Biden to nominate Powell for a second term - strength in financial and energy stocks

• GLOBAL CAPITAL MARKETS OVERVIEW:  

European stock markets closed flat on Monday. Germany warned that the tightening of blockade restrictions would largely offset the impact of the rise in Telecom Italia after the US fund KKR proposed to privatize the largest Italian telecom group for US$12 billion. The pan-European STOXX 600 index closed flat and fell for a while earlier in the session. German Chancellor Merkel said that stricter restrictions are needed to control a wave of infections. Earlier, the surge in the number of new cases prompted Austria to re-impose the lockdown. Telecom stocks soared 1.8%, their best one-day performance since March, driven by a 30.3% rise in Telecom Italia. The US stock market rose after US President Biden nominated Powell for re-election as the Federal Reserve (Fed) chairman for a four-year term.European benchmark stock indexes recorded a decline for the first week in seven weeks last week, as concerns about the impact of new restrictions have hit the booming sectors such as automakers and banks. But these sectors rebounded on Monday, with banks, mining, and industrial stocks all rising. The German DAX index closed down 0.27%. The French CAC-40 index closed down 0.1%, and the British FTSE index closed up 0.44%.  On Friday, the Nasdaq Index, the US stock market, closed above the 16,000 mark for the first time in history and set a record closing high for the second consecutive day. Driven by the rise of technology stocks, the pandemic concerns dragged down the Dow Jones Industrial Index. It closed lower on the fourth day of the past five trading days. The Nasdaq and S&P 500 both recorded weekly gains, up 1.2% and 0.3%, respectively, and fell last week, ending the previous five consecutive weeks of gains. The Dow fell 1.4% this week, a weekly decline for the second consecutive week, erasing the gains in November, and the decline since the record high hit on November 8 reached 2.3%. Banking, energy, and aviation stocks plummeted to cause stocks to fall today. Another surge in new crown cases in Europe has triggered concerns about the re-imposition of lockdown measures. Austria launched a comprehensive blockade plan and worried that Germany might follow suit shocked global stock markets. Bank stocks fell 1.6%, following the trend of U.S. Treasury yields as investors scrambled for safe-haven bonds. The S&P Energy Index fell 3.9%, the worst-performing sector, due to the sharp drop in oil prices. Delta Air Lines, United Airlines, American Airlines Group, other airlines, and cruise companies such as Norwegian Cruise Line and Carnival Corp all weakened, falling between 0.6% and 2.8 %. Falling yields and safe-haven demand support large technology stocks, which in turn push up the Nasdaq index. Since 2020, FAANG stocks, which have generally remained strong despite economic shocks, have generally risen. Netflix Inc rose along with other home benefit stocks. Chipmaker Nvidia closed up 4.1%, rising for the third day in a row, and the Philadelphia Semiconductor Index rose 0.3%, hitting record highs in three of the past four trading days. The Dow Jones Industrial Average closed down 268.97 points, or 0.75%, to 35,601.98 points; the S&P 500 index closed down 6.58 points, or 0.14%, to 4,697.96 points; the Nasdaq Index closed up 63.73 points, or 0.4%, to 16,057.44 points . The S&P 500 index fell in volatile trading. The day before, it was boosted by retail stocks and hit a record high. Standard & Poor's consumer discretionary stocks rose 0.3%, setting a record closing for the second day in a row, breaking a record high earlier in the session. Before this, retailers announced strong results this week, and holiday shopping showed positive signs. Lowe's rose 0.9%, setting a record high for the third consecutive trading day. The company announced its third-quarter results on Wednesday. Etsy, which announced its earnings earlier this month, closed up 1.4%, also setting a record high. Earlier this week, profits were settled after the gains, causing Macy's, Kohl's, and Gap to fall between 2.9% and 8.8%. Information technology stocks rose 0.8%, the best performing sector in the S&P 500 index. Tax preparation software company Intuit soared 10.1%. The company announced more than expected results and raised its financial forecast. Then the brokerage company raised its target price. Forty-five S&P 500 index stocks hit 52-week highs, and nine constituent stocks hit new lows; 100 Nasdaq index stocks hit new highs, and 309 hit new lows. Approximately 10.68 billion shares were traded on US stock exchanges, with an average daily trading volume of 11.12 billion shares over the past 20 trading days. Japan's stock market Nikkei wiped out losses on Monday and closed up. Investors bought cheaper stocks, while concerns about restoring epidemic prevention restrictions in Europe limited the gains. The Nikkei index closed up 0.09% to 29,774.11 points, having fallen as much as 0.68% earlier in the session. The top stock index fell 0.34% to 2,042.82 points.Austria announced new restrictions to control the epidemic, and Germany is also likely to follow up, which has hit the overall morale of Japanese stocks. After the US stock futures index rose during the Asian session, the Nikkei index turned from decline to rise, and Uniqlo parent company Fast Retailing rose 0.47%.Advantest and Tokyo Electronics (Tokyo Velocity) followed the rise of the US stock Nasdaq index, rising 0.96% and 0.35%, respectively. Stocks that would benefit from the reopening of the economy fell. The aviation stock index fell 1.66%, and the railway stock index fell 0.1%.  Russian shares fell in price based on trading on Monday, November 22. The intraday drop in the Moscow Exchange Index turned out to be the maximum since April 15, 2020 (then, during the day, IMOEX sank by 5.05%). If we ignore the emotional turbulence of March 2020, which covered all world markets due to fears of a pandemic, the ruble index over the past ten years has fallen by more than 3.6% very rarely. So, for example, in April 2018, the index fell by 10.8% in a day on the news of sanctions against Rusal. Even earlier, a comparable drop was in January 2016, in March 2015, and in March 2014. These collapses were caused by geopolitical risks, a sharp increase in fears of new sanctions against the Russian Federation. A similar situation is observed this time.Industrial metals rose in price in London, and oil prices made attempts to test the strength of the psychological level of $ 80 / bbl., Which now acts as a resistance. Therefore, we cannot link the weakness of the Russian stock market to pressure from commodity assets. Today, the ruble is the leader in decline among emerging market currencies, while the Norwegian krone, having received support from oil quotes, is the growth leader in the Big Ten. By analogy, the ruble could be the growth leader in the EM segment if not for the geopolitical factor that pushed non-residents to sell Russian assets. The topic of the impending invasion of the Russian armed forces in Ukraine was given credibility by similar reports in several reputable financial media, which referred to confidential sources in the US intelligence. Although a little earlier, the head of Ukraine's military intelligence, Kirill Budanov, said in an interview with the Military Times that Russia has concentrated more than 92 thousand troops near the borders with Ukraine and is preparing to attack in January or February. Moscow views reports of a possible Russian attack on Ukraine as an information campaign to heighten tensions. As a result, the Moscow Exchange index closed at its lowest level since August 26. Technically, any rebound in the coming days could stimulate a new wave of existing long positions. We are not at all sure that we will not see 3800 points testing in the foreseeable future. The reduction in longs may continue, which generally provides a good opportunity to resume buying. But you shouldn't be in a hurry yet. All ten industry indices were down. The IT sector fell 7.5% and became the outsider of the day (-4.4% in November). The construction sector fell 0.98% on Monday, the best result for the first day of the new week. Business developers are focused on the domestic market and less than others depending on the external situation. Of the 43 shares of the Moscow Exchange index, 42 were lost in value. PIK GC completed the main trading with zero results. The Shanghai Composite Index of Chinese stocks closed higher on Monday, continuing the rebound trend led by the semiconductor and new energy automotive sectors. Analysts said that under the downward pressure of the economy, the market looked forward to the marginal relaxation of monetary policy, which supported the stock market to strengthen slightly. The Shanghai Composite Index. SSEC closed up 0.6% to 3,582.08 points, the Shanghai and Shenzhen 300 Index.CSI300 closed up 0.5%, the Shenzhen Growth Enterprise Market index closed up 2.5%, and the Shanghai Stock Exchange Science and Technology Innovation Board 50 component index closed up 2.4%.

