US Market Open: New Highs for the New Year
- US markets are expected to follow European indices higher today and are called to open at new record highs.
- The runoff races in the US, which could swing control of the Senate, are in focus this week, while European markets are reacting to the end of the Brexit transition and the UK’s rollout of a new vaccine.
- In stock news, Tesla shares are called to open at a new record high, while Entain shares have rocketed after the UK bookmaker rejected an $11 billion takeover bid.
- In commodities, oil prices have surged higher on expectations that OPEC+ will maintain current output levels at their meeting later today.
US markets to open at fresh highs
The recent rally in US markets is expected to continue today, with indices expected to open at fresh record highs.
The S&P 500 is called to open 0.5% higher today at 3775.6 after ending the last session at 3755.0.
The Dow Jones is set to follow 0.5% higher at 30763.0 from 30605.0.
US politics in focus this week
A number of key political events are happening in the US this week.
Firstly, there is the crucial runoff race for two Senate seats on Tuesday. Both seats are currently held by the Republicans, giving the party a slim majority. If they maintain their seats, then the Senate will remain under their control. However, if the Democrats can poach both seats then the Senate will be a 50:50 split, and incoming vice-president Kamala Harris would be given the deciding vote, swinging control to the Democrats.
Secondly, Joe Biden’s victory in the November election is to be formally certified on Wednesday. Although some Republicans have accepted the result, a group of Trump’s allies are expected to formally object to Biden’s certification today. Notably, the Senate runoff races will go a long way in deciding how easily the new president will be able to push through his policies after he takes office on January 20.
City Index analyst Joe Perry has a look at the economic, geopolitical and social implications of a Biden presidency.
Notably, the Wall Street Journal released a recorded phone call between US president Donald Trump and Georgia’s secretary of state Brad Raffensperger, during which the president said he wanted to ‘find’ enough votes so that Joe Biden’s victory in November could be overturned.
China opposes US plans to delist Chinese telecoms stocks
China has said it will take the necessary measures to safeguard the legal rights of Chinese companies as it outlined its objections to the New York Stock Exchange’s plan to delist three Chinese telecoms companies at the request of an executive order made by outgoing president Donald Trump.
The NYSE is expected to delist China Telecoms, China Mobile and China Unicom Hong Kong as soon as January 11, but they are entitled to request a review of the decision. Shares in all three stocks have slumped in both the US and Hong Kong.
Tesla shares to start 2021 at record high
Tesla shares are expected to open at a new record high today after the electric carmaker revealed it delivered 499,550 vehicles in 2020. That was just shy of the 500,000 target set by chief executive Elon Musk but ahead of analyst expectations. The stock joined the S&P 500 last month after rising by almost 700% during 2020.
European markets report strong gains
European indices were trading significantly higher at midday, reacting positively on the first trading day since the Brexit transition period between the UK and the EU ended on Sunday.
The Euro STOXX Index traded at 3601.5 at midday, up 0.8% from its last closing price of 3571.9.
France’s CAC 40 was up 0.9% at 5641.0 at midday from 5590.8 at the end of 2020.
Germany’s DAX was trading 1.3% higher at 13884.5 from 13710.0 at the last close.
Meanwhile, over the Channel, the FTSE 100 was up 2.4% at 6638.3 from 6484.8.
The UK has become the first country to start rolling-out a vaccine developed by AstraZeneca and Oxford university today, after approving it for emergency use last month. An initial delivery of around 530,000 doses of the vaccine has been made and distributed to six hospitals. The UK has bought 100 million doses and hopes it can significantly accelerate its vaccination programme over the coming months.
The vaccine is regarded as a game-changer for the UK and potentially other countries as it is cheaper to produce and easier to store and transport compared to the Pfizer-BioNTech vaccine that is already being used. BioNTech chief executive Uger Sahin warned over the weekend that there could be supply problems ‘because there’s a lack of other approved vaccines and we have to fill the gap with our own vaccine’.
Still, the introduction of a second vaccine has done little to allay fears that cases and hospitalisations are getting out of control. Prime minister Boris Johnson warned regional restrictions in England are ‘probably about to get tougher’ over the weekend, with over 50,000 new cases reported on Sunday, while the opposition Labour party has called for a new national lockdown to be imposed within 24 hours.
Tighter restrictions are also being considered in Europe. For example, Germany’s current national lockdown is due to end on January 10 but politicians are due to meet on Tuesday to discuss whether it needs extending further, while France has introduced an earlier curfew in some areas to battle rising case numbers.
UK housing market shows no signs of slowing down
UK banks approved 104,969 new mortgages in November – the highest monthly total since the financial crisis. That was up from 98,338 in October and well ahead of the 82,500 expected by analysts. The government introduced stamp duty relief to help the housing market when the pandemic erupted earlier this year. Some expect the market to slow as the deadline for the relief approaches at the end of March, but the market is going from strength-to-strength - for now.
UK housebuilders have seen their shares rise on the back of the news.
Entain: MGM Resorts $11 billion offer ‘significantly undervalues’ company
Entain, the UK bookmaker and owner of Ladbrokes, has rejected an $11 billion takeover approach by US casino operator MGM Resorts, stating it ‘significantly undervalues’ the business. The pair have worked together in the US under a joint venture signed in 2018, and MGM is looking to bolster itself to capitalise on a high-growth industry since gambling restrictions were relaxed.
The proposed offer is made up of cash and shares and is equal to 1,383 pence per Entain share, a 22% premium to its last closing share price. Entain shareholders would own 41.5% of the combined business. Entain said it has also asked MGM to outline the rationale for the combination, signalling it is open to talks if MGM returns with a higher bid. Entain shares have rocketed more than 27% higher on the news.
Forex: Dollar weakness continues
EUR/USD traded broadly flat at 1.36588 at midday from 1.36659 at the last close. Cable climbed to its highest level since April 2018 in earlier trade before giving back virtually all those gains.
GBP/USD was up 0.6% at 1.22893 at midday from 1.22153.
Meanwhile, EUR/GBP was up 0.6% at 0.89967 after ending the last session at 0.89391.
Commodities: Oil prices push higher ahead of OPEC+ meeting
Oil prices gained ground on expectations that OPEC+ will maintain output at its meeting today. Brent traded at $52.42 at midday, up 1.4% from $51.72 at the last close, while WTI was also higher at $48.88 from $48.44.
OPEC+ are meeting to discuss how to balance global supply and demand in its first meeting of the year. The group had to cut production by record amounts in 2020 in response to the coronavirus pandemic wiping-out demand. OPEC secretary Mohammad Barkindo said on Sunday that the ‘outlook for the first half of 2021 is very mixed and there are still many downside risks to juggle’.
The group is expected to steadily raise output this year by 2 million barrels per day, but there is thought to be disagreement over whether this is needed in the current climate. This is expected to see the group maintain current output rather than push ahead with a 500,000 barrel per day increase as planned.
Gold was up 1.8% at midday at $1932 from $1898 at the last close.
City Index analyst Tony Sycamore has a look whether there will be a fast start or false start for silver in the new year.
Market-moving events in the economic calendar
The economic calendar is focused on PMIs today. The UK and eurozone numbers were released this morning, with Canada’s manufacturing PMI due at 1430 GMT and the US at 1445 GMT. The presidents of the Federal Reserve Bank of Atlanta and Chicago are both due to give speeches at 1500 GMT.
City Index analyst Joe Perry has a look at what is in store for the first week of 2021.