Asia-Pacific Indexes Finish Mixed as Coronavirus Concerns Cap Risk Sentiment

The major Asia-Pacific stock indexes finished mixed on Wednesday as investors continued to monitor developments on the coronavirus front as the region tries to prevent an out of control spread. Meanwhile, political turmoil in the Washington had little bearing on the price action. Investors also kept an eye on the activity in the U.S. Treasury markets after the yield on the benchmark 10-year Treasury note briefly traded at 1.187%, its highest level since March.

In the cash market on Wednesday, Japan’s Nikkei 225 Index settled at 28456.59, up 292.25 or +1.04%. Hong Kong’s Hang Seng Index finished at 28235.60, down 41.15 or -0.15% and South Korea’s KOSPI Index closed at 3148.29, up 22.34 or +0.71%.

In China, the benchmark Shanghai Index settled at 3148.29, up 22.34 or +0.71% and the Australian S&P/ASX 200 Index finished at 6686.60, up 7.50 or +0.11%.

Renewed Coronavirus Concerns

The Japanese government is set to expand the state of emergency to more areas on Wednesday, according to local media reports.

Kyodo News reported that Japan’s Prime Minister Yoshihide Suga is set to extend the current state of emergency to another seven prefectures including Osaka and Aichi on Wednesday, as the country’s cumulative total of coronavirus cases exceeded 300,000.

The government informed an advisory board of the planned expansion, which is expected to be approved by a government task force later in the day.

In China, local authorities in regions near Beijing are stepping up restrictions on social activity as new coronavirus cases grow.

Washington Developments

Investors watched for developments from Washington, as U.S. Vice President Mike Pence said Tuesday night he will not remove President Trump from office. That came before the Democratic-held House approved a resolution urging Pence and the Cabinet to push Trump out of the White House after he allegedly incited last week’s riot on the Capitol.

Hong Kong Shares End Lower as Investors Pause After Recent Rallies

Hong Kong shares ended lower on Wednesday, with consumer shares leading the declines, as investors paused after a rally fueled by the south-bound bargain hunting from mainland investors.

In recent sessions, as U.S. investors dump shares in Chinese companies blacklisted by outgoing President Donald Trump, bargain hunters in China are taking the opposite side of that trade, wagering that a Joe Biden presidency will reverse the investment ban.

Bumper Jobs Data, US Stimulus Bets Push Australia Shares Higher

Australian shares settled higher on Wednesday as upbeat data pointed towards improving employment figures on the horizon, with energy stocks leading the charge on an upswing in oil prices.

Australian job vacancies in the country surged 23.4% to hit an all-time high in the November quarter, data showed, signaling the likelihood for stronger employment growth in the offing.

For a look at all of today’s economic events, check out our economic calendar.

Deutsche Post Shares Gain on Strong Profit Outlook; Target Price EUR 53

The world’s largest courier company Deutsche Post forecasts operating profits to grow this year and next after recording more than 50% jump in the last quarter as the coronavirus pandemic drove a massive shift towards e-commerce deliveries.

German multinational package delivery and supply chain management company forecasts EBIT to further grow in 2021 from the underlying base in 2020 of around EUR 5.4 billion. Moreover, the company’s EBIT for 2022 is expected to be above 2021.

The outlook for the aggregated free cash flow for the period 2020 to 2022 is revised to more than EUR 6 billion, up from the previous EUR 5.0 – 6.0 billion. The total gross capex for the period is now expected to be at around EUR 9.5 billion.

The courier company said it will provide a detailed outlook for the years 2021 and 2023 when it releases its comprehensive consolidated annual results on March 9.

Deutsche Post shares closed 2.15% higher at €41.83 on Tuesday; the stock rose about 20% in 2020.

“We think the positive share reaction to DPDHL’s beat in 4Q and upgraded guidance up to 2022 is justified: the group pre-announced 4Q results with 11% 4Q EBIT beat vs Bloomberg consensus, and new FY21 outlook implies a 4% upgrade to FY21 consensus expectations,” noted Rasika Sankpal, equity analyst at Morgan Stanley.

“While FY22 outlook has also been upgraded (to above EUR5.4bn, vs upper range at above EUR5.3bn previously), this is already in line with consensus. EBIT upgrade is also driving higher FCF, which is reassuring.”

Deutsche Post Stock Price Forecast

Sixteen analysts who offered stock ratings for Deutsche Post in the last three months forecast the average price in 12 months at €45.60 with a high forecast of €53.00 and a low forecast of €37.50.

The average price target represents a 9.21% increase from the last price of €41.76. From those 16 analysts, 14 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of €37.5 with a high of €51.5 under a bull scenario and €21 under the worst-case scenario. The firm currently has an “Overweight” rating on the courier company’s stock.

Several other analysts have also recently commented on the stock. Deutsche Post AG received a €50.00 price objective from research analysts at Sanford C. Bernstein. JP Morgan set a €49.52 price target and gave the stock a “buy” rating. Barclays set a €47 target price and gave the company a “buy” rating.

In addition, UBS Group set a €45.00 price target and gave the company a “buy” rating. Warburg Research set a €40 price objective and gave the stock a “neutral” rating. At last, Baader Bank set a €40 target price and gave the company a “buy” rating.

Analyst Comments

“The group outlined several productivities and cost control measures at P&P and progress has been made over the year, providing conviction that management is on track. Reiteration of FY20 group EBIT targets at the CMD underscores support for the mid-term FCF profile and valuation attractions,” Morgan Stanley’s Sankpal added.

“DHL is a solid business with a return on capital substantially above its cost of capital. Margins still have room to grow toward best-in-class levels, but capital employed, and contract structures could limit the full closure of the gap. DP’s P/E multiples still lag leading peers in each business unit, indicating there is more room for upside in every business.”

Upside and Downside Risks

Risks to Upside: 1) Pricing Power. 2) Cost Control. 3) Increased efficiencies. 4) Working capital management– highlighted by Morgan Stanley.

Risks to Downside: 1) Global trade risks. 2) GDP growth slowdown. 3) Wage inflation. 4) In addition, DP could be subject to regulatory reviews that impact operations and cash flows.

Check out FX Empire’s earnings calendar

European Equities: Eurozone Industrial Production and COVID-19 in Focus

Economic Calendar:

Wednesday, 13th January

ECB President Lagarde Speaks

Eurozone Industrial Production (MoM) (Nov)

Thursday, 14th January

ECB Monetary Policy Meeting Minutes

Friday, 15th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

The Majors

It was a mixed day for the European majors on Tuesday, with the DAX30 and CAC40 falling by 0.08% and by 0.20% respectively. The EuroStoxx600 recovered from early losses to the back day up by 0.05%.

Concerns over the continued rise in new COVID-19 cases and low vaccination rates across the Eurozone pinned back the majors.

Hopes of an economic recovery were evident, however, with autos, banks, and travel stocks amongst the front runners.

The Stats

It was a particularly quiet day on the economic calendar. There were no material stats to provide the majors with direction on the day.

From the U.S

It was a quiet day on the economic calendar. JOLTs job openings for November were in focus late in the European session.

In November, JOLTs job openings fell from 6.632m to 6.527m. With the U.S struggling to bring the COVID-19 pandemic under control, however, the numbers had a muted impact on the European majors.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Tuesday. Continental rallied by 3.19% to lead the way, with BMW and Daimler gaining 1.25% and 1.28% respectively. Volkswagen saw a more modest 0.10% rise on the day.

It was also a bullish day for the banks. Deutsche Bank rose by 1.00, with Commerzbank gaining 1.43%.

From the CAC, it was a bullish day for the banks. BNP Paribas and Soc Gen rose by 0.80% and by 0.57% respectively, with Credit Agricole gaining 1.28%.

It was also a bullish day for the French auto sector. Peugeot rallied by 3.13%, with Renault rising by 1.74%.

Air France-KLM rallied by 3.57%, with Airbus SE eking out a 0.20% gain.

On the VIX Index

It was back into the red for the VIX on Tuesday, marking a 7th day in the red from 9 sessions. Partially reversing an 11.69% gain from Monday, the VIX fell by 3.11% to end the day at 23.33.

With economic data limited to JOLTs job openings, the U.S equity markets avoided another day in the red. Support came in spite of lingering concerns over the continued rise in new COVID-19 cases.

While hopes of significant stimulus remained positive for riskier assets, there was also some apprehension ahead of earnings season.

The NASDAQ rose by 0.28%, with the Dow and the S&P500 ending the day with gains of 0.19% and by 0.04% respectively.

VIX 130121 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the economic calendar. Industrial production figures for the Eurozone are due out in the early part of the session.

Following impressive figures from Germany last week and a pickup in Manufacturing sector activity, the numbers should have a limited impact on the majors.

From the U.S, inflation figures for December are due out. Barring particularly dire numbers, however, the stats should also have limited impact on the majors.

