Sep 14, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🚨📺 On tonight’s “Axios on HBO" (11pm ET/PT):

  • I go on a virtual date with Match Group CEO Shar Dubey, and she talks about finding love in lockdown and the spike in online dating.
  • Melinda Gates calls out the “lack of leadership” and politicization of the coronavirus (clip).
  • We take you to the Lake of the Ozarks to see how and why Trump has become a lifestyle.

🎙 "If you don't throw yourself into something, you'll never know what you could have had." - See who said it and why it matters at the bottom.

1 big thing: Why new coronavirus stimulus is at a "dead end"

Illustration: Aïda Amer/Axios

Senate Republicans last week tried and failed to pass a slimmed down stimulus bill that would have included new money for small businesses, schools and $300 in additional weekly unemployment benefits.

  • Negotiations are now at "a dead-end street,” Kansas Sen. Pat Roberts said following the bill's failure, and Florida Sen. Marco Rubio said plainly "Congress is not going to pass another COVID relief bill before the election."
  • In fact, we're about two weeks away from a potential government shutdown.

Why it matters: Spending is decreasing, job gains are slowing and many small businesses warn that without more assistance from the government they will run out of cash before year-end and have to shut down for good.

How it happened: Not only has the stock market boomed, U.S. data have been improving notably since May. There have been millions of jobs added and V-shaped rebounds in manufacturing and services sector reports.

  • The Axios-Ipsos poll has shown little change among respondents' ability to pay their rent or mortgage and afford household goods in the past two months.
  • And the percentage of reported layoffs, furloughs and permanent job losses at the end of August was the lowest since mid-March — though it's only one percentage point below recent levels.

What it means: "Right now there’s not a lot of evidence we need [another stimulus bill] imminently," Jim Paulsen, chief investment strategist at the Leuthold Group, tells Axios.

  • "It’s not just the stock market, it’s the data coming out every day — ISM, industrial production, housing, take your pick."
  • "If the data rolls over they’ll pass that thing in a heartbeat."

Yes, but: Economists warn the improving data mask a lingering deterioration of the economy. Things are better than they were in March and April but still far from where they were in 2019 or the beginning of the year.

  • The fact that more aid is not coming will be internalized by households that will pare their budgets and by state lawmakers who will begin laying off workers and cutting programs, Julia Coronado, president of MacroPolicy Perspectives, tells Axios.
  • "There's a lagged effect. It could unfold over weeks to months. But it's pretty clear that it’s going to be hard for the economy."

Between the lines: With new spending from Congress looking unlikely, there could be more pressure on the Fed to provide additional easing, and Wednesday's policy meeting becomes much more meaningful to the market.

2. Catch up quick

Oracle beat out Microsoft to take over U.S. operations of TikTok and is set to be announced as the company's "trusted partner" in the U.S. (WSJ)

UBS and Credit Suisse are exploring a perennial merger, a Swiss financial blog reported. (Bloomberg)

Canada will retaliate against U.S. aluminum tariffs, with plans to announce a series of counter-tariffs by Wednesday. (CBC)

SoftBank may again look to go private after reaching a deal to sell chipmaker Arm for around $40 billion to Nvidia, but talks are still in an early stage. (Bloomberg)

3. Nasdaq's new tug of war: Buy the dip or run for cover
Data: FactSet; Chart: Axios Visuals

Following the fastest 10% correction in the history of the Nasdaq last week — taking just three sessions, surpassing even March's blisteringly fast slide — investors are split on whether it's a buying opportunity or the start of a new bear market.

On one side: Many hedge funds are buying, with fund managers that make both bullish and bearish stock bets buying internet and software companies at the fastest rate in five months last week, according to data compiled by Goldman Sachs.

  • Morgan Stanley data showed its hedge-fund clients also increased their exposure to growth and momentum stocks, which are largely Big Tech companies.

On the other side: Reuters' April Joyner reported Thursday that an "unidentified investor took off around $718 million of notional value in bullish options spreads" in Facebook, Netflix and Adobe stock, and partially closed a similar position in Saleforce previously.

