Daily Market Report | Dec. 18, 2020

Stocks Waver as Stimulus Talks Continue – Wall Street Journal, 12/18/20

  • U.S. stocks edged lower Friday as investors monitored whether Covid-19 infections and worsening economic data would push lawmakers to cement a coronavirus aid package.
  • Friday is expected to be one of the busiest trading days of the entire year.
  • It’s quadruple witching, when options and futures on both indexes and stocks expire simultaneously.
  • Additionally, a slew of indexes are rebalancing today, driving heavy activity across the market.
  • One index swap that traders have been buzzing about for weeks is that of Tesla, which is expected to join the S&P 500 on Monday, spurring heavy activity around the market close today.
  • Dozens of index funds that track the S&P 500 will need to purchase tens of billions of dollars of stock at Friday’s closing price to follow the index as closely as possible.
  • Friday’s stock moves mark a pause after major U.S. indexes have clinched fresh highs this week on optimism about a stimulus package.
  • Top Republicans and Democrats are closing in on a coronavirus relief package that would send direct payments to many Americans, enhance unemployment benefits, provide aid to small businesses and fund distribution of the Covid-19 vaccine, among other measures.
  • Stocks in Asia were mostly lower. The Wall Street Journal reported that U.S. officials were debating how broad to make a list of Chinese companies banned from investment by Americans because of ties to China’s military.
  • China’s Shanghai Composite Index closed 0.3% lower and Hong Kong’s Hang Seng fell 0.7%. Japan’s Nikkei 225 index fell 0.2%.
  • Shares in Semiconductor Manufacturing International fell 5.2% in Hong Kong trading after the Trump administration added China’s largest manufacturer of computing chips to the export blacklist, restricting the company’s access to high-end technology.

Covid-19 Live Updates: U.S. Hospitalizations Set Fresh Record – Wall Street Journal, 12/18/20

  • The U.S. reported more than 233,000 new coronavirus infections Thursday, down from 247,403 a day earlier, according to data compiled by Johns Hopkins University, but up from a week-earlier 226,684.
  • The seven-day moving average, which smooths out irregularities in the data, was 215,729, as of Wednesday, according to a Wall Street Journal analysis of the data.
  • The 14-day average was 213,269.
  • When the seven-day average is higher than the 14-day average, as it has been since Dec. 3, it indicates cases are rising.
  • The nation reported 3,270 deaths on Thursday, according to Johns Hopkins data, pushing its total death toll past 310,000.
  • Hospitalizations hit a record for a 12th straight day, with 114,237 people admitted, including 21,900 in intensive care, according to the Covid Tracking Project.
  • In Southern California, one of the hardest-hit areas of the nation, intensive-care unit capacity reached 0% on Thursday.
  • Although officials have said that hitting 0% doesn’t mean that no beds are available, Southern California’s ICU capacity has steadily eroded as case numbers have climbed.
  • Hospitalizations in New York are also surging.
  • The number of people hospitalized for Covid-19 across New York state reached 6,147 people on Thursday, a figure not seen since mid-May and more than six times the number of patients hospitalized for the disease just two months ago.

Moderna’s Covid-19 Vaccine Gets Backing from FDA Advisory Panel – Wall Street Journal, 12/18/20

  • A Food and Drug Administration advisory panel recommended Thursday that Moderna’s Covid-19 vaccine be cleared for broad use, setting the stage for the FDA to grant an expected emergency-use authorization by late Friday.
  • The advisory panel’s vote was 20-0, with one abstention, to recommend use of the Moderna vaccine for people 18 years of age and older.
  • The lone abstention came from Michael Kurilla, a director of clinical innovation with the National Institutes of Health. In a statement after the vote, Dr. Kurilla cited the lack of longer-term data on the vaccine.
  • “Risk/benefit analysis of vaccine candidates with only two months of safety and efficacy data is unusual in traditional vaccine development,” Dr. Kurilla said. “As such, I felt uncomfortable with an assessment of the vaccine’s risk/benefit profile without also including consideration of the individual’s Covid-19 disease risk.”
  • Doses could start arriving at hospitals and other vaccination sites within days.
  • More shipments will follow, and Moderna expects to deliver a total of 20 million doses by the end of December.