Progress towards Eurozone-wide vaccinations and hopes of more fiscal stimulus support from the U.S should leave the markets in forgiving mood.

On the monetary policy front, however, ECB President Lagarde could move the dial in a scheduled speech early in the session.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 5 points.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Market Overview – Stocks Rally Led by Energy; Communications Buck the Trend

 

U.S. stocks moved higher on Tuesday rebounded from Monday’s losses. Energy shares were the best performing sector in the S&p 500 index, as oil prices continued to rise. Communications bucked the trend. President Trump denied any wrongdoing as House Republicans wrestled with how to respond to accusations he incited last week’s violence at the Capitol, with some proposing censure and others open to Democrats’ move to impeach him. Americans spent a record amount only on gifts during the holiday season. General Motels unveiled an all-electric van that is being built under its new Brightdrop Brand. The Trump administration is releasing second doses of coronavirus vaccines held back for booster shots and is urging states to administer the vaccine to anyone over age 65. U.S. Treasury yields continue to back up, hitting 1.18, the highest level since April. Corn prices busted out, following a report from the WASDE that showed a smaller than expected carryover of corn from the prior year. Soybean prices also shot up on bullish news.

American’s Spend a Record on Online Sales

U.S. online purchases during the holiday season surged 32.2% from 2019, totaling a record $188.2 billion according to Adobe Analytics. During November, E-commerce sales included Black Friday and Cyber Monday, reached $100 billion for the first time. Groceries, appliances and books surged in popularity around the holidays, while online sales of toys were up 50% from 2019, and the jewelry category was up 66%.

Low-Interest Rates Fuel Muni Bond Issuance

Municipal bond issuance in 2020 was the highest in a decade, reflecting the collapse of interest rates and the increased costs cities and state governments are facing from Covid-19 shutdowns. The muni issuance boom is unlikely to abate as cash-strapped local governments struggle to make up for ongoing Covid-19-related shortfalls.

Pfizer’s 2021 Earnings to be $3-3.10 Per Share, Says CEO Bourla

The world’s largest pharmaceutical company Pfizer is likely to post this year’s earnings in the range of $3 to $3.10 per share, according to chief executive officer Albert Bourla, speaking at a JP Morgan healthcare conference, Reuters reported.

That is also in line with the market expectations of $3.07 per share.

The company which ranked 64th on the 2020 Fortune 500 list of the largest United States corporations by total revenue, is expected to report its fourth-quarter earnings on February 2, 2021.

“We expect $39 billion in COVID-19 vaccine sales in 2021, and we see Pfizer/BioNTech dominating the vaccine market with nearly $14 billion in 2021 sales,” wrote Karen Andersen, sector strategist at Morningstar.

“Although we remain skeptical  of  AstraZeneca’s  ability  to  penetrate  the  U.S. market due to mixed phase 3 data so far, we assume the U.S. will see sufficient supply from Pfizer/BioNTech, Moderna, Novavax (70% probability), and Johnson & Johnson (50% probability)  to  achieve  herd  immunity  by  mid-2021.”

At the time of writing, Pfizer shares traded about 2% lower at $37.05 on Tuesday; the stock fell about 1% in 2020.

Pfizer Stock Price Forecast

Eleven analysts who offered stock ratings for Pfizer in the last three months forecast the average price in 12 months at $42.09 with a high forecast of $53.00 and a low forecast of $36.00.

The average price target represents a 13.97% increase from the last price of $36.93. From those eleven analysts, three rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $40 with a high of $48 under a bull scenario and $33 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the pharmaceutical company’s stock.

Several other analysts have also recently commented on the stock. Pfizer has been given a $40.00 target price by analysts at The Goldman Sachs. The firm currently has a “neutral” rating. Truist began coverage and issued a “buy” rating with $42.00 price target on the stock. Mizuho raised their price target to $44 from $43 and gave the company a “buy” rating.

In addition, BidaskClub cut shares of Pfizer to a “strong sell” rating from a “sell”. Barclays raised their price target to $37 from $35 and gave the company an “equal weight” rating. At last, Atlantic Securities cut shares to a “neutral” rating from an “overweight” rating and dropped their price target to $39 from $44.

Analyst Comments

“We project solid growth prospects, and the company’s COVID-19 vaccine offers significant accretion potential in 2021. But we expect COVID-19 vaccine sales and profits to decline significantly in 2022 and 2023,” noted David Risinger, equity analyst at Morgan Stanley.

“Pfizer’s dividend is set to adjust down in spring 2021 when Viatris begins paying a dividend. Pipeline execution will be key to investor perception, given late-decade patent expiration exposure.”

Upside and Downside Risks

Risks to Upside: Upside risks are COVID-19 vaccine sales above expectations, competitors’ vaccines less efficacious, core business financial upside, positive pipeline developments, and encouraging strategic action– highlighted by Morgan Stanley.

Risks to Downside: Downside risks are COVID-19 vaccine disappointments, core business shortfalls, pipeline disappointments, disappointing strategic action, and negative US drug pricing developments.

Check out FX Empire’s earnings calendar

Stocks Move Higher As Traders Focus On The Upcoming Earnings Season

Traders Remain Bullish

S&P 500 futures are gaining ground in premarket trading as traders managed to shrug off virus fears and focused on the upcoming earnings season.

Analysts have generally set the bar low for companies during the pandemic so most firms easily beat earnings estimates.  At this point, it looks like traders are positioning for an upbeat earnings season which will bring many encouraging reports.

The recent job market reports have indicated that the second wave of the virus has started to put pressure on the economy. However, the negative developments occured in December, and it is not clear whether they had material impact on businesses’ performance in the fourth quarter.

The market stays very bullish, and traders are eager to purchase stocks on any potential upside catalyst while ignoring negative developments. In this light, S&P 500 has good chances to test new highs in the upcoming trading sessions.

WTI Oil Tries To Settle Above The $53 Level

Oil traders quickly forgot about the latest developments on the coronavirus front and continued to bet on the positive impact of Saudi Arabia’s production cut.

The upcoming API Crude Oil Stock Change report is projected to show that crude inventories declined by 2.7 million barrels which may serve as an additional upside catalyst.

If inventories continue to decrease, oil may move closer to the $55 level. Meanwhile, oil-related stocks look ready for another strong trading session as investors’ money returns to the segment.

The U.S. Dollar At The Crossroads

The U.S. Dollar Index, which measures the strength of U.S. dollar against a broad basket of currencies, has managed to rebound from the recent lows at 89.21 towards 90.50.

This rebound was driven by rising U.S. Treasury yields and short-covering from traders who rushed to take their profits from bearish bets on the dollar.

However, this rapid rebound has stalled near 90.50, and the American currency will likely need additional catalysts to continue its upside move. The direction of the U.S. dollar will have a material impact on commodities, including oil and precious metals, as well as stocks.

If yields continue to increase and the U.S. dollar moves higher against a broad basket of currencies, riskier assets like stocks and commodities may find themselves under pressure as traders will increase purchases of U.S. government debt to benefit from rising yields and stronger dollar.

For a look at all of today’s economic events, check out our economic calendar.

Will Pence Turn from VP to Judas in the President’s Eye?

Impeachment or the 25th?

The simplest solution to the latest political scandal to mar U.S politics is for President Trump to be removed from Office.

Following last Wednesday’s domestic terrorism, there are now concerns of further domestic terrorist acts on U.S soil.

Inauguration Day is just over a week away. Security agencies have already raised concerns over the threat of further violence.

If the Republicans don’t deal with the situation now, they could end up in the political wilderness.

While voters were poll-shy in admitting to voting for Donald Trump, not dealing with the situation now could make voters poll-shy about voting for the Republican Party.

Companies are turning their backs on the U.S President. Even Deutsche Bank announced that it would end all dealings with the U.S President. Capitol Hill should do the same in order to end the threat of further violence.

Trump may have come away unscathed from the #Me Too movement but he is unlikely to be so fortunate on the #United States Movement.

It would be almost ironic that Trump’s gravest act unites America and makes it great again. Republican support for ousting Trump would certainly send a message that the Republicans are not supportive of domestic terrorism.

Refusing to oust Trump may send the wrong message. Some would call that check mate…

What’s Next?

According to the latest chatter from Capitol Hill, the House of Representatives is set to vote on asking Mike Pence to invoke the 25th and remove Trump from office.

How much weight the vote will have remains to be seen.

Tomorrow, more interestingly, there will be a vote on impeaching the U.S President.

Republicans have already started jumping ship so it could be a game changer…

From a market perspective, however, there should be limited influence.

U.S President Donald Trump has now become immaterial to the markets. If he is ousted, he will also become immaterial to U.S politics.

A Cautionary Tale

One does have to wonder what the Republican Party will take away from the last 4-years.

From Mike Pence’s perspective, he is Donald Trump’s running mate. Ousting the President out of office is a big move.

