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November 11, 2020
Five Things
Bloomberg

Biden forges ahead with transition planning, U.S. Covid hospitalizations hit record and Hong Kong opposition quits en masse.

Getting ready

President-elect Joe Biden's transition team announced a list of expert volunteers to help prepare polices for the new administration, despite still not being allowed into any government agencies. They won't have that access until the General Services Administration ascertains Biden won the vote, a move it has declined to take as Donald Trump continues to contest the result. Biden called Trump's refusal to concede an "embarrassment" as the president's legal teams mount challenges in six battleground states. Experts say the task of flipping enough of them to claim a second term is virtually impossible. 

Virus

There were 61,964 Covid patients in U.S. hospitals yesterday, a record high, as America saw more than 1 million new cases in the first 10 days of November. The pandemic is back spreading in U.S. cities after spending much of the fall as a rural problem. In Europe, Germany reported its highest daily fatalities since mid-April and governments in the region brought in more restrictions. Russia said tests prove its vaccine is more than 90% effective. 

Not loyal enough 

China's top legislative body approved legislation requiring Hong Kong lawmakers to be "patriots," a move to curb debate in the city's democratic institution that has survived two decades of Chinese rule. Four members of the pro-democracy bloc in the 70-seat Legislative Council were disqualified under the new rules, which led to the entire opposition camp resigning this morning. Fernando Cheung, one of those lawmakers, said by phone that there is "no more Hong Kong as we know it." 

Markets rise 

The rotation in global stock portfolios continues this morning, with tech stocks in Asia the standout loser as Beijing's crackdown on the sector continues. Overnight, the MSCI Asia Pacific Index added 0.6% while Japan's Topix index closed 1.6% higher. In Europe, the Stoxx 600 Index had gained 0.7% by 5:50 a.m. Eastern Time with traders favoring defensive stocks. S&P 500 futures pointed to a similar gain at the open, the U.S. bond market is closed today and gold was broadly unchanged. 

Demand soft

While the oil market joined in the vaccine celebrations earlier this week, there are signs in real-time data that the recovery in demand may be wobbling. While the drop in demand is nothing like the March crash, and Asia consumption remains strong, today's OPEC monthly report will be closely read for an updated outlook. In the market this morning, a barrel of West Texas Intermediate for December delivery rose over $43 after an industry report suggested a drop in inventories. 

What we've been reading

This is what's caught our eye over the last 24 hours.

And finally, here's what Joe's interested in this morning

In the last few days, there's been an incredible rotation from growth to value stocks, as seen easily on this chart.

This was predicted. But people got the reasoning wrong. The theory was that a Blue Wave on election night would usher in a unified Democratic government that would unleash a mega stimulus, boosting GDP, and that would boost value stocks, particularly beaten-down energy and bank shares. That doesn't appear to be in the cards, but then we got the vaccine news from Pfizer, which is having a similar effect, with similar logic. The sooner the vaccine comes, the faster the economy grows, and so on. Good for value.

The good news is that there's really not much mystery at this point about what's dogging long-suffering value investors. It's mediocre growth. This was a thing prior to the crisis and it's a thing now. And although a vaccine may help us return to trend growth sooner than we had previously anticipated, the key factor is that, well, the trend growth rate wasn't great.

So the question going forward is whether there's some other factor out there that can kick growth into a higher gear. Could we actually get stimulus out of divided government? Could we get some demographic fillip from all the millennials buying homes? Would we get a big boost in buying power if a Biden administration slashed student loan debt? We know what it takes macro-economically for value to thrive again, but the path from here to there is really murky.

Joe Weisenthal is an editor at Bloomberg.

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