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Top 5 Things to Know in the Market on Monday, September 7th

2020-09-07 21:47:19

1. Softbank shares tumble after 'Whale' reports

Softbank. (T:9984) shares tumbled 7.2% to their lowest in two months in the wake of a report suggesting that it had been a major player in the wild summer rally in U.S. tech stocks, using options to secure highly leveraged short-term returns.

While most of its trades still appear to be profitable at current levels, the report has revived unease about Softbank’s strategy and governance, threatening the stock’s robust performance since March. It has more than doubled since founder Masayashi Son moved to draw a line under poor investments in WeWork, Uber (NYSE:UBER) and others, and return cash to shareholders.

Having been exposed as the "Whale" that has moved the market, Softbank is now a bigger and easier target for others to bet against.

2. Brexit risk is back

Brexit risk is back on the radar after a report that the U.K. government is preparing new legislation that would make the continuation of smooth trade with the EU after the end of this year impossible.

The Financial Times said Prime Minister Boris Johnson’s new plans would revive the need for a hard border on the island of Ireland, scrapping the compromise embedded in last October’s Withdrawal Agreement. The Withdrawal Agreement allowed the U.K. to exit the EU on January without forfeiting any of its access rights to the EU market until the end of 2020.

The EU says that the principles underlying that agreement – including the U.K.’s acceptance of EU rules in a large part of the economy – are a precondition for any future deal on relations between the two. The pound fell 0.8% against the euro but U.K. stocks and bonds were firm.

3. Chinese stocks hit by SMIC report; Europe's gain on rotation hopes

With U.S. markets closed for the Labor Day holiday, the focus Monday was on Asia and Europe, which largely went their separate ways.

Chinese indexes fell by as much as 2.7% after reports suggesting that the U.S. is looking to impose sanctions on chipmaker Semiconductor Manufacturing International (HK:0981), further tightening restrictions on the Chinese high-technology industry.

That overshadowed numbers showing an extremely strong performance by China’s exporters in August. Exports rose 9.5% on the year, their biggest year-on-year gain since April 2019. Imports, however, fell 2.1% as the country’s refineries and traders dialed down oil purchases after filling their storage tanks at lower prices earlier in the summer.

The export data, and the broader narrative of growth and value stocks coming back to favor in the minds of investors as the tech rally unwinds, pushed European stock markets sharply higher. The Stoxx 600 rose 1.1%, despite the Brexit news and a weak German industrial production report.

4. Musk spurned by S&P

Tesla’s stunning rally this year wasn’t enough to persuade Standard & Poor’s to include it in its benchmark index, the S&P 500.

The committee that governs the index’s composition met on Friday and approved three other new entrants, but held off from the electric carmaker. As is usual, it didn’t explain its selection criteria. Analysts have speculated that the extreme volatility in the shares this year, coupled with the uncertain profitability of its underlying business, could deter S&P from including the stock.

Tesla stock fell 6.3% in after-hours trading on Friday after the announcement. It isn’t trading on Monday due to the Labor Day holiday.

The stock has still more than doubled since June, when speculation on it being included in the index really took off.

5. Germany threatens Nord Stream, and the ruble falls

The Russian ruble weakened and shares in engineering company Saipem fell to their lowest in a year as the furore over poisoned opposition politician Alexey Navalny led the German government to hint for the first time that it would consider abandoning the Nord Stream 2 gas pipeline project.

Foreign Minister Heiko Maas said in an interview at the weekend that he ‘hoped’ Germany wouldn’t be forced by the Navalny incident to impose sanctions on the project, which has heavy financial and political backing in Germany, but which is opposed by both the U.S. and many of Germany’s European allies.

Nord Stream 2 is set to carry gas directly from Russia to Germany under the Baltic Sea, something that gives Russia more political leverage over transit countries that have carried its gas exports to Europe for the last 40 years – notably Poland and Ukraine.

Economic Calendar - Top 5 Things to Watch This Week

2020-09-06 19:23:16

U.S. data
U.S. inflation seems to have little chance of hitting 2% anytime soon and Friday's inflation figures for August are expected to show core CPI rising 0.2% month-on-month and 1.6% on a year-over-year basis.

