Daily Markets: Eyes on US Stimulus, Global Economic Growth

Today’s Big Picture

Equity indices in Asia finished the day mixed with gains in Hong Kong’s Hang Seng offset by declines in South Korea’s Kospi and the modest tick lower in China’s Shanghai Composite. Japan's Nikkei finished the day unchanged. By mid-day trading, European equity indices were slightly positive and US futures were mixed with the eMini SPX and NDX trading off slightly and the eMini Dow advancing.

Before US equity markets open, the February Consumer Price Index will be published and investors will be watching to see if the month's data comes in hotter than expected. If so, that could lead Treasury yields to resume their recent climb thwarting potential gains to be had by equities, particularly growth ones, ahead of today's $38 billion 10-year Treasury note auction this afternoon. The outcome of that auction will also shape how Treasury yields fare today, which could lead to somewhat volatile trading this afternoon. Also today House Democrats expected to pass the $1.9 trillion stimulus bill this morning with President Joe Biden slated to sign it this weekend and checks of up to $1,400 are likely to start going out later this month.

Data Download

Coronavirus 

Movie theaters in Los Angeles could be open as soon as within the week if the county can hold numbers according to Gov. Gavin Newsom's plan.

Reports suggest Pfizer (PFE) and BioNTech (BNTX) could have the capacity for 3 billion doses of their COVID-19 vaccine by next year.

International Economy

The European Union is pledging more than $150 billion to develop next-generation digital industries this decade as it seeks to reverse a widening gap with the U.S. and East Asian rivals.

Yesterday the OECD released its latest interim Economic Outlook report, which found that the “global economic prospects have improved markedly in recent months.” The growth in global GDP for 2021 was revised upwardly by more than one percentage point from the last estimate back in December. The new forecast sees global GDP growing by 5.6% in 2021 and 4.0% in 2022 but cautions that a high degree of uncertainty remains based on the trajectory of vaccinations and the virus.

China's inflation rate fell an additional 0.20% YoY in February after falling 0.3% in January and compared to expectations for a decline to -0.3%. The nation's PPI rose 1.7% YoY from 0.3% in January from which it was expected to increase to 1.4%. Additionally, YoY Loan Growth continued to post strong growth, slightly up from January's 12.7% to 12.9% in February and seems to be settling into a pre-Covid range.

Industrial Production in France jumped 3.3% MoM in January after contracting 0.8% in December 2020, from which it was expected to increase to a 0.5% expansion. While not nearly as dramatic as the double-digit swings posted at the beginning of the pandemic in 2020 this move speaks to a broad recovery in French production which is generally less impacted by Covid-19 restrictions. That being said, the transportation sector went against that trend as restrictions continue to mute demand.

Italy’s PPI improved on a relative basis, dropping just 0.29% YoY in January after a contraction of 1.8% in December 2020 with the MoM number almost tripling from the prior 0.5% to post 1.4% in January.

Domestic Economy

After plummeting after the election in November, small business sentiment as measured by the NFIB Small Business Optimism Index remains depressed but improved slightly in February. The headline index rose from 95 to 95.8, versus expectations for an increase to 97. The subindex for Economic Policy Uncertainty fell to 75 in February from 82 in January, a magnitude of decline that is in the bottom 5% of all month-over-month changes and puts the index at the lowest level since last April. Of the 18 categories, 10 were higher in February, 3 were unchanged and 5 declined.

Later today in the US we will get inflation data, the usual weekly MBA Mortgage applications report, and the usual weekly EIA energy stocks reports as well as the federal government’s monthly budget statement for February. We recommend a stiff drink before perusing that last one.

Markets

Yesterday buy-the-dip came roaring back. The S&P 500 rose 1.4% as mega-cap/growth stocks, such as Tesla (TSLA), Peloton Interactive (PTON), Baidu (BIDU), and DocuSign (DOCU) rebounded. The Nasdaq Composite enjoyed a 3.7% gain, its best 1-day performance in over four months after having fallen briefly into correction territory as of Monday’s close (down over 10%). The Russell 2000 rose 1.9%, while the Dow closed up just marginally after having hit a fresh record intraday high and the VIX rose above its 50-day moving average.

Tuesday’s trading saw a reversal of performance since February 12, when Ark’s Innovation ETF (ARKK) peaked. Lowest performing decile of stocks since then were up an average of almost 7% at yesterday’s close. Conversely, stocks in the decline that had the strongest performance since then were down despite the market’s overall closing in the green. After having fallen more than 30% since the start of the year, the Invesco Solar ETF (TAN) and the iShares Global Clean Energy ETF (ICLN) rose 12.8% and 8.8% respectively yesterday. 

Oil futures ended lower yesterday for the second consecutive session. April West Texas Intermediate crude fell $1.04, or 1.6%, to settle at $64.01 a barrel.

Tuesday saw bond yields drop, with the long bond yield falling 7 basis points and the 10-year fell 5 basis points to 1.55%. After one of if not the worst auction of 7-year Treasury notes at the end of February, yesterday’s Treasury auction of 3-year notes was a completely different story with solid demand, which we believe is another data point that counters the inflation narrative. The auction yielded 0.355% with a bid to cover ratio of 2.69, which is the highest level of the ratio since June 2018. 

