Wall Street rallied late with the S&P 500 and Nasdaq ending in positive territory, even as optimism about more stimulus faded and concerns about both the availability of vaccines and the pace of vaccinations.
At the close, the S&P 500 had edged 0.4 per cent higher and the Nasdaq had run up 0.7 per cent. The Dow slipped 0.1 per cent. Stocks fluctuated through the session; all three benchmarks were lower at midday.
Gains in Apple and Tesla, both poised to report results later this week, were helped to bolster sentiment. Both reset record highs earlier in the session with Tesla briefly topping $US900 a share. Apple rose 2.8 per cent; Tesla closed up 4 per cent at $US880.80.
The NYSE Fang + index ended up 0.9 per cent on the day. Microsoft and Facebook each rose more than 1 per cent. Amazon and Alphabet closed modestly higher, each up 0.1 per cent. Netflix slid 1.5 per cent.
There is increasing chatter that US investors have simply become too optimistic , with individual investors rushing to buy almost any dip; a potential sell-off is looking for a trigger.
In a note, Bank of America said early earnings season results showed that investors, perversely, were penalising companies for lifting guidance.
“The last time we saw such a perverse market reaction to earnings was during the second quarter of the 2000 earnings season, after which the S&P 500 fell by 13 per cent over the next three months amid a marked change in leadership, with value outperforming growth.”
Oppenheimer chief investment strategist John Stoltzfus said while value stocks “caught a bid in the latter part of 2020, outperforming growth across most market cap segments”, he did see it as a major repositioning move.
“In our view, the rise in value stock prices likely represents a broadening in investor appetite for stocks rather than a longer-term change in market leadership away from technology. In addition, ‘growthier’ issues remain attractive as interest rates are likely to remain low for the intermediate term, suggesting that growth will retain much of its attraction for investors.”
Republicans object
Also denting sentiment overnight, Republicans and even some moderate Democrats are balking at the Biden administration’s proposed $US1.9 trillion in spending to combat the pandemic.
While signalling they are OK with bolstering spending on vaccines and testing, Republicans are dismissing the need, in particular, for $US1400 cheques for most Americans.
While Democrats hold the balance of power in Congress, it’s narrow and having as many Republicans on side is key to the Biden administration moving forward with its progressive policy agenda.
The push back could lead the final bill to target those greatest in need.
Meantime, global known cases of COVID-19 are poised to top 100 million with the death toll at more than 2.1 million, according to Johns Hopkins University.
In the US alone, there have been more than 25.1 million confirmed cases and more than 419,000 deaths. New modelling by Morgan Stanley led it to lift its forecast for infections in the US to reach at least 30 million by the end of February.
In a blow to hopes for more vaccine output, US drug maker Merck said it would end development of its two COVID-19 vaccines.
Johnson & Johnson is expected to publish data in the coming weeks on its vaccine’s efficacy.
Pandemic positives
Still, there are more positive than negative signs that the pandemic’s impact in the US is easing. In particular, the number of people hospitalised in America because of the virus has fallen to its lowest since mid December. Daily new cases also have dropped from their peak earlier this month too.
“Much of the abrupt drop in cases in recent weeks represents
the reversal of the Thanksgiving and holiday season surges, which
were triggered by increased travel and indoor gatherings,” Pantheon Macroeconomics’ Ian Shepherdson said. “We have been pleasantly surprised to see the steady and rapid drop in cases continue unabated.
“We doubt that the current level of restrictions is enough to keep cases falling towards zero, but over the next couple months it is reasonable to expect vaccination to start making a visible difference, initially by reducing the number of hospitalisations and deaths per case, because the most vulnerable people are being vaccinated first.”
Still the US is poised to reinstate COVID-19 travel restrictions on non-US travellers from Brazil, Ireland, the United Kingdom and 26 other European countries.
Today's agenda
Australia Day
Overseas data: New Zealand performance of services index and credit card spending for December; UK ILO unemployment rate November; US FHFA house prices and S&P CoreLogic DS house prices for November, Consumer confidence January
Market highlights
ASX futures up 5 points or 0.1% to 6766 near 8am AEDT
AUD -0.1% to 77.10 US cents
On Wall St: Dow -0.1% S&P 500 +0.4% Nasdaq +0.7%
In New York: BHP -0.8% Rio -0.4% Atlassian -1.9%
Tesla +4% Apple +2.8% Microsoft +1.6% Facebook +1.3%
In Europe: Stoxx 50 -1.4% FTSE -0.8% CAC -1.6% DAX -1.7%
Spot gold flat at $US1855.53/oz at 12.01pm New York time
Brent crude +0.2% to $US55.52 a barrel
US oil +0.1% to $US52.31 a barrel
Iron ore -0.5% to $US169.16 a tonne
2-year yield: US 0.12% Australia 0.09%
5-year yield: US 0.41% Australia 0.40%
10-year yield: US 1.04% Australia 1.11% Germany -0.55%
US prices near 3.30pm in New York
United States
Morgan Stanley equity strategist Mike Wilson said markets have traded ahead of fundamentals and “the extremity of the price moves is almost unprecedented at this point.
