Oil

The Trump implosion

Axios’ Mike Allen:

Republicans, who enabled President Trump with their silence and compliance, are privately furious with him for blowing their Senate majority.

• Democrat Raphael Warnock was declared victor over Sen. Kelly Loeffler in one of the twin Georgia runoffs at 2 a.m., and will become the Southern state’s first Black senator.
• Democrat Jon Ossoff is on track to beat Sen. David Perdue in the other runoff, with most of the outstanding votes in Democratic strongholds.

That second victory would mean Senate Democratic Leader Chuck Schumer becomes majority leader, taking power from Mitch McConnell.

• In a 50-50 Senate, Vice President-elect Harris would break ties.

What Senate control means for Dems and Joe Biden:

• They can try to do big spending and tax hikes via budget reconciliation, which requires only a simple majority.
• They can jam through nominees and judicial picks if they stay united.
• They control what comes to the floor and when.

Between the lines: It’d be tough to go big with a 50-50 Senate, so don’t assume a substantial shift. But Democratic control would be a massive blow to Republican hopes of blocking anything they truly loathe.

Most Second Stimulus Payments Reach Household Bank Accounts Treasury Department reports paying $112 billion of $164 billion estimated cost of providing $600 per adult and $600 per child to many Americans

Axios today:

Stimulus checks boost consumer confidence: Morning Consult’s Index of Consumer Sentiment rose 1.51 points from the prior week to 87.74.

“boost”?

SERVICES PMIs

Note: The U.S. Services PMI is out later this morning. Yesterday’s Manufacturing PMI revealed strong price pressures (“cost burdens and selling prices soared”). Here’s the ISM Prices Paid Index via Axios:

And here’s the trends in Core CPI and CPI Durable Goods:

Eurozone private sector contracts again in final month of 2020

The eurozone private sector economy contracted for a second successive month in December, albeit at a much slower rate. After accounting for seasonal factors, the IHS Markit Eurozone PMI® Composite Output Index rose from 45.3 in November to 49.1 in December. The final result was lower than the earlier flash reading (49.8).

Services remained the principal drag on economic output, with activity here falling for a fourth successive survey period. In line with the recent trend, manufacturing remained the principal bright spot of eurozone economic performance, expanding for a sixth successive month and at a faster rate than in November.

There were notable country level divergences at the end of the year. In part driven by Brexit-related stockpiling and higher manufacturing production, Ireland was the best-performing economy followed by Germany, where growth was again underpinned by strong export performance.

In contrast, all other nations registered a contraction, although rates of decline eased noticeably in both France and Spain. Italy was comfortably the worst-performing as service sector activity continued to contract noticeably and more than offset modest growth in manufacturing.

The latest fall in regional economic output was linked to a similar sized drop in incoming new business, which declined for a third month running.

Social distancing measures and restrictions were reported to have weighed on demand, especially in nations such as Italy and Spain. On a more positive note, growth of new export business was recorded for the third time in the past four months.

As the downturn in overall levels of incoming new business continued, companies were able to comfortably keep on top of workloads as evidenced by a drop in levels of work outstanding for the twenty-second successive month. With overall workloads down, job losses continued in line with the trend since March. The rate of contraction was, however, marginal. Ireland actually saw an increase in employment, whilst staffing levels were unchanged in France to end a nine-month streak of falling employment numbers.

On the price front, the strongest increase in manufacturing input costs for over two years helped to drive up overall operating expenses to the strongest degree since May 2019. However, the challenging business environment and competitive market conditions meant that output charges were cut slightly for a tenth successive month.

Amid recent news of vaccine developments, private sector companies were noticeably more optimistic about activity in 12 months’ time. Overall, optimism was at its highest level since April 2018.

The IHS Markit Eurozone PMI® Services Business Activity Index bounced back from November’s six-month low of 41.7 in December, but remained firmly below the 50.0 no-change mark to signal another fall in services activity. Posting 46.4, the index recorded a contraction in activity for a fourth month in succession.

All nations except Ireland registered a decline in activity. Italy recorded by far the sharpest reduction, followed by Germany and then Spain.

Lower service sector activity at the aggregate level was again closely correlated to reduced volumes of incoming new work which fell for a fifth successive month. The effects of social distancing and travel restrictions were highlighted by data on new export business, which showed a sharp fall again.

As has been the case since March, there was a reduction in service sector employment during December. That said, the rate of contraction was marginal and the weakest in the current sequence, with growth in staffing levels seen in both Germany and Ireland.

