Launch Pad

Today

All three major U.S. averages rose on Thursday, only to give up their gains in the final hour of the trading session. The weakness appears to be carrying over this morning, with futures trading slightly lower after retail sales fell for the third month in a row.
 
The big stimulous reveal from Joe Biden was a $1.9T plan that fell a little short of the $2T some were expecting. The other worry is that investors might finally be looking past the mountain of cash and realizing that someone’s going to have to pay for it. Tax hikes are on the horizon, as well as potentially higher rates.
 
Adding to the hesitant open is some mixed messaging from the U.S. banks, which kicked off earnings season. It'll be the first set of earnings since the Fed gave lenders the green light to resume share buybacks, which were halted in March 2020. While estimates largely beat expectations, and the fourth quarter was largely better than people expected. JPMorgan posted its highest-ever quarterly profit after releasing money it had previously set aside to cover loan losses, with its prior assumptions proving to be too pessimistic. It wasn’t all gravy, as the bank continues to hold $30 billion in credit reserves, which they feel continue to reflect significant near-term economic uncertainty. In terms of market reaction, JPM, C and WFC are all trading lower ahead of the open.
 
Yesterday saw the second-highest call option volume on record. Just think of what’s going to happen when American’s get their $1400 stimmy cheque. A lot of it is on the weekly’s, the most volatile, risky and speculative way to play the options market. Given the reversal late yesterday afternoon, and the lower open this morning, we expect many to learn the hard lessons of the options market. Stocks don’t always just go up.
An Economist at CBC Capital Markets believes that Canada may be in line for a ‘rubber band-type’ economic rebound in 2021. He believes we could start seeing growth as early as Q2 if policymakers follow through with what they are saying about a vaccine rollout. It is a highly optimistic report but there is always a chance I guess. He does state that the recovery does not depend on individuals spending their large mounds of cash yet it depends on spending on essential or near-essential services which in Canada are not paid out of pocket.


Diversion:  1) The Onion has a YouTube channel, and 2) it seems they were early to call predictive text... their impression of Apple fans is pretty spot on.
 

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Commodities

Oil prices are slipping this morning due to the surging coronavirus. At the time of writing, NYM WTI Crude futures are down -1.12% to US$52.91/bbl. ICE Brent Crude is down -1.58% to US$55.53/bbl. Safe to say that determining supply and demand in an environment where extensive lockdowns and and a vaccine rollout are battling is challenging. Disappointing jobs data counteracted the announcement of a $2 Trillion stimulus by president-elect Joe Biden. This would typically be a boon for oil but the uncertainty that continues to cloud the market has limited prices. China continues to battle the virus with over 28 million people under lockdown in one of the largest oil consuming countries.
 
Gold Spot Price is level this morning. At the time of writing, the yellow metal is up +0.06% to US$1,847.56/oz. Fresh lockdowns across the globe continue to battle with the announcement of a stimulus package in the United States. Gold continues to linger rangebound while the economic landscape attempts to sort itself out. If inflation presented itself, Gold should respond well in this environment.  

Fixed income and economics

Call off the inflation hawks (well at least for another day). Less than 24 hours after a CPI update showed that the cost of living in America rose in December, wholesale prices are not quite as ebullient. Headline PPI rose last month by +0.3% and below the +0.4% forecast. Moreover, core levels saw just a +0.1% increase and not failing to accelerate from the prior month. One would suppose this effectively supports what Fed Chair Powell reinforced during this talk yesterday, whereby he affirmed his commitment to keeping interest rates low for the foreseeable future even if higher prices rear their head. “If inflation were to move up in ways that are unwelcome, we have the tools for that, and we will use them…and no one should doubt that” he remarked. Still, other officials in recent days have cautioned that inflation could move up sooner than the central bank expects and might force the removal of some policy accommodation sooner than committee members have forecast. Treasury markets are expectedly rallying on the back of the missed data point with the long end up more than a half-point to 1.85% and the curve bull flattening by two basis points. 

Where is Jack Ma? The planned sale of an $8 billion bond offering by Alibaba Group Holdings Ltd. (the largest since they themselves raised debt during their IPO year) has not come to fruition this week as originally scheduled. Bloomberg has noted that a marketing memorandum hasn’t even been sent to investors yet and it all seems to stem from the e-commerce co-founder’s absence (or disappearance?) since his Ant IPO was cancelled by the Chinese government. Yield spreads on Alibaba’s existing A+ rated debt have widened to their most since the pandemic started on this, with even chatter of a possible downgrade. This all comes at a time when Chinese debt defaults have risen too, as after years of debt-fueled spending, Chinese companies are under increasing pressure to comply with new regulatory policies (of which tapering leverage is one of them). 
 

Chart of the day
 

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Quote of the day
 

The best time to make friends is before you need them. - Ethel Barrymore