FedEx Revenue Jumps on Holiday Surge – Wall Street Journal, 12/17/20

  • Revenue came in at $20.3 billion. Analysts polled by FactSet on average expected FedEx to post $19.4 billion in revenue.
  • Shipping volumes at FedEx’s Ground unit surged 29% in the latest quarter, as consumers continued to buy everyday goods online, while retailers urged them to do their holiday shopping earlier than normal against the backdrop of the coronavirus pandemic.
  • FedEx’s large Express unit posted a 10% jump in volume from a year ago. It continues to benefit from tight capacity in the air-cargo market, as a severe decline in passenger flights that carried freight in their bellies has cut into supply.
  • For its fiscal second quarter ended Nov. 30, FedEx posted a profit of $1.23 billion, or $4.55 a share, compared with $560 million, or $2.13, a year earlier.
  • FedEx continues to withhold its financial forecast for the current fiscal year. Chief Financial Officer Michael Lenz said the company expects earnings to grow in the second-half because of “anticipated heightened demand for our services.”

Olive Garden parent’s revenue falls 19% as new dining restrictions hit same-store sales – CNBC, 12/18/20

  • Darden Restaurants on Friday reported quarterly revenue that fell short of analysts’ expectations as another wave of pandemic-related dining restrictions weighed on its same-store sales.
  • Net sales dropped 19.4% to $1.66 billion, missing expectations of $1.69 billion.
  • Same-store sales across all of its brands fell 20.6% during the quarter.
  • Olive Garden, the gem of Darden’s portfolio, saw its same-store sales fall 19.9%.
  • LongHorn Steakhouse, which has seen strong demand for its takeout, reported same-store sales declines of just 11.1%.
  • Darden’s fine dining business, which includes The Capital Grille, was hardest hit.
  • The segment’s same-store sales plunged 31% in the quarter.
  • The company reported fiscal second-quarter net income of $96 million, or 73 cents per share, up from $24.7 million, or 20 cents per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings of 71 cents per share.
  • For next quarter, typically its best of the year, the Olive Garden parent expects sales to plunge 30% to 35%.
  • Darden is projecting 5% to 15% of restaurants will permanently shutter due to the pandemic.

Centene expects 2021 profit miss on low Obamacare enrollment, shares slip – Reuters, 12/18/20

  • Health insurer Centene on Friday forecast 2021 adjusted profit that missed Wall Street estimates, after it said membership in its Obamacare business fell short of expectations, sending its shares 1.8% lower in premarket trading.
  • Total revenues are likely to be between $114.1 billion and $116.1 billion, Centene said, while it expected a health benefits ratio, which is the amount spent on medical claims compared to the income from premiums, of around 86.6% to 87.2%.
  • The company expects adjusted 2021 profit between $5 and $5.30 per share, missing estimates of $5.44 per share, according to IBES data from Refinitiv.

U.S. Blacklists China’s Top Chip Maker, Escalating Tech Fight – Wall Street Journal, 12/18/20

  • The Trump administration is adding China’s largest manufacturer of computing chips to an export blacklist, restricting the company’s access to high-end technology over its alleged links to the Chinese military.
  • Semiconductor Manufacturing International, or SMIC, will be added alongside more than 60 other Chinese institutions to the entity list, the Commerce Department said.
  • The designation restricts companies from exporting U.S.-origin technology to the listed firms without a license, with a provision that effectively prohibits SMIC from acquiring technology to build chips with 10-nanometer circuits and smaller, the industry’s top class of chips.
  • The move raises the pressure significantly on the chip maker, a national champion that has received billions of dollars in state backing and is central to Beijing’s drive to improve the country’s self-sufficiency in critical technologies.
  • A senior Commerce Department official told the Journal the policy was designed to prevent SMIC from using U.S. technology to produce the most cutting-edge chips for advanced military applications such as drones, military aircraft and exoskeletons.

More States Hit Google Over Alleged Monopoly Conduct – Wall Street Journal, 12/17/20

  • Google was targeted Thursday in an antitrust lawsuit joined by 38 states, which alleged that the Alphabet unit maintained monopoly power over the internet-search market through anticompetitive contracts and conduct.
  • The 38 states filed in U.S. District Court in Washington, D.C., the same venue where the Justice Department filed a suit Oct. 20 against Google targeting its search business.
  • Mr. Weiser said they were seeking to join the two lawsuits into one piece of litigation. Another state case, which focused on Google’s digital advertising empire, was filed Wednesday in a Texas federal court.
  • For now, the suit filed in Texas covers different terrain than the two Washington, D.C.-based actions. It accuses Google of abusing its power over the complex, highly technical market for displaying ads across the web.
  • Some of those claims could later be added to the other lawsuits filed in Washington. The Justice Department has been posing detailed questions to Google’s rivals about that part of Google’s business, according to people familiar with that probe.

