Friday, December 4, 2020

Asia Times: Pfizer’s earlier supply chain issues pressures indices despite already being resolved; OPEC+ agrees on production hike

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  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil

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Market Recap: Pfizer’s earlier supply chain issues pressures indices despite already being resolved; OPEC+ agrees on production hike

Stocks in the US ended the day mixed after a Wall Street Journal report said that Pfizer had slashed its production estimates for its vaccine earlier in November by half this year due to logistical difficulties. While this was already confirmed by the company's press release (which stated that it expects to produce 50 million doses for 2020, down from its 100 million estimate earlier in September), it still was enough to cause a 2.61% dip in Pfizer's stock towards the end of the session as an earlier version of the article did not specify the time of Pfizer's announcement. While it was mostly backward-looking news, the report does highlight that the market has ignored the potential supply chain issues that drug makers can run into during an unprecedented scale of vaccine production. A spokeswoman for Pfizer said on Thursday that multiple factors had slowed the company down, one of which was the time it took to source the large quantities of raw materials needed to produce its shots. The spokeswoman did also say that the supply chain issues has been resolved and the company has finished bringing up manufacturing to scale to produce vaccines at a rapid pace. Pfizer's dip also prompted a selloff in equities and consequently the major indices in the US near the end of Thursday’s trading session before a slight recover ahead of close.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.29% +85.73 29,969.52
S&P500 -0.06% -2.29 3,666.72
Nasdaq +0.23% +27.81 12,377.18
*Source: Bloomberg

S&P500 sectors were mixed on the day, but cyclicals continued to dominate the front end of the index. Energy rose the most, after a production hike scheduled for January tapered back by OPEC+ prompted a gain in crude oil prices. Almost all major airline carriers in the US gained upwards of 4% as well except for Southwest Airlines. Shares of Boeing rose for the third consecutive day after the aircraft maker sealed a deal with Ryanair which would see 75 of its 737 Max aircrafts being added to the budget carrier's existing order. Small cap indices advanced more than major indices as well, highlighting a possible renewed move into small cap stocks after underperforming for the past five trading sessions. VIX gained for the third day in a row as well.

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The dollar continued to fall against the basket of G10, with the Japanese yen and Swiss franc outperforming most other major currencies after the spike in risk aversion following the WSJ's news article. Save the news on Pfizer, markets were relatively risk-on through the day, as investors remained bullish on a potential fiscal stimulus plan from Congress with more Congress Republicans supporting the US$908 billion bipartisan proposal that Democrats have agreed to use as a base for a new round of talks. While Senate Majority Leader Mitch McConnell has not signalled whether he was willing to budge on his US$500 billion fiscal aid proposal, the likelihood of the two sides entering negotiations does appear to be growing. Jobless claims data came in better-than-expected, but it was unlikely that the dataset drove markets with accuracies of its release in question. We expect today's NonFarm payrolls report for the US in November is to show a softer gain relative to October, at about 450,000 payrolls for the month as the impact of the renewed restrictions in parts of the country will likely only be reflected in December's report.

Sterling gained the most against the greenback on Thursday as traders remain optimistic on a deal between the UK and EU. British officials had said that the EU came up with new demands for an agreement although EU officials denied this. Those remarks were likely downplayed by other comments that a deal is still possible in the coming days despite that. Optimism in the market is likely still growing that a deal could be struck as soon as this weekend.

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Safe haven assets ended the day higher thanks to the late boost to risk aversion by the article on Pfizer. Gold gained while silver edged lower. The Japanese yen strengthened against all other major currencies aside from sterling. US Treasuries advanced across the board, pulling 10-year yields down 3bps back to 0.91%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.54% +9.80 1,841.08
Silver -0.16% -0.04 24.07
USD/JPY -0.56% -0.58 103.84
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.0bps 0.15%
10-Year -3.0bps 0.91%
30-Year -3.3bps 1.65%
*Source: Bloomberg

OPEC+'s agreement for gradual easing of production cuts and fiscal aid optimism in the US helps support oil prices. Ministers in the bloc agreed to add 500,000 barrels a day of crude oil starting January, a quarter of what was originally planned, with monthly meetings to decide on production in the following months according to a Bloomberg report citing delegates. While markets had been expected a production hike to be postponed by a quarter, it still welcomed the announcement after it was revealed that the bloc was split on whether to keep the production hikes earlier this week. Hopes for fiscal aid from Congress in the US is likely spurring added optimism among crude oil traders as well. The next key issue will likely be on compliance of OPEC+ members moving forward as increasing oil prices may increase the short-term incentives of members with battered economies to produce above their specified limits.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.95% +0.46 48.71
WTI +0.80% +0.36 45.64
*Source: Bloomberg

In Asia, stocks look set for a positive Friday to end the week as optimism continues in financial markets. The Nikkei was slightly lower likely due to the spike in the yen while the KOSPI and ASX200 were both trading in the green during the earlier hours of Friday’s trading session. Futures tracking major indices in the US were trading higher as of 9.25am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.12% -30.92 26,778.45 9:15:40 AM
KOSPI +1.21% +33.05 2,729.27 9:35:40 AM
ASX200 +0.38% +25.13 6,640.40 9:35:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.23% +70.00 30,002.00 9:25:33 AM
US Futures +0.24% +8.75 3,673.25 9:25:41 AM
Nasdaq 100 Futures +0.26% +32.00 12,494.25 9:25:43 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • US Nov Change in NonFarm Payrolls (9.30pm)
  • US Nov Unemployment Rate (9.30pm)
  • Canada Nov Unemployment Rate (9.30pm)