عقود الفروقات هي أدوات مالية معقدة، وتنطوي على مخاطر عالية لخسارة الأموال بشكل سريع بسبب الرافعة المالية. 67% من حسابات مستثمري التجزئة يخسرون الأموال عند تداول عقود الفروقات مع هذا المزود. عليك الأخذ بعين الاعتبار ما إذا كنت تفهم طريقة عمل عقود الفروقات، وما إذا كان بوسعك تحمل المخاطر العالية لخسارة أموالك.
UK enters worst recession, European stocks steady after Wall St slips on stimulus doubts
What did I miss? Stimulus measures keep being debated, vaccine hopes are at first raised then more sensibly assessed, and stocks in the US keep going up; the S&P 500 has risen about 5%, whilst European markets are flat over the period. I seem to recall in July a lot of chatter about European equities outperforming, but there has been little to show from that trade so far. Gold has smashed a new all-time high and profits been taken, an easy win for most, whilst oil prices have barely moved.
UK economy posts worst decline since records began
So, what has changed? Britain’s economy is on the ropes, but we knew this already. UK GDP fell by 20.4% in the second quarter, which was largely in line with expectations. Economic activity is bouncing back – the economy grew 8.7% in June but remains well below the levels seen in February. Having been out and about over the last three weeks, I can safely say there will be more recovery recorded in July and August.
But getting back to 2019 levels of activity is going to take a very long time as we see permanent impairment in certain sectors of the economy, as well as behavioural and social changes. Cable recovered off the 1.3020 horizontal support formed by the low on Monday on the update to continue to trade its August range. With the dollar turning around and seemingly finding its near-term support, GBPUSD may struggled to hold its 1.30 level.
Gridlocked US stimulus talks weigh on stocks
The Democrats and Republicans can’t agree anything. Stocks on Wall Street slipped after gridlock in Washington left investors wary of pinning their hopes on a bipartisan stimulus package, but the S&P 500 was at one point just a few points from its all-time high at one point and could still take it out this week. Senate majority leader Mitch McConnell naturally blamed the Democrats for this but revealed the two sides had not spoken since Friday.
The Dow and S&P 500 both snapped a 7-day winning streak, whist European markets rose a touch on Wednesday’s open after a strong run-up on Tuesday. The FTSE 100 continues to trade the narrow range of the June pullback without any signs of breaking out.
Gold tumbles on profit-taking
The lack of fresh stimulus left gold bulls wary and profits were taken but we have seen a big bounce off some important technical support this morning. Spot dropped under $1900 but found support on the old resistance at $1865 and the 200-period SMA on the 4hr charts may offer some technical support. More important is the trend support offered by the line drawn from the lows made since the March trough.
Gold’s rally has been all about stimulus and inflation and so doubts about whether there will be more stimulus saw investors recast inflation expectations a little and the technical exhaustion of the move needed to be factored in. US real rates rose, with 10yr TIPS back to –0.99%, having struck a low of –1.08% last week. Benchmark 10yr yields rose to 0.66% but whilst real rates are so deeply negative gold will have support.
Chart: Gold recovers $1,927 after finding support at $1,865
Biden picks Harriss as running mate
Joe Biden named Kamala Harris his running mate for the race to the White House. Two points about this really stand out. The duo needs to get the vote out, and Harris should energise many who may not otherwise vote, but they cannot risk losing the centre in the rust belt where the issue is the economy.
But the problem for Trump is that accusations that Biden’s VP pick was too zealous a prosecutor when acting as California attorney general make it difficult for Republicans to say the Democrats won’t be tough on crime. Her appointment will somewhat blunt Republican attacks on law & order.
The key question for investors is who wins in November and whilst details like VP picks are important, they are just a small part of the story. Trump still wins in my opinion whatever the polls are saying.
Kiwi weakens after RBNZ extends QE, opens door to negative interest rates
New Zealand is in full panic mode, locking down Auckland amid a mystery outbreak of Covid. The RBNZ duly announced it would expand the Large Scale Asset Purchase programme to $100bn, which just nudged the kiwi lower. But the real focus is on negative rates – a full four mentions of the committee looking at a negative OCR were in the release. Lower and negative rates is increasingly the path of least resistance for the RBNZ, which makes the NZD open to further downside risk.
