Gapping up
In reaction to earnings/guidance:
- NGVC +16.6% (also declares special dividend of $2/sh), QFIN +9.3%, CAL +9%, WSM +7.3%, HIBB +5.9%, OOMA +4.4%, ROST +4.3%, FL +3.9%, BKE +3.1%, BNR +2.8%, HHR +2.2%
Other news:
- MESO +15.5% (MESO and NVS sign license and collaboration agreement for remestemcel-L)
- FEYE +15.1% (acquires Respond Software; also announces $400 mln investment led by Blackstone)
- AMRN +13.9% (shares Phase 3 Study of VASCEPA)
- LGVW +8.5% (Medical imaging company Butterfly Network to be listed on NYSE through a merger with Longview Acquisition Corp)
- BNTX +7.2% (Pfizer and BioNTech (BNTX) to submit Emergency Use Authorization request today to the U.S. FDA for COVID-19 vaccine)
- AFMD +3.7% (announces publication of results Phase 1b study of AFM13)
- ADAP +3.4% (to showcase market potential for SPEAR T-cell Portfolio and pipeline with multiple cell therapy platforms)
- AZN +2.1% (receives FDA approval for less-frequent, fixed-dose use of Imfinzi)
- PFE +2.1% (Pfizer and BioNTech (BNTX) to submit Emergency Use Authorization request today to the U.S. FDA for COVID-19 vaccine)
- GPRO +1.9% (prices offering of $125.0 mln of 1.25% convertible senior notes due 2025)
- MNKD +1.8% (receives $12.5 mln milestone payment from UTHR)
- TRVN +1.6% (announces publication highlighting GI tolerability profile of Olinvyk injection in pain and therapy)
- SNAP +0.9% (buys app similar to TikTok, according to Business Insider)
Analyst comments:
- ATRO +6.5% (upgraded to Buy from Hold at Canaccord Genuity)
- CPRI +5% (upgraded to Buy from Neutral at BTIG Research)
- CLF +3.5% (upgraded to Overweight from Sector Weight at KeyBanc Capital Markets)
- HEES +2.8% (upgraded to Buy from Underperform at BofA Securities)
- SCHN +2.3% (upgraded to Overweight from Sector Weight at KeyBanc Capital Markets)
- SPR +2.2% (upgraded to Buy from Hold at Canaccord Genuity)
- OXY +1.9% (upgraded to Positive from Neutral at Susquehanna)
- URI +1.9% (upgraded to Buy from Neutral at BofA Securities)
- CG +1.8% (upgraded to Buy from Underperform at BofA Securities)
- LEG +1.3% (upgraded to Buy from Neutral at Goldman)
Early premarket gappers
- Gapping up:
- MESO +18.2%, NGVC +16.1%, AMRN +15.9%, FEYE +14%, HIBB +10.4%, QFIN +9.2%, CAL +9%, WSM +6.9%, ROST +3.4%, GPRO +3%, BNR +2.8%, MNKD +2.5%, HHR +2.3%, AZN +1.9%, AFMD +1.7%, SNAP +1.3%, BGNE +1.2%, MCFE +0.9%, LLY +0.6%, INCY +0.6%
- Gapping down:
- NNDM -29.2%, GSX -13.1%, POST -10%, AVRO -8.7%, EAR -5.6%, WDAY -2.3%, GILD -1.9%, HP -1.7%, LULU -1%, WWD -0.9%, STOK -0.7%, BEST -0.7%, KIM -0.6%
Mnuchin to End Key Fed Emergency Programs, Limiting Biden
The Treasury Department asked the Federal Reserve to return unused funds, downsizing the next secretary’s ability to restart the economic support.
WASHINGTON — Treasury Secretary Steven Mnuchin said he does not plan to extend several key emergency lending programs beyond the end of the year and asked the Federal Reserve to return the money supporting them, a decision that could hinder President-elect Joseph R. Biden Jr.’s ability to use the central bank’s vast powers to cushion the economic fallout from the virus.
Mr. Mnuchin on Thursday said he would not continue Fed programs, including ones that support the markets for corporate bonds and municipal debt and one that extends loans to midsize businesses. The emergency efforts expire at the end of 2020, but investors had expected some or all of them to be kept operational as the virus continues to pose economic risks.
