good news on the Covid-19 front: The 7-day rolling average is currently declining in 46 U.S. states.
International Economy
Yesterday, as expected, the European Central Bank left its policy unchanged. The resurgence of the virus and the corresponding lockdowns are expected to push the 19-country bloc into a double-dip recession over the winter.
The Bank of Japan meanwhile upped its growth forecasts for the fiscal year to March 2022 but kept its policy rates steady.
The UK pound sterling rose to its highest level versus the U.S. dollar in nearly three years as investor confidence is rising thanks to one of the world’s most successful vaccine rollouts and the avoidance of a truly hard Brexit. On the other end of the spectrum, more UK manufacturers are worried about supply chain disruptions thanks to Brexit and the pandemic than at any other point going back to the beginning of data in 1975 according to the Confederation of British Industry. Compounding the challenges facing the economy, consumer spending in the UK fell 35% in the first half of January compared to pre-pandemic levels according to data from the Office for National Statistics.
Today has brought a slew of flash PMI’s for January from across the world.
- Japan Manufacturing slipped to 49.7 from 50.0 in December
- Japan Service dropped to 45.7 from 47.7
- France Manufacturing inched ahead to 51.5 from 51.1
- France Services fell to 46.5 from 49.1
- Germany Manufacturing moved lower to 57 from 58.3
- Germany Services inched lower to 46.8 from 47
- Eurozone Manufacturing dropped to 54.7 from 55.2 the prior month
- Eurozone Services retreated to 45.0 from 46.4
- UK Manufacturing sunk to 52.9 from December’s 57.5
- UK Services plummeted to 38.8 from 49.4
Domestic Economy
Yesterday’s weekly jobless report saw new claims for unemployment benefits decline from last week’s four-month high, with claims dropping from 926,000 to 900,000, below expectations for 910,000. Last week’s number was also revised lower from 965,000.
Yesterday’s Building Permits rose 4.5% MoM to a seasonally adjusted annual rate of 1.709 million, well above the expected 1.6 million and the highest level since August of 2006 when the nation was in the midst of a housing boom. Housing Starts also came in stronger than expected, rising 5.8% MoM to an annualized rate of 1.669 million versus expectations for just 1.56 million SAAR, hitting the highest level since September of 2006.
The Philadelphia Fed Manufacturing Index in January jumped to 26.5 from a downwardly revised 9.1 (previously 11.1) in December, more than double the expected level of just 12. This was the highest reading since last February, right before the pandemic’s impact hit.
The Biden administration suspended oil and gas leasing and permitting on federal lands and waters, which according to the Department of Interior account for ~10% of U.S. crude oil supply.
2020 ended with 2.15 million homeowners seriously delinquent on their mortgage payments, 1.7 million more than at the start of the year according to Black Knight’s First Look at December 2020 data.
Later today we will get the IHS Markit January Flash PMIs for Manufacturing and Services as well as the data for December Existing Home Sales, and the regular weekly update for EIA Crude Oil and Natural Gas inventories.
Markets
U.S. equities closed mostly in the green again on Thursday, with the Nasdaq 100 gaining 0.8% to reach a new record high, the Nasdaq Composite added 0.6% also hitting a new record high, the S&P 500 closed slightly above breakeven to also hit a new record high, while the Dow closed the day slightly negative. The VIX closed down 1.2% and the yield on the 10-year Treasury rose to 1.104% and the 30-year rose to 1.865%. The U.S. dollar fell for the third consecutive day.
Of the S&P 500 sectors, technology was the strongest, rising 1.3% on the day, with Consumer Discretionary in second place with a 0.6% gain. Energy was the weakest, losing more than 3%. The majority of sectors are in overbought territory, with just a few exceptions, such as Consumer Staples, which is the only one below its 50-day moving average. Year-to-date, it is the only sector in the red. On the other end of the spectrum, both Technology and Communication Services traded more than 2 standard deviations above their 50-day moving averages yesterday.
It was a tough day in crypto-land, with bitcoin falling as much as 11% to drop below $31,000. The digital currency has been trending lower ever since it broke above $40,000, with losses accelerating over the past two days.
Stocks to Watch
BJ Restaurants (BJRI) issued downside guidance for its December quarter with revenue of $197 million vs. the $207.45 million consensus as comparable restaurant sales for the quarter plummeted 32.3% YoY.
