US

US stocks edged higher, with the S&P 500 Index notching its longest winning streak since 2017, after corporate earnings, strong hiring data, and a Covid treatment breakthrough bolstered optimism in the world’s largest economy. The dollar and Treasuries fell.

The S&P 500 gained 0.09% to 4,701.70 for an eighth session, led energy producers and materials as investors piled into companies that benefit most from a strong economy. Meanwhile, the Nasdaq 100 fell, weighed down by Tesla’s 4.9% slump after Elon Musk asked his Twitter followers if he should sell 10% of his stake, to which they said yes.

The news flow last week (ended 5 November), which also included passage of a USD550b infrastructure bill, washed away worries that high inflation and the Federal Reserve’s plan to curb bond purchases would upend growth. Results of Pfizer’s virus treatment and the lifting of US travel restrictions also boosted speculation companies will continue to have strong earnings. However, the pace of the latest gains may make it difficult for stocks to push much higher without an additional catalyst.

Markets will closely watch a measure of US consumer prices on Wednesday (10 November) after gains in US payrolls last week also showed a jump in average hourly earnings. The reading is expected to show price pressures running at the hottest pace in three decades amid supply chain bottlenecks and higher energy costs, according to Bloomberg Intelligence. Still, some expect the S&P 500 to continue rising into the year end. – Bloomberg News.

The Dow Jones Industrial Average upped 0.29% to 36,342.22 and the Nasdaq Composite Index closed 0.07% higher at 15,982.36.

 

EUROPE

UK investment of more than GBP1b (USD1.4b) to smooth the passage of goods over its new post-Brexit border failed to prevent a slump in trade with the European Union (EU).

The figure, equivalent to about a third of what Boris Johnson’s government plans to spend on new hospitals over the next three years, includes the cost so far of border facilities, support to help companies adjust, and funding for businesses in Northern Ireland, the National Audit Office (NAO) said in a report Friday (5 November).

Meanwhile, Britain’s trade with the EU, its largest commercial partner, fell 15% in the second quarter of this year compared to the same period in 2018, the NAO said. Businesses have had to grapple with new red tape since Britain left the EU’s single market and customs union, including extra forms and hiring customs agents to handle additional processes.

The data are likely to add to pressure on Johnson to show the benefits of leaving the EU, his signature policy, after his government chose to erect new trade barriers to ensure maximum distance from the bloc after Brexit.

Johnson has repeatedly argued that gaining total trade freedom would be more valuable than remaining close to the EU, by enabling the UK to pursue other global opportunities. But the NAO said in the same period, Britain’s trade with the rest of the world rose just 1%.

Since fully quitting the EU in January last year, Britain has yet to finalise a trade agreement with a partner with which it did not already have an accord as a member of the bloc.

So-called agreements in principle have been reached with Australia and New Zealand, but not final legal texts. The government’s own impact assessments forecast that the benefits of those deals will be orders of magnitude smaller than the economic damage from leaving the EU.

The UK is also seeking accession to the CPTPP trading bloc, which is forecast to boost Britain’s economy by 0.08% over 15 years and talks on a trade agreement with the US have stalled.

The UK’s border costs are set to rise further because the UK has yet to fully implement its post-Brexit plans. Full import checks on goods arriving from the EU have been delayed to July 2022, a move criticised by the NAO for putting UK firms at a disadvantage and leaving Britain exposed to smuggling. – Bloomberg News.

The Stoxx Europe 600 Index rose 0.04% to 483.61 on Monday.

 

JAPAN

Prime Minister Fumio Kishida called for a shakeup of the initial public offering (IPO) process to better serve startups as Japan’s new capitalism panel released its recommendations ahead of a stimulus package.

In a 21-page document that came out Monday (8 November), the panel pointed to some of the themes likely to feature in the package of economic measures promised by the premier later this month.

The panel diverged from the tone of similar committees set up by Kishida’s predecessors by seemingly criticising short-termism and attacking a system that favours IPO investors over startup founders’ ability to secure funding.

“By putting the most critical issues in the upcoming economic package and putting them into action, I hope to kick start a new form of capitalism,” said Kishida in remarks at the end of the panel session.

The panel’s recommendations and the coming stimulus will indicate the direction of Kishida’s administration and show how aggressively he wants to spend to achieve those goals.

After another likely contraction of the economy over the summer, Kishida needs to deliver measures that can effectively shore up the recovery and support for his government ahead of further elections next summer.

While stimulus measures will need to support the recovery in the short term, the report made clear that support for startups is a key area where the premier believes the economy can be revitalised over the longer term.

Among other key points the panel called for renewed investment in digital, green, and chip technology, and greater efforts to improve wealth distribution. The report lacked specific details.

While the tone varied from previous reports, the recommendations still kept a lot of policies intact from former Prime Minister Yoshihide Suga. The panel called for support for a switch to green energy including help for the car industry.

Building battery supplies for electric vehicles and production facilities for semiconductors also warrant close attention from the perspective of economic security, the report said.

To ensure fairer pay, the panel recommended larger tax breaks for companies raising wages and additional support for smaller and mid-size companies to boost compensation even if they are technically in the red.

Gross domestic product numbers due for release Monday should pave the way for the government to reveal the details of its latest stimulus package, with 19 November the likely date, according to Kyodo News.

The measures will likely include handouts of JPY100,000 (USD880) for children under 18, a resumption of last year’s popular travel discount campaign, and pay hikes for public sector workers such as nurses, caregivers to the elderly, and kindergarten teachers. – Bloomberg News.

The Nikkei 225 Index gained 0.55% to 29,669.00 in early-Tuesday (9 November) morning trading, reversing its 0.35% loss to 29,507.05.

