Early premarket gappers
- Gapping up:
- IMMP +38%, DMTK +10.7%, EBS +8.4%, PLX +7.5%, MRNA +3.4%, ODT +3%, AZN +1.8%, GAN +1.5%, MGA +1.4%, JD +1.3%, XLE +1%, FCAU +0.9%, JPM +0.8%, ORCL +0.8%
- Gapping down:
- OSMT -26.3%, MVIS -7.1%, SGEN -1.7%, VXX -1.1%, MESA -0.5%
US to test investor appetite with deluge of long-term Treasury sales
Analysts see ‘demand gap’ as government looks to offload $1.8tn in debt to investors
The US is set to flood the market with long-term bonds next year, raising questions over who will buy the debt and at what price.
The Treasury department plans to sharply shift its bond sales towards debt maturing well into the future as the government seeks to fund vast spending programmes.
Investors will be left to gobble up $1.8tn in Treasuries with maturities of greater than one year even after accounting for the Federal Reserve’s massive bond-buying programme, according to estimates by JPMorgan. This will mark a stark contrast to this year, when a far greater proportion of the Treasury’s issuance was in shorter-term debt.
With expectations for higher growth and inflation in 2021, strategists say the US may be forced to offer higher interest rates on these longer-dated securities to entice investors to purchase the debt.
“When we add the numbers up, we have a pretty big demand gap,” warns Jay Barry, a managing director on the interest rate strategy team at JPMorgan. “We think a modest rise in yields will be necessary to encourage demand.”
Treasuries serve as a key benchmark for other types of debt, meaning a rise in US government borrowing costs could cascade across the broader fixed-income landscape. Higher yields also represent one of the main risks for the equities market, analysts have said.
The deluge of long-term Treasury sales comes at a time when investors have already gravitated towards higher-yielding, riskier corners of financial markets in anticipation of a robust economic rebound next year and as the Fed continues taking actions to keep financial conditions loose.
US government bond prices have fallen, as a result, sending yields close to their highest levels in nine months. Longer-dated Treasuries have borne the brunt of the sell-off, with yields on the 10-year Treasury note climbing from below 0.7 per cent at the start of October to just under 1 per cent.
The odds of a dramatic spike in borrowing costs is low, analysts and investors say. The Treasury has already funded the $900bn stimulus package signed into law by President Trump this week, according to Jefferies, and is currently sitting on a record cash pile of $1.5tn. Issuance of shorter-term debt, known as bills, is expected to decline next year as well, several fixed income strategists said.
But investors reckon the “supply overhang” in long-dated Treasuries — as Subadra Rajappa, head of US rates strategy at Société Générale, describes it — coupled with the spectre of resurgent growth and inflation will push Treasury prices even lower next year. Ms Rajappa forecasts 10-year yields will rise as high as 1.5 per cent.
Expectations for higher yields stem in part from the Fed’s reluctance to expand its footprint in the market for US government debt.
Ahead of its most recent meeting on monetary policy, a cohort on Wall Street bankers and economists had called on the Fed to shift the bulk of its bond-buying programme to longer-dated Treasuries in order to ensure that financial conditions remain easy despite the enormous issuance slated for next year. It held off, leaving investors to mop up the additional supply.
Foreign buyers are set to absorb some of it, despite playing a much smaller role in the market in recent years. At 35 per cent, their ownership of Treasury debt is at its lowest level in nearly 20 years, Fed data show. A chunk of the buying is likely to come from Japanese investors given that their domestic government debt holdings are guaranteed to make a loss if held to maturity, said Olivia Lima, a rates strategist at Bank of America.
Banks are also expected to follow up a record year of Treasury demand with another burst of buying. Mr Barry forecasts $200bn for 2021, with an additional $175bn coming from pension funds and insurance companies. That still leaves a $644bn shortfall, according to Mr Barry’s calculations based on overall Treasury issuance, even once other sources of demand are factored in.
Given this gap, Kathy Jones, chief fixed-income strategist at Charles Schwab, said the Treasury department will need to pay up to sell its long-dated debt.
“The demand will be there,” she said. “It just depends on how it gets priced.”
Two run-off elections in Georgia could further exacerbate the imbalance between Treasury supply and demand. If Democrats are able to win both races in January and clinch control of the Senate, more aggressive spending packages — and therefore heftier issuance — could be in the offing next year.
Goldman Sachs, which advocates for so-called “curve steepener” bets that profit if long-term yields rise faster than short-term ones, called the elections “the next major source of event risk for the rates market”.
