Neil's Morning Update - 12/7/21

Neil's Morning Update - 12/7/21

Please excuse typos. Mornings are tilted more international, evenings more U.S. Continuing to try to make this more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated. Also, I don't discuss crypto extensively as I don't consider myself knowledgeable enough to talk intelligently on the subject (and there are plenty of other sources for that). As are reminder, this is a free blog I put out to try to help people get information, so no editors, etc.

A small glossary.

SPX = S&P 500

Naz = Nasdaq Composite

NDX = Nasdaq 100 (100 largest stocks in the Naz)

RUT = Russell 2000 (smaller stocks)

DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = 14-day Relative Strength Index (basically what it sounds like)

BBG = Bloomberg

WSJ = Wall Street Journal

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Global stocks and US futures rose Tuesday as concerns about the severity of the omicron virus variant receded and China pledged measures to support economic growth. The early strength in futures comes after a steady overnight rally although stocks are off their best levels from earlier this morning. European equities also trade on a firmly higher note after Asian markets registered gains overnight. Growth stocks, which were sold off aggressively coming in to yesterday led gains despite bond yields pushing higher this morning. Oil is also continuing its rebound as Treasury yields edge a little higher after bouncing higher yesterday.

NDX is indicated up 1.7%, RUT +1.5%, SPX +1.2%.

Here's the SPX futures this morning. Has continued the rally to the 20-DMA as we thought was the most likely path in last night's summary. We'll see if we get the pullback here which is my "base case" but of course could always see an extension further. Technicals continue to improve.

In U.S. corporate news (Argus):

ACADIA Pharmaceutical (ACAD 22.73, +3.33): +17.2% after announcing positive results from a Phase III drug trial. Bright Health Group (BHG 4.35, +0.57): +15.1% after reaffirming its revenue guidance for FY21 and issuing above-consensus FY22 revenue guidance. Intel (INTC 55.19, +4.20): +8.2% after The Wall Street Journal reported that the company plans a public listing of its Mobileye unit next year. Merck (MRK 72.19, -1.23): -1.7% after pausing enrollment for one of its clinical studies. Apple Inc. also climbed as Morgan Stanley said it will benefit from new product categories in virtual reality and autonomous vehicles.

Asia

Major Asian markets ended higher. Chinese tech stocks also rebounded from last week’s rout, with Alibaba Group Holding Ltd. soaring by the most since its 2019 listing in Hong Kong. Japan's Nikkei +2.1%, Hong Kong's Hang Seng +2.7%, and China's Shanghai Composite +0.2%

In news, the Reserve Bank of Australia left its cash rate target unchanged at 0.10%, as expected, saying it doesn't think Omicron will derail the economy and that it will review its QE plan in February. Japan recorded only one Covid death the last 24 hours as cases there have cratered. China’s property debt crisis that’s been a drag on the economy also continues to be closely monitored as China Evergrande Group’s grace period for some coupons ended with some bondholders yet to receive payment and S&P saying that a default looks inevitable. Meanwhile, a group of Kaisa Group Holdings Ltd. bondholders sent the company a formal forbearance proposal, designed to buy the developer some time and avoid a default. President Biden is expected to speak with Russian President Putin at 10:00 ET about the U.S. intelligence community's concern about potential escalation of the conflict in East Ukraine.

In economic data, China’s exports and imports grew faster than expected in November, with both hitting records as external demand surged ahead of the year-end holidays and domestic production rebounded on an easing power crunch (more below). Japan Oct household spending decelerated but its LEI improved.

China's November Trade Surplus $71.7B (expected $82.8B; last $84.5B); November Exports +22.0% (expected +19.0%; last +27.1%) and Imports +31.7% (expected +19.8%; last +20.6%). BBG.

The data show the continuing strength of global demand for Chinese goods, which has been strong throughout the pandemic. If the spread of the new omicron virus variant proves to be serious and other nations start to lock down again, that will likely provide support for China’s exports, especially personal protective gear and work from home devices.

“Exports picked up in line with seasonality in November and suggest still pretty solid momentum in external demand,” according to Michelle Lam, greater China economist at Societe Generale SA in Hong Kong. “The surprise in import growth was driven by a rebound in commodity volume, probably reflecting improving infrastructure capex demand as local governments stepped up stimulus toward the turn of the year.”

The U.S. was China’s biggest export destination in November, followed by the European Union and the Association of Southeast Asian Nations. Exports to the U.S. grew 28.3% in the first eleven months of the year, while imports from the country increased by 36.9% during the same period.