Meanwhile, price pressures intensified, though remained relatively benign when compared to the survey’s historical average. Output charges continued to be cut, extending the current period of deflation to ten months.

Finally, there was a broad-based upturn in confidence according to December’s survey, with optimism at its highest level for two-and-a-half years. Spanish and Italian service sector companies were the most confident of a rise in activity.

China: Service sector expands at softer rate at the end of 2020

Latest PMI data indicated that Chinese services activity growth slowed in December, but remained marked overall. New business also expanded at a softer pace, amid only a modest increase in new export sales. Business confidence meanwhile remained robust and improved to the highest since April 2011 due to hopes of a further rebound in global economic conditions. At the same time, firms continued to add to their payrolls, which helped to reduce levels of backlogged work. Prices data revealed a further sharp rise in input costs, which led firms to increase their output charges at the quickest rate since January2008.

The headline seasonally adjusted Business Activity Index fell from 57.8 in November to 56.3 in December, to signal a further increase in service sector activity across China. Although not as quick as those recorded in the prior two months, the rate of expansion remained among the steepest recorded over the past decade, and marked a further recovery from the coronavirus disease 2019 (COVID-19) outbreak at the start of the year.

The softer rise in overall activity coincided with a slower expansion of total new work at the end of 2020. Although rising solidly overall, the latest increase in new business was the least marked since September. The slowdown occurred alongside a weaker upturn in foreign demand. Export sales rose modestly overall, after expanding at the quickest rate for over a year-and-a-half in November. Panel members indicated that the pandemic, and the recent resurgence of the virus in key export markets, continued to limit growth of overseas business.

December data meanwhile pointed to a second successive monthly rise in workforce numbers at Chinese service providers. The rate of job creation was mild overall, however, having slowed from November’s more than decade-high.

At the same time, companies indicated that there was little pressure on operating capacities, as firms reduced their backlogs of work again at the end of the fourth quarter.

After increasing at the sharpest rate since August 2010 in November, input costs rose at a softer, but still substantial pace in December. Services companies often mentioned that higher staffing costs and raw material prices had pushed up expenses at the end of the year.

As firms faced a further marked rise in costs, prices charged increased further in December. Notably, the rate of inflation was the quickest recorded since the start of 2008 and solid.

At 55.8 in December, the Composite Output Index fell from a more than ten-year high of 57.5 in November, but nonetheless signalled a further marked increase in total Chinese output. Sector data showed that softer, but still sharp, increases in output were recorded across both the manufacturing and service sectors.

New business at the composite level also expanded at a softer pace in December. Though solid, the rate of growth was the slowest seen for four months. Composite employment meanwhile expanded only marginally, with job creation at services companies helping to offset stagnant manufacturing staff numbers.

Composite input prices rose rapidly in December, with the rate of inflation the quickest seen for three years. As a result, output charges increased solidly and at the steepest rate since November 2016.  

Japan: Services economy remains in contraction at the end of 2020

The Japanese service sector ended a turbulent year on a muted note. Business activity and new orders remained in decline during December as a further wave of coronavirus disease 2019 (COVID-19) infections caused renewed disruptions to service providers. Encouragingly however, employment levels were broadly stable for the third consecutive month and companies remained optimistic that the pandemic would recede over the coming 12 months to induce a sustained recovery in demand.

The seasonally adjusted Japan Services Business Activity Index dipped fractionally from 47.8 in November to 47.7 in December. Despite the latest reading signalling a moderate contraction in activity, the Index has remained at a broadly similar level throughout the final quarter of 2020, well above levels seen in the spring and indicating that the downturn is bottoming out.

Incoming business fell for the eleventh month in a row in December. Although solid, the pace of decline eased from that seen in November. According to anecdotal evidence, demand was hampered by a third wave of COVID-19 infections which resulted in cancellation of orders throughout the latest survey period. Moreover, export sales were especially subdued, with December data pointing to a sharp, albeit softer, contraction amid evidence that the pandemic continued to weigh on external demand for Japanese services.

As had been the case in the prior two months, businesses in the Japanese service sector highlighted a broad stabilisation in employment levels in December. Survey participants commented that increased recruitment of skilled staff was offset by further employee retirements. Firms redirected capacity towards the completion of existing work, with outstanding business levels down for the thirteenth month in a row.

