Closing Stock Market SummaryThe Nasdaq Composite (+0.1%) eked out another closing record high on Friday, overcoming a negative start and capping off a strong week for the tech-sensitive index. The Russell 2000 rallied 1.3% and closed at a record high in a steady advance off opening lows, while the S&P 500 (-0.3%) and Dow Jones Industrial Average (-0.6%) closed lower.
The negative start was attributed to news that EU leaders are considering tighter lockdown measures to curb the spread of the coronavirus, including a UK variant that could have a higher mortality rate, and reports of more Republican lawmakers pushing back against President Biden's $1.9 trillion stimulus proposal.
These headlines stirred lingering growth concerns, which were manifested in the underperformance of the S&P 500 financials (-0.7%), industrials (-0.5%), and energy (-0.5%) sectors. Oil prices ($52.33/bbl, -0.79, -1.5%) also softened up, and the growth-sensitive 10-yr Treasury note yield decreased two basis points to 1.09% amid an uptick in demand.
Most sectors gradually pared losses throughout the day, while the counter-cyclical real estate (+0.3%), utilities (+0.2%), and communication services (+0.1%) sectors finished with modest gains.
At the individual stock level, money continued to flow into Apple (AAPL 139.07, +2.20, +1.6%) and Microsoft (MSFT 225.95, +0.98, +0.4%), two of the largest and most liquid stocks in the market, following positive-minded analyst recommendations. Speculators, meanwhile, continued to reap the benefits of their bets, most notably GameStop (GME 65.01, +21.98, +51.1%) today.
On a related note, Apple had its price target raised to $153 from $133 at Cowen, and Microsoft was initiated with a Buy rating at Goldman Sachs.
Separately, shares of Intel (INTC 56.66, -5.80, -9.3%) and IBM (IBM 118.61, -13.04, -9.9%) both dropped nearly 10.0% following their earnings reports and commentary. Note, Intel's positive results were leaked prior to yesterday's close, so the negative reaction might have attributed to the company's acknowledgment that it will continue to manufacture most of its products through 2023.
The 2-yr yield was unchanged at 0.12%. The U.S. Dollar Index increased 0.1% to 90.23.
Reviewing Friday's economic data, which featured Existing Home Sales for December:
- Existing home sales increased 0.7% m/m in December to a seasonally adjusted annual rate of 6.76 million (consensus 6.50 million).
- The key takeaway from the report is that the supply of existing homes is at an all-time low. That is going to be a pressure point that feeds higher prices, shuts out an increasing number of first-time buyers, and bolsters the prospects for new home sales.
- The January IHS flash Markit Manufacturing PMI checked in at 59.1 versus 57.1 in December; the January flash Services PMI checked in at 57.5 versus 54.8 in December.
Investors will not receive any notable economic data on Monday.
- Russell 2000 +9.8% YTD
- Nasdaq Composite +5.1% YTD
- S&P 500 +2.3% YTD
- Dow Jones Industrial Average +1.3% YTD
Oslo locks down after deaths linked to new coronavirus variant
Norway had been one of the countries in Europe least affected by Covid, with low infection and fatality rates
Norway introduced some of its strictest measures of the Covid-19 pandemic so far as it reacted to several deaths in a town near Oslo due to the more contagious variant first discovered in the UK.
The centre-right government on Saturday ordered all shops except for food stores, pharmacies and petrol stations closed in the capital and several nearby municipalities, and moved all schools and kindergartens in the same area to the so-called red level, which means local authorities can shut them.
Authorities moved quickly after it emerged on Friday that two deaths in a care home 20km south of Oslo earlier in January involved the more contagious variant of coronavirus.
Norway has been one of the least affected countries in Europe by Covid-19 with low infection and death rates. Health authorities and the government have been credited with taking rapid decisions both to close down and reopen society.
But the latest restrictions come only five days after Norway became one of the first European countries to ease its restrictions from the first wave. Children’s sports and leisure activities that were allowed to restart on Thursday were halted again on Saturday in Oslo and nine neighbouring municipalities.
“This is a very serious situation and we must do everything we can to stop the outbreak,” Norwegian health minister Bent Hoie said, speaking from his winter cabin.
He said that the measures were the strictest since Norway initially locked down on March 12 last year and in some areas “we are going even further”.
He added: “We are doing what we can now to stop this outbreak with powerful measures, so that we can quickly regain control and ease the most intrusive restrictions. Together we have managed to beat down the virus several times, and together we can manage it again.”
Norway, with a population of 5.3m people, has the lowest death rate per capita of any European country with 544 Covid fatalities during the pandemic. That compares with 11,055 in neighbouring Sweden, which has double the population and eschewed a formal lockdown.
The current restrictions will initially last to the end of January as authorities gauge how far the variant has spread.
Some local politicians in and around Oslo have criticised health authorities for how long it has taken to test samples for the new variant. The samples that led to the lockdown were taken on January 3.
There is no curfew or bar on movement in Oslo, although Norway's government recently asked for the legal power to introduce one if necessary.
