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Beyond the Numbers

Certification Of Biden Victory May Generate Early Buying Interest
1/7/2021 9:01 AM

The major U.S. index futures are pointing to a higher open on Thursday, with stocks likely to move mostly higher following the mixed performance seen in the previous session.

The upward momentum on Wall Street comes as U.S. lawmakers certified President-elect Joe Biden’s victory after the process was delayed by several hours by supporters of President Donald Trump storming the U.S. Capitol building.

After the Capitol building was finally secured, several Republican lawmakers abandoned plans to object to the certification of results from a number of states, although GOP opposition still led to a drawn out process.

Trump said in a statement following the vote that there would be an “orderly transition” of power to Biden but continued his fraudulent claims of widespread voter fraud that helped spark the riot at the Capitol.

The certification of Biden’s victory along with Democratic victories in Georgia’s Senate runoff elections will give Democrats control of the House, Senate and the White House.

Traders seem optimistic a Democratic-controlled government will lead to additional stimulus, but with the narrow margin in the Senate preventing major tax hikes or other policies that negatively affect big business.

Nonetheless, overall trading activity may be somewhat subdued ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

A day ahead of the release of the monthly report, the Labor Department released a report showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended January 2nd.

The Dow moved sharply higher during trading on Wednesday and ended the session at a new record closing high, while the tech-heavy Nasdaq saw considerable volatility over the course of the trading day before closing firmly in the red.

While the Nasdaq slid 78.17 points or 0.6 percent to 12,740.79, the Dow jumped 437.80 points or 1.4 percent to 30,829.40 and the S&P 500 climbed 21.28 points or 0.6 percent to 3,748.14.

The mixed performance on Wall Street came as traders reacted to the results of the highly anticipated Georgia runoff elections on Tuesday.

Democratic candidate Rev. Raphael Warnock is projected to win his race against Republican Senator Kelly Loeffler, while Jon Ossoff was narrowly leading his race against GOP Senator David Perdue.

Ossoff was later projected the winner in his race, splitting the Senate 50-50, with a tie-breaking vote by Vice President-elect Kamala Harris giving Democrats control of the chamber.

The jump by the Dow came as Democratic control of the House, Senate and White House is seen as a positive for cyclical stocks due to the likelihood of additional fiscal stimulus.

Meanwhile, the Nasdaq closed lower, as tech stocks could be hurt by the shift into cyclical stocks as well as the higher taxes sought by many Democrats.

Stocks moved to the downside going into the close of trading as supporters of President Donald Trump stormed the U.S. capitol building as lawmakers began the process of certifying President-elect Joe Biden's victory.

Meanwhile, traders largely shrugged off a report from payroll processor ADP showing an unexpected drop in private sector employment in the U.S. in the month of December.

ADP said private sector employment fell by 123,000 jobs in December after jumping by a downwardly revised 304,000 jobs in November.

The decrease surprised economists, who had expected employment to climb by about 88,000 jobs compared to the addition of 307,000 jobs originally reported for the previous month.

"As the impact of the pandemic on the labor market intensifies, December posted the first decline since April 2020," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "The job losses were primarily concentrated in retail and leisure and hospitality."

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to increase by 100,000 jobs in December after climbing by 245,000 jobs in November. The unemployment rate is expected to remain at 6.7 percent.

Banking stocks turned in some of the market's best performances on the day, driving the KBW Bank Index up by 6.8 percent to its best closing level in over ten months.

Substantial strength was also visible among steel stocks, as reflected by the 5.1 percent spike by the NYSE Arca Steel Index. The index ended the session at a nearly three-year closing high.

Energy stocks also showed a significant move to the upside on the day, extending the rally seen in the previous session.

The continued strength among energy stocks came as the price of crude oil saw further upside after spiking by more than $2 a barrel on Tuesday, with crude for February delivery climbing $0.70 to $50.63 a barrel.

Tobacco, brokerage, and chemical stocks also saw considerable strength on the day, while software stocks fell sharply, dragging the Dow Jones U.S. Software Index down by 2.5 percent.

