US Treasury and Federal Reserve clash over pandemic response

European markets have opened marginally more positive this morning, but today’s upcoming session has been clouded as officials in Washington clash over the pandemic response.

Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell found themselves in disagreement over several emergency lending programs that were started to support businesses during the Covid-19 pandemic.

Mnuchin said in a letter after markets closed that he would allow the programs to expire, arguing that credit markets have now been brought back to sufficient strength. In response, the Federal Reserve said in a statement that it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

US stock futures fell overnight yesterday after the news was reported, with the Dow Jones and S&P 500 set to open down 0.4% and the Nasdaq flat at time of writing. Investors have been waiting with bated breath for a new round of fiscal stimulus, and the news that policymakers on the monetary side of the equation disagree will not be welcomed.

L Brands jumps 18% on Victoria’s Secret recovery

All three major US stock indices climbed on Thursday, with the Nasdaq Composite up 0.9% and the S&P 500 up 0.4%. At the top of the S&P was L Brands, the firm behind Victoria’s Secret and other names, which jumped by close to 18% after beating expectations in its Q3 earnings report. The company delivered a profit of $330m, versus a $252m loss a year ago, boosted by strength in its Bath & Body Works brand and an improvement in Victoria’s Secret. CEO Andrew Meslow said that the firm is heading into the holiday season with a “well-positioned” inventory. Year-to-date, L Brands’ share price is up by more than 100%, after a sustained multi-year downturn.

In other retail news, Macy’s CEO Jeff Genette said in a Thursday interview that the firm has proven it can operate stores safely during the pandemic, according to The WSJ. The firm has been lobbying states and cities to not close down its stores due to surging Covid-19 cases, heading into a crucial holiday season. Year-to-date, and despite having rallied more than 40% in the past three months, the stock is still down some 46%.

S&P 500: +0.4% Thursday, +10.9% YTD

Dow Jones Industrial Average: +0.2% Thursday, +3.3% YTD

Nasdaq Composite: +0.9% Thursday, +32.7% YTD

UK shares fall back, Cineworld looks for a lifeline

Both the FTSE 100 and FTSE 250 fell back yesterday, by 0.8% and 1% respectively. Year-to-date, the FTSE 100 trails its US counterpart the S&P 500 by more than 25 percentage points, despite an upswing in recent weeks. On Thursday, chemicals firm Johnson Matthey, turnaround specialist Melrose Industries and Rolls Royce were among the biggest losers, falling by 5.6%, 4.7% and 3.9% respectively. The UK’s oil giants fell back too, with BP down 3.3% and Royal Dutch Shell down 2.5%.

In the FTSE 250, Aston Martin Lagonda and Cineworld Group were the biggest losers, sinking by 12.3% and 8.7% respectively. Yesterday, The WSJ reported that Cineworld is in talks with investors to secure financial lifelines, after warning last month that it could run out of cash by the end of the year.

FTSE 100: -0.8% Thursday, -16% YTD

FTSE 250: -1% Thursday, -10.9% YTD

What to watch

Foot Locker: Over the past three months retailer Foot Locker’s share price has surged by 52%, pushing it to a 6% gain year-to-date, after the lifting of lockdown restrictions allowed its stores to reopen. Footlocker delivers its Q3 earnings report this morning in the US, where investors will be keen to hear how the firm is planning for any new potential lockdowns with new Covid-19 cases running at record levels. Currently, analysts are split between a buy and hold rating on the stock and are expecting an earnings per share figure of $0.63 for the quarter.

UK service sector data: On Monday, the Markit/CIPS UK services sector purchasing managers index for November will be reported. The data being released is “flash” data, based on a substantial but not complete set of the total survey responses, but since the majority of the UK economy is made up of the services sector, the data is a critical indicator of its health. Expectations are for the reading to have fallen versus October, to below 50, which is the demarcation line between expansion and contraction.

Crypto corner: Goldman Sachs backs digital Yuan, could account for 15% of global payments

The digital yuan, China’s planned national virtual currency, could account for 15% of total consumption payments in ten years, Goldman Sachs has predicted.

In a report given to CoinDesk, Goldman Sachs said the Digital Currency Electronic Payment (DC/EP) could be a more attractive alternative to existing digital payment services provided by fintech companies in a cashless environment.

It cited that anonymity enabled by the separation of a bank account and the digital yuan wallet, offline payments, and interconnectivity with various payment options could also make the digital yuan a success.

“In ten years we expect DC/EP to reach 1 billion addressable users, have 1.6 trillion rmb ($229 billion) in issuance, 19 trillion rmb ($2.7 trillion) in annual Total Payment Value (TPV) and account for 15% of total consumption payments,” the report said.

Goldman Sachs said consumption payments – the transactions in which users make purchases via a digital payment platform – will see the hottest competition amongst providers.

“Consumption is the major source of income for Third Party Payment (3PP) providers given the higher take rate than transfers and finance; thus consumption payments are regarded as ‘commercial payments’ by payment institutions,” Goldman Sachs said, as per Coindesk.

All data, figures & charts are valid as of 20/11/2020. All trading carries risk. Only risk capital you can afford to lose