US ECONOMY & POLITICS

Covid Aid Talks Face Time Pressures – Wall Street Journal, 12/17/20

  • Lawmakers were weighing another stopgap spending measure to give themselves more time to wrap up negotiations on a coronavirus relief bill, as they raced to complete the details of the roughly $900 billion package.
  • With a government funding deadline approaching, top Republicans and Democrats are closing in on a package that would send direct payments likely worth $600 to many Americans, enhance unemployment benefits, provide aid to small businesses and fund distribution of the Covid-19 vaccine, among other measures.
  • Disagreements on authority for Federal Reserve lending programs, aid distributed by the Federal Emergency Management Agency and eligibility for the direct checks held up negotiations Thursday.
  • Republicans are pushing to repurpose around $429 billion allocated for Federal Reserve emergency-lending programs and to impose new restrictions on the central bank’s ability to revive them.
  • Sen. Pat Toomey (R., Pa.) wants to include language in the relief bill that would prevent a future Treasury secretary from using the $429 billion originally authorized in the $2 trillion Cares Act relief package that Congress passed in March.
  • The language could go further by restricting the Treasury from reviving the loan programs with a different funding source.
  • Democrats argue that Republicans’ legal interpretation of the lending programs isn’t accurate, accusing the GOP of trying to nail the door shut on the Fed programs to deprive the incoming Biden administration of tools to deliver economic support.
  • Other issues that have been in play include the duration of a $300 weekly boost to unemployment benefits and aid to live-performance venues, according to people familiar with the talks.
  • Lawmakers on Thursday were discussing offering the $300 weekly supplement for 10 weeks, a decrease from the 16 week timeline included in a bipartisan proposal.

U.S. current account deficit rises to more than 12-year high – Reuters, 12/18/20

  • The U.S. current account deficit surged to its highest level in more than 12 years in the third quarter as a record rebound in consumer spending pulled in imports, outpacing a recovery in exports.
  • The Commerce Department said on Friday the current account deficit, which measures the flow of goods, services and investments into and out of the country, widened 10.6% to $178.5 billion last quarter.
  • Data for the second quarter was revised to show a $161.4 billion shortfall, instead of $170.5 billion as previously reported.
  • The current account gap represented 3.4% of gross domestic product in the third quarter.
  • That was up from 3.3% in the April-June quarter and the largest since the fourth quarter of 2008.
  • Imports of goods increased $94.4 billion to $602.7 billion, the highest since the fourth quarter of 2019.
  • Imports of services rose $6.5 billion to $107.7 billion, mostly reflecting increases in fees for intellectual property, mainly licenses for research and development.
  • Exports of goods rebounded $68.4 billion to $357.1 billion last quarter.
  • Exports of services gained $2.8 billion to $164.8 billion.

Government Leaders Clash Over Next Step for Trump’s Ban on Chinese Stocks – Wall Street Journal, 12/18/20

  • President Trump’s recent executive order prohibiting Americans from investing in companies tied to China’s military complex has set up a fight in the highest ranks of government over how broad the list should be.
  • State Department and some Defense Department officials want the executive order to have the widest reach, said people familiar with the matter.
  • Treasury wants the blacklist to only include the companies specifically flagged by the Pentagon, and not affiliates or subsidiaries, the people familiar with the matter said.
  • That is a view generally embraced by many on Wall Street given the fear that a broad list could spook markets and prompt large amounts of forced selling to scrub portfolios of problematic stocks.
  • The battle pits the office of Treasury Secretary Steven Mnuchin against that of Secretary of State Mike Pompeo, who has long said the funding of Chinese state-linked companies by U.S. investors undermines national security.
  • Government officials predict that the stalemate will only be broken when President Trump weighs in, one of the people said.

Disney’s Chairman Robert Iger Is Game for a New Job: U.S. Ambassador to China – Wall Street Journal, 12/18/20