Oil prices were up a touch, with WTI (Sep) taking a $42 handle this morning ahead of the inventory figures from the US Energy Information Administration, which are expected to show a draw of 2.9m barrels. API data yesterday showed stockpiles fell 4.4m barrels last week.
Elsewhere in FX land, watch the double top on the EURUSD pair with the rejection of 1.19 looking more convincing we look for neckline support around the 1.17 level to hold for bulls to make a fresh drive higher. However, the pullback in US Treasuries and uptick in yields may offer support for the dollar to push back hard.
Stocks surge as Russia claims to have a Covid-19 vaccine
Stocks have leapt higher today after Russia claimed that it had registered the world’s first vaccine for the new coronavirus.
Putin announces registration of world’s first coronavirus vaccine
President Putin claims that the virus works ‘quite effectively, it forms a stable immunity and, I repeat, has passed all the necessary checks’. He also said that one of his daughters has been given the vaccine.
The vaccine has undergone clinical trials, which have been completed in under two months. Phase three trials are expected to start on Wednesday and will involve countries including the United Arab Emirates, the Philippines, and Saudi Arabia.
The vaccine will be called ‘Sputnik V’ in overseas markets. The Russian Direct Investment Firm, Russia’s sovereign wealth fund, is backing the production of the vaccine and claims that over 20 countries have filed preliminary applications for a total of over 1 billion doses so far.
Doubts over Russian vaccine claims
While Putin has hailed the Russian breakthrough and stocks have moved sharply higher, the news has been met with scepticism elsewhere.
A spokesman for the World Health Organisation cautiously said that the body was in contact with Russia about the “possible pre-qualification process for a Covid-19 candidate vaccine which requires rigorous review”.
And former US Food and Drug Administration commissioner and Pfizer board member Dr Scott Gottlieb told CNBC today that, compared to the US efforts, Russia’s vaccine development is ‘certainly not ahead’.
‘They’ve cleared the equivalent, really, of a Phase 1 clinical trial in terms of putting it in 100 to maybe as many as 300 patients so it needs to be evaluated in a large-scale clinical trial,’ Gottlieb said.
Regardless of any cautious noises, markets are powering higher, with investors perhaps repricing their expectations for how far out a working vaccine is.
What will happen to the US dollar if Trump wins re-election?
After years of threatening a devaluation, in the face of China’s own currency manipulation, President Trump recently indicated that he is now in favour of a strong dollar. Given the President’s inconsistency on the issue, and the current turbulent economic environment, what exactly would a second term entail for the most important currency in the world?
How a second Trump term could impact USD
The crucial distinction here is one of means versus ends. In the mind of President Trump, the currency is just a tool to deliver a buoyant stock market and booming economy, whatever he might tweet.
The Trump administration will do whatever it takes to catalyse the recovery, whether appreciation or depreciation is the required remedy. In our view, the latter will prove to fit the bill, and so the US dollar’s value will fall if the Trump train continues to roll through November.
Whilst the dollar has been relatively stable in its value over the course of Trump’s first three years in office, the gargantuan nature of the economic task at hand means that this trend simply cannot continue.
When he began his first term, the economy looked to be in a relatively healthy state. Discounting the remote possibility of a miraculous economic recovery, his second term will debut in very different circumstances.
Massive relief spending set to continue
Looking at the demand side, one could be forgiven for assuming that a dollar appreciation was imminent. The US economy comfortably outperformed the G7 and G20 averages in the first quarter of 2020, shrinking by just 1.3% compared to 2% and 3.4% respectively.
This is likely the result of mammoth congressional stimulus packages, which have allowed the US to lead the world nominally in terms of relief spending and come second in terms of percentage of GDP.
A second Trump term would almost certainly see further waves of relief, likely in the form of his $1 trillion infrastructure plan. This particular avenue of execution benefits from relatively healthy levels of bipartisan support, meaning that such spending can be expected no matter who controls the Congress come 2021.
US stocks likely to continue outperforming, pressuring USD
And in terms of the stock markets, the US has also consistently outperformed global averages throughout the President’s first term, including in the post-Covid era.
This is exemplified by the fact that the S&P 500 index has risen by over 50% since 2016, whilst the FTSE has fallen by around 9% in this same period. Given all of the above, the US is likely to continue attracting investors the world over, delivering inflationary demand-side pressures that would support USD.