Ultimately, however, it would remove any chance of a Trump return in 2024 and give Pence a shot at the Big Job…

Capitol Hill will be abuzz over the next couple of days.

While the markets should be relatively immune to the chatter, it will be an interesting time…

Apparel Retailer Abercrombie’s Shares Soar After Sales Outlook Upgrade; Target Price $28

Ohio-based apparel retailer Abercrombie & Fitch’s shares soared on Monday after the company said net sales would decline lower than previously expected as strong digital sales offset store closures and capacity restrictions in North America and EMEA due to the COVID-19 pandemic.

The company, which owns the Hollister apparel brand, forecasts net sales to decline between 5% to 7%, better than the previous estimate of 5%-10%. Gross profit rate to be up at least 130 basis points to last year’s 58.2% versus plan of flat to up slightly, benefiting from reduced depth and breadth of promotions and markdowns relative to plan and to last year, the company said in the statement.

Abercrombie said operating expense, excluding other operating income, to be down at least 2% from fiscal 2019 adjusted non-GAAP operating expense of $566 million, reflecting savings in-store expenses due to closures and the recognition of rent abatements. This compares to plan of up 1% to 2%.

Following this, Abercrombie & Fitch shares surged over 7% to $23.04 on Monday; the stock rose about 20% in 2020.

Abercrombie & Fitch Stock Price Forecast

Eight analysts who offered stock ratings for Abercrombie & Fitch in the last three months forecast the average price in 12 months at $22.63 with a high forecast of $28.00 and a low forecast of $14.00.

The average price target represents a -1.78% decrease from the last price of $23.04. From those eight analysts, two rated “Buy, four rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $14 with a high of $26 under a bull scenario and $7 under the worst-case scenario. The firm currently has an “Underweight” rating on the apparel retailer’s stock.

Several other analysts have also recently commented on the stock. Bank of America increased their price objective on shares of Abercrombie & Fitch to $18 from $9 and gave the company an underperform rating. B. Riley upped their target price to $27 from $22 and gave the company a buy rating.

In addition, Citigroup upped their target price on shares to $28 from $20. At last, Robert W. Baird upped their target price to $24 from $14 and gave the company a neutral rating.

Analyst Comments

“Shares of Abercrombie have outpaced the industry in the past six months. Markedly, the company is gaining from efficient expense management actions. This aided bottom-line growth during third-quarter fiscal 2020. Adjusted earnings surpassed the Zacks Consensus Estimate and also improved year-on-year. Moreover, gross margin witnessed considerable expansion,” noted analysts at ZACKS Research.

“Additionally, the company is gaining from strong digital sales, backed by higher traffic. This along with store optimization plans is likely to be an upside in the near term. Nevertheless, the coronavirus pandemic has been taking a toll on the company’s top line. Markedly, sales fell during the third quarter mainly due to soft traffic trends. Revenues were dismal across both Hollister and Abercrombie brands. Management expects such trends to persist in the fourth quarter as well.”

Upside and Downside Risks

Risks to Upside: Hollister US market share gains accelerate from teen apparel store closures. Square footage optimization boosts 4-wall profitability. The pursuit of strategic alternatives or ASR supports the share price – highlighted by Morgan Stanley.

Risks to Downside: COVID-19 prompts US mall traffic to decelerate below the -4% long-term average decline. Increased international outlays yield no revenue benefit. Tariff hikes offset supply chain optimization.

Check out FX Empire’s earnings calendar

European Equities: Futures Point Northwards with no Economic Data to Influence

Economic Calendar:

Wednesday, 13th January

ECB President Lagarde Speaks

Eurozone Industrial Production (MoM) (Nov)

Thursday, 14th January

ECB Monetary Policy Meeting Minutes

Friday, 15th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

The Majors

It was a bearish start to the week for the European majors, with the DAX30 falling by 0.80% to lead the way down. The CAC40 and EuroStoxx600 weren’t far behind, with losses of 0.78% and 0.67% respectively.

A lack of economic data left COVID-19 in focus.

Across the EU, low vaccination rates and a spike in new COVID-19 cases, in spite of containment measures, weighed.

In China, reports of a spike in new COVID-19 cases added to the market angst on the day.

The Stats

It was a particularly quiet day on the economic calendar. There were no material stats to provide the majors with direction at the start of the week.

From the U.S

It was also a particularly quiet day on the economic calendar, with no material stats to influence following last week’s data dump.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Monday. BMW and Continental slid by 2.06% and by 2.64% respectively. Daimler and Volkswagen saw more modest losses of 0.95% and 1.10% respectively.

It was a bullish day for the banks, however. Deutsche Bank rose by 0.42%, with Commerzbank rallying by 2.12%.

From the CAC, it was a bearish day for the banks. BNP Paribas fell by 0.67%, with Credit Agricole and Soc Gen declining by 1.36% and by 1.35% respectively.

It was also a bearish day for the French auto sector. Peugeot and Renault ended the day with losses of 1.59% and 1.02% respectively.

Air France-KLM fell by 1.52%, with Airbus SE ending the day down by 0.36%.

On the VIX Index

A run of 4 consecutive days in the red came to an end for the VIX on Monday, marking just a 2nd day in the green from 8 sessions. Reversing a 3.62% fall from Friday, the VIX rose by 11.69% to end the day at 24.08.

Market reaction to the continued rise in COVID-19 cases and low vaccination rates weighed on riskier assets at the start of the week.

The NASDAQ slid by 1.25%, with the Dow and the S&P500 falling by 0.29% and by 0.66% respectively.

VIX 120121 Daily Chart

The Day Ahead

It’s another quiet busy day ahead on the economic calendar, with no material stats due out of the Eurozone to provide direction.

From the U.S, JOLTs job openings are due out. Barring particularly dire numbers, however, the numbers will likely have a muted impact on the European majors.

The markets are in forgiving mood on the data front, with COVID-19 vaccines and fiscal stimulus expected to reboot the economy.

The lack of stats will, therefore, leave the majors in the hands of Capitol Hill and COVID-19 vaccine news.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 43 points, with the DAX up by 51 points.

For a look at all of today’s economic events, check out our economic calendar.

Gilead Sciences Upgrades 2020 Earnings Forecast on Strong Demand for Remdesivir

The U.S. drugmaker Gilead Sciences revised its full-year 2020 profit guidance as the second wave of coronavirus infections boosted the demand of Remdesivir, an antiviral agent that scientists initially designed to treat Ebola, also, beneficial for COVID-19 treatment.

The California-based biopharmaceutical company said it has upgraded their total product sales guidance range to the range $24.30 billion to $24.35 billion, reflecting increased remdesivir sales as hospitalization and treatment rates were higher than expected given the most recent COVID-19 surge.

The commercial-stage biotechnology company forecasts adjusted earnings to $6.98-$7.08 per share, up from a previous forecast of $6.25- $6.60 per share.

At the time of writing, Gilead Sciences shares traded 0.66% lower at $62.62 on Monday; the stock fell 10% in 2020.

Analyst Comments

Gilead Sciences (GILD) pre-announced a positive Q4 driven mostly by Remdesivir (RemD) as the value remains high. Bottom line is based on our conversations w/ mgmt, the co is confident about growth in 2021 and beyond. ’21 Guidance should be OK (or conservative) and separating out RemD will also show growth of underlying biz. GILD should generally move back up in 2021 on improving sentiment and also on new data this year,” said Michael J. Yee, equity analyst at Jefferies.

“For 2021, we could see GILD guide EPS $6.00-7.00 vs cons $6.57, with RemD and expenses as key swing factors – with the key issue that RemD is a wide range. We raised our H1:21 RemD estimates by $1 billion, which brings total 2021 RemD to $2.5 billion, given Q4:20 sales were strong and COVID-19 vaccines are just being rolled out. We raised our EPS from $5.74 to $6.15 but acknowledge RemD could be a wide range. Overall, the key message is 2021 should be fine and defined as a success if numbers are in-line but NEW clinical datasets read out positive from IMMU, RCUS, and FTSV (filing to FDA already in 2021 on MDS with CD47 drug),” J. Yee added.

Gilead Sciences Stock Price Forecast

Twenty-three analysts who offered stock ratings for Gilead Sciences in the last three months forecast the average price in 12 months at $73.94 with a high forecast of $100.00 and a low forecast of $61.00.

The average price target represents a 17.44% increase from the last price of $62.96. From those 23 analysts, ten rated “Buy, twelve rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $67 with a high of $88 under a bull scenario and $35 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the biotechnology company’s stock.

Several other analysts have also recently commented on the stock. Redburn Partners assumed coverage on Gilead Sciences and issued a “neutral” rating on the stock. Credit Suisse Group reduced their target price to $65 from $70 and set a “neutral” rating on the stock.