  • Walt Disney executive chairman Robert Iger has told people close to the incoming Biden administration that he would be interested in serving as U.S. ambassador to China, according to people familiar with the matter.
  • Mr. Iger, who served as Disney CEO for 15 years until being named executive chairman earlier this year, would be an unorthodox choice for a posting that typically goes to governors and senators.
  • Lawmakers on both sides of the aisle have criticized Disney’s business dealings in China or have questioned whether President-elect Joe Biden would be sufficiently tough on Beijing, so his possible appointment may draw political backlash.
  • Earlier this year, Disney drew criticism from lawmakers after it was revealed that its live-action remake of “Mulan” had filmed in Xinjiang, a Western province where members of the Muslim Uighur minority have been held in detention facilities.
  • Knowledge of the filming spread when local officials in Xinjiang were thanked in the film’s closing credits.
  • The most highly prized ambassadorships are expected to go to people “who have been with Joe forever,” said a person familiar with the discussions.
  • Mr. Iger has been a supporter of Mr. Biden and has a long-running relationship with China’s President Xi Jinping.
  • During the 2020 election cycle, Mr. Iger gave $500,000 to the Biden Victory Fund, according to Federal Election Commission records. He also donated a combined $85,100 to other efforts to elect Democrats in the Senate and the House.

DEA Widens Path for Medical Marijuana Research – Wall Street Journal, 12/18/20

  • The U.S. government is expanding the number of businesses that can grow marijuana for federally approved study after years of delay under the Trump administration.
  • A Drug Enforcement Administration rule made public Thursday means researchers will be able to study marijuana from more than just one federally sanctioned grower, a farm at the University of Mississippi, which the government has for decades considered the only legal source of marijuana for federal research.
  • “This action enables us to finally produce federally legal cannabis for scientists and doctors,” said George Hodgin, a former Navy SEAL who started his own business in Monterey, Calif., to conduct such research, calling the move “the most meaningful cannabis policy reform at the federal level in six decades.”

EUROPE & WORLD

China urges U.S. to stop crackdown following company blacklist report – Reuters, 12/17/20

  • China’s foreign ministry on Friday urged the United States to stop its “unjustified” crackdown on Chinese companies, after Reuters reported that Washington plans to add dozens of Chinese companies to a trade blacklist.
  • China will continue to take necessary measures to ensure its companies’ legitimate rights and interests, ministry spokesman Wang Wenbin told a daily news briefing in Beijing.

World Bank Says Managers Pressured Staff to Alter Global Business Rankings – Wall Street Journal, 12/18/20

  • World Bank management pressured staff members to manipulate data used in its flagship report on business competitiveness, resulting in improvements in China’s and Saudi Arabia’s global rankings, the bank said after an internal investigation.
  • The bank on Wednesday released the outcome of its audit, which it opened this year after employees raised concerns through an internal survey about the integrity of data in the annual Doing Business report.
  • The World Bank’s audit found that out of the 15 employees on the report’s production team, nine said they had been directly or indirectly pressured to manipulate data while preparing the reports issued in 2017 and 2019.
  • The employees said they didn’t initially escalate their concerns about the pressure they encountered due to fear of retaliation, according to the audit report.
  • After correcting for irregularities, for example, China’s global ranking in the report issued in October 2017 would decline seven points to No. 85 from the 78th slot it was awarded initially.

Tencent Doubles Stake in Universal Music, Home to Billie Eilish and the Beatles – Wall Street Journal, 12/18/20

  • Tencent Holdings is doubling its stake in the music giant behind Ariana Grande and Billie Eilish.
  • The Chinese company said Friday it was leading a consortium that had agreed to buy an additional 10% stake in Universal Music Group from Vivendi, in a deal that values the world’s largest music business at 30 billion euros, equivalent to $36.8 billion.
  • The purchase comes nearly a year after the Tencent-led consortium, which includes its streaming business Tencent Music Entertainment Group and other undisclosed investors, first bought a 10% stake in Universal.
  • Tencent and Vivendi also signed a separate agreement in March enabling Tencent Music to acquire a minority stake in the Universal subsidiary that owns the record label’s Greater China operations.

BlackBerry revenue misses on weak demand for cybersecurity, car software – Reuters, 12/18/20

  • Canada’s BlackBerry, missed Wall Street estimates for third-quarter revenue on Thursday, hit by poor demand for its cybersecurity products and QNX car software.
  • BlackBerry, which also sells security software to companies and governments, widened its customer base during the quarter but revenue fell 18% to $218 million, compared with analysts’ estimate of $219.7 million, according to IBES data from Refinitiv.
  • Net loss widened to $130 million, or 23 cents per share, in the third quarter ended Nov. 30 from $32 million, or 7 cents per share, a year earlier, owing to fair-value adjustments to long-term debt.
  • In the previous quarter, when U.S. auto sales was recovering from pandemic lows hit in April, BlackBerry said demand for QNX was expected to normalize by early next year.

Factmonster – TODAY in HISTORY

  • Slavery was abolished with the ratification of the 13th Amendment to the Constitution. (1865)

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