Meanwhile, average cost burdens faced by Japanese service providers ended a four-month sequence of falls with a marginal increase in input prices in the latest survey period. Panellists often attributed increased price pressures to higher staff costs. Despite the rise in input prices, firms engaged in further price discounting as part of efforts to stimulate sales amid muted demand caused by the COVID-19 pandemic. Prices charged for services fell for the tenth month running, and at a marginal pace that was quicker than in November.

Looking ahead, Japanese service providers remained confident that activity would expand over the coming year. December data indicated that business expectations were positive for the fourth month in a row, and solid overall. Firms cited hopes that the end of the pandemic would stimulate the sector and facilitate a wider recovery in client demand.

The au Jibun Bank Japan Composite* PMI Output Index rose to 48.5 in December from 48.1 in November. While the index was below the neutral 50.0 mark for the eleventh month in a row, the reading was the highest in this sequence and thereby signalled a slower rate of contraction.

Manufacturers recorded a stabilisation in output in December, whereas service providers registered a further modest decline. Aggregate new orders fell further, although the pace of contraction eased from November. Once again, a sharp decline among service providers offset broadly stable orders at manufacturers. In response to a reduction in incoming business, firms were able to reduce backlogs of work for the sixteenth month in a row.

Despite falling workloads, private sector companies recorded broadly stable workforce numbers in December. Goods producers and service providers recorded broadly unchanged staff levels.

Firms in both sectors were optimistic that activity would rise in the coming year, with expectations stronger among manufacturers.

PANDEMIC IMPACT

Just a few interesting findings from Kiplinger’s recent survey:

• A third (32%) of respondents had their Social Security payroll taxes deferred in 2020 and the majority of them (59%) already set the money aside to pay it back. Most (83%) respondents received a stimulus check which they were most likely to use for paying bills (54%) and savings (51%). Lastly, they were most likely to say their income did not change as a result of the pandemic.

• 1 in 4 (26%) have moved or will move in the next 3 years as a result of the pandemic. Among them, less population
  density the biggest motivator (29%).

• Two-thirds (66%) of respondents have changed their retirement plan as a result of the pandemic. 1 in 4 (43%) are
  less confident they’ll have enough to retire comfortably has a result of the pandemic. And the most common
  negative health effect from money worries this year is anxiety (36%).

Saudi Arabia to Cut Oil Production Sharply in Bid to Lift Prices The kingdom flexed its market muscle in a surprise move that signals its fear that the Covid-19 pandemic will further hit the global economy.

Saudi Arabia said it would unilaterally cut 1 million barrels a day of crude production starting next month, a surprise move signaling the kingdom’s worry that a resurgent coronavirus is threatening global economic recovery.

The announcement Tuesday came after Riyadh agreed earlier in the day with other big producers to keep the group’s collective output flat, after a now-monthly assessment by the Saudi-led OPEC cartel and a group of big producers led by Russia. In that deal, the two groups, collectively called OPEC-plus, agreed to a complex deal to hold production broadly unchanged from current levels. (…)

Saudi Energy Minister Abdulaziz bin Salman said the unilateral move was made “with the purpose of supporting our economy, the economies of our friends and colleagues, the OPEC-plus countries, for the betterment of the industry.” (…)

If oil prices stay firmly above $50 per barrel, shale companies would spend roughly $62 billion this year on oil-and-gas production, about 11% more than they would have spent if prices were in the mid-$40 range, according to consulting firm Rystad Energy. (…)

Europe Is Botching the Vaccine Rollout

(…) The European Medical Agency is taking its time to approve vaccines that have been deemed viable elsewhere. Its delay on the joint effort from AstraZeneca Plc and the University of Oxford is understandable: The trial of this jab has been marred by problems that justify a more cautious approach than the U.K.’s speedy approval. However, the slow study of the Pfizer Inc.-BioNTech SE vaccine and the one from Moderna Inc. (still waiting for the green light) is much harder to understand.

