- Preliminary GDP data for the US is expected to show the sharpest annual contraction since 1946 and echo theories from the Fed that the economic recovery has slowed down toward the end of the year.
- The Treasury is keeping an eye on GameStop and other stocks that have soared in value over the last week.
- Apple, Facebook and Tesla will all be in focus after releasing results after the markets closed yesterday.
- European markets are trading higher at midday as fears grow over vaccine nationalism as the EU struggles to cope with a shortage in supplies.
US markets hold steady after sharp fall
US markets suffered their steepest daily fall in three months yesterday and are expected to hold steady ahead of the US economic data out shortly.
The S&P 500 is called to open a smidgen higher at 3743.2 today from 3741.5 at the close yesterday.
The Dow Jones is set to open 0.1% higher at 30294.0 from 30257.0 at the last close.
US GDP 2020: How much will the US economy contract?
Preliminary US GDP numbers for the fourth-quarter and the full year will be posted later today, with markets expecting to show the sharpest annual contraction since World War Two.
The Commerce Department will release preliminary GDP data at 0830 ET (1330 GMT), revealing the extent of the damage caused by the coronavirus pandemic.
Economists believe the US economy could have contracted by as much as 3.6% in 2020, the sharpest fall since 1946 and comparable to the 2.2% growth seen before the pandemic erupted in 2019. It will be the first time the economy has contracted since the financial crisis.
The fourth-quarter figures are expected to show a slowdown in economic recovery during the final months of the year, echoing comments made by the Federal Reserve yesterday. The weakness is likely to have persisted during the initial weeks of 2021 as lockdown measures remain in place.
Importantly, initial and continuing jobless claims data will also be released at the same time as the GDP figures.
Federal Reserve warns economic recovery has ‘moderated’
The US Federal Reserve left interest rates unchanged and said it would continue supporting the economy through bond purchases as expected yesterday, but warned that country’s recovery is losing steam.
‘The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,’ the Fed said.
Fed chairman Jay Powell also warned that the type of recovery the US experiences will come down to how quickly vaccinations are rolled-out, but said achieving herd immunity through vaccinations would be a ‘struggle’.
Our head of research Matt Weller has a look at the FOMC meeting and what impact it had on financial markets.
Treasury department is monitoring GameStop-inspired short-squeezes
The White House and Treasury Department are monitoring the ongoing events involving GameStop and other companies as the battel between Reddit-enthused day traders and hedge funds intensifies.
GameStop shares have soared over 785% in the last week alone from under $40 to early $350 today, causing hedge funds with short positions on the stock to lose heavily. There are theories that other heavily-shorted stocks like AMC Entertainment are experiencing a similar thing.
A growing group of retail investors have banded together to buy GameStop shares after hedge funds shorted the stock earlier this month, steered by social media chatter. That has forced hedge funds out of bets and, as they try to recoup cash, has in turn pushed prices higher.
White House press secretary Jen Psaki said the situation was being monitored as some call for shares in affected stocks to be suspended.
Our head of research Matt Weller explains the GameStop story in more detail.
In the US, Apple and Facebook both impressed shareholders with strong quarterly results while Tesla fell short of expectations and disappointed markets by failing to provide firm guidance for this year. All three released results after markets closed yesterday.
Apple reported record iPhone sales in the three months to December 26, up 17% to $65.6 billion, allowing it to achieve a staggering $111.4 billion in quarterly revenue – up 21% from a year earlier as its new range of phones proved popular over the busy holiday season. Sales in China were particularly good, growing by 57% in the period.
Apple said there is now 1.65 billion active devices – including over 1 billion iPhones – compared to 1.5 billion a year ago. Services revenue, seen as a key driver of future growth, posted better than expected revenue of $15.8 billion while wearables like AirPods and Watches came in close to $13 billion. Overall quarterly profit came in 29% higher year-on-year at $28.8 billion.
Meanwhile, Facebook also posted strong growth in the final quarter as people stayed at home and socialised online, but investors were left cautious as the company warned it could struggle to perform as well in 2021. Quarterly revenue, mostly derived from advertising, jumped 22% to $28.07 billion and earnings jumped 53% to $11.22 billion, beating expectations across the board.
In addition, the UK’s competition watchdog launched an investigation into Facebook’s acquisition of GIF website Giphy, with a decision expected to be made by March 25. Facebook agreed to purchase the site last May for $400.