“Our conclusion: the reflation rotation may be ready for a much-needed, and deserved, vacation,” Mr Wilson said, adding: “This doesn’t mean cyclicals and small caps won’t outperform over the next year but in the near term, some retracement is likely.“
Europe
European shares closed at two-week lows on Monday as a slump in German business morale underscored the damage from tighter COVID-19 restrictions.
The pan-European STOXX 600 index reversed early gains and finished 0.8 per cent lower.
The Ifo economic institute’s business climate index fell to 90.1 in January from an upwardly revised reading of 92.2 in December, while a Reuters poll had forecast a reading of 91.8.
The German economy, Europe’s largest, will likely reach its pre-pandemic levels in mid-2022, according to a draft document prepared by the economy ministry, seen by Reuters.
“German Q1 GDP now looks likely to fall by at least 1 per cent qoq, assuming that the restrictions for retail and services will only be gradually lifted after February 14,” Deutsche Bank’s chief economist, Stefan Schneider, wrote in a note.
“Hence, our 4-1/2 per cent forecast for the year as a whole looks somewhat ambitious, but given the overall uncertainty we currently see no real need to lower it.”
Economy-linked banking, auto, oil & gas and travel & leisure stocks took the biggest hit, falling between 1.9 per cent and 3 per cent.
Asia
Hong Kong shares climbed more than 2 per cent on Monday as mainland investors continued to buy into the market via the Stock Connect, with tech and material stocks leading the pack.
The Hang Seng index closed 2.4 per cent firmer at 30,159.01, while the China Enterprises Index also gained 2.4 per cent to 11,960.49.
Leading the rally, the Hang Seng tech index jumped 4.5 per cent to a record high, while the Hang Seng materials index rose 2.8 per cent.
The top gainer in the Hang Seng was Tencent Holdings, which gained 10.9 per cent, while the biggest loser was China Unicom Hong Kong, which closed 3.4 per cent lower.
Mainland investors on Monday purchased a net $HK20 billion worth of Hong Kong stocks via the Stock Connect linking mainland and Hong Kong, according to Refinitiv data.
“Compared with other markets, Hong Kong stocks remain relatively cheap,” said Kenny Ng, an analyst at brokerage Everbright Sun Hung Kai in Hong Kong.
“More and more large US-listed Chinese companies would also seek listings in Hong Kong, increasing the attractiveness of the city’s stock market,” he added.
Currencies
The US dollar was steady, while the euro eased as the outlook turned clouded.
“It’s very much a case of hopes for the future against the reality of the first quarter of this year which is going to still prove to be fairly troubled,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.
“For now at least, the optimism that we’re hoping for has been somewhat delayed and that has taken a little bit of steam out of the euro and just put a little bit of support back in the dollar but ultimately I think it is still a case of those high-beta commodity currencies, reflation currencies, will continue to perform well,” he said.
Analysts expect a broad dollar decline during 2021. The net speculative short position on the US dollar grew to its largest in ten years in the week to January 19, according to weekly futures data from CFTC released on Friday.
The Russian rouble gave up early gains to hit more than a one-month low in volatile trade, hampered by geopolitical risks related to the arrest of Kremlin critic Alexei Navalny and subsequent protests calling for his release.
Police detained more than 3000 people and used force to break up rallies across Russia on Saturday as tens of thousands of protesters ignored police warnings and extreme cold weather, leading the European Union to consider fresh sanctions against Moscow.
Commodities
Benchmark iron ore futures in China were trading in a narrow range on Monday, following a fifth straight weekly drop in mills’ utilisation rates, although falling shipments from Australia supported prices.
Capacity utilisation rates at 163 blast furnaces across China fell for five straight weeks to 82.2 per cent last week, data from Mysteel consultancy showed.
That echoed steel products inventories, which had been piling up for a month and jumped 6 per cent as of January 21 from the week earlier, according to Mysteel.
However, shipments of raw material from China’s top buyer Australia had plunged 11% last week to 21.5 million tonnes from the previous week, Refinitiv data showed.
US refiners are girding for a painful slate of fourth-quarter earnings, reflecting the pressure of rising crude prices, weak demand due to renewed COVID-19 travel restrictions, and higher costs of associated with blending of renewable fuels into their products.
Seven US independent refiners are projected to post an average earnings-per-share loss of $US1.51, according to IBES data from Refinitiv.
In its final week in office, the Trump administration eased sanctions against Israeli mining magnate Dan Gertler that were imposed for alleged corruption in Congo, according to a license issued by the Treasury Department.
The license, which was not announced publicly, was issued by Treasury’s Office of Foreign Assets Control (OFAC), according to a January 15 letter to Gertler’s lawyers that was obtained by The Sentry, a Washington D.C.-based anti-corruption group, and seen by Reuters.
With much of the pandemic pain already priced into Australia’s real estate investment trusts, the sector could deliver a 4.7 per cent dividend yield in 2021, according to Jefferies.