THE DAILY EDGE: 9 DECEMBER 2020

FDA says Pfizer/BioNTech vaccine works 10 days after first dose

Efficacy data for Oxford/AstraZeneca vaccine confirmed

China State-Backed Covid Vaccine Has 86% Efficacy, UAE Says The trials give credence to the shot that China intends to distribute around the developing world.

Germany saw its largest daily death toll from the coronavirus yesterday, pushing the number of fatalities in the country past 20,000 and leading to a plea from Chancellor Angela Merkel in parliament to do more to stop the spread of the virus. In the U.S., coastal states are back as the hotspots, with Midwest states like North Dakota and Minnesota seeing numbers drop. (Bloomberg)

Axios is “tracking a return to anxiety levels and routines not seen in months. (…) Three-fourths of respondents know someone who’s tested positive for COVID — and three in 10 know someone who’s died.”

Data: Axios/Ipsos Poll. Chart: Andrew Witherspoon/Axios

U.S. Small Business Optimism Weakens in November

The Optimism Index declined to 101.4 in November, down 2.6 points from October but remains well above the 47-year historical average reading of 98. Six of the 10 Index components declined and four improved. (…) Owners expecting better business conditions over the next six months declined 19 points to a net 8 percent in spite of great news about Covid-19 vaccines. The election outcome was clearly a disappointment for some small business owners. Earnings trends over the past three months declined 4 points to a net negative 7 percent reporting higher earnings.

The other survey says:

• Small-Business Owners’ Optimism Rises but Below Pre-COVID

The fourth-quarter Wells Fargo/Gallup Small Business Survey finds that small-business owners continue to face significant financial challenges as a result of the global pandemic. While up slightly from a score of 60 in the third quarter, the current Small Business Index score of 72 remains dramatically lower than the pre-pandemic high of 142 a year ago. (…)

White House Makes $916 Billion Virus Relief Bill Offer to Democrats The Trump administration’s proposal, which is at odds with the position of Senate GOP leader Mitch McConnell, opens yet another front in the effort to reach a deal in talks led by rank-and-file lawmakers.

• Mnuchin Pitches $916 Billion Relief Plan Including State Aid

• McConnell Says Relief Talks Should Drop Liability, State Aid

• Mitch McConnell said lawmakers should “set aside” some issues in order to pass a relief bill. McConnell’s willing to give up business liability protections in exchange for Democrats dropping their demands for state government aid. The focus should be on small business assistance, expanded unemployment insurance and funding for vaccine distribution, he said. (Bloomberg)

U.S. Consumer Credit Increase Continues in October

Consumer credit outstanding increased $7.2 billion (0.2% y/y) during October following a $15.0 billion September strengthening, revised from $16.2 billion. A $16.5 billion increase had been expected by the Action Economics Forecast Survey.

Nonrevolving credit usage jumped $12.7 billion (4.0% y/y), about the same as it did in September, revised from $12.2 billion. (…)

Revolving consumer credit balances retreated $5.5 billion in October after September’s $2.6 billion increase, revised from $4.0 billion. It was the seventh decline in the last eight months, which included double-digit balance pay-downs this spring. (…)

  

Americans sharply paid down their credit card balances but increased nonrevolving debt, mostly new student loans and mortgages. Credit card debt is at a 3-year low. Buying power or risk aversion? So far, consumers are not taking advantage of the additional CC space:

The October 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices

Regarding loans to businesses, respondents to the October survey indicated that, on balance, they tightened their standards and terms on commercial and industrial (C&I) loans to firms of all sizes. Banks reported weaker demand for C&I loans from firms of all sizes. Meanwhile, banks tightened standards and reported weaker demand across all three major commercial real estate (CRE) loan categories—construction and land development loans, nonfarm nonresidential loans, and multifamily loans—over the third quarter of 2020.

For loans to households, banks tightened standards across all categories of residential real estate (RRE) loans and across all three consumer loan categories—credit card loans, auto loans, and other consumer loans—over the third quarter of 2020 on net. Banks reported stronger demand for credit card loans, auto loans, and most categories of RRE loans.