The world’s largest car manufacturer, Volkswagen (VLKAF), which includes the Audi, Porsche, and Seat brands, has been fined over €100 million for missing EU emissions targets in 2020. The group’s fleet-wide emissions in Europe stood at 99.8 grams of CO2 per kilometer driven, which was roughly half a gram short of the goal set for the company by Brussels. CEO Herbert Hiess blamed the miss on the pandemic and assured investors that the launches of new electric models in the coming months would help the company achieve its targets this year.
Airline stocks, such as United Airlines (UAL), American Airlines (AAL), and others could see weakness after President Biden issued an executive order requiring international air travelers to quarantine upon arrival in the U.S.
In an 8K filing, Ford Motor (F) shared will replace Takata airbag inflators in certain 2006 through 2012 model year vehicles for a total of approximately 2.7 million vehicles in the US and ~0.3 million vehicles in Canada and other locations. The cost associated with this initiative is estimated to be about $610 million and will be recorded in the company’s December quarter results.
Intel (INTC) reported December quarter revenue and EPS that crushed the respective consensus forecasts. Data Center Group revenue fell 16% YoY to $6.1 billion; Internet of Things Group revenue fell double-digits to $777 million; NSG group revenue slipped 1% YoY to $1.2 billion; and PC-Centric revenue rose 9% YoY to $10.9 billion. Intel issued upside EPS guidance for the current quarter of $1.10 vs. the $0.96 consensus. Management shared the demand for the computing performance Intel delivers remains very strong and incoming Intel Pat Geisinger said he believes “a majority” of the company’s 2023 products will still be handled internally, though it’s “likely” outside foundries will be used more than in the past. Intel declined to provide 2021 guidance at this time but shared that forecast will come no later than the company March quarter earnings call.
IBM (IBM) reported mixed December quarter results as EPS for the quarter topped consensus expectations but revenue for the quarter fell short of the consensus forecast. Revenue at the company’s Cloud & Cognitive Software segment fell 4.5% YoY with Cloud & Data Platforms rising 9% YoY and the Transaction Processing Platforms business falling 24% YoY. The Global Business Services segment posted a 2.7% drop in revenue while the Global Technology Services revenue fell 5.5%. For 2021, IBM expects to post annual revenue growth with free cash flow in the range of $11-12 billion.
December quarter results from PPG Industries (PPG) topped consensus expectations for both revenue and EPS. Performance Coatings sales for the quarter were ~$2.2 billion, down approximately 1% YoY, while the Industrial Coatings sales rose 7% YoY to $1.6 billion. “Looking ahead, overall global coatings demand continues to improve in many of the end-use markets we serve and across all our major regions, and we expect overall global economic activity to strengthen in the first half of 2021. However, due to increasing pandemic-related restrictions and certain supply chain disruptions, there is uncertainty regarding when this coatings demand growth will fully materialize.”
Sierra Wireless (SWIR) announced the retirement of President and CEO Kent Thexton and issued upside guidance for both the December and March quarters. For the December quarter, the company sees revenue above the $116.5 million consensus and for the March quarter, it sees revenue coming in above the $110 million consensus.
Montauk Renewables (MNTK) priced its 3.05 million share IPO at $8.50/share and shares will begin trading on Nasdaq later today.
After today’s market close, no companies are expected to report their quarterly results. Investors looking to get a jump on the more than 430 companies reporting next week should visit Nasdaq’s earnings calendar page.
On the Horizon
- January 25: Chicago Fed National Activity, Dallas Fed Manufacturing
- January 26: FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
- January 27: FOMC rate decision, MBA Mortgage applications, Durable Goods
- January 28: Retail Inventories, weekly Initial Jobless Claims, GDP, Leading Index, New Home Sales, Kansas City Fed Manufacturing
- January 29: Personal Income and Spending, Employment Cost Index, PCE Deflator, Chicago PMI, Pending Home Sales, University of Michigan Consumer Sentiment
- February 1: Markit Manufacturing PMI Final, Construction Spending, ISM Manufacturing, Total Vehicle Sales
- February 2: IBD/TIPP Economic Optimism, API Crude Oil Stocks
- February 3: ADP Employment Change, Markit Service PMI, ISM Non- Manufacturing PMI, EIA energy stocks
- February 4: Jobless claims, Nonfarm Productivity Q4, Factory Orders
- February 5: Nonfarm Payrolls, Balance of Trade
- February 12: Lunar New Year in China: Year of the Ox
Thought for the Day
“Both optimists and pessimists contribute to society. The optimist invents the aeroplane, the pessimist the parachute.” ~ George Bernard Shaw
Disclosures
IBM (IBM) are constituents of Tematica Research’s Thematic Dividend All-Stars Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
