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Strength Overseas May Carry Over Onto Wall Street
US Market
The major U.S. index futures are currently pointing to a sharply higher open on Tuesday, with stocks likely to move back to the upside following the pullback seen in the previous session.
Strength in the overseas markets is likely to carry over on Wall Street following the release of upbeat Chinese manufacturing data.
China’s manufacturing sector logged its strongest growth in a decade in November to indicate a sustained recovery from the Covid-19 outbreak, survey data from IHS Markit showed.
Continued optimism about a potential coronavirus vaccine may also generate early buying interest, with Pfizer (PFE) and BioNTech (BNTX) applying to the European Medicines Agency for conditional marketing authorization of their vaccine.
Traders are also likely to keep an eye on Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee.
In prepared remarks, Powell called the economic outlook “extraordinarily uncertain” and noted it will depend, in large part, on the success of efforts to keep the coronavirus in check.
“The rise in new COVID-19 cases, both here and abroad, is concerning and could prove challenging for the next few months,” Powell said. “A full economic recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”
“Recent news on the vaccine front is very positive for the medium term,” he added. “For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”
Stocks moved mostly lower during trading on Monday, giving back ground following the strong performance seen last week. The major averages all moved to the downside, with the Dow showing a particularly steep drop.
The major averages climbed off their worst levels of the day but still closed in negative territory. The Dow tumbled 271.73 points or 0.9 percent to 29,639.64, the Nasdaq edged down 7.11 points or 0.1 percent to 12,198.74 and the S&P 500 fell 16.72 points or 0.5 percent to 3,621.63.
The weakness on Wall Street partly reflected profit taking following the strength seen in the markets over the past few sessions.
The upward move seen last Friday lifted the Nasdaq and the S&P 500 to new record closing highs, while the Dow also remained near it best levels.
Negative sentiment may also have been generated in reaction to a report from the National Association of Realtors showing pending home sales in the U.S. unexpectedly decreased in the month of October.
NAR said its pending home sales index slid by 1.1 percent to 128.9 in October after tumbling by 2.0 percent to a revised 130.3 in September.
The continued decline came as a surprise to economists, who had expected pending home sales to jump by 1.0 percent compared to the 2.2 percent slump originally reported for the previous month.
A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.
“Pending home transactions saw a small drop off from the prior month but still easily outperformed last year’s numbers for October,” said NAR’s chief economist Lawrence Yun. “The housing market is still hot, but we may be starting to see rising home prices hurting affordability.”
A report from Reuters indicating the Trump administration is poised to add China’s top chipmaker SMIC and national offshore oil and gas producer CNOOC to a blacklist of alleged Chinese military companies also weighed on the markets.
Reuters said a recent executive order issued by President Donald Trump would prevent U.S. investors from buying securities of the listed firms starting late next year.
Meanwhile, traders largely shrugged off the latest upbeat news regarding a potential coronavirus vaccine, with Moderna (MRNA) announcing that a phase 3 trial of its vaccine candidate indicates an efficacy of 94.1 percent.
The biotechnology company said it plans to request an Emergency Use Authorization from the FDA and conditional approval from the European Medicines Agency today.
Energy stocks turned in some of the market’s worst performances on the day, moving lower along with the price of crude oil.
Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 6.4 percent, the NYSE Arca Oil Index plunged by 6.3 percent and the NYSE Arca Natural Gas Index tumbled by 4.1 percent.
Considerable weakness was also visible among banking stock, as reflected by the 2.9 percent slump by the KBW Bank Index.
Airline, steel, and brokerage stocks also saw significant weakness on the day, moving lower along with most of the other major sectors.
U.S. Economic Reports
The Institute for Supply Management is scheduled to release its report on activity in the manufacturing sector in the month of November at 10 am ET.
The ISM’s purchasing managers index is expected to dip to 58.0 in November from 59.3 in October, although a reading above 50 would still indicate growth in the manufacturing sector.
Also at 10 am ET, the Commerce Department is due to release its report on construction spending in the month of October. Construction spending is expected to climb by 0.8 percent.
Federal Reserve Chair Jerome Powell is also scheduled to testify on the Quarterly CARES Act Report to Congress before the Senate Banking Committee at 10 am ET.
At 11 am ET, Federal Reserve Governor Lael Brainard is due to participate in “Community Reinvestment Act Modernization” discussion hosted by the Chicago Community Trust.
San Francisco Federal Reserve President Mary Daly is scheduled to speak before a virtual Economic Forecast Luncheon hosted by Arizona State University at 1:15 pm ET.
At 3 pm ET, Chicago Federal Reserve President Charles Evans is due to give opening remarks before the virtual “Visions for Milwaukee’s Future: a Community Forum.”
Stocks in Focus
Shares of Tesla (TSLA) are moving sharply higher in pre-market trading after S&P Dow Jones Indices determined it will add the electric car maker to the S&P 500 at its full float-adjusted market capitalization weight effective prior to the open of trading on Monday, December 21.
Exxon Mobil (XOM) may also move to the upside after the energy giant said it will prioritize near-term capital spending on advantaged assets with the highest potential future value.
Meanwhile, shares of Zoom (ZM) are seeing notable pre-market weakness even though the videoconferencing firm reported better than expected third quarter results.
Europe
European stocks have risen on Tuesday on the back of solid Chinese data and coronavirus vaccine hopes. China’s manufacturing sector logged its strongest growth in a decade in November to indicate a sustained recovery from the Covid-19 outbreak.
Investors shrugged of survey results showing that factory activity growth in the euro area cooled last month amid new lockdown measures.
IHS Markit’s final Manufacturing Purchasing Managers’ Index fell to 53.8 in November from October’s 54.8 but came in above the 53.6 flash estimate.
