Unrelenting Stimulus Optimism May Generate Buying Interest

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Unrelenting Stimulus Optimism May Generate Buying Interest

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to move back to the upside following the pullback seen over the course of the previous session.

Unrelenting optimism about a new fiscal stimulus bill is likely to contribute to initial strength on Wall Street even as lawmakers have struggled for months to reach a compromise on a new relief package.

House Speaker Nancy Pelosi’s Deputy Chief of Staff Drew Hammill noted that the Democratic leader spoke with Treasury Secretary Steven Mnuchin about a coronavirus relief bill in a phone conversation Monday night.

“Recognizing the need to advance a final agreement on both matters together and quickly this week, the Speaker and the Secretary discussed the urgency of the committees finishing their work as soon as possible,” Hammill said on Twitter.

Hammill said Pelosi reiterated Democrats’ concerns about liability provisions, which remain an obstacle to securing state and local funding.

The conversation between Pelosi and Mnuchin came as bipartisan group of lawmakers publicly released their latest proposal, which was largely in line with a report from Reuters on Monday.

The proposal calls for a previously unveiled $908 billion bipartisan relief plan to be split into two proposals that could be voted on separately in order to win approval.

One bill would be a $748 billion measure including money for small businesses, the jobless and COVID-19 vaccine distribution, while the other would include more controversial measures such as liability protections for business and aid for state and local governments.

Stocks showed a strong move to the upside in early trading on Monday but gave back ground over the course of the session. The major averages pulled back well off their highs of the session, with the Dow and the S&P 500 sliding into negative territory.

The major averages eventually closed mixed for the third consecutive session. While the Nasdaq rose 62.17 points or 0.5 percent to 12,440.04, the Dow slid 184.82 points or 0.6 percent to 29,861.55 and the S&P 500 fell 15.97 points or 0.4 percent to 3,647.49.

The pullback by stocks came as amid concerns about the impact of new lockdown measures as the coronavirus death toll in the U.S. reached 300,000.

New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio have both warned that the city could be headed for another “full shutdown” unless the second wave of coronavirus infections is contained.

“What is increasingly clear is that all forms of restrictions have to be on the table at this point,” de Blasio told reporters. “At the current rate we’re going, you have to be ready now for a full shutdown — a pause like we had back at the end of the spring.”

The warnings about a new round of shutdowns come despite the approval of the coronavirus vaccine developed by Pfizer (PFE) and BioNTech (BNTX).

The CDC signed off on the vaccine following the Emergency Use Authorization issued by the FDA. Pfizer has commenced the first shipments of the vaccine to distribution centers across the country.

The vaccine news contributed to the initial strength on Wall Street along with continued optimism about a new fiscal stimulus bill.

Energy stocks moved sharply lower over the course of the session despite an increase by the price of crude oil.

Reflecting the weakness in the energy sector, the NYSE Arca Oil Index plunged by 3.6 percent, while the Philadelphia Oil Service Index and the NYSE Arca Natural Gas Index tumbled by 2.9 percent and 2.8 percent, respectively.

Substantial weakness also emerged among gold stocks, as reflected by the 2.4 percent slump by the NYSE Arca Gold Bugs Index. The sell-off by gold stocks came amid a decrease by the price of the precious metal.

Pharmaceutical, transportation and banking stocks also came under pressure as the day progressed, contributing to the pullback by the broader markets.

On the other hand, considerable strength remained visible among biotechnology stocks, resulting in a 3.4 percent spike by the NYSE Arca Biotechnology Index. The index ended the session at a four-month closing high.

Alexion Pharmaceuticals (ALXN) led the sector higher after agreeing to be acquired by AstraZeneca (AZN) in a cash and stock deal valued at $39 billion or $175 per share.

Semiconductor stocks also held on to notable gains, with the Philadelphia Semiconductor Index ending the day up by 1.2 percent.

Commodity, Currency Markets

Crude oil futures are climbing $0.43 to $47.42 a barrel after rising $0.42 to $46.99 a barrel on Monday. Meanwhile, after sliding $11.50 to $1,832.10 an ounce in the previous session, gold futures are jumping $25.80 to $1,857.90 an ounce.

On the currency front, the U.S. dollar is trading at 103.79 yen compared to the 104.05 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2140 compared to yesterday’s $1.2144.

Asia

Asian stocks fell on Tuesday as concerns about increasing Covid-19 infections and lockdowns around the world overshadowed investor optimism stemming from vaccine rollouts in Britain, Canada and the United Stated.

Investors looked ahead to policy announcements later this week by the U.S. Federal Reserve and the Bank of Japan for directional cues.

China’s Shanghai Composite index ended little changed with a negative bias even as a slew of data showed that the economic recovery in China remains on track. Hong Kong’s Hang Seng Index ended down 182.23 points, or 0.7 percent, to 26,207.29.

Industrial production in China was up 7.0 percent year-on-year in November, the National Bureau of Statistics said, matching forecasts and up from 6.9 percent in October.

The bureau also said that retail sales rose an annual 5.0 percent – shy of expectations for an increase of 5.2 percent but still up from 4.3 percent in the previous month.

Fixed asset investment gained 2.6 percent on year, in line with expectations and up from 1.8 percent a month earlier.

Japanese shares finished lower after Prime Minister Yoshihide Suga announced that the ‘Go To Travel’ domestic tourism campaign will be suspended nationwide from December 28 to January 11.

The announcement came amid record-breaking coronavirus cases emerging in Japan almost daily since late October.

The Nikkei 225 slipped 44.60 points, or 0.2 percent, to 26,687.84, while the broader Topix closed 0.5 percent lower at 1,782.05.

Travel-related stocks succumbed to selling pressure, with Japan Airlines declining 3.4 percent and ANA Holdings tumbling 7.9 percent.

