Wall Street Breakfast

Author: bmotrader   |   Latest post: Wed, 20 Jan 2021, 8:50 AM


Impeachment, Stimulus And The Markets

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Traders seem to be unfazed by the second impeachment of President Trump or even a possible conviction in the Senate. The events aren't generally market moving, unless it impacts the ability of Congress to focus on its main legislative agenda - in this case to help the economy emerge from the worst pandemic in over a century.

According to market data from Dow Jones, the past two impeachments where market reaction can be tracked, including Trump's own, haven't resulted in major moves in equity prices. President-elect Joe Biden has also asked whether the Senate could "bifurcate" its schedule so the impeachment won't forestall "getting my people nominated and confirmed in the Senate." Major averages ended mostly higher on Wednesday, while stock index futures are pointing to a mixed session at the open: Dow +0.4%; S&P 500 +0.2%; Nasdaq -0.2%.

The charges: House Speaker Nancy Pelosi said President Trump "willfully made statements that, in context, encouraged - and foreseeable resulted in - lawless action at the Capitol, such as: 'if you don't fight like hell you're not going to have a country anymore.'" Ten members of the GOP joined Democrats in the House vote.

Response: "It's really a continuation of the greatest witch-hunt in the history of politics," Trump told reporters. "For Nancy Pelosi and Chuck Schumer to continue on this path, I think it's causing tremendous danger to our country and it's causing tremendous anger. We want no violence. Never violence. We want absolutely no violence."

Thought bubble: Forcing Trump to leave office might not be the most important aim, especially as he's likely to depart the White House before a Senate trial begins (consensus among scholars is that a "late impeachment" is constitutional). Trump has indicated that he may run for president again in 2024, but if he was convicted by the required two-thirds supermajority in the Senate, the upper chamber could also vote to disqualify him from serving in future federal office via a simple majority.

Analysis: "Keep in mind, we're heading into earnings season where expectations are high," said Chris Larkin, Head of Brokerage Product at E-TRADE Financial. "Companies have proven they can drive revenue and growth with lower cost structures due to low borrowing costs, remote work and reduced travel, so traders are likely eyeing the numbers more closely than what's happening in Washington."

Economy - Big stimulus plans

All eyes are on the price tag of President-elect Joe Biden's stimulus plan, which will be announced today and is expected to range in the trillions of dollars. Many elements of the package are expected to be drawn from the House Democrats' Heroes Act, which passed in May, but was blocked by the GOP-controlled Senate. Among the features are a range of support for state and local authorities, a boost in direct payments to $2,000 and expanded unemployment benefits, along with funding for vaccine distribution, reopening schools, tax credits, rental relief and aid to small businesses.

The upcoming broadcast is sending Treasury yields higher, up 2 bps to 1.11% and near levels not seen since late March. Despite the trend, Biden recently highlighted that the current historically low level of interest rates will bolster both the short-term and long-term growth outlook, saying it would "reduce our national debt burden" and "if we don’t act now things are going to get much worse."

Quote: "My priority is to get, first and foremost, a stimulus bill passed," he announced earlier this week when asked about concerns that impeachment could delay a relief package. "I've been speaking with some of my Republican colleagues about being able to move on a second package sooner than later."

Outlook: Failure to win congressional approval could slam equities, which climbed to record highs last week amid expectations of the increased spending. Chuck Schumer is set to be Majority Leader in the Senate with the barest possible control of the chamber (Vice President Kamala Harris would cast any tie-breaking votes). Possible holdups may also be seen from deficit-hawk Democrats from conservative states, such as West Virginia's Joe Manchin and Montana's Jon Tester.

Covid - What does it mean for the vaccine trade?

Echoing comments from some other public health officials, Moderna (NASDAQ:MRNA) CEO Stephane Bancel said COVID-19 is likely to become an endemic disease, meaning it'll always be present in the population, but circulating at lower rates. "SARS-CoV-2 is not going away," he told a panel discussion at the JPMorgan Healthcare Conference. "We are going to live with this virus, we think, forever."

