(17 December 2020)DAILY MARKET BRIEF 1:Fed Leaves Rates Unchanged
US equities were undecided on Wednesday. The three benchmark indexes were mixed at the close, with the optimism over the next stimulus package being offset by the negative economic impact from the pandemic.
Dow Jones declined by 0.15%, but the S&P 500 rose 0.18%, and Nasdaq updated the record high and gained 0.50%. Utilities and real estate were the best performers among the S&P 500’s 11 major sectors.
A series of economic data suggested that the US had been struggling with the negative effect from the COVID and the consequent lockdowns. Thus, retail sales dropped more than expected last month amid a decline in household income. The indicator fell 1.1% in November, after a downwardly revised 0.1% drop in October. Analysts expected a modest decline of 0.3%. In annual terms, sales rose 4.1%. The second consecutive month of negative retail sales performance might force Congress to rush with the stimulus package.
In fact, Congressional leaders hinted to significant progress toward a relief bill, and many analysts agree that a deal between the two parties is just around the corner.
Business activity in the US slowed in the first two weeks of December, as many regions introduced fresh restrictive measures to curb the rapid spread of COVID-19. IHS Markit data showed that the preliminary Composite PMI Output Index, which monitors both the manufacturing and services sectors, dropped to 55.7, from 58.6 in November.
After the market closed, the Fed announced that it had maintained the interest unchanged at 0%-0.25% after its two-day meeting, the last one this year. The central bank hinted that it would hold near-zero rates until at least the end of 2023.
Airline shares declined after Southwest Airlines announced a higher cash burn in Q4 and increased trip cancellations. Southwest's stock dropped almost 1%.
In individual corporate news, Twitter rose over 5% after JPMorgan upgraded the stock to “overweight.” Analysts at the bank expect the social media giant to experience a rebound in online advertising.
Two major Canadian producers of cannabis – Aphria and Tilray, agreed to merge their operations and create the largest cannabis company by sales. The new formation will have a total value of almost $4 million and will maintain Tilray’s name. It is estimated to generate 12-month revenues of $685 million, well above the sales of Canopy Growth and Curaleaf’s $500 million, both of which have larger market capitalizations. The share price of Aphria and Tilray rose 1.5% and 19.22%, respectively, following the announcement.
Meanwhile, rumors suggest that Aphria is negotiating a merger with Aurora Cannabis, as cannabis producers are betting on the expansion in the US market, especially after Joe Biden’s victory in the US election. The mergers demonstrate that the cannabis industry is gaining maturity as it eyes expansions in the coming years. The US federal legalization will boost cannabis-related stocks, potentially fostering one of the most lucrative markets.
In Asia, stocks are mostly bullish on Thursday, as investors are waiting whether Republicans and Democrats would reach a consensus on stimulus in the US Congress. MSCI's broadest index of Asia-Pacific stocks outside Japan added 0.3% to hit an all-time high.
At the time of writing, China’s Shanghai Composite is up over 1%, and the Shenzhen Component has gained 0.95%, after opening lower.
Japan’s Nikkei 225 closed 0.18% higher, while South Korea’s KOSPI is down 0.05%, though it departed from session lows.
In Australia, the ASX 200 closed 1.16% higher.
Hong Kong’s Hang Seng Index has increased by 0.38%.
By Strategy Desk