A move too far, too fast in long-dated Treasury yields that is driven more by supply and demand issues rather than the prospects of faster growth will not go unnoticed by the Fed.
The central bank may need to twist its bond buying towards longer-dated debt or even increase the scale of its bond-buying programme “if the markets start struggling to take down the supply in the first half of year”, said Blake Gwinn, head of short-term rates strategy at NatWest Markets.
That would put an end to any Treasury sell-off, added Oliver Brennan, a senior macro strategist at TS Lombard. “How the Fed decides to structure its demand is going to have the single biggest impact on the market.”
Companies seek to capitalise on ‘employee influencers’
Workers who gain large social media followings are both opportunities and risks
Early in the pandemic, when Amazon loosened its rules around allowing smartphones on the warehouse floor, an employee now known as “thepackman123” saw an opportunity.
The 23-year-old, who works at a facility in New York and asked not to be named, started filming himself — with his face obscured — stuffing products into packages to be sent to customers. With entertaining flair, he swiftly constructs each box before sending it on its way.
At his friends’ suggestion, he began posting the videos on TikTok. Twenty-seven million views later, he received a message from Amazon’s human resources department. “I was like . . . I’m in trouble,” he recalls.
While major brands often clamour for attention from social media influencers, the relationship is complicated when that person is already an employee: a rank-and-file worker who has gained a following by sharing a glimpse into private operations.
“Employees are walking extensions of the brand, so when they post about the company on social media, it has the potential to feel really authentic,” said Lydia Cox, from global ad agency Digitas. “That said, it can also be detrimental when the peek behind the curtain doesn’t line up with the values and promises the brand preaches.”
Thepackman123 said Amazon had tracked him down via a packaging label visible in one of his clips. Amazon would not confirm this but said that it did know his real identity.
Despite breaking Amazon’s strict policies, to his considerable surprise, he has kept his job. He said he believed it was because he showed the company, and its much maligned warehouse jobs, in a somewhat positive light — at a time when Amazon is engaged in an unprecedented recruitment drive.
“There was a lot of hate towards the company,” he said. “But if you look in the comments, everyone was just like, ‘Oh, I want to do that job.’”
“Employee influencer” accounts like thepackman123’s are littered across the major social platforms. With their winning authenticity, they often perform far better than the official marketing efforts.
But employee influencers do not always attract the kind of attention companies want. Earlier this month, a different Amazon worker posted a clip calling the job “toxic” and “inhumane”, while a Target employee recorded a video of herself resigning over a store’s loudspeaker.
When companies find popular accounts, their reaction is often to shut them down, leaving fans bereft and the brands looking out of touch. Tony Piloseno, a 22-year-old who worked at paint company Sherwin-Williams, was fired after the company discovered his TikTok account, which showed the hypnotic process of mixing paint.
The posts attracted millions of views and Mr Piloseno, a marketing student, created a presentation he had hoped to show to the company’s corporate team. Executives refused to look at it, he said, and fired him shortly afterwards. The company also accused him of wasting its product, though he insists he paid for all the paint he mixed.
A wave of negative publicity followed his sacking. “People perceived it as the classic David and Goliath story,” he said.
Mr Piloseno now works for a rival, Florida Paints, having turned down other job offers at similar companies and a handful of digital marketing agencies. “We wish Tony the very best in the next phase of his career,” Sherwin-Williams said.
Some companies are now actively looking to harness the appeal of employee influencers, while minimising the reputational risk involved. A number of influencer management companies have moved into the space to guide their efforts.
UK-based DSMN8, which counts the likes of Ford and Huawei among its clients, offers software to help co-ordinate employee activity across public social media channels. A dashboard provides imagery and suggested topics to post about. Rewards, though not necessarily pay rises, are given to the best performers.
“It’s about finding that kind of dedicated, hardcore internal fan who is comfortable and willing to create content,” said Jody Leon, DSMN8’s marketing director. The end result is more interesting posts at a fraction of the cost.
“Let’s face it, [traditional influencers] don’t get out of bed for anything less than a few thousand these days.”
America’s largest employer, Walmart, has enrolled about 500 employees to be part of its own programme of employee influencers, known as Spotlight, first reported by industry magazine Modern Retail. On TikTok, the #walmartsocialchamps tag collates their best efforts, never straying from the company message.
But even these stage-managed efforts come with their own potential banana skins. Last year, when it was revealed that Amazon was paying some staff to tweet glowing remarks about its warehouse jobs, investigative site Bellingcat likened the behaviour to that of the trolls at Russia’s notorious Internet Research Agency. Twitter users mocked the accounts, suggesting they read like they were written by “hostages”.
