- Weekly global market focus
- Markets wait for Biden initiatives
- Q4 earnings season gets underway
Weekly global market focus — The U.S. markets this week will focus on (1) President Trump’s last-minute actions ahead of Wednesday’s Inauguration Day, (2) anticipation of quick action by President-Elect Biden on a number of fronts after he takes office on Wednesday at noon, (3) the economic impact of the current pandemic surge, (4) Q4 earnings season, which ramps up this week with reports from 42 of the S&P 500 companies, (5) the Treasury’s sale of 20-year T-bonds on Wednesday and 10-year TIPS on Thursday, and (6) a relatively light U.S. economic calendar.
In Europe, the focus is on the economic impact of the current pandemic surge and whether further restrictions will be imposed. The markets are watching the political uncertainty in Italy after Prime Minister Conte lost his majority coalition, meaning a new government must be formed or a snap election will have to be held.
The ECB at its meeting on Thursday is not expected to expand its stimulus measures but is expected to recognize the downside risks for the Eurozone economy from the recent pandemic surge. Friday’s Eurozone PMI reports are expected to show reduced business confidence due to the pandemic surge. The Euro Stoxx 50 index on Monday closed +0.09% during the U.S. holiday.
The Shanghai Composite Index on Monday closed +0.84% on Chinese economic optimism after Sunday night’s Chinese Q4 GDP report of +2.6% q/q and +6.5% y/y was in line with market expectations but showed an impressive recovery even in the face of the ongoing pandemic challenges. China’s Dec industrial production rose +7.3% y/y, which was better than expectations of +6.9% and Nov’s +7.0% report. However, Dec retail sales rose by only +4.6% y/y, which was weaker than market expectations of +5.5% and was down from Nov’s +5.0%.
Markets wait for Biden initiatives — The markets are waiting for President-Elect Biden’s initiatives, which will begin when he becomes President on Wednesday at noon. Mr. Biden on his first day is expected to announce a flurry of executive actions, including rescinding the travel ban on Muslim countries, rejoining the Paris climate agreement, extending the suspension of student loan payments and the eviction ban, issuing a mask mandate for federal property and interstate travel, among others, according to reporting by the New York Times.
The markets are mainly waiting to see how much of the proposed $1.9 trillion pandemic aid bill Mr. Biden will be able to convince Congress to approve. Republicans will have filibuster power in the Senate, meaning there will need to be at least 10 Republicans in favor of the legislation. Otherwise, Democrats will have to rely on the budget reconciliation process to push a limited stimulus bill through the Senate.
Democrats will have control of the Senate possibly as soon as Wednesday when Biden-Harris are sworn in and Ms. Harris becomes the president of the Senate. However, the exact timing depends on when the incoming Georgia Senators Warnock and Ossoff are sworn into their Senate seats. The Georgia Senators could take their seats as soon as Wednesday, although there might be a delay until Thursday or Friday since Friday is the deadline for Georgia to certify the Senate seat elections. California’s new Senator to replace Kamala Harris, California Secretary of State Alex Padilla, is expected to be sworn in either today or Wednesday after Ms. Harris resigned her seat on Monday.
The Senate is expected to return to session today. The Senate Banking Committee today is expected to hold a hearing on Janet Yellen’s nomination as the new Treasury Secretary. Hearings are also expected for other key cabinet positions such as for Defense, Homeland Security, and State. The Senate is expected to confirm those cabinet nominations quickly so that leaders are in place in the event of any new crises.
The markets are waiting to see when the Senate will hold its trial for President Trump’s impeachment. Speaker Pelosi has not yet said when she will send the impeachment referral to the Senate. She may delay the referral to give the Senate time to get Mr. Biden’s cabinet members approved and possibly even to approve a pandemic aid bill. Alternatively, Leaders Schumer and McConnell may come to an agreement whereby the Senate can work on parallel tracks on regular Senate business as well as a trial, as opposed to bringing all Senate business to a halt to spend full time on a trial.
Market interest in Mr. Trump’s trial is focused on whether the trial delays the pandemic aid bill and whether there is a shift in the political landscape if Mr. Trump is convicted and barred from running for office in 2024. However, the betting odds of Mr. Trump being convicted in the Senate during Mr. Biden’s first 100 days is at only 25% at PredictIt.org.
Q4 earnings season gets underway — Q4 earnings season gets underway this week with reports from 42 of the S&P 500 companies. Notable reports this week include Goldman Sachs, Bank of America, and Netflix today; Morgan Stanley and United Airlines on Wednesday; and IBM and Intel on Thursday.
The consensus is for SPX earnings growth in Q4 of -7.8% (-4.4% ex-energy), according to Refinitiv. The consensus is for calendar-year 2020 SPX earnings growth to fall -15.1% due to the pandemic. Looking ahead, the consensus is for SPX earnings growth to recover by +23.9%.
