The Opening Belle - Oil higher, Stocks flat, U.S. data in focus

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The S&P 500 is poised to climb 9% between now and the end of 2021 as the anticipated widespread release of a COVID-19 vaccine drives an economic and corporate earnings recovery from the pandemic, according to a Reuters poll of strategists.

After a more than 60% recovery from the March lows of the outbreak to a record high on Nov. 16, the benchmark index is now up about 10% in the year to date.

The benchmark S&P 500 will finish 2021 at 3,900, a 9% gain from its close Monday of 3,577.59, according to the median forecast of 40 strategists polled by Reuters over the last two weeks.

The index is expected to end 2020 at 3,600, close to its current level, according to the poll median.

Based on the poll, the Dow Jones industrial average, which was near 30,000 through Monday, will finish next year at 32,500, up around 10% from Monday’s close.

Some strategists predict the gains in cyclicals will extend far into 2021, but others say the rotation may not be long-lived.

Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities, is neutral on cyclicals heading into 2021. In his outlook for next year, he wrote that, “the fundamental case for TECH+ remains compelling” based on expected growth in sales and margins, among other factors.

Strategists in the poll said expectations the Fed will remain accommodative help to bolster the case for equities next year.

“The Fed has said they intend to keep short rates grounded at zero through at least 2023. With ultra low rates, stocks have little competition,” said Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania.

A Reuters poll of 26 fund managers, strategists and brokers surveyed over the past two weeks expects the STOXX 600 to climb to 430 points by the end of 2021, just a whisker below February’s record highs, as economic activity returns to normal following the COVID-19 downturn.

In the previous quarterly poll, the index was seen reaching only 375 points in December and 410 points a year later.

The stocks most battered by COVID-19, from oil, banks to travel and leisure, have led the charge and are expected to remain favoured as investors shift away from the so-called pandemic darlings of large-cap tech shares.

Germany’s industrials-heavy DAX index will gain over 10% from current levels by the end of next year, touching 14,500 points, not far from the record high it reached in February, according to the Reuters poll.

But there is more to it than vaccine only.

Expectations of more stimulus from the European Central Bank and the bloc’s 1.8 trillion euro plan to recover from the recession will also offer support, along with expectations London and Brussels will clinch a last-minute Brexit trade deal.

Stimulus and Brexit will encourage “global investors to rebuild investments across Europe from more than just pandemic progress perspective”, said Chris Bailey, European strategist at Raymond James in London.

According to the poll, the UK’s top FTSE 100 share index is expected to reach 6,900 points by end 2021, up 8.9% from Monday’s close. France’s CAC 40 is seen at 6,172 points, up 12.4%, Italy’s FTSE MIB at 24,000 points, up 10.6%, and Spain’s IBEX at 9,000 points, up 12.8%.

Eurozone banks will be allowed to pay dividends again from next year if they convince supervisors that their balance sheets are strong enough to survive the economic and financial fallout from the coronavirus pandemic, a senior European Central Bank executive has said.

Yves Mersch, vice-chair of the ECB’s supervisory board, told the Financial Times he was concerned that banks benefiting from a regulatory easing of capital requirements would pay out some of that capital to shareholders, but it would be difficult to maintain a dividend ban beyond the end of this year. He cited legal uncertainty over its enforceability and an expectation that other countries such as the UK and US will allow banks to restart payouts.

An official ECB decision on lifting the ban on dividends will not be announced until after it publishes new economic forecasts on December 10.

New Zealand’s central bank will reimpose mortgage lending restrictions from March amid concerns historically low interest rates are creating a housing bubble in the country.

It follows an intervention by the newly elected Labour government, which wrote to the governor of the Reserve Bank of New Zealand asking the bank to consider house price “instability” when setting monetary policy.

Residential property prices have surged by almost 20 per cent over the past 12 months, pushing the median price of a house in Auckland, New Zealand’s most populous city, above NZ$1m ($700,000) for the first time, industry data shows.

Adrian Orr, RBNZ governor, said on Wednesday the bank would reimpose loan-to-value restrictions on lenders that it eased in May.

Since then, he noted, there had been an increase in higher risk lending to property investors.