The pandemic-era programs are run by the Fed but use Treasury money to insure against losses. They have provided an important backstop that has calmed critical markets since the coronavirus took hold in March. Removing them could leave significant corners of the financial world vulnerable to the type of volatility that cascaded through the system as virus fears mounted in the spring.
By asking the Fed to return unused funds, Mr. Mnuchin could prevent Mr. Biden’s incoming Treasury secretary from quickly restarting the efforts at scale in 2021.
“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the central bank said in a statement.
The emergency programs were backed by $454 billion that Congress appropriated in March as part of a broader pandemic response package. Because of the way the Fed’s emergency lending powers work, Jerome H. Powell, the Fed chair, needs the Treasury secretary’s signoff to make major changes to the programs’ terms. Extending the end date counts as one of those changes that need approval.
The decision to close the various programs and remove the funding appeared to come as a surprise to the Fed, which received a letter announcing the Treasury’s desire to claw the money back on Thursday afternoon.
“I am requesting that the Federal Reserve return the unused funds to the Treasury,” Mr. Mnuchin said in the letter. He noted that he had been “personally involved in drafting the relevant part of the legislation” and believed it was Congress’s intent that the programs stop at the end of the year.
Earlier this month, Mr. Powell had said the central bank and Treasury were just beginning to discuss whether to extend the programs.
Mr. Mnuchin did agree to extend other emergency loan programs that are not backed by the congressional appropriation, including ones that service the short-term market for corporate debt, one for money market funds, and one that backstops government small-business loans.
The Fed avoids taking credit losses when extending loans, and throughout the pandemic crisis it has asked for Treasury backup for its riskier programs. If it returns any unused money that the Treasury has already dedicated to support the programs, as Mr. Mnuchin requested, the Biden administration will have less financial backup to restart the programs.
That’s because the congressional appropriation — $195 billion of which has been earmarked to specific Fed programs — cannot be used to make new loans after the end of the year. But while the law prohibits the Treasury from putting money into the Fed’s facilities after 2020, it does not obviously prevent the Fed from using already-earmarked Treasury funding to insure its own loans and bond purchases.
“The loans, loan guarantees and investing that the Treasury does is the applicable language,” said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania. He said that while it may be possible to read the law as preventing new Fed loans, that is not the “obvious reading.”
The Fed and the next Treasury secretary do have an alternative to continue the programs: They could use money in the Treasury’s Exchange Stabilization Fund, which still contains about $74 billion in uncommitted funds, to back the programs. It is unclear exactly how much of the fund can be used, but the programs have not to date needed substantial capacity.
Mr. Mnuchin’s move could leave the government with fewer options to help the economy just as the new administration takes office.
“Treasury is right that a limited set of objectives have been achieved in terms of stabilizing bond markets,” Jason Furman, a prominent Democratic economist, said on Twitter. “But what is the downside to continuing them as insurance against worse developments?”
Many of the Fed’s programs, including one that buys state and local debt and another that encourages banks to lend to small- and midsize businesses, have been lightly used. But that is because they were designed as backstops — meaning that borrowers would likely only use them when times are bad.
And it is Mr. Mnuchin himself who has been conservative in setting the program’s terms. With a more permissive head at the Treasury, the terms could have been made more generous.
In fact, Democrats had been eyeing both the municipal bond-buying program and the Main Street lending effort for small- and medium-size businesses as potential backup options if it proves difficult to pass additional government relief. Without them, businesses and state and local governments would have one less potential source of help.
With coronavirus cases on the rise, the economy may sour again, making the programs more necessary. As recently as Tuesday, Mr. Powell warned of the potential for economic scarring and said that the economic recovery had “a long way to go.” But Treasury officials have expressed optimism that the economy is poised for a steady rebound and that the likely rollout of a vaccine by the end of the year further improves the economic picture.
Senator Patrick J. Toomey, Republican of Pennsylvania, who had been pushing Mr. Mnuchin to end the programs, applauded the decision.