In addition, SVB Leerink reduced their target price to $79 from $88 and set an “outperform” rating on the stock. Truist Financial cut their price target to $62 from $67. At last, UBS Group assumed coverage and set a “neutral” rating and a $61 price target on the stock.

Upside and Downside Risks

Risks to Upside: Better than expected pipeline success on key late-stage drugs – highlighted by Morgan Stanley.

Risks to Downside: Failure of Trodelvy to achieve significant market penetration & failure to meaningfully expand label. Unexpected competition in HIV. Failure of CAR-T to achieve significant market penetration & failure to meaningfully expand CAR-T label. Significant delays with regulatory progress for JAK inhibitor filgotinib.

Check out FX Empire’s earnings calendar

Stocks Retreat As Virus Fears Return

China Tries To Contain Coronavirus Outbreak In Hebei Province

S&P 500 futures are under pressure in premarket trading as traders are worried about the rising number of new coronavirus cases in China and elsewhere in the world.

China has recently reported its biggest daily increase in the number of new COVID-19 cases in many months. The country is trying to contain the outbreak in the Hebei province which is located near Beijing and has already implemented strict virus containment measures.

Meanwhile, Malaysia decided to impose a two-week lockdown as its healthcare system was under significant pressure from the second wave of the virus.

The rebound of Asian economies was one of the main drivers of the rebound of the world economy after the first wave of the virus, and traders are worried that the second wave of the virus in Asia may hurt the recovery.

Rising Treasury Yields Put Pressure On Precious Metals

Traders expect that Democrats will soon introduce a new coronavirus aid package. These expectations have led to a sell-off in the bond market, and the yields of 10-year U.S. government bonds have exceeded 1.10%. At the end of the previous year, these yields were in the range between 0.90% and 0.95%.

The rapid increase in yields put material pressure on gold and silver which pay no interest.

At this point, it looks like gold and silver mining stocks will have another challenging trading session. If Treasury yields continue to increase, the sell-off in the precious metals space may continue.

U.S. Dollar Continues To Rebound

The U.S. dollar gained strong upside momentum and is moving higher against a broad basket of currencies despite stimulus expectations.

Rising Treasury yields may be providing some support to the American currency. It should be noted that shorting the dollar was an overcrowded trade, so many traders may have rushed to exits at the same time, creating a short squeeze.

If the U.S. dollar continues to move higher, it may put more pressure on stocks and commodities. At this point, the impact of dollar’s strength on markets is not strong as it is rebounding from multi-month lows, but the continuation of this rebound may serve as an additional obstacle on the way up for stocks.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Stocks Mostly Lower as Promise of New US Fiscal Stimulus Stokes Global Reflation Trade

The major Asia-Pacific stock indexes were mostly lower on Monday as profit-takers came in after last week’s strong performance. Driving the price action was a surge in Treasury yields to a 10-month high. Investors were also increasing bets on “trillions” in new U.S. fiscal stimulus plans that were set to be unveiled this week as part of President-elect Joe Biden’s economic recovery program. Rising rates are also stoking the global reflation trade.

In the cash market on Monday, Hong Kong’s Hang Seng Index settled at 27908.22, up 30.00 or +0.11 and South Korea’s KOSPI Index finished at 3148.45, down 3.73 or -0.12%.

China’s Shanghai Index settled at 3531.50, down 38.61 or -1.08% and Australia’s S&P/ASX 200 closed at 6697.20, down 60.70 or -0.90%.

The markets in Japan were closed on Monday for a bank holiday.

Price Action Driven by Rising US Yields

Longer-term U.S. Treasury yields were at their highest since March after Friday’s weak jobs report only fanned speculation of more U.S. fiscal stimulus now that the Democrats have control of the government.

President-elect Joe Biden is due to announce plans for “trillions” in new relief bills this week, much of which will be paid for by increased borrowing.

At the same time, the Federal Reserve is sounding content to put the onus on fiscal policy with Vice Chair Richard Clarida saying there would be no change soon to the $120 billion of debt the Fed is buying each month.

With the Fed reluctant to purchase more longer-dated bonds 10-year Treasury yields jumped almost 20 basis points last week to 1.12%, the biggest weekly rise since June.

Apple, Hyundai Set to Agree Electric Car Tie-Up, says Korea IT News

Hyundai Motor and Apple Inc plan to sign a partnership deal on autonomous electric cars by March and start production around 2024 in the United States, local newspaper Korea IT News reported on Sunday.

The report follows a statement on Friday from Hyundai Motor that it was in early talks with Apple after another local media outlet said the companies aimed to launch a self-driving electric car in 2027, sending Hyundai shares up nearly 20%.

Hyundai Motor declined to comment on the report on Sunday, and reiterated Friday’s comments that it has received requests for potential cooperation from various companies on developing autonomous EVs.

China Inflation News

China’s Producer Price Index fell 0.4% in December as compared to a year earlier, according to the country’s Bureau of Statistics. That was a smaller decline than the 0.8% fall expected in a median forecast of a Reuters poll. Meanwhile, China’s Consumer Price Index rose 0.2% year-on-year in December, against expectations of a 0.1% increase in a Reuters poll.

Gold Miners Drag Down Australian Shares

Australian shares settled lower on Monday as cases of highly transmissible new COVID-19 variants dimmed hopes for a quick economic recovery, with gold miners leading the retreat on bullion sell-offs.

With New South Wales eased lockdown measures introduced to contain an outbreak in its northern coastal suburbs, health officials said over the weekend that they were on high alert after cases of the COVID-19 variants discovered in Britain and South Africa were identified in the country.

Gold stocks dropped as bullion prices slumped to a near six-week low on a firmer U.S. Dollar and higher Treasury yields. Newcrest Mining gave up 3.6% and AngloGold Ashanti eased 4.3% to be the biggest drags on the sub-index.

For a look at all of today’s economic events, check out our economic calendar.

Morgan Stanley Raises BlackRock’s Target Price to $890 Ahead of Earnings; Forecasts Q4 EPS of $8.89

Morgan Stanley raised their stock price forecast of the world’s largest asset manager BlackRock to $890 from $750 and said supportive financial market backdrop and improving flows trajectory lift fund NAVs and should continue to lead broad-based upward estimate revisions.

BlackRock to report its fourth-quarter 2020 earnings on Thursday, January 14, where the global investment manager is expected to report a profit of $8.66 per share, which represents a year-over-year change of more than +3%, with revenues forecast to grow over 7% year-over-year to $4.27 billion. Morgan Stanley gave a forecast of $8.89 per share.

“For BlackRock (BLK), our estimates are +3% above cons EPS / +2% above cons operating income for the quarter, and see prospects for BLK to surprise on better flows and particularly, flows into higher fee categories that should support organic base fee growth and overall fee rate leading to prospects for upward estimate revisions,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“We’re looking for +6.8% organic growth in 4Q, which is +200bps above consensus of +4.8% org growth. A resurgence in equity ETFs inflows, continued strength in active equities and momentum of ESG flows could be supportive to both flows and fee rate.”

Morgan Stanley gave a base target price of $890 with a high of $1,338 under a bull scenario and $413 under the worst-case scenario. The firm currently has an “Overweight” rating on the asset manager’s stock.

Other equity analysts also recently updated their stock outlook. Jefferies raised the target price to $868 from $816. JP Morgan upped their stock price forecast to $793 from $707. Deutsche bank increased price objective to $835 from $802.

In addition, Citigroup raised their target price on shares of BlackRock to $800 from $690 and gave the company a “buy” rating. Wells Fargo raised their target price to $805 from $700 and gave the company an “overweight” rating.

Nine analysts who offered stock ratings for BlackRock in the last three months forecast the average price in 12 months at $755.00 with a high forecast of $835.00 and a low forecast of $602.00. The average price target represents a -0.19% decrease from the last price of $756.45. From those nine equity analysts, eight rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

BlackRock’s shares closed about 1% higher at $756.45 on Friday; however, the stock rose more than 40% in 2020.

“We believe BlackRock is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% average long-term organic growth & continued op margin expansion. We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US,” Morgan Stanley’s Cyprys added.

“We expect the premium to widen as BlackRock takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

Check out FX Empire’s earnings calendar

European Equities: Capitol Hill and U.S Stimulus and COVID-19 in Focus

Economic Calendar:

Monday, 11th January

ECB President Lagarde Speaks

Wednesday, 13th January

ECB President Lagarde Speaks

Eurozone Industrial Production (MoM) (Nov)

Thursday, 14th January

ECB Monetary Policy Meeting Minutes

Friday, 15th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

The Majors

It was a bullish end to the week for the European majors on Friday. The CAC40 and EuroStoxx600 rose by 0.66% and by 0.65% respectively, with the DAX30 gaining 0.58%.

Economic data from Germany coupled with hopes of further U.S stimulus supported demand for riskier assets.

While Germany’s trade surplus narrowed, both imports and exports rose by more than expected in November.