However, the aforementioned upward pressure caused by a healthy economy will be insignificant when compared with the deflationary pressure instigated on the supply-side.
Federal Reserve stimulus measures will help Trump get weaker dollar
Since February, the Federal Reserve has increased its balance sheet by almost $3 trillion, moving from $4.2 trillion to $7 trillion. This rapid increase is expected to continue, with Trump calling the policy ‘something that’s really great for our country’.
In addition, the possibility of extreme measures in the form of yield curve control is rising, with several current Fed governors commenting that the policy should be on the table if necessary.
All of this is indicative of our central point: the authorities are prepared to do whatever it takes to prop up the stock market and the real economy and will stop at nothing to achieve this end.
Expanded balance sheet, flat interest rates, yield curve control to cause dollar depreciation
Trump has repeatedly held up rising stock prices as a beacon of success in his first term and will continue to do so if he wins a second. With quasi-control over the Fed, afforded to him by his position at the bully pulpit, the President will get what he desires, no matter the cost.
In this particular instance, the cost will be an expanding Fed balance sheet, rock-bottom interest rates and, if it comes to it, yield curve control measures. The sheer enormity of the response on the supply-side will be more than enough to drown out any inflationary pressures on the demand-side – depreciation inbound.
Overall, Pres Trump doesn’t really care about the value of the dollar outside of its utility as an economic tool or a stick with which to hit China. The real motivation behind the President’s actions in a second term will mirror those of the first: growth in the stock market and the real economy, in that order of importance.
In his pursuit of these goals, no policy instrument is off limits, whether it be a trusty expansion of the Fed’s balance sheet, or an as yet untested tool like yield curve control.
Whilst the Fed is technically a quasi-independent body, such independence is illusory, particularly in the context of Trump’s propensity for the use of public pressure. Whilst some demand-side inflationary effects will be initiated by a better-than-average recovery, such effects will be lost in the vastness of the supply-side avalanche that is to come.
If he achieves a second term, Pres Trump will leave office in 2024 having achieved two things that he initially desired: a stock market on the rise and a depreciated dollar.
Dutch PM Rutte ‘not optimistic’ ahead of EU summit, Netflix misses
European stocks were choppy and likely set for a volatile finish to the week as EU leaders gather in Brussels for a key summit, with market participants squarely focused on whether the EU can agree to a broad recovery fund as part of the talks over the bloc’s budget for 2021-27.
Whilst the EU seems to be edging closer to a deal and Merkel and Macron should ultimately get the consensus they need for something like a €500bn-€750bn package of support, there is a risk the market has put too much on this particular meeting and is left disappointed if there is no final decision taken this weekend.
We may get an agreement in principle on the fund that will be made up of a mix of grants and loans, with details on the total money value and attached reform requirements to be finessed. Even that might be a stretch though – Merkel warned this week that it could take until the end of the summer to achieve a deal and today said talks would be tough.
Dutch PM Rutte said this morning he’s ‘not optimistic’ ahead of the talks. Indeed, I would not expect much more than a political declaration affirming member states commitment to achieving some kind of a deal.
This not an ordinary summit – what’s being talked about is mutual debt issuance for the first time. A deal would be a major breakthrough for the EU and show that the bloc has the ability to respond to an era-defining crisis with one voice. Merkel is throwing all her political capital behind the European Recovery Fund, so there more than just EU solidarity riding on it.
The Frugal Four of Sweden, Austria, Denmark and the Netherlands remain the main barrier to achieving a deal as they are still to be convinced on why they should be sharing the burden of weaker states, but most countries will be out to fight their corner too. At least they are all back in a room and can talk through the night to trade horses and get something done – not so easy on Zoom, albeit it’s an absolute hangar of a room.
ECB’s Lagarde dismisses tapering chatter
Yesterday, the ECB left rates on hold as expected and Christine Lagarde appeared to push back against the tapering chatter by saying the ECB would use the full PEPP envelope of €1.35tn ‘barring surprises’. She also seemed confident member states would agree on the fiscal response to the crisis, which gave the euro a little nudge up at the time.
EURUSD is back under 1.14 this morning – a recovery fund deal would likely take it over 1.15 and set it up for further gains. Near term the support is around the 1.12 region.
