Morning Markets Brief 9-14-2020

Summary and Price Action Rundown

Global risk assets were mostly higher overnight as tech stocks attempt to stage a comeback from their recent underperformance, while investors monitor political developments in Japan and the UK, as well as the latest in the TikTok saga. S&P 500 futures indicate a 1.3% higher open after the index closed nearly flat on Friday, holding performance at -2.5% on the week and its year-to-date upside at 3.4%, which is nearly 7% below the record high of September 2nd. The tech-heavy Nasdaq is set to reverse some of its recent downside, which has brought it 10.0% below its early September peak. Equities in the EU are flat this morning while Asian stocks were mostly higher overnight. A broad dollar index is turning back toward its recent 28-month low, while longer-dated Treasury yields are rangebound, with the 10-year yield at 0.67%. The euro is up versus the dollar despite more commentary from EU officials, including European Central Bank President Lagarde over the weekend, about the strength of the single currency being a factor in their policymaking. Brent crude prices are hovering below $40 per barrel.

Oracle Wins Bidding for US TikTok Operations

As Washington and Beijing remain at odds over the controversial app, Oracle moves forward after it bests Microsoft in vying for the social media platform’s US business. Overnight, headlines indicated that Microsoft’s bid had been rejected and Oracle’s competing offer was accepted, though considerable uncertainty remains as to the precise terms. The reports note that the structure of the deal is less clear-cut than a full sale of the US business to Oracle, with the IT giant instead acting as a “technology partner” and taking a minority stake in a reorganized US TikTok corporate entity. Shares of Oracle are up 6.7% in pre-market trading, while Microsoft is down 0.8%. ByteDance, TikTok’s Chinese parent company, is reportedly set to propose the deal to the Trump administration before the September 15th deadline and it is unclear if the arrangement will satisfy the privacy concerns that spurred the initial White House move to ban the app. This follows reports on Friday indicating that Beijing is leaning toward blocking any prospective deal to sell TikTok’s US operations, though a spokesman for ByteDance stated that no such indication had been made. Chinese official commentary remains critical of the deal, likening the process to theft.

Japanese Markets Steady as Abe Ally Picked as Successor

Following the announced resignation of longstanding Prime Minister Abe for health reasons, his party opted for a continuity candidate, Yoshihide Suga. The Nikkei performed in-line with regional peers, Japanese government bonds were steady, and the yen is appreciating mildly but within recent ranges as the ruling Liberal Democratic Party elected outgoing PM Abe’s former Chief Cabinet Secretary as the new head of the party. Suga’s official ascension to the premiership will follow later this week. Suga has been a strong proponent of the reflationary fiscal and monetary policy combination championed by his former mentor, so-called “Abenomics,” and has pledged to continue and build upon this framework. He has also emphasized the maintenance of PM Abe’s relations with the Bank of Japan and cited the importance of additional monetary easing to meet potential economic challenges going forward. Suga has also opined that growth should be prioritized over concerns regarding Japan’s elevated sovereign debt levels. Analysts are now focused on his cabinet choices, which are expected over the next few days, as an indication of any potential intent to reform certain facets of the economic program. Meanwhile, Suga addressed speculation over the potential for a general election, noting that the pandemic makes voting more challenging and suggested that he may be leaning toward waiting to implement various policies before dissolving Parliament, as polls are not officially due for another year.

Additional Themes

Brexit Drama Whipsaws the Pound – Debate is beginning in Parliament today over Prime Minister Johnson’s gambit to undermine aspects of the withdrawal deal with the EU, with some high-profile Conservatives noting their opposition. The EU has warned that it will fight the Internal Market Bill, which would abrogate UK obligations toward Northern Ireland agreed with the EU in the Brexit Withdrawal Agreement and could provide a conduit for UK goods to reach the single market across the border between Ireland and Northern Ireland. The pound, which has acted as a barometer for risks surrounding Brexit, is up 0.6% versus the dollar today as debate over the bill begins, but is still down 3.8% for September.

Vaccine News Remains in Focus – Pfizer’s CEO indicated that a Covid-19 vaccine could be available by year-end, while AstraZeneca and Oxford resumed their phase three trials, which had been halted due to a health issue for a participant. Although considerable uncertainty remains over the timing for approval, the efficacy of the vaccine, the timeline for rollout, and public reception, investors are pondering whether the anticipation of a vaccine announcement has been a driver of countertrend price action over recent weeks.