 

MAINLAND CHINA & HONG KONG

US-listed Chinese education stocks gained in US trading Monday (8 November) after Dow Jones reported that Beijing plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring, citing people familiar with the matter.

New Oriental Education & Technology Group advanced 3.4% and Tal Education Group jumped 5.1%, while Gaotu Techedu surged 9.8%. Under the new licensing agreement, education companies will be required to operate after-school tutoring on a non-profit basis while being allowed to make a profit on other businesses, such as tutoring adults for professional exams, Dow Jones reported.

The reported move by China could cap months of market volatility in the once-thriving online education sector after the government tightened regulations on the industry starting in July, when Beijing prohibited after-school tutoring outfits from making money off teaching the compulsory curriculum. New Oriental’s shares have slumped 89% this year and Tal Education’s stock has wiped out 94%.

Industry experts say the licensing move signals the nation’s education policy is “stabilising,” which should provide a more steady environment for firms to transform their business, a market analyst wrote in a note. Still, there are no changes to local government regulations that after-school-tutoring business should remain not-for-profit, he added.

The Nasdaq Golden Dragon China Index, which measures the performance of 98 firms listed in the US that conduct a majority of their business in China, has gained over 10% since hitting a low in early October. It is still down 30% this year, while the S&P 500 Index advanced 25%. – Bloomberg News.

The Hang Seng Index slipped 0.43% to 24,763.77 while the Shanghai Composite Index inched 0.20% higher to 3,498.63.

 

REST OF ASIA

Shares tied to reopening trades from casinos to airlines surged in Asia on Monday (8 November) after Pfizer said that its Covid pill could reduce hospitalisations and deaths in high-risk patients by 89%.

A Bloomberg gauge of Macau casino shares jumped 5.9%, the biggest move in over two months, while an index of Asia Pacific airline stocks rallied 4.5%, the most since March. Luggage manufacturer Samsonite International climbed 14% in Hong Kong.

The buying frenzy in Asia – which tracks gains among similar stocks in the US – comes as Pfizer looks to become the second pharmaceutical company to offer an oral pill to combat the virus. While Pfizer’s drug has yet to receive emergency authorisation from US regulators, investors say that it shows promise to help ease the pandemic globally and accelerate a return to travel.

The pill is “bringing some hope that reopening will be able to take place more smoothly, especially if the pill is able to reduce the strain on hospital capacity,” said a market strategist in Singapore. “The fact that it is an oral treatment may also suggest that it may be more well-received, along with its high efficacy.”

Meanwhile, makers of Covid vaccines and treatments in the region slumped, with CanSino Biologics sinking 17% in Hong Kong. Wuxi Biologics Cayman, which makes ingredients for AstraZeneca’s vaccine, also fell by 8.6%.

In Japan, Shionogi & Co, which has been developing a rival drug to Pfizer’s, fell the most since March 2020. The firm is expecting late-stage trial data on that treatment by December. Takara Bio, which has a contract to produce mRNA vaccines in Japan starting next year, fell the most since May of last year.

Last month, Merck & Co submitted its experimental treatment to regulators, after a study showed it slashed the risk of getting seriously ill or dying by half in certain patients. Vaccine related shares also plunged after that news. – Bloomberg News.

Australia’s S&P/ASX 200 Index added 0.21% to 7,467.50 on Tuesday after slipping 0.06% to 7,452.20 the previous session.

South Korea’s Kospi Index climbed 0.63% to 2,978.97 in early-Tuesday trading, after closing 0.31% lower at 2,960.20 on Monday.

The Taiwan Stock Exchange Weighted Index added 0.68% to 17,415.30.

 

COMMODITIES

Oil eked out a gain on Monday (8 November) as Saudi Arabia is raising prices, but the rally cooled after the US signalled measures to ease oil and gasoline prices.

Futures in New York closed 0.8% higher, paring gains of as much as 1.7% earlier in the session. US Energy Secretary Jennifer Granholm said that President Biden may make an announcement to address high oil and gasoline prices this week (ending 12 November). Granholm did not specify any particular measures, but the US has said that releasing crude from the Strategic Petroleum Reserve is one option it is considering to cool prices.

Still, prices were supported by the biggest increases to some of Saudi Arabia’s official selling prices in decades at the end of last week. Asian buyers will probably take their full contractual volumes of oil next month, despite the higher costs, signalling a strong market.

The markets traded sideways throughout most of the afternoon, waiting to see if the US would release crude from the strategic reserves and if so, how much. Only a coordinated effort from the US with other consumer countries could substantially bring prices down, said a market watcher.

Oil prices have soared this year to the highest since 2014, fanning inflation and lifting product prices, as the rollout of vaccines boosted mobility and stoked energy demand.

High energy prices led Biden and other consumer countries to lobby the Organization of the Petroleum Exporting Countries and its allies to step up the pace of their supply output. Despite foreign pressures, the alliance chose to stick with a planned, modest hike of 400,000 barrels a day, keeping oil in the USD80 range and raising the possibility of an SPR release. The Biden Administration will be scrutinising a monthly US report published on Tuesday, according to Granholm.

Meanwhile, US crude stocks in the strategic petroleum reserve fell by 3.14m barrels last week, the biggest weekly drop since July 2017, data from the Department of Energy show, ahead of weekly figures due on Wednesday. The release of figures comes as investors speculate that Biden will tap into emergency reserves to quell rising prices.

In Washington, the US House of Representatives passed the USD550b infrastructure bill, allocating billions for repairs of roads, bridges, and other major projects. Analysts see the bill as providing another upside for oil on the horizon. – Bloomberg News.

West Texas Intermediate for December delivery gained 0.81% to USD81.93 a barrel in New York. Brent for January settlement surged 0.83% to USD83.43 a barrel.