Kawasaki Heavy Industries surged 5.7 percent after announcing a tie-up with Australian miner Fortescue Metals Group to develop a supply chain of “green” hydrogen.

Australian markets ended lower, with miners declining after China’s steel producers pushed for a regulatory probe into skyrocketing prices.

The benchmark S&P/ASX 200 Index dropped 28.90 points, or 0.4 percent, to 6,631.30, while the broader All Ordinaries Index ended down 33.60 points, or 0.5 percent, at 6,866.70.

Top miners BHP Group and Rio Tinto shed 2.3 percent and 1.3 percent, respectively, after iron ore futures fell more than 4 percent on Monday. Smaller rival Fortescue Metals Group tumbled 3.1 percent.

Whitehaven Coal plunged 5.9 percent and New Hope Corp. gave up 2.7 percent after reports that China has formalized import restrictions targeting Australia’s $14 billion in coal exports.

Woodside Petroleum and Santos lost 2-3 percent as crude prices dipped due to concerns about fuel demand. The big four banks ended down between half a percent and 1 percent despite news that banks would no longer have to hold a portion of their profit back starting next year, raising prospects for higher dividends.

Gold miners also fell broadly, with Northern Star Resources slumping 3.8 percent after gold prices closed at a two-week low overnight.

In economic news, minutes from the Reserve Bank of Australia’s December 1 meeting indicated that the central bank is prepared to do more if needed.

Seoul stocks fell for a second straight day as foreign investors extended their selling spree to a fourth straight session amid spiking virus cases.

South Korea’s daily Covid-19 cases remained high at nearly 900 Tuesday after hitting a daily record of 1,030 cases Sunday.

The benchmark Kospi dipped 5.38 points, or 0.2 percent, to 2,756.82, with the construction and bio sectors pacing the decliners.

Europe

European stocks are turning in a mixed performance in cautious trading on Tuesday as investors cling to hopes of a Brexit trade deal and a U.S. coronavirus relief plan.

Market participants are hopeful for a new round of stimulus in the U.S. after a bipartisan group of senators presented a new fiscal stimulus compromise.

Adding to the positive sentiment, Chinese data released earlier today showed the economic recovery in the world’s second-largest economy broadened in November.

While the U.K.’s FTSE 100 Index has fallen by 0.4 percent, the French CAC 40 Index is up by 0.3 percent and the German DAX Index is up by 0.9 percent.

The British pound has held steady amid some positive news on the Brexit trade deal talks, with Ursula von der Leyen, president of the European Commission, saying there was some “movement” over sticking points.

Meanwhile, London will move into England’s highest tier of Covid-19 restrictions on Wednesday, with additional curbs on restaurants and socializing due to increased infection rates that may be partly linked to a new variant of the coronavirus.

Retail group Metro AG has moved sharply higher after reporting an increase in full-year 2020 net income.

WPP has also risen. The world’s biggest advertising company said it would restate its financial statements for 2017, 2018 and 2019 to comply with accounting rules.

IG Group Holdings has also jumped. The online trading broker said that net trading revenues in the first half of the year will be around two thirds higher than last year.

Meanwhile, Swedish retailer Hennes & Mauritz AB has tumbled after its fourth-quarter net sales amounted to 52.54 billion Swedish kronor, down from 61.69 billion kronor a year ago.

Spanish clothing company Inditex has also slumped after reporting a drop in earnings. German sugar producer Suedzucker has also fallen after cutting its full-year outlook.

AstraZeneca has also moved to the downside amid worries about the Anglo-Swedish drugmaker’s $39 billion acquisition of Alexion.

In economic releases, U.K. unemployment increased in the three months to October and the employment rate declined as the pandemic weighed on job creation.

The unemployment rate rose to 4.9 percent in the three months to October, the Office for National Statistics reported. Economists had forecast the rate to climb to 5.1 percent from 4.8 percent registered in three months to September. The number of people looking for jobs increased by 241,000 from the previous quarter.

French consumer price inflation turned positive in November as initially estimated, driven by food and services prices, final data from the statistical office Insee showed.

Consumer prices gained 0.2 percent year-on-year in November after remaining stable over the previous two months. The rate came in line with the preliminary estimate released on November 27.

U.S. Economic Reports

Import prices in the U.S. saw a modest increase in the month of November, according to a report released by the Labor Department on Tuesday, while the report also showed export prices climbed much more than expected.

The Labor Department said import prices inched up by 0.1 percent in November after edging down by 0.1 percent in October. Economists had expected import prices to rise by 0.3 percent.

Meanwhile, the report said export prices advanced by 0.6 percent in November after rising by 0.2 percent in the previous month. Export prices were expected to increase by 0.3 percent.

A separate report released by the Federal Reserve Bank of New York showed regional manufacturing activity edged slightly higher in the month of December.

The New York Fed said its general business conditions index slipped to 4.9 in December from 6.3 in November, but a positive reading still indicates growth in regional manufacturing activity. Economist had expected the index to edge down to 5.8.

Looking ahead, the report said firms remained optimistic that conditions would improve over the next six months.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of November. Industrial production is expected to rise by 0.3 percent in November after jumping by 1.1 percent in October.

Stocks In Focus

Shares of Prevail Therapeutics (PRVL) are skyrocketing in pre-market trading after the gene therapy company agreed to be acquired by Eli Lilly (LLY) for approximately $1.04 billion.

Eli Lilly may also move to the upside after announcing the acquisition of Prevail, raising its full-year earnings guidance and providing an upbeat revenue forecast for 2021.

Shares of Bristol Myers Squibb (BMY) are also likely to see initial strength after Goldman Sachs added the healthcare giant’s stock to its conviction buy list.

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