Coupled with a rise in factory orders and industrial production and a pickup in manufacturing sector activity, the stats painted a positive outlook.

From the U.S, disappointing economic data had a muted impact on the majors.

The Stats

It was a relatively busy day on the economic calendar. German industrial production and trade figures, together with French consumer spending were in focus.

In November, industrial production rose by 0.9%, following a 3.4% jump in October. Economists had forecast a 0.7% increase.

According to Destatis,

  • Production in industry excluding energy and construction rose by 1.2%.
  • Within industry, the production of intermediate goods increased by 2.4%, with the production of capital goods up by 1.3%.
  • The production of consumer goods fell by 1.7%.
  • Outside of industry, energy production was down by 3.9%, while the production in construction increased by 1.4%.
  • Compared with February 2020, production in November was 3.8% lower.

Germany’s trade surplus narrowed from €18.2bn to €16.4bn in November.

According to Destatis,

  • Exports were up 2.2%, and imports 4.7% on October 2020.
  • Germany exported goods to the value of €111.7bn and imported goods to the value of €94.6bn compared with Nov-19.
  • Compared with Nov-19, exports declined by 1.3%, and imports by 0.1%.
  • Exports to EU countries fell by 1.7%, while imports grew by 2.6%, compared with Nov-19.
  • To Euro area countries, exports fell by 2.2%, while imports from Euro countries rose by 0.5%.
  • Exports to non-EU countries fell by 0.9% compared with Nov-19, with imports sliding by 3.2%.
  • Compared with Nov-19, exports to the UK increased by 6.6%, while imports from the UK slid by 9.7%.

From France, consumer spending disappointed, with spending tumbling by 18.9%. In October, spending had risen by 3.9%.

According to Insee.fr,

  • Purchases of manufactured goods slumped by 30.1%.
  • Spending on textile-clothing more than halved. A 53% fall was attributed to a slump in spending on clothing & footwear.
  • Energy expenditure slid by 19.2%, with food consumption falling by a more modest 5.8%.
  • Compared with November 2019, household consumption expenditure on goods was 17.1% lower.

From the Eurozone, unemployment figures for the Eurozone provided support, with the unemployment rate falling from 8.4% to 8.3%.

According to Eurostat, the Eurozone’s unemployment rate had stood at 7.4% in November 2019.

From the U.S

It was a busy day on the economic calendar, with nonfarm payrolls in focus.

In December, nonfarm payrolls fell by 140K in December, partially reversing a 336k rise from November.

In spite of the decline, the unemployment rate held steady at 6.7%, with the participation rate holding steady at 61.5%.

A sharp pickup in hourly earnings was of little comfort at the end of the year. In December, average hourly earnings rose by 0.8%, following a 0.3% increase in November.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. BMW and Volkswagen fell by 1.11% and by 1.28% respectively, with Daimler declining by 0.31%. Continental bucked the trend, however, rising by 0.93%.

It was also a mixed day for the banks. Deutsche Bank rose by 0.17%, while Commerzbank slid by 4.24%.

From the CAC, it was a bearish day for the banks. BNP Paribas and Soc Gen slid by 2.21% and by 2.01% respectively, with Credit Agricole declining by 0.74%.

It was also a bearish day for the French auto sector. Peugeot fell by 2.17%, with Renault sliding by 4.00%.

Air France-KLM fell by 1.0%, while Airbus SE bucked the trend, rising by 0.54%.

On the VIX Index

It was a 4th consecutive day in the red the VIX on Friday, marking a 6th day in the red from 7 sessions. Following on from a 10.77% slide on Thursday, the VIX fell by 3.62% to end the day at 21.56.

The NASDAQ rallied by 1.03%, with the Dow and the S&P500 rising by 0.18% and by 0.55% respectively.

VIX 110121 Daily Chart

The Day Ahead

It’s a quiet busy day ahead on the economic calendar, with no material stats due out of the Eurozone to provide direction.

There are also no material stats due out of the U.S to provide the majors with direction late in the session.

The lack of stats will leave the majors in the hands of COVID-19 news and updates from Capitol Hill.

While the Democrats look to oust President Trump, any chatter on further stimulus would support the majors.

On the monetary policy front, ECB President Lagarde is also scheduled to speak. Expect any forward guidance ahead of the monetary policy meeting minutes on Thursday to also influence.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 113 points, while the DAX was up by 11 points.

For a look at all of today’s economic events, check out our economic calendar.

Earnings to Watch Next Week: Delta Airlines, BlackRock, Citigroup and Wells Fargo in Focus

Earnings Calendar For The Week Of January 11

Monday (January 11)

IN THE SPOTLIGHT: SYNNEX, CARNIVAL

SYNNEX: California-based business process services company’s earnings to decline to $2.89​ per share the fourth quarter, down from $4.26 per share reported the same quarter last year. The leading provider of business-to-business information technology services’ quarterly revenue will fall more than 5% to just over $6 billion from $ 6.58 billion a year ago.

“For the fourth quarter of fiscal 2020, revenues are expected between $6.45 billion and $6.65 billion. Non-GAAP net income is estimated in the range of $190.5 to $203.5 million. Moreover, the company projects non-GAAP earnings between $3.68 and $3.93 per share,” noted analysts at ZACKS Research.

CARNIVAL: The world’s largest cruise ship operator is expected to report a loss for the third consecutive time in the fourth quarter. The Miami, Florida-based company’s revenue will plunge ​nearly 100% to $142.09 million from $4.78 billion posted in the same period a year ago. Carnival is expected to report a loss of $1.83 per share, worse compared to a profit of 62 cents per share registered in the same quarter last year.

“We think the cruise industry will be one of the slowest sub-sectors to recover from the COVID-19. Cruising needs just not international travel to return, but ports to reopen, authorities to permit cruising, and the return of customer confidence,” said Jamie Rollo, equity analyst at Morgan Stanley.

“We expect cruising to resume in January 2021, and only expect FY19 EBITDA to return in FY24 given historically CCL has lacked pricing power, and EPS to take even longer given dilution of share issues and higher interest expense. We see debt doubling in FY21 vs FY19 due to operating losses and high capex commitments, and leverage looks high at 4-5x even in FY23-24e, so we see risk more equity might need to be raised,” Rollo added.

According to the mean Refinitiv estimate from eleven analysts, Carnival Corp is expected to show a decrease in its fourth-quarter earnings to -186 cents per share. Wall Street expects results to range from a loss of $-2.10 to ​a loss of $-1.64 per share, Reuters reported.

Tuesday (January 12)

No major earnings scheduled for release.

Wednesday (January 13)

Ticker Company EPS Forecast
INFY Infosys $0.16
WIT Wipro $0.06
SJR Shaw Communications USA $0.24
INFO IHS Markit Ltd $0.67
AONNY Aeon ADR -$0.11

 

Thursday (January 14)

IN THE SPOTLIGHT: DELTA AIRLINES, BLACKROCK

DELTA AIRLINES: The Airline company which provides scheduled air transportation for passengers and cargo throughout the United States and across the world is expected to report a loss for the fourth consecutive time of -$2.47 in last quarter of 2020 as the airlines continue to be negatively impacted by the ongoing COVID-19 pandemic. According to Ticket Report, analysts expect Delta Airlines to post $-11 EPS for the current fiscal year and $0 EPS for the next fiscal year.

“Delta is the airline most exposed to corporate travel, which was positive pre-pandemic. Corporate travel remains down 85% and the only corporate traveller flying now appears to be those at small and medium-sized businesses. Delta had hoped for a recovery in business travel in 2H21, but it is becoming increasingly clear that business travel will not be a meaningful contributor to revenue in 2021 as vaccination timelines continue to shift out,” said Helane Becker, equity analyst at Cowen and company.

BLACKROCK: The world’s largest asset manager is expected to report a profit of $8.66 in the fourth quarter, which represents a year-over-year change of more than +3%, with revenues forecast to grow over 7% year-over-year to $4.27 billion.

“We believe BlackRock is best positioned on the asset management barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 10% EPS CAGR (2020-22e) via 5% average long-term organic growth & continued op margin expansion. We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US,” said Michael Cyprys, equity analyst at Morgan Stanley.

“We expect the premium to widen as BlackRock takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 14

Ticker Company EPS Forecast
DAL Delta Air Lines -$2.47
BLK BlackRock $8.66
TSM Taiwan Semiconductor Mfg $0.94
FRC First Republic Bank $1.52
PRGS Progress Software $0.78

 

Friday (January 15)

IN THE SPOTLIGHT: CITIGROUP, WELLS FARGO

CITIGROUP: New York-based diversified financial services holding company is expected to report a profit of $1.30 in the fourth quarter, which represents a year-over-year slump of more than 30%, with revenues forecast to decline about 10% year-over-year to $16.5 billion.