The Fed, which is now aiming for an average has said it won't worry about inflation running above its 2% target, which is seen as giving it room to keep interest rates low for as long as it wants.

That's good news for stock markets, property and other sectors that benefit from cheap money.

Market participants will also be watching Thursday’s report on initial jobless claims for fresh insights into the strength of the recovery in the labor market after the August jobs report showed that hiring slowed again last month as financial aid from the government dried up.

Tech wreck looks set to continue
Last week’s stock market shakeout looks set to continue as traders return to their desks after the U.S. Labor Day holiday on Monday amid persistent concerns about high valuations and an uneven economic recovery.

Following a steep selloff on Thursday that carried over into Friday, the three major indexes regained some ground late Friday to close well off the lows of the day, though trading remained volatile.

Thursday’s sell-off already reflected investor fears that valuations for mega-cap tech stocks had overheated and these worries were exacerbated on Friday when the Financial Times reported that options trading by Japan’s Softbank (OTC:SFTBY) had inflated these stocks.

The selloff could be a preview for a rocky two months to come as institutional investors return from summer vacations and focus their attention the potential economic pitfalls in the year ahead.

ECB meeting
ECB officials will have plenty to discuss at their policy meeting on Thursday after the euro hit $1.20 for the first time since 2018 and euro zone inflation turned negative in August for the first time since 2016. The slide into deflation is a red flag for the central bank, which targets annual inflation of close to, but just below 2%.

Yet it may be premature for the ECB to announce any major new steps on Thursday.

The euro has been boosted by a broadly weaker dollar and improved sentiment towards the European Union’s 750 billion-euro pandemic rescue fund. As such, any impact on inflation may be temporary.

But in the longer term, the ECB may be forced to reevaluate its monetary policy given the Fed’s shift to tolerate higher inflation, which could weigh on the dollar for years to come.

Brexit and UK GDP
Brexit talks between UK and EU negotiators are due to resume in London on Tuesday, but an imminent breakthrough seems unlikely.

Talks have stalled over Britain’s demands on fishing quotas and its desire to use state aid to build up its tech sector.

Britain left the EU on Jan. 31 but talks have so far made little headway on agreeing a new trade deal for when the transition agreement ends on Dec. 31. There is less than a month to go before the Oct. 2 deadline for a deal which would then have to be ratified at an EU summit.

Separately, data on Friday is expected to show that the UK economy rebounded again July, given that many lockdown measures were eased during the month.

China trade data
Trade figures out of China on Monday are expected to show exports rose solidly for a second straight month in August, while imports edged back into growth.

Chinese exports have not been as severely affected by the global slowdown as some analysts had feared and are set to be a key driver in the nation’s economic recovery.

Already high tensions between Washington and Beijing are expected to escalate ahead of the U.S. presidential election in November. China remains well behind on its pledge to boost purchases of U.S. goods under the Phase 1 trade deal that took effect in February.

--Reuters contributed to this report

Top 5 Things to Know in the Market on Friday, September 4th

2020-09-04 14:32:11

1. Global markets stabilize after rout

Global markets steadied after the worst sell off in months on Wall Street on Thursday, as participants came around to the view that the incident was more specific to overheated tech stocks than to global developments.

While markets in the Asia-Pacific region all ended lower, losses of around 1% were nowhere near as severe as those seen in the U.S. on Thursday. European bourses, which had already participated in the downward move on Thursday, rebounded strongly, with bank stocks in particular lifted by the announcement of talks to create the biggest lender in Spain.

The dollar and other traditional havens, meanwhile, failed to gain much traction, with the dollar index settling into a range well below 93 and gold futures up only 0.4% at $1,945 a troy ounce.

2. Jobs report puts fresh light on recovery

The U.S. will publish its official labor market report for the month through mid-August, after a barrage of conflicting signals from other high-frequency data from the labor market this week.

Expectations for the key nonfarm payroll growth range from below 750,000 to over 2 million, indicating the high degree of uncertainty among analysts. The average forecast, according to analysts polled by, is around 1.40 million, which would represent a slowdown from July’s 1.76 million but still solid progress, given that the reporting period coincided with a surge in Covid-19 cases across the South and West that put a brake on economic reopening.