Stocks on Wall Street finished lower on Thursday, led by a decline in tech. It’s probably too early to say this is part of a rotation out of growth into value – which could be a trade to consider if you assume that a vaccine is coming and things get back to normal – but there may be an element of profit-taking in big tech as investors take stock of events and consider the uncertainty over the pandemic, reopening rates, stimulus, earnings outlooks and stretched valuations in some corners of the market vs many stocks being in the bargain basement, among others.
Netflix subscribers and earnings growth miss
Netflix shares plunged 9% to $480 in after-hours trade as the company signalled weaker subscriber growth and profits missed expectations. Revenues were a tad better than forecast at $6.15bn, and as I expected, net subscriber additions in excess of 10m were ahead of estimates for about 7.5m, but earnings per share were a little soft at $1.59 vs $1.80 expected.
But guidance on future growth in subscribers was soft with the company only anticipating 2.5m net adds in September quarter. Maintaining Covid-era subscriber growth was always a tall order, if not impossible, but 2.5m would represent its weakest growth rate for a long time.
Although EPS was a miss, it was largely down to the timing of a California research and development tax credit charge. Netflix earnings have always been lumpy and net subscriber adds has always been a greater guide. The company expects 16% operating margin in 2020 and 19% for 2021, which CEO Reed Hastings said was ‘tamping down the expectations’.
Competition remains a headwind as new streaming services come online, but increasingly even social media is considered a rival. Netflix cited TikTok as a competitor – good news then that the US wants to ban the Chinese social media app.
There are of course questions about whether Netflix will manage to attract eyes in the way it did during lockdown – cinemas reopening, bars and restaurants luring people off the sofa etc, whilst the impact of Covid-related shutdowns on production is still being understood. Moreover coronavirus has simply pulled forward a lot of net adds from the coming quarters – expect slower growth but the company remains in a very good place.
US jobless claims mixed, homebuilder sentiment climbs
Economic data from the US was mixed. Initial jobless claims hit 1.3m, almost unchanged from the prior week. The improving trend has all but halted and may reflect the spike in coronavirus cases that has coincided with renewed lockdown measures in a number of economically important states such as Texas and Florida. California’s decision to roll back reopening signals worse could be ahead.
Continuing claims fell to 17.3m vs the 18m last week, which was a tad better than the 17.6m expected. The total number of people claiming benefits in all programmes for the week ending June 27th fell to 32m a decrease of 430k from the previous week. What’s clear is the rate of change is not moving in the right direction – getting back to pre-Covid levels will take a long time.
However, homebuilder sentiment rose 14 points to 72 in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). That’s where the index reached in March before the crisis hit and it slumped to 30 in April.
Oil and gold are both still in consolidation mode. WTI (August) cannot make a move beyond $41 stick, whilst gold is still crabbing sideways around the $1800 level and appears to set its new low and near-term support at $1796. US real rates (10yr TIPS) made new 7-year lows at –0.79%.
Blonde Money ECB and EU Summit Preview
What can we expect from this week’s European Central Bank monetary policy decision? Blonde Money CEO and founder Helen Thomas takes a look at what could be in store for markets on the back of the latest announcements, and why the ECB will be watching the upcoming EU Summit as intently as the markets will.
Get the latest macroeconomic and political insight from Helen every week on XRay.
US oil inventories preview: Crude rebounds after hitting lowest levels since July 1st
Crude oil touched the lowest levels since the start of the month on Tuesday as investors fretted over the pace of reopening in the world’s major economies. Better-than-expected US crude oil inventories data from the American Petroleum Institute helped push oil higher on Wednesday, with WTI briefly spiking above $41.00 before pulling back to trade below the long-term resistance level.
Crude oil remains rangebound ahead of this week’s main events, with $41.00 providing resistance and support at $39.00.
Oil unsteady as California orders bars to close
Risk sentiment has been knocked across the board after Californian governor Gavin Newsom ordered bars across the state to close and indoor operations to halt in restaurants, cinemas and museums.
The measures have raised questions over how quickly the world’s major economies can afford to reopen. California’s shutdown was prompted by an increase in the average number of new Covid-19 cases to over 8,000 per day during the past week.
OPEC committee to review production cuts
The timing of the shuttering in California is particularly troublesome for the oil markets, given that OPEC’s Joint Ministerial Committee meets this week to review the level of production cuts. The cartel is expected to taper the level of cuts by about 2 million barrels per day from August, down from the current record 9.7 million bpd.