Citi is trading at just 0.7x NTM BVPS implying a through the cycle ROE of just 7%, well below our 9% estimate for 2023. While there is uncertainty around how much Citi needs to invest in technology to address the Fed and OCC consent orders around risk management, data governance and controls, we believe the stock is cheap even if expenses remain elevated. We have modelled in expenses rising to $44B for 2021 and 2022 well above $42B in 2019,” noted Betsy Graseck, equity analyst at Morgan Stanley.

“Moreover, Citi is not getting credit for its diversification (only 40% of total loans are consumer and only half of those are credit card). Citi also has a more resilient wholesale business, skewed to FX, EM and cash management.”

WELLS FARGO: The multinational financial services company is expected to report a profit of $0.58 in the fourth quarter, which represents a year-over-year slump of more than 30%, with revenues forecast to decline about 9% year-over-year to $18 billion. Seaport Global Securities also issued estimates for Wells Fargo & Company’s Q2 2021 earnings at $0.60 EPS and FY2022 earnings at $3.10 EPS.

“Net interest income is anticipated to be $40 billion for 2020, lower than the previous guidance due to lower commercial loan balances and higher MBS premium amortization. Management expects fourth-quarter origination volume to be similar to third-quarter levels despite typical seasonal declines and fourth-quarter production margins should remain strong,” noted analysts at ZACKS Research.

“The company expects internal loan portfolio credit ratings, which were also contemplated in the development of allowance, will result in higher risk-weighted assets under the advanced approach and under the standardized approach in the coming quarters, which would reduce CET1 ratio and other RWA-based capital ratios.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 15

Ticker Company EPS Forecast
VFC VF $0.90
JPM JPMorgan Chase $2.56
C Citigroup $1.30
WFC Wells Fargo $0.58
PNC PNC $2.59
HDB Hdfc Bank $0.54

 

Brexit: Preliminary Trade Deal avoids No-Deal, but “Slow Burn” of EU-Exit Costs Stresses British Economy

While the UK is expected to ultimately maintain significant access to the single market, the new customs border and uncertainties around the access to the single market for UK services sectors raise the economic consequences of Brexit.

We had expected that the UK would strike a free-trade agreement with the EU despite the market’s concern about a possible “no-deal”, so the last-minute accord in December was no surprise.

The rolling over of tariff- and quota-free trade in goods was largely in line with the roll-over of existing preferential trade arrangements that the UK has pursued with other trading partners outside the EU as an intermediate step in exiting first the customs union.

However, exit from customs union – to be itself phased in over three stages and in full force only from 1 July 2021 in the case of imports to the UK – has created trading friction and produced immediate economic losses as companies see longer delays, higher operating costs and lower productivity. This is even though grace periods granted – such as a one-year standstill on rules of origin documents – have eased disruption at the border.

UK gains sovereign privileges; trading regime to gradually reduce areas of long-run divergence

The trade and cooperation agreement has prevented a devolution to WTO-based trading rules with the EU. In addition, a principle of “managed divergence” implies either party reserves the right to retaliate in the case the other side is considered to have gained an unfair trading advantage.

The UK has secured greater sovereign privileges in determining its own laws, but cooperation with the EU on regulation under a new “partnership council” and capacity for the other side to impose tariffs – in the case deregulation is considered unfair – are expected over time to reduce disparities.

The mechanism should space out any areas of divergence and resulting trading frictions over a longer period. While December’s arrangement largely excludes services, this is consistent with the highly incremental and drawn-out Brexit that Scope has long anticipated, under which divergence with the EU is taking place over successive phases after extensions of Article 50, a transition state, lately an exit from the customs union with associated grace periods, and, in the end, agreements around additional, complementary trading agreements with the EU for sectors excluded from December’s preliminary arrangement.

New trade deal only initial step in shaping new long-term EU-UK economic partnership

December’s trade agreement, while thin, was never intended as a singular settlement. It is rather a first fundamental framework around which a more extensive set of trading agreements will ultimately be agreed to define the long-term EU-UK economic relationship.

As services were hardly discussed to date, with an agreement on goods trade the priority during the limited 10-month negotiating period in 2020, the focus will now be on reaching supplementary arrangements for critical services sectors including financial services.

The two sides are seeking a non-binding memorandum of understanding by March 2021 on the export of financial services, including services such as euro clearing currently operating with temporary access to EU markets as talks continue. However, more time is likely to be required than March before Brussels ultimately grants fuller EU access for UK financial firms even after a non-binding framework is in place.

We expect any such agreement or agreements around financial services to be “dynamic” – granting regulatory equivalence and thus full market access for select UK financial industries to “passport” to the single market, and vice versa, but with an understanding that such equivalence can be retracted should regulatory standards diverge – mirroring the agreement in goods.

A soft Brexit, but “slow-burn” from drawn-out exit process to incur further costs

Long term, we expect that the outcome of negotiations to reflect a “soft” Brexit. Non-regression clauses embedded in trade agreements and other limits on UK-EU trade divergence – such as the Irish Backstop that would reproduce any friction in trade with the EU with friction in trading inside the UK itself, damaging the UK’s internal market – will limit the degree of separation in the longer run. This will support preferential access to the single market for UK businesses long term.

The final EU-UK relationship could resemble something akin to a Swiss-like framework except with a faster-track negotiating process given support in accelerating talks from the series of self-imposed cliff-edge Brexit deadlines – and negotiated in reverse with the UK having started from fully-frictionless trade.

However, there will be persistent uncertainty due to the constant risk that changes in UK law could reduce access to the single market, so UK-based businesses are likely to continue to relocate activities to the continent – ensuring a steadily growing cost from a “slow-burn” Brexit even as the cliff-edge form of an abrupt no-deal exit has been repeatedly avoided.

City of London faces permanent damage after losing full single-market access

In addition, the City of London faces permanent damage in waiting for a definitive agreement on financial services in the months ahead during which select UK financial services have at least transitionally lost passporting rights, such as investment banking and securities trading on behalf of clients in those EU countries where national regulators have not as yet extended grace periods to UK firms. In the end, the UK has secured a deal for the trade in goods where it has a trading deficit with the EU, but not one as comprehensive to date in services where it stands to see losses to a trading surplus.

The UK enters this new Brexit phase amid the near-simultaneous introduction of a third national Covid-19 lockdown, which will add to stress on its public finances. We see upside pressure on government debt already estimated at more than 110% of GDP this year, up from 85% in 2019 in view of the double-dip economic contraction we have anticipated and the additional fiscal stimulus to address economic fallout from lockdown plus the economic and fiscal costs of the exit from the single market and customs union.

The latter costs, while more modest and much more spaced out by comparison with the sudden, severe cost of the Covid-19 crisis near term, might pose more significant long-term economic and institutional consequences.

Download the full Scope Ratings comment.

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

The Week Ahead – Economic Data, COVID-19, and Capitol Hill in Focus

On the Macro

It’s a quieter week ahead on the economic calendar, with 42 stats in focus in the week ending 15th January. In the week prior, 61 stats had been in focus.

For the Dollar:

It’s a quieter week ahead on the economic data front.

In the 1st half of the week, JOLTs job openings and inflation figures are due out.

The numbers are unlikely to have a material impact on the Dollar and market risk sentiment, however.

Expectations are for labor market conditions and consumption to improve as the U.S government administers vaccinations.

In the 2nd half of the week, it gets a little busier.

The weekly jobless claims figures will draw attention on Thursday.

At the end of the week, consumer sentiment and industrial production will also provide direction.

On the monetary policy front, FED Chair Powell could move the dial on Thursday.

Away from the economic calendar, expect chatter from Capitol Hill and COVID-19 news to also influence.

The Dollar Spot Index ended the week up by 0.18% to 90.098.

For the EUR:

It’s a quiet week ahead on the economic data front.

Industrial production and trade data for the Eurozone are due out on Wednesday and Friday.

We would expect the industrial production figures to garner the greatest interest.

Finalized December inflation figures for Spain and France are also due out. These are likely to have a muted impact on the EUR, however.

On the monetary policy front ECB President Lagarde has 2 scheduled speeches in the 1st half of the week. Expect any forward guidance to influence. On Thursday, the ECB’s monetary policy meeting minutes are also due out but should have a muted impact.

The EUR ended the week up by 0.02% to $1.2218.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include November industrial and manufacturing production, and GDP figures for November.

December retail sales and November trade figures are also due out but would likely have a muted impact on the Pound.

Away from the economic calendar, expect COVID-19 news to also influence. With the UK in lockdown, strong progress towards the vaccination of priority groups should ease pressure on the Pound.

The Pound ended the week down by 0.76% to $1.3568.

For the Loonie:

It’s a particularly quiet week ahead.

There are no material stats to provide direction in the week.

The lack of stats will leave the Loonie in the hands of crude oil inventory numbers and COVID-19 news updates.