However, the number is likely to be inflated by government hiring for the 2020 Census. Private hiring, as measured by ADP’s monthly survey, fell well short of expectations on Wednesday. Jobless claims data released on Thursday, meanwhile, showed over 29 million Americans still claiming benefits as of the middle of August.

3. Stocks set to open mostly higher but froth tech stocks still under pressure

U.S. stock markets are set to open to open modestly higher, stabilizing after Thursday’s sharp sell off.

By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was up 130 points or 0.5% while the S&P 500 Futures contract was up 0.3%.

Nasdaq 100 futures were, however, down another 0.4%, reflecting the extent to which yesterday’s rout was essentially a correction of a rally in a handful of tech stocks rather than a wholesale change in sentiment about the economic outlook.

Apple (NASDAQ:AAPL) stock, whose 8% fall broke records yesterday for the biggest ever one-day loss in market capitalization, was down another 0.1% in premarket, while Tesla (NASDAQ:TSLA) stock was down 1.2%, extending its 9% on Thursday. Zoom Video (NASDAQ:ZM) stock was down 1.4%, while Amazon (NASDAQ:AMZN) stock was down 0.2%.

Elsewhere, a survey by consultancy Smart Insider, cited by the Financial Times, showed that U.S. large-cap company executives sold $6.7 billion of their own stock last month, while the number of sellers topped 1,000, reaching its highest level since August 2018.

4. No government shutdown in October

U.S. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi agreed not to close down the government in October, at the start of the new fiscal year, according to the Associated Press.

The news again points to at least a modicum of cooperation between the two sides as they continue to argue over the scale and shape of a new round of stimulus measures (the necessity of which will be on show in today’s labor market report).

Senate Republicans are due to hold a vote on their proposed $500 billion package next week, according to Bloomberg. That’s still a long way from the latest $2.2 billion package by Pelosi.

5. Oil rebounds after oversupply fright; rig count eyed

Crude oil prices rebounded smartly as a brief bout of panic about looming oversupply subsided.

By 6:35 AM ET, U.S. crude futures were up 1.0% at $41.75 a barrel, rebounding from what was only a half-hearted test of the $40 level that has been the bottom of its range for the last three months. Brent futures, the international benchmark, were up 0.7% at $44.38 a barrel, while gasoline futures were back over $1.20 a gallon.

Baker Hughes’ weekly rig count data will round off the week at 1 PM ET.

Top 5 Things to Know in the Market on Wednesday, September 2nd

2020-09-02 16:16:41

1. ADP's taster for August jobs report

The U.S. economy is center stage again as payrolls processor ADP publishes its estimate for the number of private-sector jobs created in August.

Consensus forecasts are for an increase of 957,000, a strong acceleration from 167,000 in July, thanks to the fading of the second wave of Covid-19 cases across the south and west of the country. However, that would still leave the economy some 12 million jobs shy of its pre-Covid level, with barely two months to go to the election.

The ADP numbers are due at 8:15 AM ET (1215 GMT). They’ll be followed by factory orders data for July at 10 AM and the Federal Reserve’s Beige book survey of the U.S. economy at 2 PM.

2. Mnuchin knock back Pelosi's stimulus gambit

Three more speakers from the Federal Reserve get to say their peace on the U.S. economy, with NY Fed President John Williams (NYSE:WMB) due at 10 AM ET, Cleveland Fed President Loretta Mester due at 12 PM and the Minnesota Fed’s Neal Kashkari due at 2 PM.

Markets will watch closely for any reaction to the continued failure of politicians to break the deadlock over the next round of economic support measures for the U.S. economy.

Treasury Secretary Steven Mnuchin last night rejected a pared-down $2.2 trillion proposal from House Speaker Nancy Pelosi, who said “serious differences” remain between the two sides.

The Centers for Disease Control moved to neutralize one of the biggest risks to consumer confidence on Tuesday, issuing a nationwide order temporarily halting millions of U.S. renters from being evicted, saying evictions would hasten the spread of Covid-19.