Though the “fulfilment centre ambassador” programme still exists, thepackman123 insisted he was not part of it, nor had he been given any guidance on what to do when approached by the media.
His primary concern now, he said, was to build on his social media presence by finding ways to share more of his personality on his feed. But he said that every post that strayed from his packing formula lost him followers.
“A lot of people are like, ‘OK . . . why am I following this guy?’”
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AstraZeneca (ZEG TH) +2.1%
- Astra-Oxford Covid Vaccine Gains First Clearance With U.K. Nod
- NEL (D7G TH) +1.9%
- CD Projekt (7CD TH) +1.6%
- Deutsche Lufthansa (LHA TH) +1.5%
- Vodafone (VODI TH) +1.3%
- Siemens Energy (ENR TH) +1.2%
- TeamViewer (TMV TH) -1%
- Thyssenkrupp (TKA TH) -1.6%
DAX:
- No major moves
MDAX:
- Deutsche Lufthansa (LHA TH) +2.2%
- Stock gained 5.6% yesterday
- Siemens Energy (ENR TH) +1.2%
- Thyssenkrupp (TKA TH) -1%
- Stroeer (SAX TH) -1.3%
SDAX:
- ElringKlinger (ZIL2 TH) +3.6%
- Stock down 2.6% yesterday
- Westwing (WEW TH) +2.3%
- LPKF (LPK TH) +2%
- Encavis (CAP TH) +1.2%
- Hornbach Holding (HBH TH) +0.9%
- Deutsche PBB (PBB TH) -0.8%
- Global Fashion Group (GFG TH) -0.8%
- Takkt (TTK TH) -1.1%
The dollar extended recent declines as traders squared positions ahead of year-end. Asian stocks, U.S. and European futures were mixed amid fading prospects for bigger government aid checks to individuals.
Shares saw strong gains in Hong Kong, China and South Korea, and S&P 500 futures pointed modestly higher. Stocks retreated in Japan and Australia alongside European contracts. Volumes were thin across major markets before the end of the year. Earlier, U.S. equities closed with a slight decline as Senate Republicans blocked an attempt by Democrats to increase direct payments to individuals to $2,000 from $600. An index of small cap shares tumbled almost 2%. Benchmark Treasuries were little changed and oil edged higher.
After Hours Summary: Pretty quiet after hours; OSMT -27.6% falls on FDA letter; IMMP +8.5% rises as it receives US patent
Nikkei -0.45% Hang Seng +1.48% CSI +1.22% Shanghai +0.92% Shenzen +1.24%
Eur$ 1.2282 CNH 6.5042 CNY 6.5290 JPY 103.31 GBP 1.3548 CHF 0.8825 RUB 73.6992 TRY 7.3745 WTI$ 48.22 +0.46%
S&P +0.36% Nasdaq +0.37% EuroStoxx -0.08% FTSE -0.04% Dax -0.04% SMI +0.15%
Macro :
- U.K. Carmakers Seek Brexit Phase-In Period to Avoid Border Mess
- Italy Banks to Sell EU30b of Soured Loans in 2020: Bank of Italy
- France Should Maintain Electric Car Bonuses: Federation
Keep an eye on :
- AZN LN : Astra-Oxford Covid Vaccine Gains First Clearance With U.K. Nod
- CAST SS : Castellum’s Proposed Chairman Open to Klovern, Corem Mergers: DI
- CO FP : Casino, Credit Mutuel Hired Banks to Sell Floa Bank: Echos
- CGG FP : CGG Subscribed to 3.30% of Shearwater Geoservices Shares
- DAI GY : The World’s Best Formula One Team Is Looking Beyond Victory Laps
- DLG LN : Cites speculation at least one company is considering a bid - The Times
- ENI IM : Italy’s ENI Signs Cooperation Agreement With China
- FTIV US : Perella Weinberg Is Said to Ink Deal With Betsy Cohen’s SPAC
- INTC US : Hedge Fund Third Point Urges Intel to Explore Deal Options: Rtrs
- NOVN SW : Novartis Chairman Pessimistic on Alzheimer Treatments: T-A
- RKET GY : Elliott Stake Complicates Rocket Internet’s Plan to Delist
- SPM IM : Saipem Gets Contract in Australia in Joint Venture With Clough
- SAP GY : SAP’s Qualtrics Unit Could Be Valued Over $20 Billion Post-IPO
- SIKA SW : SIX Exchange Reaches Agreement With Sika on Reporting Breaches
- UNI SM : Unicaja Agrees to Buy Rival Liberbank in Boost to Spanish Deals
>>> Up
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>>> Down
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>>> Initiation
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>>> Call