OPEC’s monthly report will also provide direction.

The Loonie ended the week up by 0.20% to C$1.2702 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week on the economic data front.

November retail sales figures are due out on Monday along with consumer sentiment numbers on Tuesday

With no other stats to consider, expect plenty of interest in the numbers. For the RBA, consumer consumption remains key to any economic recovery.

Away from the economic calendar, COVID-19 news will remain a key driver in the week.

The Aussie Dollar ended the week up by 0.82% to $0.7757.

For the Kiwi Dollar:

It’s a relatively quiet week ahead on the economic calendar.

Key stats include building consent figures and electronic card retail sales figures.

Expect electronic card retail sales figures to have the greatest impact in the week.

Away from the calendar, COVID-19 will continue to provide direction. Any supply hiccups issues would test support for the Kiwi Dollar.

The Kiwi Dollar ended the week up by 0.75% to $0.7242.

For the Japanese Yen:

It is a particularly quiet week ahead.

Economic data is limited to November current account figures that are likely to have a muted impact on the Yen.

The focus will remain on COVID-19 updates and sentiment towards the economic outlook. A spike in new COVID-19 cases in Japan will be of concern, with the economy continuing to struggle.

The Japanese Yen ended the week down by 0.72% to ¥103.94 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead.

December inflation and trade figures are due out on Monday and Thursday.

While inflation figures will influence, expect trade data to have the greatest impact.

The Chinese Yuan ended the week up by 0.81% to CNY6.4746 against the U.S Dollar.

Geo-Politics

U.S Politics

U.S politics will likely remain the key drive in the week ahead.

Following the scenes on Capitol Hill, the Democrats are looking to oust Trump from office.

Trump is unlikely to go quietly, however. His actions have split the Republican Party. He has also united the Democrats, who now have control of both Houses.

With Inauguration Day approaching, the markets will be looking for Biden’s early goals.

News of plans to deliver further stimulus details this week should support riskier assets further.

U.S Mortgage Rates Start the Year with Another Record Low

Mortgage rates failed to fall to an 18th record low in the current downtrend, with 30-year fixed rates on the decline in the first week of the year.

Compared to this time last year, 30-year fixed rates were down by 99 basis points.

30-year fixed rates were also down by 229 basis points since November 2018’s most recent peak of 4.94%.

Economic Data from the Week

Economic data was on the busier side in the 1st half of the week.

Private sector PMI figures were in focus along with labor market numbers.

It was a mixed set of numbers. While there was a pickup in private sector activity, employment figures disappointed.

In December, the ISM Manufacturing PMI increased from 57.5 to 60.7, while nonfarm employment fell by 123k according to the ADP.

Factory orders were also positive, however, rising by 1% in November, supporting the pickup in manufacturing sector activity in December.

Freddie Mac Rates

The weekly average rates for new mortgages as of 7th January were quoted by Freddie Mac to be:

  • 30-year fixed rates fell by 2 basis points to 2.65% in the week. This time last year, rates stood at 3.66%. The average fee remained steady at 0.7 points.
  • 15-year fixed rates fell by 1 basis point to 2.16% in the week. Rates were down by 91 basis points from 3.07% a year ago. The average fee slipped from 0.7 points to 0.6 points.
  • 5-year fixed rates rose by 4 basis points to 2.75%. Rates were down by 55 points from 3.30% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

  • A new year, a new record low.
  • Despite a full percentage point decline in rates over the past year, housing affordability has decreased.
  • Record low mortgage rates have been offset by rising house prices.
  • Rates are poised to rise modestly this year, as the forces behind the decline in the drop in mortgage rates have shifted.
  • The rise in mortgage rates and rising house prices will accelerate the decline in affordability.

Mortgage Bankers’ Association Rates

For the week ending 1st January, the rates were:

  • Average interest rates for 30-year fixed to conforming loan balances decreased from 2.90% to 2.86%. Points increased from 0.31 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.09% to 3.08%. Points increased from 0.30 to 0.32 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, slid by 4.2% in the week ending 1st January. In the week ending 18th December, the Index had increased by 0.8%.

The Refinance Index fell by 6% and was 100% higher than the same week a year ago. In the week prior, the index had risen by 4%.

According to the MBA,

  • Mortgage rates started the year close to record lows, most notably with the 30-year fixed rate at 2.86%.
  • Record-low rates for fixed-rate mortgages is good news for borrowers looking to refinance or buy a home, as around 98% of all applications are for fixed-rate loans.
  • Despite these low rates, overall application activity fell sharply during the holiday period, which is typical every year.
  • The steady demand for home buying throughout most of 2020 should continue in 2021.
  • MBA is forecasting for purchase originations to rise to $1.59 trillion this year – an all-time high.

For the week ahead

It’s a relatively quiet first half of the week on the U.S economic calendar.

Key stats include JOLTs job openings for November and December inflation figures.

Expect inflation figures to influence along with last week’s nonfarm payroll and jobless claims figures.

Away from the economic calendar, U.S politics and COVID-19 news will remain in focus.

European Equities: A Week in Review – 08/01/21

The Majors

It was a bullish start to the year for the European majors. In the week ending 8th January, the EuroStoxx600 rallied by 3.04%. The CAC40 and the DAX30 weren’t far behind, with gains of 2.80% and 2.41% respectively.

Early in the week, the EU’s approval of the Moderna Inc. vaccine delivered support to the European majors.

Adding to the upside in the week was expectations of more U.S fiscal stimulus to support the U.S economic recovery.

A “Blue Wave” will now allow Joe Biden and the incoming U.S administration to deliver stimulus unhindered. The Democrats won the Georgia run offs, taking control of the Senate.

The upside in the week came in spite of Germany extending its lockdown period and France considering a reintroduction of containment measures.

For the markets, the combination of COVID-19 vaccinations and U.S stimulus expectations was good enough.

The Stats

It was a busy week on the economic calendar.

The private sector, French consumer spending, and the German economy were in the spotlight in the week.

The Private sector

In December, the manufacturing sector saw a pickup in activity, driven by Germany that saw its PMI hit a 34-month high 58.3. The Eurozone’s manufacturing PMI increased from 53.8 to 55.2 in December, down marginally from a prelim 55.5.

New export sales saw a marked increase at the end of the year. painting a rosier picture for 2021.

While the service sector continued to contract, the rate of contraction eased. The Eurozone’s services PMI rose from 41.7 to 46.4 in December, down from a prelim 47.3.

At composite level, the Eurozone’s PMI increased from 45.3 to 49.1, which was also down from a prelim 49.8.

Containment measures across the Eurozone continued to pin back service sector activity at the end of the year.

The German Economy

From Germany, trade. retail sales, unemployment, and factory order figures were also upbeat, supporting the majors.

In November, retail sales saw an unexpected 1.9% rise, following a 2.6% increase in October.

Unemployment figures also impressed, with unemployment falling by 37K in December, following a 40K slide in November.

Economists had forecasted retail sales to fall by 2% and for unemployment to rise by 10K.

Late in the week, factory orders jumped by 2.3% in November, versus a forecasted 1.2% decline. The upside came off the back of a 3.3% increase in October.

Industrial production figures also came in ahead of forecasts, with production up by 0.9%, following a 3.4% jump in October. Economists had forecast a 0.7% rise.

On the negative, however, was a narrowing in Germany’s trade surplus from €18.2bn to €16.4bn in November.

The narrowing resulted from a larger increase in imports than exports, rather than a slide in exports, however, suggesting strong demand.

Exports rose by 2.2%, with imports jumping by 4.7%.

The Rest

Also on the negative was French consumer spending figures. As a result of lockdown measures, spending tumbled by 18.9% in November. In the month prior, spending had risen by 3.9%.

Other stats in the week included December prelim inflation figures and retail sales and unemployment figures for the Eurozone.

These stats had a muted impact on the majors, however, as did the ECB’s Economic Bulletin.

From the U.S

Economic data was also on the busier side.

Private sector PMI and labor market numbers were the key drivers in the week.

In December, the ISM Manufacturing PMI rose from 57.6 to 60.7, with the Services PMI climbing from 55.9 to 57.2.

A 123k fall in nonfarm payrolls in December, according to the ADP failed to spook the markets ahead of the official government figures.

Jobless claims figures eased any major concerns over a further deterioration in labor market conditions. In the week ending 1st January, initial jobless claims slipped from 790k to 787k.

At the end of the week, nonfarm payrolls fell by 140K in December, partially reversing a 336k increase in November.

In spite of the fall, the unemployment rate held steady at 6.7%, with the participation rate holding steady at 61.5%.

Optimism towards the economic outlook, stemming from fiscal stimulus expectations and COVID-19 vaccinations muted the effects of the NFP figures.

