Jan 7, 2021

Axios Markets

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Situational awareness: Congress formally recognized Joe Biden as president early Thursday morning. (Bloomberg)

🎙"To see the National Guard standing on those steps when there was a peaceful protest and now to see a terrorist attack and no National Guard, it just goes to show where this country is, where it's always been and probably where it's going to stay, to be quite honest." - See who said it and why it matters at the bottom.

1 big thing: Markets are unbothered
Data: FactSet; Chart: Axios Visuals

U.S. stock prices were generally higher on Wednesday and riskier assets in most markets rose as investors showed little worry about protests in Washington, D.C. that devolved into violence and looting at the nation's capital by supporters of President Trump.

What happened: "The market primarily is looking at an economic recovery in the second or third quarter and hasn’t seen anything in the pandemic or political situation to change that view," Joseph Trevisani, senior analyst at FXStreet, tells Axios.

  • Traders were much more focused on victories by Democrats Raphael Warnock and Jon Ossoff in Georgia's runoff elections that will likely mean more relief funds, including increased direct payments of $2,000 to Americans that expected Senate Majority Leader Chuck Schumer has said is a top legislative priority, he added.
  • "The stuff in D.C. is not a serious event and I don’t think anyone’s taking it seriously. There will be no long-term political ramifications as far as the political transition in a few weeks."

In fact, Wednesday's chaos dashed "any lingering uncertainty about a transition of power in D.C. come Inauguration Day," Danielle DiMartino Booth, CEO of Quill Intelligence, says in an email.

  • "Investors received verification that the recently enacted $908 billion relief bill is but a down payment on stimulus spending to come."

One level deeper: The 50-50 split in the Senate paves the way for three things the market likes — more stimulus, a more difficult path for tax increases and a very likely confirmation of former Fed chair Janet Yellen as Treasury secretary.

The bottom line: There are four factors at play, Gregory Daco, chief U.S. economist at Oxford Economics, tells me on Twitter (also noting that a "coup d'état is only worth -0.6% on the #SP500, & we're only 0.2% from the all-time high close"):

"1. Chaos/violence banalized
2. Assumption that unrest is transitory (14 days)
3. Georgia wins for Dems mean more fiscal stimulus coming
4. Fed put is solidly in place"
2. Catch up quick

The NYSE will move forward with delisting three Chinese telecom companies, reversing course yet again, and the U.S. is considering prohibiting Americans from investing in Alibaba and Tencent, China's two most valuable publicly traded companies. (WSJ)

Federal officials are seeking to expand the supply of coronavirus vaccines and considering lowering the required dosage and extracting more doses from already held supplies, blaming a lack of funding and resources for the slow rollout. (NY Times)

3. Battle of the bubbles
Expand chart
Data: YCharts; Chart: Axios Visuals

Axios' Felix Salmon writes: The value of Tesla overtook the value of all the bitcoins in the world in early June, and has stayed ahead ever since.

  • The bull case for Tesla is fundamentally optimistic. It involves a real company coming to dominate the global mobility industry. If Tesla gets big enough, and interest rates stay low for long enough, then the present value of its future profits might conceivably be even higher than the current $730 billion.
  • The bull case for Bitcoin is fundamentally pessimistic, or at least anarcho-libertarian. It involves the erosion of national power, the implosion of fiat currencies, the return of double-digit (or higher) inflation, and a global rush to the perceived safety of an asset class that will always be supply constrained.

Between the lines: The two speculative bets have tracked each other closely over the past year. That's because the real driver of their prices is technical market factors. People buy things that are going up, especially when they're feeling rich.

  • It's called the "momentum" strategy, and it generally works very well, until it doesn't.
4. Job losses suggest labor market's "dark days" could return
Data: Investing.com; Chart: Axios Visuals

The ADP private payrolls report showed U.S. employers cut 123,000 non-government jobs in December, the first net job loss since April.

Why it matters: There are still 10 million more unemployed Americans than there were in February and the report suggests a weak job climate could persist, despite recent relief efforts from Congress.

The big picture: Job gains have been slowing since May when the U.S. unexpectedly added 2.5 million jobs, and if Friday's numbers from the Labor Department follow the ADP report's direction the trajectory will have reversed the labor market's recovery in just eight months.

  • Economists had expected employers to add 340,000 private sector jobs last month.

The intrigue: The largest firms in the country (those with more than 1,000 employees) shed 169,000 positions.

Be smart: Big companies are flush with cash right now thanks to the Fed's massive market interventions in March that reopened credit markets and sent the cost of new debt back toward record lows.