 

• REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: The US stock market rallied within 1% on the news that US President Joe Biden had selected Jerome Powell as a candidate for the post of Fed chairman, and now he must be approved by the Senate. Powell's first term at the head of the regulator ends in February 2022. In addition, the second contender for the post, member of the Fed's Board of Governors Lael Brainard, received a nomination from Biden for the post of vice-chairman of the Fed. Investors liked these decisions based on market dynamics (S&P 500 and Nasdaq Composite hit new record highs).

- US: US President Biden nominated Powell to be re-elected as chairman of the Federal Reserve for another four-year term and nominated the current director Brainard as the vice-chairman. The nomination still needs to be confirmed by the Senate. Biden said that when the economy is facing huge potential and huge uncertainty, the stability and independence of the Fed are needed. Powell used facts to prove the independence of the Fed chairman that he valued and withstood unprecedented political interference in the previous administration. To successfully maintain the integrity and credibility of the Federal Reserve, I believe Powell is the right person to lead the recovery of the United States after the epidemic and fight inflation. Biden also said that the nomination of a Republican as chairman and a Democrat as vice chairman is because he believes that it is essential that the leadership of the Federal Reserve have broad bipartisan support, especially in a politically divided country. Powell said he understands that high inflation will bring losses to households and uses tools to support the economy and a strong labor market to prevent inflation from rising and becoming stable.