OPEC Secretary General Mohammad Barkindo had said on Monday that the gradual easing of lockdown measures across the globe, in tandem with the supply cuts, was bringing the oil market closer to balance. An unwinding of the cuts just as some economies put the brakes on activity again threatens to send oil prices lower.
EIA data: Draw expected, but are the forecasts accurate?
Prices are also being kept contained ahead of the US Energy Information Administration’s weekly crude inventories report. The latest EIA data is expected to show a draw of 2.275 million barrels after last week’s surprise build of over 5.6 million barrels.
Oil rallied yesterday after the American Petroleum Institute predicted a weekly draw of 8.3 million barrels, smashing expectations for a 2.275 million barrel drop in storage volumes.
Stocks pull back as California shuts up shop again, pound retreats
A rolling back of the reopening process in California and rising US-China tensions left Wall St and Asian markets weaker, with stocks in Europe following their lead as surprisingly good Chinese trade data was not enough to calm markets.
European equity indices fell back in early trade on Tuesday after stocks on Wall Street suffered a stunning reversal late in yesterday’s session. At one point the S&P 500 touched its highest since level since the end of February at 3,235 before sellers sold hard into that level and we saw a very sharp pullback to 3,155 at stumps.
After threatening to break free from the Jun-Jul trading range, the fact the S&P was unable to make good on its promise could signal fresh concerns about the pandemic but also investor caution as we head into earnings season – the fact is the market should not be up for the year. Although it’s hard to get a real feel for valuations because so many companies scrapped earnings guidance, the S&P 500 is trading on a forward PE multiple that is way too optimistic, you would feel. Earnings season gets underway properly today with JPMorgan and Wells Fargo.
The Nasdaq also slipped 2% as tech stocks rolled over, with profit-taking a possible explanation after a) a very strong run for the market has left prices very high and, b) signs of a pullback for the broader market indicated now might be a good time to take stock. Tesla rode a $200 range in a wild day of trading that saw the stock open at $1,659, rally to $1,795 and close down 3% at $1,497.
Stocks retreat as California rolls back reopening, US-China tensions rise
California’s economy is larger than that of the UK or France, so when Governor Gavin Newsom rolled back the reopening of the state on Monday, investors took notice. The closure of bars, barbers and cinemas among other business venues followed moves in economically important states like Texas, Florida and elsewhere, indicating the rate of change in the recovery is not going to improve.
Whilst the market had developed a degree of immunity to case numbers rising, it is susceptible to signs that the economic recovery will be a lot slower than the rally for stocks in the last three months suggests.
Overnight Chinese trade data surprised to the upside with exports up 0.5% in June and imports rising 2.7%, beating expectations for a decline and signalling that domestic demand is holding up well. Singapore’s economy plunged into a recession with a 41.2% drop in GDP, while Japan’s industrial production figures were revised lower.
Tensions between the US and China took another sour turn as the White House rejected China’s claims to islands in the South China Sea, which aligns the US with a UN ruling in 2016. It had previously declined to take sides – the move indicates Washington’s displeasure and willingness to go up against China on multiple fronts now.
UK economy undershoots forecasts with tepid recovery
The UK is already seeing what a non-V recovery looks like. GDP growth rebounded 1.8% in May, which was well short of the 5.5% expected. In the three months to May, the economy contracted by 19.1%. Some of the numbers are truly horrendous and it’s hard to see how the economy can deliver the +20% rebound required to get back to 2019 with confidence sapped like it is and unemployment set to rise sharply.
UK retail sales rose 10.9% in June on a like for like basis excluding temporarily closed stores, whilst overall sales rose a more modest 3.4% and non-food sales in stores were down a whopping 46.8% for the quarter. Suffice to say that headlines of rebounds mask many ills.
Sterling extended a selloff after the GDP numbers disappointed. The reversal in risk appetite late yesterday saw GBPUSD break down through the channel support and this move has continued to build momentum overnight and into the European morning session. The rejection of the 1.2667 region seems to have made the near-term top for the rally. The 38.2% retrace line at 1.250 may offer support before the old 50% retracement level at 1.2464.