In November, both the value and volume of metal and energy imports soared. The volume of coal imports hit their highest level this year, natural gas imports were the strongest since January, while crude purchases reached a three-month high.

What Bloomberg’s Economists Think... “Looking ahead, we expect shipments to remain strong into year-end, given signs that external demand is holding up. Even so, this external prop may not be sufficient to counter downward pressure on growth from domestic sources, including the cooling property sector.” David Qu, economist

Japan's October Household Spending +3.4% m/m (expected +3.6%; last +5.0%) and -0.6% yr/yr (expected -0.6%; last -0.6%); October Leading Index +1.9% m/m (last -0.4%)

Australia's November AIG Services Index 49.6 (last 47.6); Q3 House Price Index +5.0% qtr/qtr (expected +5.0%; last +6.7%)

Europe

As of 8 am Eastern, major European indices trade in the green. Technology shares led gains in Europe’s Stoxx 600 Index. Germany's DAX +2.0%, France's CAC +2.3%, and the U.K.'s FTSE +1.2%

In news, the European Central Bank warned that banks' asset quality could deteriorate, and downside risks to the economy could be seen, with a progressive withdrawal of stimulus

In economic data, December ZEW surveys for the EU and Germany improved and deteriorated respectively. Germany industrial production for October came in above estimates. U.K. house prices hit an all-time high in November.

Eurozone's final Q3 GDP +2.2% qtr/qtr (expected +2.2%; last +2.1%) and +3.9% yr/yr (expected +3.7%; last +14.2%); Q3 Employment Change +0.9% qtr/qtr (expected +0.9%; last +0.7%) and +2.1% yr/yr (expected +2.0%; last +1.8%); December ZEW Economic Sentiment 26.8 (last 25.9)

Germany's December ZEW Economic Sentiment 29.9 (expected 25.1; last 31.7); October Industrial Production +2.8% (expected +0.8%; last -0.5%)

According to a poll of financial market experts administered by the German economic institute ZEW, the forward-looking economic sentiment measure for the next half year slipped to 29.9 points to beat the market estimate of 25.4, but this month’s number fell short of the 31.7 reading reported in November.

The current situation component turned negative for the first time since June, and the fall to -7.4 was well below the estimate of 5.0, and the latest step in a precipitous slide from the 12.5 mark from last month and October’s result of 21.6.

ZEW President Professor Achim Wambach said, “The German economy is suffering noticeably from the latest developments in the Covid-19 pandemic. Persisting supply bottlenecks are weighing on production and retail trade.

“The decline in economic expectations shows that hopes for much stronger growth in the next six months are fading.”

UK's November Halifax House Price Index +1.0% m/m (expected +0.8%; last +1.0%) and +8.2% yr/yr (last +8.2%)

France's October Trade Balance -EUR7.5B (expected -EUR6.9B; last -EUR6.9B)

Spain's Consumer Confidence 84.6 (last 97.3)

Switzerland's November Unemployment Rate 2.5% (expected 2.6%; last 2.7%)

Commodities/Currencies/Bonds

Bonds - As noted bond yields pushing higher this morning. The 2-year yield is up four basis points to 0.67%, post-pandemic high, while the 10-year is up four to 1.47%.

Dollar (DXY) - Continues to trend higher for a fifth day. Currently at $96.53. Remains in intermediate-term uptrend. Daily technicals remain negative but are improving.

VIX - Down again to 24.02 as we have (repeatedly) thought would happen.

Crude (/CL) - Continuing to push higher, up a couple more percent, getting above the 200-DMA. Now hitting mild resistance in the old uptrend line. Above that next resistance around $74. Currently at $71.28 WTI. Daily technicals now mixed with an RSI positive divergence. MACD turning also.

As top energy executives affirmed the need for more oil (of course it was at an energy conference).

HOUSTON, Dec 6 (Reuters) - A global energy conference devoted to future technologies and low-carbon strategies kicked off in Houston on Monday with top executives from energy companies affirming the need for more oil for decades to come.

"The world is facing an even more chaotic energy transition," said Saudi Aramco CEO Amin Nasser. "They assume that the right transition strategy is in place. It's not. Energy security, economic development and affordability are clearly not receiving enough attention. Until they are, and we clear the gaps in the transition strategy, the chaos will only intensify."

Anders Opedal, CEO of Norway's Equinor (EQNR.OL), said energy companies have a responsibility to bring down emissions and provide energy. "We will need oil and gas for many years to come but with reduced emissions," he said.

“For the first time in a long time, we’ll see a buyer looking for a barrel of oil as opposed to a barrel of oil looking for a buyer,” Jeff Miller, chief executive officer of Halliburton, the Houston-based oilfield contractor, and largest provider of fracking services, told an audience at the World Petroleum Congress on Monday.