- RU: The Board of Directors of Norilsk Nickel recommended approving interim dividends for nine months of 2021 in the amount of RUB 1,523.17 per share. January 14, 2022 - date of determination of the right to receive dividends. The meeting of shareholders is scheduled for December 27. Currently, the dividend yield on Norilsk Nickel shares, based on all dividends paid over the last 12 months, is 7.5% (12-month dividend yield). The indicative dividend yield (based on the previous dividend on an annualized basis) is 14%, considering the share price of RUB 21,716. At the time of calculation. The projected dividend yield for 2021 implies 4% per annum and 4% per annum for 2022. The forecast dividend yield for the current year is 11.7%, and for 2022 - 10%.

- EU: The mood in Europe was quite positive. The telecoms sector was among the leaders on news that Ericsson is buying cloud services company Vonage for $ 6.2 billion. Telecom Italia rose almost a quarter on the back of KKR's offer to purchase. The offered price per share of 50.5 euros is more than 45% higher than the closing price of trading on Friday. Finally, Telenor agreed to merge the telecommunications division with the Thai Charoen Pokphand Group. The market value of the deal is about $ 8.61 billion.

- EU: German caretaker Chancellor Angela Merkel said that current measures are not enough to curb the spread of the new crown virus, and more forceful actions must be taken to deal with it. Merkel told party leaders at a meeting of the Christian Democratic League that the country is in a dramatic situation. Whether implementing the current measures or increasing the vaccination rate, it will not be enough to prevent the rapid rise in cases in the short term, calling on 16 federal states. Before Wednesday, take strict measures to deal with it. The authorities earlier decided to restrict most public activities in areas where hospitals are crowded with confirmed patients, and only those who have received injections or recovered are not limited. In addition, about 79% of adults across the country have received two doses of the vaccine, but only 7.5% of them have received booster doses. Another 30,643 confirmed cases and 62 patients died in Germany on Monday. Health officials have warned earlier that it is not ruled out to follow Austria's example and take measures to close the city again.

- JP: The Japanese government is considering the sale of oil from strategic reserves. However, as early as last week, the Japanese authorities responded to the United States in the sense that, according to the legislation, they have no right to use strategic reserves to influence prices. However, Prime Minister Fumio Kishida said last Saturday that he is ready to help the United States in the fight to reduce oil prices. Citigroup analysts believe that the total volume of oil from the strategic reserves of several countries may amount to 100-120 million barrels, including 45-60 million barrels. American funds and 30 million bar. Chinese. The share of Japan and South Korea in this operation is estimated at 10 million bar. from each country. However, the most unpleasant for oil could be a series of quarantine measures in Europe. Austria has gone into a nationwide quarantine since Monday. Similar efforts are being considered in Germany, Holland, France. If this happens, the market will naturally reduce consumption.

- SW: According to data released by Swiss Customs, the largest gold exporter, on November 19, Swiss gold exports in October 2021 were 142.7 metric tons, a record high in more than two years since August 2019; an increase of 21.6% from the previous month and 90.5 from the same period last year. The metric tons increased by 57.7%. Among them, gold exports to China reached 58.5 metric tons, setting a new high since June 2018, becoming the largest export market of the month; an increase of 170% from 21.7 metric tons in the previous month, and zero exports in the same period last year. Swiss gold exports to China increased by 624% annually to 221.8 metric tons from January to October. In October 2021, Swiss gold exports to India decreased by 19% to 40.9 metric tons from 50.45 metric tons in the previous month but increased 68% from 24.33 metric tons in the same period last year. This year, Swiss gold exports increased by 11.7% annually to 1,129.8 metric tons from January to October. Gold exports to India increased by 384% annually to 440.8 metric tons, accounting for 39%, making it the largest export market possible. From July to September this year, India was the largest market for Swiss gold exports.

 

• LOOKING AHEAD:   

Today, investors will receive:

- USD: Flash Manufacturing PMI, Flash Services PMI, and Richmond Manufacturing Index.

- EUR: French Flash Services PMI, French Flash Manufacturing PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Manufacturing PMI, and Flash Services PMI.

- GBP: Flash Manufacturing PMI, Flash Services PMI, and MPC Member Haskel Speak.