Commodity, Currency Markets

Crude oil futures are inching up $0.07 to $50.70 a barrel after climbing $0.70 to $50.63 a barrel on Wednesday. Meanwhile, after plunging $45.80 to $1,908.60 an ounce in the previous session, gold futures are rising $8.60 to $1,917.20 an ounce.

On the currency front, the U.S. dollar is trading at 103.60 yen versus the 103.04 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2267 compared to yesterday’s $1.2327.

Asia

Asian stocks rose broadly on Thursday on hopes that a Democrat-controlled U.S. Senate will be a net positive for economic growth globally.

Chinese stocks extended gains for a sixth straight session after the country's central bank pledged to keep its monetary policy accommodative in 2021, focusing on supporting small firms as the economy recovers.

The benchmark Shanghai Composite Index gained 25.33 points, or 0.7 percent, to finish at 3,576.20, while Hong Kong's Hang Seng index ended down 0.5 percent at 27,548.52.

Japanese shares hit a 30-year high as sharp rises in U.S. bond yields on expectations of additional U.S. stimulus spending boosted banks and insurers.

The Nikkei 225 Index jumped 434.19 points, or 1.6 percent, to 27,490.13, snapping a four-day losing streak. The broader Topix closed 1.7 percent higher at 1,826.30.

Insurer Dai-ichi Life Holdings soared 7.4 percent, while lender Mitsubishi UFJ Financial rose 3.5 percent and Sumitomo Mitsui Financial added 5.5 percent. Steelmaker Nippon Steel surged 7.8 percent.

Meanwhile, SoftBank Group dropped 1.6 percent on news the Trump administration is considering adding Alibaba to a blacklist of Chinese companies. Softbank is the largest shareholder of the Chinese e-commerce giant.

Australian markets rallied as a Democrat sweep in U.S. Senate races in Georgia lifted stimulus hopes. Closer to home, Prime Minister Scott Morrison said the national cabinet will meet a month earlier than scheduled to discuss strengthening border processes amid the spread of a more contagious variant of Covid-19 that emerged in Britain.

The benchmark S&P/ASX 200 Index climbed 104.90 points, or 1.6 percent, to 6,712, while the broader All Ordinaries Index ended up 99.10 points, or 1.4 percent, at 6,980.50.

Woodside Petroleum, Oil Search and Santos surged 5-7 percent as oil prices rose for a third day on data showing a bigger than expected drop in U.S. crude stockpiles and amid Saudi Arabia's pledge to cut output.

Mining heavyweights BHP and Rio Tinto jumped 6.1 percent and 8.6 percent, respectively, while the big four banks rose 2-4 percent.

Gold miners ended broadly lower after gold futures settled with a loss of more than 2 percent on Wednesday.

In economic news, a government report showed that Australia had a merchandise trade surplus of A$5.022 billion in November - shy of expectations for a surplus of A$6 billion and down from the downwardly revised A$6.583 billion in October.

Another report revealed the total number of building permits issued in the country rose a seasonally adjusted 2.6 percent month-on-month in November.

Seoul stocks hit another record high amid strong foreign and institutional buying. The benchmark Kospi jumped 63.47 points, or 2.1 percent, to close about the 3,000-point mark for the first time on hopes of near-term fiscal stimulus under the Biden administration. SK Hynix and Samsung SDI both climbed around 2.7 percent, while LG Chem soared 8.1 percent.

Europe

European stocks are broadly higher on Thursday as a Democrat sweep in U.S. Senate races in Georgia lifted stimulus hopes.

Following a Democratic sweep in Georgia, investors remain hopeful that President-elect Joe Biden will be better placed to push through stimulus packages to help America get through the Covid crisis.

A disappointing ADP jobs report released overnight also added to expectations that the Federal Reserve might decide to unleash more stimulus.

The French CAC 40 Index and the German DAX Index are both up by 0.4 percent, although the U.K.’s FTSE 100 Index has bucked the uptrend and fallen by 0.5 percent,

LafargeHolcim has risen after the world's biggest cement maker announced $3.4 billion deal to buy Firestone Building Products from Bridgestone Americas.