Banks also responded to a set of special questions inquiring about their forbearance policies. For all loan categories, a majority of banks reported that less than 5 percent of loans were in forbearance in the third quarter. Payment deferral was the most widely cited form of forbearance for CRE, RRE, and consumer loans, while covenant relief was the most cited form of forbearance for C&I loans. For most categories, a borrower’s degree of financial hardship was the factor most widely cited as important in determining banks’ willingness to approve forbearance requests or the terms of forbearance. (All charts here)

Chinese Household Debt Surges Through the Pandemic The continued rise of real-estate investment left China with the largest increase in global household debt in the first half of the year, which will drag on its economic potential in years to come

China’s household debt ballooned in the first half of the year, rising by about $380 billion, according to new Bank for International Settlements data. That increase was almost four times as large as the second-place U.S. And it compounds one of China’s biggest economic vulnerabilities. (…) household debt still rose by 3.9 percentage points as a share of output in the first six months of the year, more than most countries. That ratio now stands at 59.1% for China, above some advanced economies such as Germany, and far above South Korea or Japan’s levels at comparable stages of development. (…)

Interest rates this year fell sharply in most countries, but the People’s Bank of China has resisted this trend. That means that whereas borrowers in the U.S. were at least able to refinance real-estate loans, Chinese borrowers are left with largely unchanged debt-servicing costs. (…)

Hundreds of millions of units, equivalent to about a fifth of the urban housing stock, are estimated to be vacant. The rental market is still underdeveloped, but where it does exist, yields are typically well below those offered by government bonds. Banks that once lent primarily to industry have recorded ever-growing mortgage books. That already appears to be eating into China’s economic potential, as funding is redirected toward real estate and away from more productive uses. (…)

Chinese Consumer Prices Show First Annual Decline Since 2009 China’s consumer-price index in November was down 0.5% from a year earlier, the first negative reading since October 2009, though economists say the decrease doesn’t signal faltering demand.

China’s consumer-price index in November was down 0.5% from a year earlier, the National Bureau of Statistics said Wednesday, after a 0.5% rise in October. (…) The statistics bureau said food prices, down 2.0% from a year earlier, weighed heavily on November’s headline CPI. In October, food prices were up 2.2% from a year earlier. (…)

China’s November CPI was down 0.6% from a month earlier, the second straight monthly fall, according to the official data.

Core consumer inflation, which strips out volatile food and energy prices, held steady at 0.5% [YoY] for the fifth straight month.

The decline in factory-gate prices eased in November: The producer-price index was down 1.5% from a year earlier, compared with October’s 2.1% decline. Compared with a month earlier, the PPI was up 0.5%, thanks to a recent rebound in industrial commodity prices and strengthening demand. (…)

Gundlach Sees Inflation Above 2% Next Year After Hitting Trough

It may range from 2.25% to 2.4% in 2021, Gundlach said Tuesday on a webcast for his flagship DoubleLine Total Return Bond Fund.

• The underperformance of small caps might finally be ending, he said, pointing to the Russell 2000 relative to S&P 500. The move has been “pretty powerful already,” he said.
• The copper-gold ratio suggests that 10-year Treasury yields should be higher. “Fundamentals do not support today’s Treasury levels,” he said.
• On the FAANGs and Microsoft Corp., he said the stocks appear to be breaking down as the market’s “generals.”
• BBB spreads have tightened relative to Treasuries, which isn’t very different from 30-year Treasuries. Investors aren’t getting very much difference in return between the two.
• He’s neutral on gold but “if you forced me to buy it” he said he would at current prices.

China Stocks Face $722 Billion Overhang as Share Lockups End

More than $722 billion worth of Chinese stocks will be unlocked for sale next year, testing a market where valuations are at a five-year high.

That would be the largest amount since at least 2011, according to China Merchants Securities Co. It’s also equivalent to about 7% of the value of the entire Chinese equity market, data compiled by Bloomberg show. (…)

Three companies saw their stocks fall on Wednesday after announcing equity sale plans by holders. Shanghai’s Star market, which is set to see high volume of new stock unlocks next year, led declines in Chinese equities. A gauge tracking it closed down 2.4% to the lowest in more than six weeks. (…)

In China, restricted stocks usually have a lockup period of anything between six months and three years after the date of listing. And when unleashed for company insiders to sell, the rest of the market can feel the impact. A gauge tracking the Star market fell 8.2% in the three trading days after its one-year anniversary in July, when company insiders took their first chance to sell. That dragged the country’s benchmark CSI 300 Index down by 4% during the same period.

Next year will see a concentration of unlocks in the second and third quarters, according to a recent Industrial Securities Co. research note. (…)

Goldman Sachs to Acquire 100% of China Securities Joint Venture The New York-based investment bank is the first global bank to seek full ownership of its securities business in China.

Coronavirus Sneaked Past Safeguards to Halt Singapore ‘Cruise to Nowhere’ An 83-year-old guest tested positive for Covid-19 on board a ship operated by Royal Caribbean, after everyone had to test negative before boarding.

The virus from nowhere!