WTI (Aug) was a little softer under $40 as market participants eye the OPEC+ JMMC meeting on Wednesday. This will decide whether to roll back some of the 9.6m barrels or so in production cuts by the cartel and allies. The risk is that if OPEC acts too earnestly to raise production again the market could swiftly tip back into oversupply should the economic recovery globally fail to build the momentum required.
Another factor to consider is whether giving the green light to up production is taken by some members as an excuse to open the taps again and result in more production than agreed – compliance remains the ever-present risk for any OPEC deal.
Equities rally ahead of Wall Street’s Q2 earnings season
A positive start to the week for global equities reflected a strong finish on Wall Street on Friday and an unwillingness to get bogged down by record global daily case numbers. A surge in the futures overnight translated into +1% gains for European cash equity markets as they opened, although the immediate move was to retreat off the highs made by the futures.
Whilst indices have chopped around the Jun-Jul ranges, there are divergences in the performance: the DAX is close to its June high, the FTSE 100 has only retraced 38.2%. Meanwhile futures show the S&P 500 is set to open at 3200, just 40 points from its post-March highs, whilst the Dow has only retraced 50%. These discrepancies reflect index composition as much as anything else – what to watch out for this week will be whether the S&P 500 or the DAX break free or move back towards the middle of their ranges.
The WHO said over 230k new cases were recorded in 24hrs, a record. The US recorded over 70k cases but increasingly investors are shrugging off these headlines as it’s felt the country won’t lockdown in the same way again. Nevertheless, the spike in Covid cases has slowed reopening in several states and this could translate into negative rate of change in some of the economic data which could be a problem for bulls.
It’s a big week for data, not least the start of the Q2 earnings season on Wall Street. The high frequency economic data should continue to point to recovery however it will be the rate of change that matters more – is the recovery gaining momentum or are the easy wins behind us?
Tesla stock surged another 10% on Friday to rise above $1,500. The company is likely to report a fourth straight quarterly profit on July 22nd, which would clear the way for it to enter the S&P 500, and may explain the recent rally as funds have decided they will need to own some of it.
In commodities, gold continues to consolidate on the $1,800 level and with the bullish flag in play it could retrace further before the near-term pullback is complete, with the longer-term support on the trend line coming in around $1788. Speculative net long positioning rose, whilst inflows into gold funds continue to surge.
Crude oil continues to battle with the trend line as it tries to recover the bullish bias after last week’s sharp sell-off. Coming up this week is the U.S. Energy Information Administration (EIA) drilling report (Jul 13th) and OPEC monthly oil market report (July 14th). Speculative net positioning has barely changed in the last week, according to the CFTC COT report, with net longs at 535k vs 543k the prior week.
In FX, the dollar bounced a little of its lows in early trade with the dollar index making a bottom at 96.35 and pushing back up to 96.50. Sentiment for the dollar is a bit softer due to the risk-on trade, which is lifting major peers to drift higher. GBPUSD may have made a near-term top around 1.2670 but remains supported by the bullish channel.
Stocks choppy after sharp risk reversal, gilt yields strike fresh lows
Stocks continue to chop around their June-July ranges after risk sentiment rolled over at the start of yesterday’s US session. Surging Covid cases, hospitalizations and deaths in several US states continues to weigh on risk sentiment, Donald Trump was dealt a blow by the Supreme Court, and Joe Biden – who may well become the next president – said he would end the era of ‘shareholder capitalism’.
Around 3pm yesterday we saw a sharp reversal in risk appetite as stocks, bond yields and oil fell and the dollar rallied. California, Texas and Florida reported their biggest one-day increase in Covid-19 related deaths. Stocks hit the lows after Florida reported a spike in Covid-related hospitalizations, but recovered somewhat after Dr Fauci, director of the National Institute of Allergy and Infectious Diseases, revealed Moderna’s coronavirus vaccine candidate would enter phase 3 trials soon.
Supreme Court rules on Trump tax returns, Biden announces economic plan
The Supreme Court ruled Donald Trump’s tax returns should be seen by the Grand Jury, but it threw out rulings that allowed Democrat-led Congressional committees to obtain Trump’s financial records. Although this means further litigation, it should mean the documents are not a factor in the election.
Meanwhile, Joe Biden launched his $700bn economic plan by taking aim at Wall Street a threat to ‘end to the era of shareholder capitalism – the idea that the only responsibility a corporation has is to its shareholder’. Whilst no Bernie Sanders, there is little doubt that Biden will raise taxes and regulation risk – equity markets need to start to price in the risk better and there are signs that some investors already are.