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Asian indices trade mixed, HK Tech firms extend gains; USD Index FUTs move lower into year end
General Trend:
- Hang Seng outperforms as TECH index extends gain
- Hang Lung Properties’ transaction with US gov’t delayed by China/HK
- Gainers in Shanghai include Consumer, Industrial and IT firms; Financial and property cos. lag
- Kospi trades at record high in final trading session of the year, chipmakers rise ; KRW gains
- Australian equities decline amid REIT ex-dividends
- In last trading day of 2020, Nikkei has modest drop after rising over 2.6% during prior session; Topix Pharma, Iron/Steel, Electric Appliances and Real Estate indices are among the decliners ; Transport and Securities indices rise
- USD/CNH declines toward 6.50
- Dalian Iron Ore FUTs decline by over 5%, China plans to cut crude steel production in 2021
- Note today is the last day of trade for the year for Japan and Korea markets
***Headlines/Economic Data***
Australia/New Zealand
-ASX 200 opened -0.0%
- IRI.AU Guides He Net to break even at A$2.0M v A$11.8M y/y, Rev A$34-37M v A$53.2M y/y; trading performance has been below expectations
Japan
-Nikkei 225 opened -0.0%
- 4552.JP Signs agreement to produce Astrazenena coronavirus vaccine
- (JP) Japan planning to issue Govt backed green bonds (1st time) - Nikkei
- 9984.JP To offer at home low cost COVID tests in Japan – Nikkei
- 9449.JP Receives license in New York to issue stablecoin pegged to the Yen (JPY) - US press
Korea
-Kospi opened -0.0%
-003550.KR Indonesia confirms MOU with LG Group for Electric Vehicle Batteries for $9.8B
- (KR) South Korea Nov Industrial Production M/M: 0.3% v 0.8%e; Y/Y: +0.5% v -0.5%e
- (KR) South Korea Nov Retail Sales M/M: -1.0% v -0.9% prior; Y/Y: -1.5% v -0.2% prior (2nd consecutive decline)
- 000270.KR Union votes to accept wage freeze amid pandemic (1st freeze since 2009)
- (KR) South Korea reports 1,050 COVID cases v 1,046 prior (2nd consecutive day above 1,000)
China/Hong Kong
-Hang Seng opened +0.5%; Shanghai Composite opened -0.1%
- (CN) China Stats Bureau NBS: revises 2019 GDP lower from 6.1% to 6.0%
- (CN) China PBOC statement after quarterly policy meeting: Reiterates to avoid a sudden shift in monetary policy while maintaining necessary support for the economy’s recovery
- China PBOC Open Market Operation (OMO): Injects CNY40B in 7-day reverse repos v CNY20B in 7-day reverse repos prior; Net Injection: CNY30B v CNY10B prior
- China PBOC sets Yuan reference rate: 6.5325 v 6.5451 prior
- (CN) China State Post Bureau issues first standard for unmanned aircraft delivery (drones)
- 300433.CN Apple Supplier Lens Technology reportedly accused of using forced labor in China - press
- 1099.HK Coronavirus vaccine has 79.3% efficacy, meeting technical standard of WHO and Chinese regulator, submitted application for use of vaccine
North America
- (US) Weekly API Crude Oil Inventories: -4.8M v +2.7M prior
- (US) Trump campaign appeals to Supreme Court over Wisconsin challenge, seeking review before Jan 6th
- INTC Third Point (Loeb) in letter reportedly urges Intel to explore strategic alternatives including 'potential divestment of certain failed acquisitions' – press (US session)
- (US) Louisiana Congressman Elect Letlow (R-LA) dies of coronavirus at the age of 41
Europe
- (EU) EU member states approve UK post-Brexit trade deal - press (as expected)
- (UK) PM Johnson expected to be able to get Brexit deal approved by parliament within a day
- (UK) PM Johnson approves extension of Tier 4 restrictions - UK's Times
***Levels as of 12:15ET***
- Hang Seng +1.7%; Shanghai Composite +0.9%; Kospi +1.8%; Nikkei225 -0.3%; ASX 200 -0.5%
- Equity Futures: S&P500 +0.5%; Nasdaq100 +0.4%, Dax +0.3%; FTSE100 +0.1%
- EUR 1.2295-1.2246; JPY 103.61-103.27; AUD 0.7663-0.7602; NZD 0.7189-0.7144