Elsewhere, Tesla said it delivered 180,570 vehicles in the final three months of 2020 – representing a new quarterly record. That pushed deliveries to 499,550 vehicles for the year as a whole, narrowly behind its 500,000 target.
However, the biggest disappointment came from the lack of firm guidance for this year, with investors hoping Tesla would try to deliver anywhere between 840,000 to 1 million vehicles based on the firm’s capacity. Instead, Tesla stuck to a more general tone of achieving growth over the coming years.
‘Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. In some years we may grow faster, which we expect to be the case in 2021,’ Tesla said.
European markets in positive territory
France’s CAC 40 was up 0.7% at 5452.0 from 5413.3 at the close on Wednesday.
Germany’s DAX was up 0.3% at 13531.0 from 13494.2 at the end of yesterday’s session.
Meanwhile, over the Channel, the FTSE 100 was up 0.1% at 6502.0 from 6495.0 at the close of the last session.
In today’s Top UK Stock to Watch, Diageo proves resilient as pubs and restaurants remain closed while Britvic sells where it can, airlines easyJet and Wizz Air continue to struggle, and Tate & Lyle is set to post a rise in profit.
EU demands AstraZeneca diverts UK-made vaccine
EU officials are pressuring AstraZeneca to divert vaccines made in the UK to the bloc as tensions rise over vaccine supplies.
AstraZeneca has irked the EU by warning vaccine deliveries scheduled for early this year will be 60% less than originally agreed because its European plants are generating lower yields than planned. The EU’s health commissioner Stella Kyriakides warned manufacturers must fulfil their ‘contractual, societal and moral obligations’.
Meanwhile AstraZeneca’s supplies to the UK are still running smoothly, which is raising tensions. AstraZeneca has highlighted the UK approved the vaccine developed with Oxford university much earlier (indeed, the EU has still not approved the vaccine for use) so it was able to organise supplies better and that UK factories were outperforming EU ones.
Kyriakides said yesterday that there was ‘no hierarchy of factories’ and that AstraZeneca should send vaccines made in the company’s two UK plants to the EU.
AstraZeneca’s chief executive Pascal Soirot said the contract with the EU is based on the company providing its ‘best effort’ to provide the vaccines to the EU and did not represent a firm commitment with a defined timeframe.
The EU is now expected to introduce new rules that would require all companies manufacturing vaccines in the EU to register any that are exported out of the bloc in order to improve transparency, with the bloc denying it would block exports altogether. UK prime minister Boris Johnson has warned against the idea of ‘vaccine nationalism’ and said he is confident UK supplies will remain uninterrupted by the drama over the Channel.
British minister Michael Gove said on Thursday that ‘we need to make sure that the vaccine supply that has been bought and paid for, procured for those in the UK, is delivered’.
Forex: Dollar in focus ahead of US data
EUR/GBP was up 0.2% at 0.88692 at midday compared to 0.88497 at yesterday’s close.
Commodities: Oil prices tempered as coronavirus fears return
Oil prices were being tempered by the rising concerns about the global economic recovery from the pandemic this year, as fears of vaccine protectionism and shortages, longer lockdowns and concerns about the lethality of new variants all weigh on the outlook.
Brent traded at $55.44 a barrel at midday, broadly flat from $55.40 at the end of play yesterday, while WTI was exactly flat at $52.61.
The Energy Information Administration will release its natural gas storage change for the week to January 22 at 1530 GMT. Yesterday, the organisation said us crude oil inventories plunged by 10 million barrels last week, prompting confidence that demand is recovering after weeks of steady increases.
Gold was trading at $1839 per ounce at midday, down from $1843 at the end of play yesterday.
Market-moving events in the economic calendar
The economic calendar today sees Germany’s CPI numbers out at 1300 GMT before attention turns to the US with initial and continuing jobless claims at 1330 GMT, when it will also release preliminary GDP numbers for 2020 and personal consumption data. US new home sales data will be released at 1500 GMT.
The European Central Bank’s Isabel Schnabel will give a speech during a conference on financial cycles, risk, macroeconomic causes and consequences at 1715 GMT.
Attention then turns to Japan this evening, with CPI and jobs data due out at 2330 GMT before the Bank of Japan releases a summary of opinions at 2350 GMT.