FT : Spacs/incentives: skewed dudes
Founders should not get a big windfall of shares simply for doing a deal
Wall Street is in the grip of Spac-mania. Three weeks into the new year and 57 so-called “blank cheque” companies have floated on US exchanges, raising $15.7bn, according to Refinitiv. Goldman Sachs boss David Solomon this week questioned the incentives that inspire sponsors. He had a point.
The new year surge has dwarfed the total of $234.1m raised during the same period last year. The prospects of quick riches have prompted everyone from activist investor Bill Ackman to rapper Jay-Z to jump on the bandwagon.
Spacs — short for “special purpose acquisition companies” — sell shares publicly and use the money raised to buy something — usually within two years. The vehicles are touted as a way to invest in a hot company that they may otherwise miss out on. Proponents say they also offer private businesses a fast, cheap way to go public.
Snags abound. Spac founders are incentivised to buy something — anything — with the cash raised before their deadline (subject to investor approval). Founders are covered if investments sour. They typically receive a stake of 20 per cent for finding good targets. In theory, this looks a small price to pay should the purchase end up as the next DraftKings, a recent Spac success.
In practice, Spacs acquire companies of varying quality, taking them public with skimpier disclosure than a traditional initial public offering requires. A recent study found that most Spac share prices fell post-merger.
Costs can be high. While Spacs usually sell at $10 per share when they float, by the time the median Spac merges with a target, it holds just $6.67 in cash for each outstanding share.
If the chief executive of Goldman Sachs — a big Spac underwriter — has concerns about the incentive structures, regulators should have too. Spac founders should not get a big windfall of shares simply for doing a deal. Such awards should trickle out over the years that follow as progress milestones are met.
Can Shale Resist The Lure Of Another Output Surge?
U.S. shale changed global oil markets. It shook the foundations of OPEC as the one single swing producer group. And last year, it crumbled under the weight of the pandemic that sent oil prices to all-time lows, including a short dip of WTI below zero. Now, shale is getting back on its feet, facing the temptation of production as prices rebound above $50.
Wood Mackenzie’s Vice Chair for the Americas, Ed Crooks, called it a siren song in a recent analysis. The shale boom happened because producers were chasing constant growth. It was this chase that catapulted the United States to the spot of the world’s largest oil producer, but it was also this chase that made the pandemic-caused slump in the shale patch quite spectacular.
Until about a month ago, most of U.S. shale was unprofitable, so producers stayed put—and probably wondered how they were going to keep paying the debts they’d accumulated while going for broke during the second shale boom. Now, at over $50 a barrel, a lot of shale oil is profitable again, at least according to the head of the International Energy Agency Fatih Birol.
But it’s not just him. Reuters earlier this week reported shale drillers have started hedging their future production at the current futures prices—another sign more shale oil is profitable at $53-54 a barrel.
Production remains subdued, for now. The national total averaged 11 million barrels daily as of the first week of January, unchanged on the previous week and down 2 million from a year earlier, according to the latest EIA weekly petroleum report. But the call of the siren could prove too tempting to resist.
The large producers are sticking to their cautious stance. As Pioneer’s president, Richard Dealy, told The Wall Street Journal last week, there is little motivation for production growth. The world does not seem to need more oil right now, he noted, so there is no reason to ramp up output.
The company’s CEO, Scott Sheffield, went further, saying during a webcast earlier this month that he did not expect U.S. shale to return to growth over the next few years.
“I never anticipate growing above 5% under any conditions,” Sheffield also said. “Even if oil went to $100 a barrel and the world was short of supply.” The shale major CEO explained this was because the service costs associated with adding more drilling rigs would undermine profit margins.
But these are the big operators. They can more easily afford to continue restraining production just like OPEC+ is doing. This might be more challenging for smaller companies with higher production costs and a lot of debt that needs to be repaid as banks grow cold to the fossil fuels industry and shale specifically due to its cash-burning habits.
OPEC recently said that it expected U.S. shale to rebound in the second half of this year, not least as a result of OPEC’s own efforts to control production amid the demand destruction wrought on the industry by the pandemic. Industry insiders also note the growing optimism among sector players.
Yet this optimism remains, on the whole, guarded. It may be a signal of a permanent change to how things are done in the shale patch: earlier this month, Concho Resources’ chief executive Tim Leach suggested the pandemic had changed the game for shale oil.
“For most of my career, we would reinvest all our cash flow and then show our success by how much we could grow our production,” he told Bloomberg. “Well, that’s not how it’s going to work in the future.”
There is more than one reason for sticking up to a more disciplined approach to production control: shareholders want returns on their investments, not more barrels of oil, and banks want their loans repaid.Related: Canada Is Cleaning Up Its Oil Sands
“Almost all the E&Ps would take more than 2.5 years to bring their debts down to a healthy level of about 20% gearing,” Wood Mac’s Ed Crooks said in his analysis, noting this would be true even if shale drillers kept production unchanged rather than growing it.
Indeed, there is very little motivation for production growth except the allure of higher prices. Yet this may vanish soon: forecasters are revising down their price projections for the medium term, expecting current price levels to linger. And while they may have made a big chunk of U.S. shale profitable, a lot of this chunk would be barely profitable and vulnerable to a drop below profitability that could happen at any moment.