The vaccine’s rollout has been even worse. Germany, France, Italy and Spain — the EU’s largest countries — have together inoculated less than half the number of people who’ve received a jab in Israel, according to data compiled by Bloomberg News. This is despite those four EU nations having nearly 30 times Israel’s population. (…)

• Although the vaccination effort has sped up over the last few days, only 5 million Americans have received their first dose of a vaccine — or 1.5% of the population, Caitlin Owens writes in Axios Vitals. That means only about 30% of the 17 million distributed vaccines have been administered. (Axios)
• Fifty-seven percent of adults say they’d seek a coronavirus vaccine if one were available to them, on par with recent trends but still the highest level since early August. The gap between Democrats (71 percent) and Republicans (48 percent) is the widest it’s been since then. Read more.
• Data from Pfizer has shown the vaccine to be about 95% effective in preventing symptomatic Covid-19 — figures that were echoed in a U.S. Food and Drug Administration report issued last month — but the FDA study found the efficacy ratio to be only about 52% after just one dose. Though the vaccine was found to be 89% effective at preventing severe cases, the FDA report cautioned that those findings were based on a small number of severe infections in the trial was small so it was difficult to draw conclusions. (Bloomberg)
• Experts advising the World Health Organization on vaccine policies recommended against spreading the interval between two doses beyond 28 days, following a move by the U.K. to extend the period between shots to as much as 12 weeks in an effort to maximize coverage. (Bloomberg)

Sell-side bullishness close to 10-year high

The BoAM “Sell Side Indicator” is based on the average equity allocation by Wall Street strategists. Latest update is from end of the month of December. Would have expected it to be higher, but maybe “close to 10 year high” is high enough. Maybe the rest of the allocation goes to BTC do actually hysterically bullish….

Goldman CEO says “I’d be cautious” of stock market

Goldman Sachs CEO David Solomon is preparing for more stock market volatility, particularly in the near term, and currently sees some “excess in markets,” he told Axios’ Mike Allen in a phone call on Tuesday.

Solomon is the latest in a long list of high-profile CEOs, fund managers and investment strategists to warn that stock prices may be running away from reality.

“The markets have been quite ebullient as of late. You know, I think there’s some excess in markets.” “I think there’s a lot of retail participation in markets that’s certainly making markets a little bit more ebullient. I’d be cautious about some of that.”

“I do think the recovery just won’t be a straight line, and you know, I think the markets are pricing in, you know, just everything working perfectly as we come out of this, and I’m sure there’ll be bumps along the way.”

China Tries to Get Jack Ma’s Ant Group to Share Consumer Data Beijing is trying to get Jack Ma to do something the beleaguered billionaire has long resisted: share the troves of consumer-credit data collected by his financial-technology behemoth.

(…) The app, used by more than a billion people, has voluminous data on consumers’ spending habits, borrowing behaviors and bill- and loan-payment histories.

Equipped with that information, Ant has originated loans to half a billion people and has gotten about 100 commercial banks to supply the majority of the funding. In those arrangements, banks take on most of the risk of borrowers’ defaulting, while Ant pockets profits as the middleman. (…)

Not only are authorities set to regulate Ant’s lending business like a bank, which would cause it to supply more of its own funds when making loans, they are also planning to break what they see as the company’s monopoly over data, according to officials and government advisers with knowledge of the regulatory matter.

One plan being considered would require Ant to feed its data into a nationwide credit-reporting system run by the central bank, the People’s Bank of China, the people familiar with the matter say. Another option would be for Ant to share such information with a credit-rating company that is effectively controlled by the central bank. (…)

Mr. Ma, perhaps the Chinese entrepreneur most identified with innovation in recent decades, has assisted the government in various ways over the years. Alibaba Group Holding Ltd. , the e-commerce giant he co-founded in 1999, has used its data sources to help authorities hunt down criminal suspects and silence dissent. Ant’s Alipay payment app contains contact-tracing functions to help the government contain the coronavirus pandemic.

But in the past couple of years, Mr. Ma has resisted regulatory attempts to make more available the personal credit data owned by Ant, according to the officials and government advisers familiar with the issue. (…)

In a private meeting with regulators in early November, Mr. Ma himself also offered to have the government “take any parts Ant has, as long as the country needs it,” according to people with knowledge of the matter. (…)

WHO Rebukes China for Stymying Investigation Into Virus Origins U.N. agency called out Beijing after its scientists weren’t given permission to enter China to probe the pandemic

(…) China said Wednesday that it and the WHO are still discussing details such as when the scientists would visit the country.

“I believe there hasn’t been any problem in cooperation with the WHO,” Chinese foreign ministry spokeswoman Hua Chunying said in a daily briefing. “There might be some misunderstanding in this. But there is no need to read too much into it.” (…)

The WHO rarely criticizes the national governments that fund its budget and elect its leaders. For its top official to call out China shows how the agency has struggled to get Beijing’s cooperation on important issues. Early on, in late January of last year, the WHO panel tasked with declaring a public health emergency expressed frustration that epidemiological data sent from China was too imprecise and paltry to act upon. (…)