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Dow surged Mon on a flurry of COVID vaccine, stimulus and M&A optimism

calendar 15/09/2020 - 15:14 UTC

The U.S. stock market (Dow Jones Industrial Average) closed around 27993.33 Monday, surged almost +1.18% (+328 points) on the COVID-19 vaccine, fiscal stimulus 4.0 and flurry M&A optimism. The U.S. pharma major Pfizer said it could deliver its coronavirus vaccine by year-end. AstraZeneca also resumed phase-3 trials for its vaccine in the U.K. following a halt for safety concerns. But it’s still paused in the U.S., while Moderna’s vaccine trial also halted after a volunteer developed serious side effects.

And U.K. researchers are studying whether two vaccines from the Oxford University and Imperial College London can be inhaled, hoping to trigger a more effective immune response. Pfizer has also the U.S. FDA to expand its late-stage trial to 44K participants, up from its initial target of 30K.

Further on the COVID-19 vaccine front, China's state-backed GT tweeted that the country may roll out the COVID-19 vaccine for the public as early as November: COVID-19 vaccines being developed in China may be ready for use by the public in November or December, China's CDC officials said on Monday. Three of 4 vaccines now in the final stage of clinical trials have been offered to essential workers.

The GT also tweeted about fast-tracking of the Russian COVID-19 vaccine 3rd stage trial: Russian Direct Investment Fund, which invested into Sputnik-V COVID19 vaccine, said it has recruited 55,000 volunteers in 2 weeks for post-registration-phase clinical trials, meaning recruitment has been much faster than the vaccines developed by Pfizer and Moderna. And Russia is also developing 26 other COVID-19 vaccines.

The market is also optimistic that as the corona vaccine race heats up and the U.S. may also approve either Pfizer or Moderna vaccine late Oct FDA meeting, we may have something positive for the elimination of the invisible enemy by Jan’21. And the dual combination of natural and vaccine-induced herd immunity, a vast majority of the global population may be COVID-19 resisted by 2021.

On the M&A front, there were various M&A deals announced worth around $67B in tech, telecom and biotech. Nvidia said it will buy rival chipmaker Arm Holdings from SoftBank for $40B in a combination of cash & stock deal. Meanwhile, TikTok-parent ByteDance chose Oracle as its U.S. technology partner and rejected Microsoft’s bid to purchase the popular social video app.

 Also, Gilead said it will acquire cancer drug maker Immunomedics for $21B to expand its cancer treatments, while DraftKings announced it will integrate its content into ESPN’s digital offerings and studio shows. And Verizon announced a $6.25B deal to buy wireless phone reseller Tracfone from America Movil SAB.

On Monday, the risk-on trade sentiment got a boost after the U.S. Treasury Secretary Mnuchin confirmed that he and House Speaker Pelosi continue working on the bipartisan proposal for the 4th coronavirus stimulus package. Mnuchin claimed that a draft agreement regarding most areas of the bill already exists between the GOP (Republicans/White House) and the Democrats, and thus there should not be a great issue for the remaining part.

Mnuchin also noted that the travel and entertainment industry, as well as the service sector, need additional help from the government in order to overcome the crisis. Mnuchin said if the Congress fails to pass a bipartisan relief bill, then the White House is considering pushing additional executive orders that will provide necessary economic stimulus. Mnuchin also confirmed Oracle submitted a proposal for a deal with TikTok (ByteDance) and if approved, could result in a U.S. (global) headquarters for TikTok and possibly the creation of 20K jobs (just ahead of the Nov election). Dow was basically in a TikTok rally as any partnership with a U.S. MNC may be a signal that both U.S. and China are looking for a conciliatory approach rather than fire & fury.

On Friday, Dow also surged almost +0.48%. Dow surged on a show of political unity between Biden (Democrats) and Pence (Republicans) on the 9/11 anniversary, while upbeat report card from Oracle and Peloton also boosted the sentiment. The risk trade sentiment was also boosted by hopes for an early corona curve flattening as U.S. hospitalizations reduced significantly after months of 2nd wave as a result of ignorance as-well-as arrogance.

The 7-DMA of new corona infection is now around 37K, although quite elevated, but almost 50% of July peak of around 69K. The 7-DMA of daily deaths is now around 780 from Aug high of around 1200. Thus overall, if the present trend continues till at least Dec’20 and by then the COVID-19 vaccinations start, by H1-2021, we may see significant improvement in COVID-19 containment.

Also, higher core CPI at +1.7% indicates economic momentum, while the Fed will allow to run it a little hotter in the coming years without any rate action. The Fed is now expected to be on the sideline (hold around ZIRP) till at least 2021-22 until there is a significant sustainable recovery in employment. Nike and Caterpillar also helped in late hours trading, but techs dragged amid unwinding of call options by suspected SoftBank investment firm as-well-as Robinhood traders.

Technical Outlook: SPX-500, DJ-30, and NQ-100 (Futs): Updated 09/09/20

 

 

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