There are simply too many factors that could weigh on prices, and that’s without even counting in Saudi Arabia’s trigger-happy habit of threatening to flood the market every time someone angers it.
The Biden administration could strike a new nuclear deal with Iran, for instance, which would automatically result in a flood of Iranian oil into the market. Or Libya could fix its pipelines and continue raising production. Or, for all we know about the coronavirus, there could be a resurgence of cases in China with the expected negative effect on demand. A guarded approach to production would be best for U.S. shale producers for now, regardless of how tempting the idea of ramping up may be.
By Irina Slav for Oilprice.com
Nickel rally being fuelled by batteries ‘hype’, analysts warn
Metal up 70% since last March despite forecasts that supply will continue to exceed demand
Nickel’s dramatic rally is being fed by “hype” over electric vehicles and faces a challenge from new sources of supply in the coming years, traders and analysts have warned.
The price of nickel on the London Metal Exchange has risen by about 70 per cent since its low last March to $18,410 a tonne, as speculators bet it will benefit from rising sales of electric vehicles — which are increasingly using higher-nickel batteries. Forecasts of sharp EV growth, encouraged by policymakers’ push for a “green” recovery, have lifted a range of input metals in recent months, including copper and lithium.
“The rally has nothing to do with fundamentals,” said Andrew Mitchell, an analyst at Wood Mackenzie. “It is EV hype. If one looks at the supply/demand balance last year there was a significant surplus, and we expect surpluses this year and next.”
Just 8 per cent of refined nickel demand comes from batteries, while more than two-thirds comes from the stainless steel industry. But batteries’ share could reach 32 per cent by 2040, according to consultancy CRU. Such forecasts have fed the rally.
sources specialist NCIM. “A lot of the stimulus is green energy-focused so that’s why we’ve seen hype coming into the space.”
But Mr Crayfourd is also cautious on nickel’s future due to the amount of investment in new supply. He said he preferred copper for its wider use in wiring for a range of clean energy technologies, including wind turbines, as well as its looming supply shortage.
For nickel, new projects coming in Indonesia, Africa, Canada and the US are expected to cause a continuing surplus of the metal. The largest source is likely to come from Chinese-backed projects in Indonesia, which are planning to use a process called high-pressure acid leaching to separate nickel and cobalt to meet demand from the EV industry. One project, led by China’s Ningbo Lygend, is set to go into production this year. Another, led by China’s battery materials maker GEM Co, is scheduled to start production in 2022, depending on the Covid-19 situation.
Analysts at China’s GF Securities said they expected the projects to “reduce the cost of high-pressure, acid-leaching projects, bringing about a transformation in the use of nickel for batteries”. Higher-nickel batteries can store more energy and therefore provide greater EV driving range.
Talon Metals, a company developing a nickel mine in Minnesota along with Rio Tinto, is specifically targeting the EV market, and hopes to begin producing in 2025. And this week, a small UK miner Kabanga Nickel agreed with Tanzania’s government to develop the country’s Kabanga deposit.
There are risks to the supply outlook. Last year, protesters in New Caledonia, a French territory in the South Pacific, attacked a mine owned by Brazil’s Vale, after it agreed to sell the asset to a consortium including Swiss-based commodity trader Trafigura.
In October, New Caledonia voted to reject independence from France in a referendum, but there is growing anger against foreign mining companies. Further unrest could extend the closure of the Goro mine and affect others on the island. “All bets are off if this continues,” one nickel trader said. “The island is a tinderbox.”
A big question for the longer term is how fast EV demand can ramp up. Rachel Zhang, an analyst at Morgan Stanley, says a shortfall in supply of nickel for EVs could be “sizeable enough to influence nickel pricing in two-three years time”.
NCIM’s Mr Crayfourd thinks the growth in demand is “more long-dated than the market is implying”. He forecasts a surplus will hang around until 2024, or even 2025.
ARGONAUT SAYS WE WON’T BE TENDERING OUR SILTRONIC SHARES AT €140 OR EVEN €150
ARGONAUT SAYS DEAL WILL FAIL AT €140 WITH A 65% ACCEPTANCE THRESHOLD
Early premarket gappers
- Gapping up:
- ADMP +76.4%, FLDM +16.9%, XGN +7.6%, SWIR +7.6%, SIVB +3.5%, VRRM +3.4%, AMRN +3%, OZK +2.4%, TTEK +1.6%, WAL +1.6%, MMP +1.4%, AMD +1.4%, INCY +1.3%, RF +1.3%, FOR +1.1%, BSY +1%, EDU +1%
- Gapping down:
- GSL -14.8%, SENS -14.5%, PGEN -9.2%, IBM -7.6%, IMMP -6.6%, ACB -5.1%, VRAY -5.1%, SI -4.6%, INTC -4.1%, PPG -3.9%, WDC -3.6%, STX -3.2%, BJRI -2.6%, CRSR -2.4%, GLP -2.2%, AZEK -2%, EPD -1.8%, ISRG -1.7%, ARKO -1.5%, NVTA -1.4%, CARG -1.3%, PASG -1.3%, PBCT -1.1%, GSK -0.8%