- AUD: Flash Manufacturing PMI, and Flash Services PMI.

- JPY: Bank Holiday.

- CAD: Corporate Profits q/q, Gov Council Member Beaudry Speaks, and BOC Financial System Review.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- Astra Space (ASTR) shares rose 43%, a record high since February 2, after the company announced that its rocket had entered orbit.

- Xpeng (XPEV) shares up 6.2% as the company unveils a new SUV that could compete directly with Tesla's Model Y and Nio's ES series.
- Rivian (RIVN) shares declined by 7.9%: Ford Motor (F) abandoned plans to develop an electric car jointly with an American startup.

- As a rule, in the week after Thanksgiving, the American market demonstrates positive dynamics. President Joe Biden will also name the next candidate for the Fed chairman this week. As the current head of the regulator Jerome Powell, and the manager Leila Brainard, they can become.
- On Tuesday, President Joe Biden will talk about the economy and fighting inflation. Accordingly, we can expect requests from the Fed for a stricter policy. Otherwise, trading during the week with Thanksgiving is at lower volumes and less volatility.

- This week, on Wednesday, it is expected to publish the minutes of the last meeting of the FRS on the interest rate of November 3. Investors' expectations about the transition of the regulator to faster actions to roll off quantitative easing and raise the rate are growing.
- Rating agency Moody's downgraded Trinidad and Tobago's sovereign credit rating to Ba2 from Ba1However, we believe Trinidad and Tobago sovereign yields are broadly in line with the market in the BB + composite rating category.
- Fitch has upgraded Seychelles' credit rating to B + and set the rating to a stable outlook. In our opinion, Seychelles Eurobonds may be of interest to risk-averse investors in the short-term investment horizon.
- As reported on Friday, "Rusnano" held a meeting with creditors and major bondholders about a possible restructuring of obligations. Talk about a possible restructuring of the state company's debts is a potentially severe blow to investors' perception of all quasi-government bonds.
- The Euro was the weakest currency in the G10 on Monday. Lockdowns exert pressure on the single currency in Europe and the difference in the rhetoric of the ECB and the FRS representatives.

 

 

 

• STOCK MARKET SECTORS:

- High: Energy, Financials, Industrials.

- Low: Communication Services.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- In general, the situation in the global foreign exchange market was calm. The Turkish lira tried to break its weakening period and return to 11.0 per dollar. The Polish authorities' statements that the migration crisis on the border with Belarus could be a prelude to something more nightmarish kept the zloty close to a 12-year low against the euro. The European Commission has also begun to study the feasibility of further providing EU funding for Poland and Hungary. Finally, the traditional risk currencies AUD and NZD were gaining ground. The Reserve Bank of New Zealand is expected to raise rates on Wednesday, 24 November. The dollar reached a new 16-month high against the euro. US President Joe Biden nominated Jerome Powell for a new 4-year term at the head of the Fed. Lael Brainard will be vice-chairman. The retention of the former head of the Federal Reserve is positive for the dollar, as the markets considered Ms. Braindard to be a more pronounced "dove" than Powell. The activity in the forex options market implies more and more bets that the EURUSD rate will fall to 1.1000 in the coming months. The ruble tried to strengthen in the morning but then began to weaken just as rapidly. Similar factors apply to the Russian currency as to the stock market. The only thing is that the prospect of growth in rates is a short-term negative for the ruble. After the rates stabilize, the ruble will become noticeably more attractive. Anyway, net long ruble positions on the Chicago Futures Exchange rose 9% over the past week.

 

• CHART OF THE DAY:

Oil prices rose on Monday. The OPEC + Alliance has proven to be effective in shaping market balance. However, it may have a competitor - the anti-OPEC alliance led by the United States, which persuaded China to join a coordinated release of oil from strategic reserves in order to reduce oil prices and the cost of gasoline at gas stations. India and Japan are considering legal options, without breaking domestic rules, to join Washington and Beijing in a single and larger release of crude oil from reserves. Brent, $ / bar. - 79.68 (+ 1.00%), WTI, $ / bar. - 76.71 (+ 1.01%), Urals, $ / bar. - 79.66 (+ 1.91%), Gold, $ / tr. oz. - 1,820.01 (-1.33%), Silver, $ / tr. oz. - 24.55 (-0.16%), Aluminum, $ / t - 2 679.50 (-0.23%), Copper, $ / t - 9,646.50 (+ 1.43%), Nickel, $ / t - 20,044.00 (+ 0.38%). •  Brent crude oil - D1, Resistance around ~ 86.69, Support (target zone) around  ~ 77.73

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