- Commodity Futures: Gold +0.3% at $1,889/oz; Crude Oil +0.6% at $48.28/brl; Copper +0.7% at $3.57/lb
General Trend:
- Hang Seng outperforms as TECH index extends gain
- Hang Lung Properties’ transaction with US gov’t delayed by China/HK
- Gainers in Shanghai include Consumer, Industrial and IT firms; Financial and property cos. lag
- Kospi trades at record high in final trading session of the year, chipmakers rise ; KRW gains
- Australian equities decline amid REIT ex-dividends
- In last trading day of 2020, Nikkei has modest drop after rising over 2.6% during prior session; Topix Pharma, Iron/Steel, Electric Appliances and Real Estate indices are among the decliners ; Transport and Securities indices rise
- USD/CNH declines toward 6.50
- Dalian Iron Ore FUTs decline by over 5%, China plans to cut crude steel production in 2021
- Note today is the last day of trade for the year for Japan and Korea markets
***Headlines/Economic Data***
Australia/New Zealand
-ASX 200 opened -0.0%
- IRI.AU Guides He Net to break even at A$2.0M v A$11.8M y/y, Rev A$34-37M v A$53.2M y/y; trading performance has been below expectations
Japan
-Nikkei 225 opened -0.0%
- 4552.JP Signs agreement to produce Astrazenena coronavirus vaccine
- (JP) Japan planning to issue Govt backed green bonds (1st time) - Nikkei
- 9984.JP To offer at home low cost COVID tests in Japan – Nikkei
- 9449.JP Receives license in New York to issue stablecoin pegged to the Yen (JPY) - US press
Korea
-Kospi opened -0.0%
-003550.KR Indonesia confirms MOU with LG Group for Electric Vehicle Batteries for $9.8B
- (KR) South Korea Nov Industrial Production M/M: 0.3% v 0.8%e; Y/Y: +0.5% v -0.5%e
- (KR) South Korea Nov Retail Sales M/M: -1.0% v -0.9% prior; Y/Y: -1.5% v -0.2% prior (2nd consecutive decline)
- 000270.KR Union votes to accept wage freeze amid pandemic (1st freeze since 2009)
- (KR) South Korea reports 1,050 COVID cases v 1,046 prior (2nd consecutive day above 1,000)
China/Hong Kong
-Hang Seng opened +0.5%; Shanghai Composite opened -0.1%
- (CN) China Stats Bureau NBS: revises 2019 GDP lower from 6.1% to 6.0%
- (CN) China PBOC statement after quarterly policy meeting: Reiterates to avoid a sudden shift in monetary policy while maintaining necessary support for the economy’s recovery
- China PBOC Open Market Operation (OMO): Injects CNY40B in 7-day reverse repos v CNY20B in 7-day reverse repos prior; Net Injection: CNY30B v CNY10B prior
- China PBOC sets Yuan reference rate: 6.5325 v 6.5451 prior
- (CN) China State Post Bureau issues first standard for unmanned aircraft delivery (drones)
- 300433.CN Apple Supplier Lens Technology reportedly accused of using forced labor in China - press
- 1099.HK Coronavirus vaccine has 79.3% efficacy, meeting technical standard of WHO and Chinese regulator, submitted application for use of vaccine
North America
- (US) Weekly API Crude Oil Inventories: -4.8M v +2.7M prior
- (US) Trump campaign appeals to Supreme Court over Wisconsin challenge, seeking review before Jan 6th
- INTC Third Point (Loeb) in letter reportedly urges Intel to explore strategic alternatives including 'potential divestment of certain failed acquisitions' – press (US session)
- (US) Louisiana Congressman Elect Letlow (R-LA) dies of coronavirus at the age of 41
Europe
- (EU) EU member states approve UK post-Brexit trade deal - press (as expected)
- (UK) PM Johnson expected to be able to get Brexit deal approved by parliament within a day
- (UK) PM Johnson approves extension of Tier 4 restrictions - UK's Times
***Levels as of 12:15ET***
- Hang Seng +1.7%; Shanghai Composite +0.9%; Kospi +1.8%; Nikkei225 -0.3%; ASX 200 -0.5%
- Equity Futures: S&P500 +0.5%; Nasdaq100 +0.4%, Dax +0.3%; FTSE100 +0.1%
- EUR 1.2295-1.2246; JPY 103.61-103.27; AUD 0.7663-0.7602; NZD 0.7189-0.7144
- Commodity Futures: Gold +0.3% at $1,889/oz; Crude Oil +0.6% at $48.28/brl; Copper +0.7% at $3.57/lb