J Sainsbury shares have surged after the grocer issued a third quarter trading statement for the 15 weeks to January 2, 2021. Third quarter like-for-like sales were up 8.6 percent (excl. fuel), with total retail sales up 6.8 percent (excl. fuel).

Entain, formerly known as GVC Holdings plc, has also moved to the upside after announcing a recommended cash offer to buy Enlabs AB for 40 Swedish kronor per share.

MorphoSys AG has also advanced. The biotech company said it has appointed Sung Lee as Chief Financial Officer, effective February 2, 2021.

On the other hand, Mitchells & Butlers, a leading operator of managed restaurants and pubs, has slumped. The company said first quarter total sales were 67.1 percent below prior year during the 14 weeks ended January 2, 2021.

Delivery Hero SE, a multinational online food-delivery service based in Berlin, has also fallen. The company said it has placed new shares from cash capital increase with gross proceeds of about 1.2 billion euros.

In economic news, German manufacturing orders grew further in November, defying expectations for a decline, figures from the Federal Statistical Office/Destatis showed.

Factory orders rose 2.3 percent month-on-month in November, while economists had forecast a 1.2 percent drop. The growth for October was revised to 3.3 percent from 2.9 percent.

On a year-on-year basis, factory orders grew 6.3 percent in November after a 2.3 percent increase in the previous month.

U.S. Economic Reports

A day ahead of the release of the closely watched monthly jobs report, the Labor Department released a report on Thursday showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended January 2nd.

The report said initial jobless claims edged down to 787,000, a decrease of 3,000 from the previous week’s upwardly revised level of 790,000.

Economists had expected jobless claims to rise to 800,000 from the 787,000 originally reported for the previous week.

Meanwhile, the Commerce Department released a separate report showing the U.S. trade deficit widened by more than expected in the month of November.

The Commerce Department said the trade deficit widened to $68.1 billion in November from $63.1 billion in October. Economists had expected the deficit to widen to $65.2 billion.

The wider than expected trade deficit came as the value of imports spiked by 2.9 percent to $252.3 billion, outpacing a 1.2 percent jump in the value of exports to $184.2 billion.

At 9 am ET, Philadelphia Federal Reserve President Patrick Harker is scheduled to speak on the economic outlook before the virtual Philadelphia Business Journal’s Economic Forecast.

The Institute for Supply Management is due to release its report on service sector activity in the month of December at 10 am ET.

The ISM’s services PMI is expected to edge down to 54.6 in December from 55.9 in November, although a reading above 50 would still indicate growth.

At 11 am ET, the treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

St. Louis Federal Reserve President James Bullard is due to give a presentation on the U.S. economy and monetary policy before a virtual "Power Up Little Rock: U.S. Economy and Monetary Policy" event at 12 pm ET.

At 1 pm ET, Chicago Federal Reserve President Charles Evans is scheduled to participate in a virtual moderated question-and-answer session before the Wisconsin Bankers Association Midwest Economic Forecast Forum.

San Francisco Federal Reserve President Mary Daly is due to participate in a panel interview at the Shadow Open Market Committee's Labor Markets and the Fed's Monetary Policy virtual event at 3 pm ET.

Stocks In Focus

Shares of CureVac (CVAC) are moving sharply higher in pre-market trading after Bayer agreed to support the further development, supply and key territory operations of the German biopharmaceutical company’s COVID-19 vaccine candidate.

DXC Technology (DXC) is also likely to see initial strength after a report from Reuters said France’s Atos has made a more than $10 billion takeover approach for the IT consulting firm.

Shares of Constellation Brands (STZ) may also move to the upside after the spirits producer reported better than expected fiscal third quarter results and authorized a new $2 billion share repurchase program.

On the other hand, shares of Bed Bath & Beyond (BBBY) are seeing significant pre-market weakness after the housewares retailer reported fiscal third quarter results that came in below analyst estimates.
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