He added that the RBNZ would like to add debt-to-income restrictions to its macroprudential tool kit, a move that requires government approval. “High-risk loans increase financial vulnerability to households, business and banks.

For example, high leverage in the housing sector poses a risk should house prices decline or unemployment rises . . . we're doing so to ensure that banks remain resilient to any future housing market downturn,” Mr Orr said.

Some lenders are already tightening lending. ANZ New Zealand said it plans to reduce the maximum loan-to-value ratio available to residential investors from 80 per cent to 70 per cent from December 8.

President-elect Joe Biden’s Treasury secretary will need Congress to approve re-use of $455 billion in funds that the Trump administration is taking back from Federal Reserve and other pandemic lending programs, the Treasury said on Monday.

Current Treasury Secretary Steve Mnuchin last week said he would allow some little-used coronavirus lending programs at the Federal Reserve to expire on Dec. 31 and allow Congress to spend the funds on other aid for businesses and individuals.

The funds are tied to expiring Fed lending programs for mid-size businesses, municipal bond issuers and other borrowers, the spokesperson said, adding that any new use, including renewing the facilities, would require congressional approval.

At the end of 2025, according to the CARES Act legislation passed in March, any remaining relief funds must be transferred to the General Fund and used for budget deficit reduction.

German Chancellor Angela Merkel is proposing a further tightening of the country’s coronavirus restrictions, setting the stage for another tense round of discussions with the country’s 16 state leaders who have called for more lenient measures.

Merkel will talk to regional premiers on Wednesday to agree on an extension of the country’s partial shutdown until at least Dec. 20. In a briefing paper from the Chancellery obtained by Bloomberg, she suggests to further restrict the number of customers allowed into shops and for additional measures in schools located in infection hotspots.

These proposals go beyond a plan agreed upon by regional leaders on Monday, raising the stakes for the discussions.

Like the state leaders, Merkel suggests that the current partial lockdown will stay in place until December 20. But she does not want to automatically roll over the shutdown for periods of two weeks if contagion rates remain above the government’s target level.

Instead, Merkel proposes to reassess the measures before Christmas and a partial shutdown “is expected to remain necessary into next year,” the briefing paper says.

German officials this month imposed the closure of restaurants, gyms and cinemas, while keeping most of the rest of the economy running.

The number of coronavirus cases in Germany has tripled since the start of October to more than 900,000, and the amount of people with the disease in intensive care is at record levels.

Merkel has said the seven-day incidence per 100,000 citizens needs to come down to around 50 before the latest curbs can be loosened. It was at 142 on Tuesday, according to the latest report from the RKI public health institute.

French President Emmanuel Macron said on Tuesday the worst of the COVID-19 second wave was over in France, and announced the start of a phased easing of lockdown restrictions.

The progression from one phase to the next will be contingent on coronavirus transmission rates staying on a downward trajectory, he said.

Below are details of the plan Macron unveiled in a televised address to the nation:

PHASE ONE - FROM NOV. 28

* Lockdown will remain in place, but people will be able to exercise outside for three hours a day, versus the one hour at the moment, and within a 20 km radius of their homes, versus the 1 km radius allowed now.

* Shops selling non-essential good skuch as clothes, shoes and toys will be allowed to re-open

* Indoor religious services will be allowed to resume, but the number of worshippers will be capped at 30 people.

PHASE TWO - FROM DEC. 15

* Lockdown is lifted

* A curfew will be in place between the hours of 9:00 pm and 7:00 am daily.

*Cinemas and theatres will be allowed to re-open

PHASE THREE - FROM JAN. 20

* Bars, restaurants and cafes can re-open

* Universities can resume in-person teaching

* Gyms can re-open

Oil rose for a fourth straight day on Wednesday, shrugging off an industry report showing a higher-than-unexpected rise in U.S. crude stockpiles and extending a rally driven by hopes that a COVID-19 vaccine will boost fuel demand.

Brent crude was up 54 cents, or 1.1%, at $48.40 a barrel by 0247 GMT, having risen almost 4% in the previous session. West Texas Intermediate crude gained 47 cents, or 1.1%, to $45.38 a barrel, after rising more than 4% on Tuesday.

Both contracts are at their highest since early March and have rallied nearly 10% in the last four days.