“These temporary facilities helped to both normalize markets and produce record levels of liquidity,” Mr. Toomey said in a statement. “Congress’s intent was clear: These facilities were to be temporary, to provide liquidity, and to cease operations by the end of 2020.”
Treasury’s move prompted concern from Democrats, some of whom said the Fed should simply refuse to return the money — a route it is unlikely to take.
Bharat Ramamurti, a Democrat who sits on the congressional oversight body in charge of reviewing the various Fed and Treasury programs, suggested on Twitter that, legally, the Fed was under no obligation to give back the funds.
“Under its contracts with Treasury, the Fed can and should reject the request,” he said. “While Secretary Mnuchin claims congressional intent was to halt all new loans at year-end, the text of the CARES Act doesn’t say that. At a minimum, the Fed can continue to make loans using the $195 billion in equity Treasury has already committed.”
Making the Most of the Coming Biden Boom
The economic outlook is probably brighter than you think.
The next few months are going to be incredibly grim. The pandemic is exploding, but Donald Trump is tweeting while America burns. His officials, unwilling to admit that he lost the election, are refusing even to share coronavirus data with the Biden team.
As a result, many preventable deaths will occur before a vaccine’s widespread distribution. And the economy will take a hit, too; travel is declining, an early indicator of a slowdown in job growth and possibly even a return to job losses as virus fears cause consumers to hunker down again.
But a vaccine is coming. Nobody is sure which of the promising candidates will prevail, or when they’ll be widely available. But it’s a good guess that we’ll get this pandemic under control at some point next year.
And it’s also a good bet that when we do the economy will come roaring back.
OK, this is not the consensus view. Most economic forecasters appear to be quite pessimistic; they expect a long, sluggish recovery that will take years to bring us back to anything resembling full employment. They worry a lot about long-term “scarring” from unemployment and closed businesses. And they could be right.
But my sense is that many analysts have overlearned the lessons from the 2008 financial crisis, which was indeed followed by years of depressed employment, defying the predictions of economists who expected the kind of “V-shaped” recovery the economy experienced after earlier deep slumps. For what it’s worth, I was among those who dissented back then, arguing that this was a different kind of recession, and that recovery would take a long time.
And here’s the thing: The same logic that predicted sluggish recovery from the last big slump points to a much faster recovery this time around — again, once the pandemic is under control.
What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.
This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.
All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.
Which brings me to the politics. How should Biden play the good economic news if and when it comes?
First of all, he should celebrate it. I don’t expect Biden to engage in Trump-like boasting; he’s not that kind of guy, and his economics team will be composed of people who care about their professional reputations, not the quacks and hacks who populate the current administration. But he can highlight the good news, and point out how it refutes claims that progressive policies somehow prevent prosperity.
Also, Biden and his surrogates shouldn’t hesitate to call out Republicans, both in Washington and in state governments, when they try to sabotage the economy — which, of course, they will. I won’t even be surprised if we see G.O.P. efforts to impede the wide distribution of a vaccine.
What, do you think there are some lines a party refusing to cooperate with the incoming administration — and, in fact, still trying to steal the election — won’t cross?
Finally, while Biden should make the most of good economic news, he should try to build on success, not rest on his laurels. Short-term booms are no guarantee of longer-term prosperity. Despite the rapid recovery of 1982-1984, the typical American worker earned less, adjusted for inflation, at the end of Reagan’s presidency in 1989 than in 1979.
And while I’m optimistic about the immediate outlook for a post-vaccine economy, we’ll still need to invest on a large scale to rebuild our crumbling infrastructure, improve the condition of America’s families (especially children) and, above all, head off catastrophic climate change.
So even if I’m right about the prospects for a Biden boom, the political benefits of that boom shouldn’t be cause for complacency; they should be harnessed in the service of fixing America for the long run.
And the fact that Biden may be able to do that is reason for hope.
Those of us worried about the future were relieved to see Trump defeated (even though it’s possible he’ll have to be removed forcibly from the White House), but bitterly disappointed by the failure of the expected blue wave to materialize down-ballot.
If I’m right, however, the peculiar nature of the coronavirus slump may give Democrats another big political opportunity. There’s a pretty good chance that they’ll be able to run in the 2022 midterms as the party that brought the nation and the economy back from the depths of Covid despond. And they should seize that opportunity, not just for their own sake, but for the sake of the nation and the world.