Infectious disease experts will always have to be on the lookout for new variants of COVID-19 so that vaccines can be produced to combat these, he added. While several new variants of the contagion have already been detected in the U.K., South Africa, Brazil and Japan, Bancel believes Moderna's current jab will prove effective against the mutations. He also claimed that the shot, which recently received emergency use approval in the U.S. and elsewhere, is likely to provide immunity for at least one year.

Quote: "I'm not worried for the short term but we are watching that very closely because I think that we might be moving into a world where we need new strains of vaccine down the road - but not in the short term."

Vaccine talk: On the corporate side of things, some companies are entertaining the idea of paying workers to get inoculated. Dollar General (NYSE:DG) has become the first retailer to give its workers a one-time payment equivalent to four hours of pay after receiving a COVID-19 vaccination, as well as "additional store labor hours to accommodate their time away from the store."

Intel gets a makeover

Intel (NASDAQ:INTC) is bidding farewell to CEO Robert Swan, who has been at the helm for two years, as the semiconductor pioneer faces pressure from activist investor Daniel Loeb. He'll be replaced in mid-February by Patrick Gelsinger, a former chip designer and 30-year Intel veteran who has led software maker VMware (NYSE:VMW) since 2012. News of the shakeup sent Intel shares up 7% on Wednesday and the stock is ahead another 2.3% in premarket trade.

Backdrop: Intel has been grappling with the loss of leadership in producing ultrafast chips. It has ceded much of its market share to Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung Electronics (OTC:SSNLF), whose factory innovations allow computer chips to do more at a lower cost. Those issues have prompted activist hedge fund Third Point to recently acquire a stake in Intel and press for big changes at the company. It even went as far as to say Intel's problems could force the U.S. to rely more heavily "on a geopolitically unstable East Asia" to power vital technology like PCs and data center hardware.

Outlook: KeyBanc analyst Weston Twigg writes that while he expects Gelsinger to be a strong CEO, the Intel "he left is not the Intel that exists today, as the company has stumbled badly with its technology and execution over the last several years." He expects the appointment will likely increase chances Intel will remain with internal manufacturing, "which is not necessarily the best path" and prefers to see Intel focus on outsourcing its CPU tiles.

Global - Private business in China

One of the most powerful businessmen in the world is Jack Ma - the founder of the e-commerce colossus Alibaba (NYSE:BABA) - but he's found himself at odds with the Chinese government. After he criticized Chinese-state owned banks last year, Beijing retaliated with an antitrust investigation into Alibaba and pulled the listing of Ant Group, set to be the world's biggest IPO, in which Alibaba owns a one-third stake.

What does this mean for the future of private business in China? It really depends on the outcome. If it ends up similar to a U.S. or EU monopoly case, at the end of which the company being investigated pays a large fine, agrees to certain remedies and carries on, it may not be as big of a deal as everyone is thinking. On the other hand, if Alibaba, Ant and Jack Ma are forced to radically change as a result of the probe (i.e. broken up, important units sold off to state-owned firms), it could be a landmark moment in the Chinese Communist Party's relationship with the private sector.

Where is Jack Ma? He hasn't made any public appearances since Oct. 24, and while there are rumors that he's gone missing, his friends say he's laying low for the time being. It's unusual for a man of his profile, but there are a lot of ongoing and delicate negotiations between the companies and regulators that he's not in a position to discuss.

Investors are also starting to question whether Alibaba can pull off a sale of as much as $8B in offshore debt which was planned for as early as this week. That's due to the uncertainty surrounding Ma, as well as the Trump administration's possible ban on investments in Chinese securities, though recent reports suggest Alibaba, Baidu (BIDU) and Tencent (OTCPK:TCEHY) might be excluded from the DoD trading blacklist.

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