  • The fact that large firms are cutting jobs, rather than hiring, points to the arrival of the new employment paradigm I wrote about in September wherein businesses are doing everything they can to ramp up productivity while also reducing costs, largely in the form of jobs and labor expenses.
  • Big corporations are now fighting for a “bigger piece of a smaller pie” thanks to the coronavirus pandemic's negative impact on household budgets, and are unable to raise prices meaningfully but also need to push forward with technology upgrades and investment to compete.

Stay woke: The Fed noted in the minutes of its most recent meeting that "participants saw increased challenges for the economy in the coming months," due to surging COVID-19 cases and reduced spending, especially on services requiring in-person contact.

The last word: “America’s great jobs machine ran into a wall of rising coronavirus cases and state lockdowns which puts the entire economic recovery from recession at risk,” Chris Rupkey, chief economist at MUFG, told Reuters.

  • “The heart of every recession is job losses and right now the decline in jobs at year end is hinting that the dark days of the labor market last spring have returned.”
5. Wall Street, business leaders condemn Capitol violence and Trump

Axios' Ursula Perano and I write: Leading business groups and the CEOs of many of the nation's largest banks and Wall Street firms condemned President Trump and the violence at the Capitol, with the National Association of Manufacturers urging Vice President Mike Pence to invoke the 25th Amendment to remove Trump and "preserve democracy."

What they're saying:

  • JPMorgan CEO Jamie Dimon said in a statement: "I strongly condemn the violence in our nation’s capital. ...Our elected leaders have a responsibility to call for an end to the violence, accept the results and, as our democracy has for hundreds of years, support the peaceful transition of power.”
  • Citi CEO Michael Corbat wrote that he's "disgusted by the actions of those who have stormed the U.S. Capitol" and that he "[prays] this situation can be resolved without further conflict."
  • Bank of America CEO Brian Moynihan called the events "appalling" and called on "all Americans to unite behind one of our most cherished principles: the peaceful transfer of power that has happened without interruption since our country’s founding."
  • Goldman Sachs CEO David Solomon: "For years, our democracy has built a reservoir of goodwill around the world that brings important benefits for our citizens. Recently, we have squandered that goodwill at an alarming pace, and today’s attack on the U.S. Capitol does further damage."
  • Wells Fargo CEO Charlie Scharf: “The behavior in Washington, D.C., today is unacceptable and completely undermines who we are as a nation. I urge an immediate end to this violence."
  • Blackstone CEO Stephen Schwarzman: "The insurrection that followed the President’s remarks today is appalling and an affront to the democratic values we hold dear as Americans. I am shocked and horrified by this mob’s attempt to undermine our constitution."
  • BlackRock CEO Larry Fink called the violence “an assault on our nation, our democracy and the will of the American people.”
  • The Business Roundtable wrote: "The chaos unfolding in the nation's capital is the result of unlawful efforts to overturn the legitimate results of a democratic election. The country deserves better. Business Roundtable calls on the President and all relevant officials to put an end to the chaos and to facilitate the peaceful transition of power."

Between the lines: NAM last year awarded Ivanka Trump with its Alexander Hamilton Award for Extraordinary Support of Manufacturing in America.

  • It now writes that the president has been "cheered on by members of his own party, adding fuel to the distrust that has enflamed violent anger."

Thanks for reading!

Quote: "To see the National Guard standing on those steps when there was a peaceful protest and now to see a terrorist attack and no National Guard, it just goes to show where this country is, where it's always been and probably where it's going to stay, to be quite honest. Nothing's changed. Through social media and all these different tools we have at our fingertips today we're more aware. But nothing's changed. We're still the same America that it's been. It's no different. I've seen a lot of (statements) of 'shoot them like we would've been shot.' Nah, I don't think that's the right thing to do. Stop shooting us."

  • "Ironically, the news that's come out of Kenosha and these places the same 24-hour span and then you see that, it's a slap in the face and a f--k you to every Black person in America who goes through these things. It's almost like they want to show you they have power. They want to show you that I can say 'F--k you' and there's nothing you can do about it. That's just what this country is, what this country's been and like I said before, what this country probably will stay."
  • "The NBA is doing what the NBA can. We speak up, we do all the things everyone has been doing. But at some point we need lawmakers to change laws."
  • "It just goes to show the policing system was built against Black and brown people. That's the reason those reactions are different. That's the reason someone can bust their way through to the Speaker of the House's office and put their feet on the desk, like they're sitting at home on their couch and nothing happens."

Why it matters: Golden State Warriors power forward Draymond Green made the comments during a press conference after the team's game Wednesday night, according to a transcript from The Athletic's Anthony Slater.