WorldQuant enjoying banner year despite $200m vaccine shake-up hit
Quant fund is up nearly 20 per cent in an otherwise bleak year for computer-led funds
The algorithmic hedge fund WorldQuant is enjoying one of its best years of returns, despite taking a hit of as much as $200m in last week’s stock market tumult.
WorldQuant, which was spun out of Izzy Englander’s Millennium Management in 2007 and still primarily manages money on behalf of it, was briefly rumbled in the equity market ructions on November 9 sparked by a breakthrough in the hunt for a Covid-19 vaccine, people familiar with the hedge fund’s performance say.
News that Pfizer and BioNTech had developed an effective jab against the virus sent markets rallying, but also triggered a massive rotation away from the tech stocks that had rocketed higher this year and into beaten-up corners of the equity market such as “value” stocks. That wrongfooted many investment managers that had been positioned for the Covid-era trends to continue.
“While the timing of the news was hard to predict, the market reaction was not. It was violent, and in factor-land more violent than we have ever recorded,” Andrew Lapthorne, global head of quantitative research at Société Générale, said in a note. “Factors” group together stocks according to certain characteristics, such as their price momentum.
At the peak of last Monday’s turbulence, WorldQuant had lost $200m, before clawing back some of the losses by the end of the day and more later that week, according a person familiar with the matter.
However, despite the setback the hedge fund is still up nearly 20 per cent in 2020 — making it a rare outlier in an algorithm-driven investment industry that has been struggled during the pandemic. WorldQuant’s performance has helped Millennium, which manages $47bn in assets and which has gained 15.9 per cent this year, according to numbers sent to investors.
Currently WorldQuant manages about $5bn on behalf of Millennium, and approximately another $4bn in several other funds, according to a person familiar with the matter. Millennium and WorldQuant declined to comment.
The average equity-focused hedge fund is up 3 per cent in the 10 months to October, according to HFR, a data provider. But quant hedge funds lost an average of over 8 per cent over the same time period, according to Aurum, an investment group that collects performance numbers on the industry.
Even some of the quant industry’s biggest names have seen their signals short-circuit this year. Several big funds managed by Renaissance Technologies, the undisputed quant hedge fund heavyweight founded by former cold war codebreaker Jim Simons, have slumped into double-digit losses this year, according to numbers sent to investors.
WorldQuant was set up by Igor Tulchinsky, a Belarusian computer engineer who once coded computer games and worked at Bell Labs before he joined Millennium. He once described the impact of technology on investing as a “Quantasaurus” that was stalking its sluggish peers. “If we are to avoid decline or extinction, we must embrace the changes the Quantasaurus visits upon us,” Mr Tulchinsky wrote in a 2017 article.
Given that WorldQuant mostly manages money on behalf of Millennium — which operates as a “multi-manager” hedge fund with scores of different trading groups that all feed into its central flagship fund — it has often flown under the radar in the quant industry.
But two years ago, it set up its first fund for external investors, and WorldQuant now employs over 600 people. Earlier this year it poached Gary Chropuvka, a respected 20-year Goldman Sachs veteran and partner in the investment bank’s own quantitative investment arm, to be its new president, and Yoram Singer, one of Google’s top artificial intelligence experts.