On the monetary policy front, the FOMC meeting minutes had a muted impact on the majors, with U.S politics in the spotlight.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Volkswagen slid by 3.63%, with BMW and Continental falling by 2.45% and by 1.77% respectively. Daimler saw a more modest 0.22% loss in the week.

It was a particularly bullish week for the banking sector, however. Deutsche Bank rallied by 6.48%, with Commerzbank gaining 3.80%.

From the CAC, it was a bullish week for the banks. BNP Paribas rallied by 5.06%, with Credit Agricole and Soc Gen rising by 3.39% and by 4.47% respectively.

It was a mixed week for the French auto sector, however. Peugeot fell by 1.30%, while Renault ended the week up by 2.46%.

Air France-KLM reversed a 5.28% gain with a 5.02% slide, while Airbus ended the week up by 0.36%

On the VIX Index

It was a 3rd week in the red from 4 for the VIX. In the week ending 8th January, the VIX fell by 5.23%. Reversing a 5.67% gain from the previous week, the VIX ended the week at 21.56.

For the week, NASDAQ rallied by 2.43%, with the Dow and S&P500 gaining 1.61% and 1.83% respectively.

The U.S majors hit record highs in the week, supported by expectations of substantial fiscal stimulus to support an economic recovery.

Mid-week, the Democrats won the Senate race, giving them control of both houses.

Following chaos on Capitol Hill on Wednesday, Biden was certified as the U.S President, with Trump stating that there would be an orderly handover on Inauguration Day.

VIX 080121 Weekly Chart

The Week Ahead

It’s a particularly quiet week ahead on the economic calendar. Key stats include November industrial production and trade data for the Eurozone.

Barring particularly dire trade figures, expect the industrial production figures to have the greatest influence.

Finalized December inflation figures for France and Spain are also due out but should have a muted impact on the majors.

From the U.S, inflation, the weekly jobless claims figures, retail sales and consumer sentiment figures will influence in the week.

Out of China, expect trade data to also provide direction.

Away from the economic calendar, COVID-19 news and chatter from Capitol Hill will continue to remain in focus.

The Weekly Wrap – U.S Politics, Stats, and COVID-19 Vaccine News were Key Drivers

The Stats

It was a particularly busy week on the economic calendar, in the week ending 8th January.

A total of 61 stats were monitored, following 15 stats from the week prior.

Of the 61 stats, 23 came in ahead forecasts, with 33 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 20 of the stats reflected an upward trend from previous figures. Of the remaining 41 stats, 34 reflected a deterioration from previous.

For the Greenback, it was a mixed week. After falling to a week low 89.209, the U.S Dollar Spot Index rebounded to end the week up by 0.18% to 90.098. The weekly gain marked a 3rd gain in 8-weeks. In the week prior, the Dollar Spot Index had fallen by 0.32% to end the week at 89.937.

In the week, the Democrats won the Senate race, delivering expectations of substantial fiscal support. Optimism towards the economic outlook was also fueled by COVID-19 vaccine news.

Out of the U.S

It was a relatively busy week on the economic data front.

Private sector PMI and labor market numbers were the key drivers in the week.

In December, the ISM Manufacturing PMI rose from 57.6 to 60.7, with the Services PMI climbing from 55.9 to 57.2.

A 123k fall in nonfarm payrolls in December, according to the ADP failed to spook the markets ahead of the official government figures.

In the week ending 1st January, initial jobless claims slipped from 790k to 787k.

At the end of the week, nonfarm payrolls fell by 140K in December, partially reversing a 336k increase in November.

In spite of the fall, the unemployment rate held steady at 6.7%, with the participation rate holding steady at 61.5%.

In the equity markets, the S&P500 and Dow rose by 1.61% and by 1.83% respectively. The NASDAQ led the way, however, rallying by 2.43%.

Out of the UK

It was a relatively quiet week on the economic data front.

Finalized manufacturing and service sector PMI and Construction PMI figures for December were in focus.

The stats were skewed to the negative, with services PMI, composite PMI, and construction PMI coming up short of expectations.

An upward revision to December’s manufacturing PMI was brushed aside, with service sector activity key.

At the end of the week, December house price figures numbers had a muted impact.

With stats skewed to the negative, a reintroduction of lockdown measures added further pressure on the Pound in the week.

Ongoing vaccinations, following the approval of the AstraZeneca vaccine limited the downside, however.

In the week, the Pound fell by 0.76% to $1.3568. In the week prior, the Pound had risen by 0.85% to $1.3672.

The FTSE100 ended the week up by 6.39%, reversing a 0.64% loss from the previous week.

Out of the Eurozone

It was a particularly busy week on the economic data front.

Private sector PMI figures for Italy and Spain and finalized figures for France, Germany, and Italy were in focus.

From Germany, retail sales, unemployment, factory orders, industrial production, and trade figures also influenced.

French consumer spending numbers also drew interest at the end of the week.

Eurozone unemployment, retail sales, trade data, and inflation figures had a muted impact on the EUR and European majors, however.

It was a mixed bag on the economic data front.

Manufacturing sector activity picked up in December, supported by another sharp increase in new orders.

Service sector conditions improved, though not enough for the sector to return to expansion.

Economic data from Germany was also impressive.

Retail sales saw an unexpected rise in November, with unemployment seeing a surprise fall to leave the unemployment rate at 6.1%.

Factory orders and industrial production also saw further upside in November, while trade data disappointed. In November, Germany’s trade surplus narrowed from €18.2bn to €16.4bn.

French consumer spending also disappointed, with lockdown measures in November weighing. Spending tumbled by 18.9% in November, reversing a 3.9% rise from October.

While economic data from Germany impressed, an extension to lockdown measures in Germany limited the impact of dated numbers.

France was also considering a reintroduction of lockdown measures, adding further pressure on the EUR.

Approval of the Moderna Inc. vaccine, however, limited the impact of planned containment measures in the week.

For the week, the EUR rose by 0.02% to $1.2218. In the week prior, the EUR had risen by 0.18% to $1.2215.

For the European major indexes, it was another bullish week. The EuroStoxx600 rallied by 3.04%, with the CAC40 and DAX30 gaining 2.80% and 2.41% respectively.

U.S politics and vaccine approvals contributed to the upside for the majors in the week.

For the Loonie

It was a relatively busy week on the economic data front. November trade and December Unemployment figures were key stats in the week.

In November, the trade deficit narrowed from C$3.73bn to C$3.34bn.

Employment figures were skewed to the negative, however, with employment falling by 62.6K. As a result of the decline, Canada’s unemployment rate ticked up by 8.5% to 8.6%.

Other stats in the week included RMPI and Ivey PMI numbers that had a muted impact in the week.

Supporting the upside for the Loonie, however, was a jump in crude oil prices and hopes of more U.S stimulus.

In the week ending 8th January, the Loonie rose by 0.20% to C$1.2702. In the week prior, the Loonie had risen by 1.06% to C$1.2728.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar, following solid gains from the previous week.

In the week ending 8th January the Aussie Dollar rose by 0.82% to $0.7757 with the Kiwi Dollar ending the week up by 0.75% to $0.7242.

For the Aussie Dollar

It was a quiet week on the economic calendar.

November building approvals and trade data were in focus in the week.

It was a mixed bag on the economic data front, however. While building approvals were on the rise, Australia’s trade surplus narrowed from A$7.456bn to A$5.022bn.

In spite of the narrowing, the Aussie Dollar found strong support on optimism towards the economic outlook.

Expectations of more U.S stimulus and the ongoing COVID-19 vaccinations delivered support for riskier assets.

For the Kiwi Dollar

It was also a particularly quiet week on the economic calendar.

There were no material stats from New Zealand to provide the Kiwi Dollar with direction.

The lack of stats left the Kiwi in the hands of COVID-19 news and U.S politics in the week.

For the Japanese Yen

It was a relatively busy week on the economic calendar. Finalized privates sector PMI figures for December were in focus, along with November household spending data.

The stats were mixed. While the manufacturing and service sector PMIs saw upward revisions, household spending disappointed.

In November, household spending slid by 1.8%, reversing a 2.1% rise from October.

A jump in new COVID-19 cases in Japan added to the negative sentiment in the week.

The Japanese Yen fell by 0.72 % to ¥103.94 against the U.S Dollar. In the week prior, the Yen had risen by 0.22% to ¥103.20.

Out of China

Private sector PMIs for December were in focus in the first half of the week, with the stats skewed to the negative.

In December, the Caixin Manufacturing PMI fell from 54.9 to 53.0, with the services PMI falling from 57.8 to 56.3

While the stats were on the weaker side, the private sector continued to expand at a solid pace.

On the negative, however, was news of U.S plans to delist Chinese entities from the NYSE.

In the week,  the Chinese Yuan rose by 0.81% to CNY6.4746. In the week prior, the Yuan had risen by 0.22% to CNY6.5272.

The CSI300 rallied by 5.45%, with the Hang Seng ended the week up by 2.38%.