Investors need to be wary of a Democrat clean sweep of the House, Senate and White House, which could greenlight some pretty aggressive redistributive policies. ‘During this crisis, Donald Trump has been almost singularly focused on the stock market, the Dow and the Nasdaq. Not you. Not your families,’ Biden added. After 2008 it was fashionable to bash the banks, now all corporate America is fair game if they are not woke enough. ‘Wall Street bankers and CEOs didn’t build America,’ Mr Biden said.
Europe opens weak, turns green
European shares were choppy after Asian markets fell and China’s equity rally finally ran out of steam. The FTSE 100 fell under 6,000 this morning before paring losses, returning to the low end of its June range. After a weak open, European indices were turning green after the first hour of trade.
The S&P 500 struck a low at 3,115 yesterday before closing down 0.5% at 3,152, flat for the week. Energy stocks led the drop, declining 4% as oil prices sank. Futures are lower and indicate a weaker open at the 61.8% retracement of the June-July range. The Nasdaq rose 0.6% to a fresh record as the tech sector continued to be the only real area of safety.
US unemployment numbers were a little better than expected but continue to show just how long the road is ahead. Weekly initial jobless claims fell to 1.314m, better than the 1.375m expected and representing a decline of 99k from a week ago. Continuing claims fell to 18.06m, a drop of almost 700k and much better than the 18.9m expected. The previous week’s number was also revised down over half a million.
Treasury yields fell, with US 10s back to 0.58% having notched a record low yield on an auction. UK 2- and 5-year gilt yields have hit a record low this morning, following Eurozone and US yields lower. Investors are showing no fears that massive issuance is going to force up borrowing costs as long as central banks remain in full support mode.
WTI through trend support as risk appetite cools
Crude oil fell sharply with stocks as risk rolled over. WTI (Aug) broke down through the trend support and may push lower. From a technical perspective we can start to consider completion of the head and shoulders reversal pattern and look for the move to head towards the neckline around $35. The IEA’s July report this morning suggested oil demand will pick up in the second half and that the worst of the demand destruction is behind us.
The IEA said oil demand this year will average 92.1m bpd, down by 7.9m bpd versus 2019, which is a slightly smaller decline than forecast in the April report, mainly because the decline in the second quarter was less severe than expected. But at this point it remains very hard to say how demand will recover longer-term given we do not know how the virus will progress nor how governments and citizens will respond – at least it seems negative prices were only a blip.
Fresh shutdowns in the populous Sun Belt states remains the worry, albeit we did see a decent draw on gasoline stocks last week, according to the EIA. Nevertheless the IEA noted that the accelerating number of Covid-19 cases is ‘a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside’.
Elsewhere, gold fell with risk assets, with the near-term pullback finding support at $1796 and should look for consolidation around the $1800 level. The outlook for gold remains constructive and we should expect lots of pullbacks along the way – nothing goes up in a straight line, and gold is particularly prone to these tactical retreats. In FX, the dollar rallied on the broad drop in risk sentiment. GBPUSD moved down to test near term trend support formed by the bullish channel. EURUSD pulled back from highs at 1.1370 to chop around the 1.1270 region.
Investors eye UK mini budget, gold heads to $1800 as stocks slip again
Stock markets remain in choppy trading ranges. The optimism that fuelled the rally at the start of week has fizzled out, leaving indices back towards the middle of the June range and back close to where they finished up at the end of last week. Investors continue to look at soaring case numbers on the one hand and on the other the pace of recovery and massive stimulus which has already been administered.
Asian markets slipped, albeit China stood out as it continued to rally on some good stoking by the state-run press. The ASX fell 1.5% as investors reacted to the lockdown in Victoria. European stocks followed suit and were softer on the open on Wednesday. The FTSE 100 pulled back further below 6200 where it has found some degree of support at 6153 on the 38.2% retrace of the pullback in the second week of June that has formed that range of the last month and a half.