And so far Omicron hasn't dented demand much. BBG.

On a global basis, airline seat capacity has barely budged recently. In the week through Dec. 6, it had dropped only 0.5% versus the previous seven days, according to air-travel intelligence firm OAG. In South Africa, omicron’s epicenter, stubbornly-low flight bookings haven’t taken a further hit, and road use has remained steady. Traffic in Beijing remains at similar levels to last year, according to Baidu data. In Western European capitals, it has been above pre-Covid levels for 12 consecutive weeks, Bloomberg calculations show.

For now, major restrictions remain limited to a handful of countries that don’t consume much oil. Austria went into lockdown before the latest strain was identified, and Vienna traffic levels have slumped to the lowest since August, according to data from TomTom Plc. In Salzburg, recent figures were the lowest since January.

That stands in stark contrast to a global oil market that for much of the last month has been fearing the worst. With Brent crude falling as much as 24% from its high for the year, Goldman Sachs Group Inc. said the market was pricing not a single plane flying in the sky for three months. And Citigroup Inc. has noted the impact of each Covid wave is diminishing.

“The market has priced in a demand drop of over 4 million barrels a day due to the latest wave of infections,” Citi analysts including Ed Morse wrote in a research note. “It is too early to make any solid forecast on the impact of the omicron strain, but we note that each new wave of infections impacted global oil demand by half the previous wave.”

Nat Gas (/NG) - Stabilizing this morning after a dramatic six-day selloff. No real support here so might just be that the sellers are exhausted. Clearly was a lot of positioning purging yesterday. Up a few percent after being down -11% yesterday along. Currently at $3.76. Daily technicals negative but positive RSI divergence.

Gold (/GC) - Continues to remain in the range of the last few days below resistance. Currently at $1782. Daily technicals tilted negative.

Copper (/HG) - Similar to gold, has settled into a range below resistance but is trying to push through. Daily technicals tilt negative. In longer term uptrend.

US Data

Biggest report today is the import/export report which I'll have a short report on today. Headline below. Big jump in exports m/m.

October exports were $223.6 billion, $16.8 billion more than September exports. October imports were $290.7 billion, $2.5 billion more than September imports.

The October decrease in the goods and services deficit reflected a decrease in the goods deficit of $14.0 billion to $83.9 billion and an increase in the services surplus of $0.3 billion to $16.8 billion.

Year-to-date, the goods and services deficit increased $161.7 billion, or 29.7 percent, from the same period in 2020. Exports increased $315.1 billion or 17.9 percent. Imports increased $476.8 billion or 20.7 percent.

Also got a revision to 3Q productivity which showed a bigger drop than initially reported. This caused a bigger increase in labor costs.

US Nonfarm Productivity Q3 F: -5.2% (exp -4.9%; prev -5.0%)

- Unit Labour Costs Q3 F: 9.6% (exp 8.3%; prev 8.3%)

Misc.

Random stuff:

And if the first hike is in June, the first half of next year should continue to be in good shape, and outside of "fast tightening cycles" stocks have done pretty well after a first rate hike.

As no let-up in housing demand yet.

As Saudi's plead for more anti-drone/missile weaponry. WSJ.

WASHINGTON—Saudi Arabia is running out of the ammunition it uses to defend against weekly drone and missile attacks on its kingdom and is urgently appealing to the U.S. and its Gulf and European allies for a resupply, U.S. and Saudi officials said.

Over the past several months, Saudi Arabia has been attacked by nearly a dozen ballistic missile and drone strikes launched each week by the Yemen-based Houthi rebels, U.S. and Saudi officials said. The Saudi military has successfully fended off most of the barrages with its Patriot surface-to-air missile system, but its arsenal of interceptors—missiles used to shoot down airborne weapons—has fallen dangerously low, these officials said.

Meanwhile, the U.S. military has redeployed much of the American weaponry that defended U.S. forces and lent security to Saudi Arabia, part of the Biden administration’s turn away from the Middle East to confront China.

Despite their concerns about Saudi Arabia’s human-rights record and other issues, U.S. officials believe they have an obligation to help the oil-rich kingdom in its own defense, especially as the U.S. grapples with rising oil prices. A sophisticated attack in 2019 hit state-owned Aramco Oil facilities, forcing the brief suspension of some production. The Houthis attacked a major Saudi oil port in March but caused no damage.

And Glaxo says its antibody treatment is effective against Omicron.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://seekingalpha.com/user/15085872/instablogs for more recent or https://sethiassociates.blogspot.com for the full history.