Stocks to Watch

Bloombergreports a group of hackers claim to have breached a massive trove of security-camera data collected by Silicon Valley startup Verkada Inc., gaining access to live feeds of 150,000 surveillance cameras inside hospitals, companies, police departments, prisons and schools. Among the companies whose footage was exposed were Tesla (TSLA), Cloudflare (NET), and Okta (OKTA).

AerCap (AER) has confirmed it will acquire General Electric’s (GE) GE Capital Aviation Services business and will host a call at 8:30 AM to discuss the details. GE will receive 111.5 million newly issued AerCap shares, $24 billion of cash and $1 billion of AerCap notes and/or cash. Upon completion of the transaction, GE is expected to own approximately 46% of the combined company and will be entitled to nominate two directors to the AerCap Board of Directors. Alongside this announcement, GE reduced its outlook for 2021 to EPS of $0.15-0.20 from $0.15-0.25 vs. and the $0.26 consensus. Also this morning, General Electric announced its Board will recommend that shareholders approve a reverse stock split at a ratio of 1-for-8.

Adidas AG (ADDYY) reported 4Q ESP of EUR0.77 vs. EUR0.85 in the year-ago quarter as revenue fell 5% YoY to EUR5.55 billion. For 2021, the company expects a strong top-line increase with sales to grow at mid-to-high-teens and gross margin returning to around 52%.

Taiwan Semiconductor (TSM) reported its February revs increased 14.1% YoY to NT$106.5 billion. ChipMOS Technologies (IMOS) reported its February revenue rose +3.7% YoY to $70.2 million and shared its high-end DDIC test and memory lines remain at capacity and fully utilized, which continues the positive trends from 2020.

Pending approval from the Department of Transportation, Amazon (AMZN) has acquired a minority stake in the cargo airline, Air Transport Services Group (ATSG), its latest expansion into transportation as the Retail Deflationary Death Star (our assessment) looks to be a powerful force in shipping and logistics.

Marking the first time since November 2019 that monthly sales outpaced cancelled orders, Boeing (BA) sold 82 aircraft in February and logged 51 cancellations. 

At its annual shareholder meeting, Walt Disney (DIS) shared its Disney+ streaming service has topped 100 million global paid subscribers since its launch in November 2019. CEO Bob Chapek shared the company targets 100+ new titles per year across Disney Animation, Disney Live Action, Marvel, Star Wars, and National Geographic. In other Disney news, reports inform that Disney World is sold out for spring break 2021. 

AeroVironment (AVAV) reported January revenue and EPS that beat consensus expectations and the company see 2021 EPS in the range of $1.74-1.94 vs. the $1.87 consensus with revenue of $400-410 million up from its prior guidance of $390-410 million and the $403.7 million consensus. 

H&R Block (HRB) reported January quarter revenue of $308 million, missing the $351 million consensus estimate, as the company was hurt by a delayed start to the US tax season and later-than-usual opening of IRS e-file.

During an investor day, Sonos (SONO) announced it is aiming for FY24 revenue of $2.25 billion, a 13% CAGR based on its 2021 guidance and compares to its previous long-term 10% CAGR. Alongside this forecast, the company also introduced its latest speaker, the Sonos Roam, a portable battery-powered speaker priced at $169 that goes on sale on April 20th.

Accenture (ACN) acquired fable+, a consulting firm specializing in business agility and analytics-driven transformation that expands Accenture's analytics-driven transformation and workplace culture capabilities.

Following the receipt of a revised merger agreement, where each share of Coherent (COHR) common stock will be exchanged for $175 in cash and 1.0109 shares of Lumentum (LITE) common stock, Coherent’s board of directors recommends its stockholders vote in favor of the proposed merger with Lumentum.

Conagra Brands (CAG) is reportedly in talks to sell the famous hot dog brand, Hebrew National, to Brazil’s JBS SA.

American Express (AXP) shared that not all of its employees would likely return to the office and it is considering hiring from a larger talent pool from cities where it does not have offices.

After today’s market close, Asana (ASAN), Calavo Growers (CVGW), Cloudera (CLDR), Lending Club (LC), Oracle (ORCL) and other companies will be reporting their quarterly results. Investors looking to get the nitty-gritty on those reports and the others to be had later today should visit Nasdaq’s earnings calendar page.

On the Horizon

• March 11: JOLTs report for January, weekly jobless claims
• March 12: Producer Price Index, Michigan Consumer Sentiment
• March 15: NY Empire State Manufacturing, Net Capital Flows
• March 16: Retail Sales, Export/Import Prices, Industrial Production, NAHB Housing Market, Business Inventories, API Crude Oil Stocks
• March 17: Building Permits, Housing Starts, EIA Energy Stocks
• March 18: Philadelphia Fed Manufacturing, Weekly Jobless Claims
• March 22: Chicago Fed National Activity Index

Thought for the Day

“Respect your effort, respect yourself. Self respect leads to self-discipline. When you have both firmly under your belt, that’s real power.” ~ Clint Eastwood. 

Disclosures

• Accenture (ACN), Cloudflare (NET), (OKTA).is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• Calavo Growers (CVGW) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• Calavo Growers (CVGW) is a constituent of Tematica Research's Thematic Dividend All-Stars Index. 
• Tesla (TSLA), Calavo Growers (CVGW) is a constituent of Tematica Research’s Cleaner Living Index. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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