Insights

 

WuRevue Week Ending 11/20/2020

 

Top News:

11/16: Looking past a stalled presidential transition and the uncontrolled Covid outbreak, investors focused instead on encouraging developments in a second late-stage US vaccine and China’s continuing recovery story.  Also of note, in stark contrast to de-globalization trends elsewhere, 15 nations in the Asia Pacific (including China, Japan and Australia) signed a new free trade framework.  Known as RCEP, it comprises 30% of the world’s GDP and population.

 

11/17: Softer US October retail sales, owing to pullbacks in discretionary items, were mitigated by evidence of sustained recovery in industrial production and positive sentiment in the homebuilding industry.  

 

11/18: Pfizer and BioNTech announced that they will be seeking emergency review by the FDA within days, seeing as numerous US states and cities are re-imposing restrictive measures to slow coronavirus infections.

 

11/19: The latest new weekly jobless claims ticked up for the first time in a month, while it has remained stubbornly above 1 million since the pandemic’s outset. Senate negotiations over additional stimulus will reportedly resume, the resolution of which cannot come sooner for 12 million Americans facing the daunting prospect of losing their unemployment benefits by year-end.  The housing market remained a bright spot: October’s existing-home sales saw a sequential increase of 4.3%.  EU’s efforts at passing another relief bill was stymied by two member states.

 

11/20: In a decision viewed as both cynical and political, Mnuchin will end select lending facilities targeted at small- and medium-sized businesses, a move vehemently opposed by the Fed.

 

Heard on the Street:

“We see Fed COVID-19 policy responses as driven by a view that if the FOMC [Federal Open Market Committee] sees a high probability of a move at the next meeting, it moves immediately, not delaying needed policy moves because of an arbitrary FOMC calendar. In our view, it may make such a calculation in coming weeks, with COVID-19 intensifying and fiscal stimulus caught in the Bermuda triangle of a partisan, lame duck Congress,”

— Steven Englander, macro strategist at Standard Chartered, quoted by MarketWatch on 11/16/2020

 

“Mnuchin’s move will tighten financial conditions and removes a safety net for markets at the wrong moment.  One side effect is that it increases the likelihood that the FOMC will strengthen QE [Quantitative Easing] in December… However, QE is a very imperfect substitute for a credit market backstop.”

— Krishna Guha and Ernie Tedeschi, analysts at Evercore ISI, highlighted by MarketWatch on 11/20/2020

 

Longer Game:

Can Biden renew the American-led post-1945 liberal world order?  For one observer, that’s unlikely because the “post-Trump order appears to be more about a return to the inter-bloc competition” between democracies and authoritarian regimes.

 

Bonus:

According to Bank of America’s latest monthly survey of institutional investors, 91% said the economy will be stronger in the next 12 months.  Reflecting such optimism, investors have been rotating into more speculative and hardest-hit segments of the market, including small-cap and emerging market stocks.