>>> Up
* Ahold Delhaize Raised to Hold at Stifel; PT 25 euros
* Croda Raised to Buy at Citi; PT 7,400 pence
* Genfit Raised to Neutral at Oddo BHF; PT 6.30 euros
* Merck KGaA Raised to Buy at Pareto Securities; PT 143 euros
* Safran Raised to Buy at Berenberg; PT 140 euros
* Tod's Raised to Hold at HSBC; PT 22 euros
* Wienerberger Raised to Buy at Stifel; PT 27.50 euros
>>> Down
* ABB Cut to Sell at Deutsche Bank; PT 22 Swiss francs
* Eurofins Scientific Cut to Reduce at AlphaValue
* Johnson Matthey Cut to Reduce at AlphaValue
* Royal Unibrew Cut to Sell at Handelsbanken; PT 650 kroner
* Swatch Cut to Hold at HSBC; PT 255 Swiss francs
* Talanx Cut to Hold at HSBC; PT 35.50 euros
* Tenaris ADRs Cut to Hold at Stifel; PT $16
* Ubisoft Cut to Neutral at Citi; PT 85 euros
* Urban & Civic Cut to Hold at Panmure Gordon; PT 345 pence (+)
>>> Initiation
* AJ Bell Rated New Underweight at Barclays; PT 320 pence
* Applus Rated New Hold at Stifel; PT 8.40 euros
* Bureau Veritas Rated New Buy at Stifel; PT 26 euros
* Griffin Mining Rated New Buy at Berenberg; PT 105 pence
* IntegraFin Rated New Overweight at Barclays; PT 600 pence
* Intertek Rated New Buy at Stifel; PT 7,100 pence
* Quilter Rated New Equal-Weight at Barclays; PT 140 pence
* SGS Rated New Hold at Stifel; PT 2,450 Swiss francs
* Siemens Energy Rated New Buy at Oddo BHF; PT 28 euros
>>> Call
* Fund Flows Switching to Value From Growth Stocks, Jefferies Says
* Fund Flows Head for Bonds as U.S. Stock Buying Slows, Citi Says
* ABB Downgraded, Digital Strategy Not Convincing: Deutsche Bank (+)
* Croda Upgraded to Buy by Citi After ‘Attractive’ Iberchem Deal
* Cucinelli Confirms Outlook, Is ‘Confident’ About Year End: Citi (+)
* Safran a Key Pick for Vaccine-Driven Travel Recovery: Berenberg
Apple and Facebook trade accusations over data privacy
Technology groups locked in stand-off as they face antitrust scrutiny from regulators
Facebook has accused Apple of privacy shortcomings and abusing its market power after the iPhone maker took a swipe at the social media platform’s data collection practices.
The war of words between the two Silicon Valley groups unfolded after Apple wrote in a letter to pro-privacy civil rights groups that Facebook’s business model — which relies on collecting user data from its platform as well as from browsing activity off-platform to target advertising — showed the company had a “disregard for user privacy”.
By contrast, the phonemaker cast its ads business as “privacy-forward”.
Apple sent the letter, first reported by Bloomberg, to reassure civil rights groups that it still intended to introduce new privacy restrictions with its iOS 14 operating system, including requiring apps to get users’ explicit permission to gather ad targeting and tracking data.
The rollout of the restrictions, due to come into force this year, was delayed until 2021 after developers complained that they were unprepared for the changes, which threaten to wipe billions of dollars in revenue from ad-reliant businesses.
Late on Thursday, Facebook released its own scathing statement that highlighted a number of privacy concerns about Apple’s business and called the iPhone maker’s letter a deliberate “distraction” from those issues.
It also claimed Apple was “using their dominant market position to self-preference their own data collection while making it nearly impossible for their competitors to use the same data”.
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“They claim it’s about privacy, but it’s about profit,” Facebook said. “We are not fooled. This is all part of a transformation of Apple’s business away from innovative hardware products to data-driven software and media.”
The escalation comes as both companies face antitrust scrutiny from regulators and politicians. Apple has also come under fire over its 30 per cent commission on developers’ revenues from its App Store, although it bowed to pressure on Wednesday, announcing it would halve the rate for small businesses.
Facebook has also become an increasingly vocal critic of Apple’s iOS 14 plans, with executives warning on multiple quarterly earnings calls in 2019 and this year that the measures would hurt the social media company’s revenues.
More recently, Facebook has argued that the restrictions would be damaging to small businesses on its platform that were already suffering during the global pandemic by hampering their ability “to accurately target and measure their [advertising] campaigns”.
Publishers, app makers and adtech groups have also protested against the changes. Last month, a coalition of trade groups in online advertising filed a legal complaint with the French Competition Authority to block the restrictions. They argued that Apple was holding itself to lower privacy standards in order to bolster their own revenues.
Apple contends that its advertising model would be subject to the same restrictions as other developers and that it introduced the changes to offer users more control, rather than to squeeze out competitors.