Morning Minutes 12/2/2020

Morning Minutes

Stocks Slide as Focus Shifts to Weakening Employment and Political Risks

December 2, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

The rally which kicked off December and saw US indices gain 0.6% to 1.3% yesterday appears to be quickly fading with US index futures giving back some of their gains already with declines of 0.3% to 0.4%. Several European indices are also in decline today with Frankfurt down 0.7% and Milan down 1.1%.

Some of the forces which had propelled stocks upward in recent weeks appear to be weakening which suggests developments have already been priced in. For example, on the news that the UK has approved Pfizer’s vaccine with rollout expected to start next week, the FTSE is up only 0.2% today.

The political landscape has also started to shift. Crude oil had soared in November on speculation that OPEC+ may postpone or slow the production increases planned for January but has levelled off as members continue to argue over the proposal and postpone decision making meetings (OPEC+ is still scheduled for tomorrow).

Meanwhile in the US, the euphoria over the end of the election campaign and the start of the transition process has faded and concern over stimulus has started to creep back in. US lawmakers have until December 11th to agree on funding to avoid a government shutdown, so the impasse over spending and stimulus could take over the spotlight in the coming days. Also, the Electoral College is expected to vote on the election results on December 14th.

Economic data continues to come in mixed for the US. ADP payrolls out this morning showed that employment recovery momentum continues to weaken (307K vs street 410K and previous 365K). This disappointment adds to the cloudy picture that came out of yesterday’s numbers where headline ISM Manufacturing PMI dropped back under 50 into contraction territory (48.4 vs street 51.4 and previous 53.2), but ISM New Orders (65.1 vs street 53.4) and construction spending (1.3% vs street 0.8%) exceeded expectations.

Canadian bank earnings week continues today with mixed results as Royal Bank beat the street on EPS ($2.27 vs street $2.04) on strong results from its capital markets division. Royal cut its loan loss provision to $427M from $675M last quarter. National Bank reported adjusted EPS above expectations as well ($1.69 vs street $1.52) and cut its loan loss provision to $110M from $143M).

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