What's happening: It's no longer just speculators, day traders and Robinhooders making moves — traditional buy-and-hold investors will be forced into action by the market's volatility, Jim Bianco, president of Bianco Research, told me on the latest episode of the "Market Banter" podcast.

  • "The market makes long-term moves three times a year now — down 34% in February–March, up 50% from March til September and then the fastest 10% correction in history in the Nasdaq."
  • "We've had two long-term investor moves in this market in the last eight months, maybe we're underway with a third one."

The big picture: The Nasdaq is near valuations last seen during the dot-com bubble and the index is up 58% since its March 23 low, having risen by 76% at its Sept. 2 peak. But many expect the Fed and the government to bail investors out should stocks fall far enough.

  • "There's a new dynamic in the market and that dynamic is the perception that the central bank has your back, the government has your back and they won't allow anything bad to happen," Bianco said.
  • "The decline that we've had to date isn't enough, but if it gets any hairier we expect them to come back in with more kitchen sinks to throw at this market."

The bottom line: "That's why you get this frenzied activity in things like the options market. ... It needs to be factored in to a lot of people's thinking but a lot of people aren't ready to do that."

4. BP: Peak oil demand is very close or already here

Axios' Ben Geman writes: Global oil consumption is slated to plateau early this decade even without vastly stronger measures to combat climate change, BP said in a new analysis.

Why it matters: BP now sees this moment arriving a decade sooner than last year's version of their long-term outlook for oil-and-gas, coal, renewables, cars and more.

  • The new projection signals how the COVID-19 pandemic is reshaping analysts' views of the energy future.
  • The timing of peak oil demand, and the slope of its decline, will affect carbon emissions, corporate strategies and the finances of oil-producing nations.

Driving the news: BP projects demand for liquid fuels (a rough oil proxy) entering a long plateau in the early 2020s in their "business as usual" (BAU) scenario.

  • It assumes "government policies, technologies and social preferences continue to evolve in a manner and speed seen over the recent past."
  • Oil demand plateaus at roughly 100 million barrels per day — where it was before the pandemic drove it downward — for almost 20 years, and then declines slightly through 2050.

The intrigue: In other BP scenarios, oil demand never reaches pre-pandemic levels again and declines steeply by 2050, the end of its outlook period.

  • BP's "rapid transition" case assumes policies strong enough to slash energy-related CO2 emissions by 70% by 2050. It shows oil demand falling to roughly half of pre-COVID levels by 2050.
  • Under its "net zero" scenario — which explores policies and behaviors aligned with holding temperature rise to 1.5°C above pre-industrial levels — demand falls to about one-third of pre-pandemic levels.
  • When it comes to transportation, the largest source of oil demand, all three scenarios see increasing efficiency, while the "rapid transition" and "net zero" cases both see much greater increases in electric cars and hydrogen fuels than BAU.

Where it stands: The report comes as BP is planning to diversify away from its dominant fossil fuel business in coming decades, including plans to cut aggregate oil-and-gas production by 40% by 2030.

The big picture: Oil demand across the models is "significantly affected" by the pandemic, due in part to its economic effect in emerging economies that are centers of demand growth.

  • "The experience of coronavirus also triggers some lasting changes in behavior, especially increased working from home," the report finds.

Yes, but: "We can’t predict the future; all the scenarios discussed in this year’s Outlook will be wrong," said BP chief economist Spencer Dale. Instead, BP uses these scenarios to "better understand the range of uncertainty we face as the energy system transitions to a lower-carbon world."

5. Bank of Jamaica releases latest music video
A screenshot of the latest Bank of Jamaica music video, "Inflation Targeting featuring Denyque."

The smaller BOJ recently dropped that 🔥🔥🔥 on the value of inflation targeting‼️

"We no want it too high, we no want it too low. When inflation's stable and predictable, that's the way to go!"

Watch the video.

(H/T to Felix Salmon for finding.)

Dion Rabouin

Thanks for reading!

Quote: “If you don't throw yourself into something, you'll never know what you could have had.”

Why it matters: On Sept. 14, 1983, singer Amy Winehouse was born. She died tragically of a drug overdose at the age of 27 in 2011.