1) The Ford Motor Co. has ended its joint venture of electric vehicles with China’s auto maker Zotye, a company with financial troubles so severe that it’s fighting for survival. This does not change Ford’s commitment to producing vehicles for the largest electric vehicle market in the world . . . China. Ford and Zotye had agreed to develop joint ventures but had never actually formed the joint venture ship. Ford plans to move forward with its joint venture with Changan, allowing the Dearborn car maker to produce the already developed Mustang Mach-E in the country quickly and with little additional investment. Ford still has ambitions involving electric vehicles overall and specifically in China. Zotye is in deep financial trouble, requiring state intervention to continue, being on the cusp of collapse.
2) Bond yields are surging, but here’s the bigger threat to stock markets. The stock market rally has hardly been derailed as the yield on the 10-year Treasury reached 1.20% on Monday, which makes for a point advance, with the U.S. stock futures pointing to an upbeat start. Charting the earnings and bond yields show the gap between the two isn’t as narrow as it was at the end of 2018, when stocks lurched lower. The current spread suggests equities could absorb Treasury yields above 1.5%, and assuming earnings continue to move in line with analyst expectations, U.S. and European equities markets could absorb another 135 basis points of tightening by the end of the year. Analysts expect the S&P 500 earnings to grow 24% this year and 16% next year.
3) Oil futures moved up on Tuesday, thereby shedding off earlier weakness, as signs of improving energy demand put global benchmark prices on track to tally an eighth consecutive session gain. That rally has been aided by longer term optimism and expectations of broader market strength, but current prices are likely to generate some anxiety that the rally is near overextended territory. Saudi Arabia’s decision to unilaterally cut output by 1 million barrels a day in February and March, helping to keep supplies in check and prices higher. Crude prices in the $55 to $60 range have historically been sufficient to trigger new production activity in parts of major U.S. shale basins. The prospect of an eventual return of Iranian exports and an unwinding of the record deal between the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, offer additional downside price risk.
4) Stock market closings for – 10 FEB 21:
Dow 31,437.80 up by 61.97
Nasdaq 13,972.53 down by 35.16
S&P 500 3,909.88 down by 1.35
10 Year Yield: down at 1.13%
Oil: down at $58.24