On the other hand, the IHS Markit/CIPS U.K. Manufacturing Purchasing Managers’ Index rose to 55.6 in November from 53.7 in October, its highest since December 2017 and above an earlier flash reading of 55.2.
While the U.K.’s FTSE 100 Index has soared by 1.7 percent, the French CAC 40 Index and the German DAX Index are both up by 0.8 percent.
The British pound crossed $1.34 for the first time in three months and also rose against the euro after a U.K. minister warned the EU that Britain will not be “tied to their way of doing things.”
It was reported earlier that the European Union will launch contingency measures if there is a no trade deal with Britain by Wednesday or Thursday.
Swiss bakery business Aryzta has jumped. The company said it registered gradual improvements in its first-quarter revenue compared to preceding fourth quarter of fiscal 2020.
Lloyds Banking Group has also surged higher a day after it hired the HSBC banker Charlie Nunn as its new chief executive.
AstraZeneca has also moved to the upside. The pharmaceutical company has agreed to sell the rights to Crestor (rosuvastatin) and associated medicines in over 30 countries in Europe, except the U.K. and Spain, to Grünenthal GmbH.
Weir Group has also advanced. The mining technology provider has won a 95 million pounds order to provide aftermarket components and service to the Iron Bridge magnetite Project in Western Australia.
Gold and silver producer Polymetal International has also jumped it announced an initial investment of $0.5 million in exchange for a 35 percent stake in a joint venture with a junior..
Bayer has also risen. The German pharmaceutical and life sciences company said that it has placed 54.5 million shares of Elanco Animal Health at a price of $30.25 per share.
Meanwhile, UniCredit shares have plunged. The Italian lender said that its chief executive officer Jean Pierre Mustier will retire from his role at the end of his mandate which expires in April 2021.
Asia
Asian stocks posted strong gains on Tuesday, with upbeat Chinese data and hopes of a Covid-19 vaccine becoming available soon boosting sentiment.
Chinese shares gained ground after the release of solid data and amid coronavirus vaccine hopes. The benchmark Shanghai Composite Index gained 60.18 points, or 1.8 percent, to finish at 3,451.94, while Hong Kong’s Hang Seng Index ended up 226.19 points, or 0.9 percent, at 26,567.68.
China’s manufacturing sector logged its strongest growth in a decade in November to indicate a sustained recovery from the Covid-19 outbreak, survey data from IHS Markit showed.
The Caixin manufacturing Purchasing Managers’ Index rose to 54.9 in November from 53.6 in October. This was the highest score since November 2010.
Manufacturing companies reported that production increased at the fastest pace in ten years, driven by new orders as well as further recovery from the Covid-19 related disruptions seen earlier in the year. New orders also advanced the most in a decade, underpinned by firmer domestic demand.
Japanese stocks rose despite the dollar resuming its slide and the latest manufacturing data painting a mixed picture of the economy.
The manufacturing sector in Japan continued to contract in November, albeit at a slower pace, the latest survey from Jibun bank revealed with a manufacturing PMI score of 49.0, up from 48.7 in October.
Separate data showed that the unemployment rate in Japan increased to a seasonally adjusted 3.1 percent in October – in line with expectations and up from 3.0 percent in September.
The Nikkei 225 Index jumped 353.92 points, or 1.3 percent, to 26,787.54, a nearly 29-1/2-year high after Moderna said it had applied for U.S. emergency authorization for its Covid-19 vaccine.
In addition, there were reports that the government will deploy additional stimulus to respond to the pandemic.
The broader Topix index closed 0.8 percent higher at 1,768.38, with securities brokerages, non-ferrous metals and metal products leading the gainers. Fast Retailing, Fanuc, Shin-Etsu Chemical, Advantest and Tokyo Electron rallied 2-3 percent.
Australian markets rose sharply as the Reserve Bank of Australia left its suite of monetary policy measures unchanged at its final board meeting of the year.
News that Western Australia will reopen its borders to Victoria and New South Wales beginning December 8 also aided sentiment.
The benchmark S&P/ASX 200 Index climbed 70.70 points, or 1.1 percent, to 6,588.50, while the broader All Ordinaries Index ended up 70.10 points, or 1 percent, at 6,812.20.
Healthcare firms led the surge, with CSL, Cochlear and Resmed rising 1-2 percent. Oil & gas giant Santos gained 0.8 percent after raising its annual production guidance. Gold miners Evolution Mining and Newcrest jumped more than 3 percent.
Westpac rose 0.8 percent despite allegations the bank breached liquidity standards over the past two years. Commonwealth Bank, which is facing a civil lawsuit for overcharging interest on business overdraft accounts, advanced 1.5 percent.
In economic news, the latest reports on manufacturing activity, current account balance and building permits painted a positive picture of the economy.
Seoul stocks hit record highs after the country’s GDP growth was upwardly revised for the third quarter, raising hopes for economic recovery amid the pandemic. Positive manufacturing and trade balance data also offered some support. The benchmark Kospi jumped 42.91 points, or 1.7 percent, to 2,634.25.
Market heavyweight Samsung Electronics advanced 1.7 percent, while No. 2 chipmaker SK Hynix soared 3.1 percent. Rechargeable battery maker Samsung SDI gained 2.6 percent and Internet portal giant Naver added 2.9 percent.
Commodities
Crude oil futures are falling $0.34 to $45 a barrel after slipping $0.19 to $45.34 a barrel on Monday. Meanwhile, after sliding $7.20 to $1,780.90 an ounce in the previous session, gold futures are jumping $32.60 to $1,813.50 an ounce.
On the currency front, the U.S. dollar is trading at 104.35 yen compared to the 104.31 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1975 compared to yesterday’s $1.1963.