Gold climbs towards $1800, US yields hit fresh lows
Treasury yields slipped on a broad risk-off mood. US 10s went to 0.655% which left 10yr TIPS – our favourite gold indicator – at fresh seven-year lows at –0.78%. This gave further succour to the gold bulls and lifted prices to fresh seven-year peaks above $1797 and it looks like $1800 can be taken out. The gold bull thesis rests not only on the requirement for safe assets given the economic uncertainty, but also longer term on fears of a surge in inflation caused by the massive increase in the money supply caused by central banks. In large part due to the corresponding fiscal actions, unlike the QE that occurred after the financial crisis, this time the excess cash is not going to get lost in the banking sector.
While yields dipped and gold is at multi-year highs, the prospect of more stimulus may keep markets relatively buoyant for the time being. The worry is that as the support packages roll off, particularly the kind of financial aid for employees from the likes of the UK’s furlough scheme, the pace of recovery slows drastically. The economic data could really start to crunch as temporary layoffs become permanent and the pressure for governments to continue to ‘do whatever it takes’ will increase.
UK coronavirus ‘mini budget’ on tap
Today, Britain’s chancellor Rishi Sunak will respond with a ‘mini budget’, to be delivered at 12:30 BST after PMQs. This will aim to shift the support on offer from the emergency to the more lasting with measures such as cash for training young people to prevent the risk of mass youth unemployment, a stamp duty holiday to goose the housing market, a maybe a VAT cut to help the hospitality sector. Housebuilders ought to be among the main beneficiaries of the budget, but shares in Barratt and Taylor Wimpey slipped this morning after rallying this week ahead of the statement. Meanwhile Marston’s and Mitchells & Butlers shares plunged around 5% this morning ahead of the statement which may not have as much for the hospitality industry as some had hoped.
Sterling held gains above 1.2540 ahead of the statement, having gained sharply yesterday arguably on some hopes that the budget will get the economy moving a bit quicker. GBPUSD remains well within the recent range and shows little signs right now of mounting a serious ascent to 1.30, however having created a bottom at 1.2250 the recent move higher can continue and the bullish bias persists – the Jun high at 1.28 is the key.
A huge part of the problem facing investors in this market is figuring out what the data is telling us. As noted many times in recent weeks, the economic data is noisy and difficult to interpret because the speed and magnitude of the collapse was like nothing we have ever seen. For example, France’s statistics body, Insee, says the French economy will rebound 19% in Q3, but still be down 9% in 2020. This points to the difficulty in reading too much into the easy part of the recovery process as lockdowns end. The longer-term recovery to activity levels comparable with 2019 will take a lot longer.
Key Eurogroup vote on new president tomorrow
Eurogroup members to vote on a new president tomorrow. The vote comes at an important moment for the Eurozone as it tries to agree on financial aid package as part of budget talks. The summit of July 17th and 18th is the date for your diaries. Christine Lagarde said the ECB may hit the pause button on its easing programme, telling the FT that the ECB has ‘done so much that we have quite a bit of time to assess [the incoming economic data] carefully’. This should put to rest any thoughts the central bank would announce fresh easing measures at its meeting next week. Ms Lagarde wants to stress that it’s time for the EZ member states to step up and sort out the fiscal support rather than leaning ever more on the ECB and lower rates.
Meanwhile, the White House is said to be looking at ways to undermine the Hong Kong dollar peg to the US dollar as a potential way to hit China. If such a tactic were to be deployed, it could raise risks for Hong Kong banks to access dollars and we could feasibly see ripple effects across the FX space – albeit I don’t see the US embarking on any kind of outright manipulation to weaken or strengthen the dollar. It’s probably not a tactic that will be considered seriously or pursued by the administration, but it’s one to watch.
Oil steady after API data shows oil storage build, gasoline draw
Crude oil (WTI for August) was steady still around the $40 handle. API data showed a build in US crude stocks of 2m barrels, whilst gasoline stockpiles fell by 1.8m barrels. Crude at the Cushing, Oklahoma, hub rose 2.2m barrels. Meanwhile the U.S. Energy Information Administration presented a more bullish fundamental case and raised its WTI price forecast for 2020 to $37.55 a barrel, up almost 7% from the June forecast. 2021 prices are forecast to average $45.70 in 2021, a gain of 4% from before. The EIA said changes in supply and demand have shifted global oil markets from an estimated 21 million barrels per day of oversupply in April to inventory draws in June. EIA crude oil inventories later today are forecast to see a draw of 3.2m barrels, but the consensus estimate has been wide of the mark for several weeks now.