3. Stocks set to open higher

U.S. stocks are set to open higher again, supported by the fact that at least politicians are talking again about a fresh stimulus package. Signs from prediction markets that Donald Trump’s chances of re-election are improving also appear to be supporting sentiment.

By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was up 188 points or 0.7%, while the S&P 500 futures contract was up in parallel. Nasdaq 100 futures were up another 1.0%, amid reports of price action being increasingly driven by relatively small-scale action in the options markets by retail traders.

Of note to investors in distressed stocks – Macy’s is due to report earnings before the open. A net loss of $1.80 a share is expected. AT&T may also garner interest after The Wall Street Journal reported that it’s looking at selling its Xandr digital ad business, only days after a similar report saying that its DirecTV unit may also be on the block.

4. Australia runs out of luck; ECB frets about the euro

Australia – ‘The Lucky Country’ – finally ran out of luck in the second quarter of 2020, confirming its first recession in over 30 years.

The country’s economy shrank by 7.0% in the three months through June as Chinese demand for its commodities – notably iron ore and coal to feed its steel mills – collapsed. Australia has ridden a wave of rising Chinese commodity demand for three decades.

The slowdown hasn’t stopped the Australian dollar rising, however. It’s up 29% from its March low against the greenback and fell only 0.4% on the data to leave it close to a two-year high.

European data overnight also tended to the negative side: Spanish unemployment rose by nearly 30,000 in August, instead of the 10,000 expected, while German retail sales fell for the second month in a row in July. The euro gave up over a cent against the dollar, with comments from ECB Chief Economist Philip Lane helping to reinforce a bit of overdue profit-taking.

5. Inventories keep oil well supported

The U.S. government will release its weekly estimate of U.S. oil supplies, a day after the American Petroleum Institute suggested that last week saw another sharp drop in crude stocks.

Crude stocks are estimated to have fallen 1.89 million barrels last week while gasoline stocks are expected to have dropped by 3.04 million, with retailers having to draw down stocks to replace supplies from refineries that closed during the onset of Hurricane Laura.

The API on Tuesday had estimated a draw of 6.36 million barrels of crude, something that kept both U.S. futures and Brent well supported. They were up by 0.3% and 0.2% respectively by 6:30 AM ET.

Top 5 Things to Know in the Market on Tuesday, September 1st

2020-09-01 18:37:16

1. Euro tests $1.20 as Germany gets more upbeat

Germany said its economic contraction this year won’t be as bad as first feared. New projections from the government estimate gross domestic product will fall ‘only’ 5.8% this year, instead of the 6.3% laid out in its last forecasts.

The flip side is that the rebound next year will be less vigorous – only 4.4% growth instead of 5.2%. Berlin still only expects to return to early 2020 levels of GDP at the start of 2022.

Germany’s jobless rolls fell by 9,000 in August, according to seasonally-adjusted data released earlier Tuesday, while its manufacturing PMI was confirmed at 52.0, a modest improvement from July, but lower than expected.

The euro rose as far as $1.1998, helping to drive the dollar index down to a new 29-month low.

2. Zoom on course to win 2020

Zoom Video Communications (NASDAQ:ZM) cemented its place as one of the biggest winners of 2020, reporting quarterly earnings that were far ahead of even the most optimistic forecast and substantially raising its guidance for the full year.

The company reported a 355% increase in revenue from the same period a year ago to $663 million, more than the whole of its fiscal 2020 year that ended in January. Net profit rose to $186 million from $6 million a year earlier.

The numbers suggest that Zoom has more than met the challenge of scaling up rapidly in the face of an unimaginable surge in demand over the last six months. Its corporate customer base has more than quadrupled from a year earlier.

3. Stocks set to open mostly higher

U.S. stock markets are expected to open mostly higher again, with Zoom’s blowout earnings helping Nasdaq futures to extend the outperformance seen on Monday

By 6:35 AM ET (1035 GMT), the Dow 30 futures contract was essentially flat while S&P 500 Futures were up 0.2% and the Nasdaq 100 futures contract was up 1.0%.

Apple (NASDAQ:AAPL) and its suppliers are likely to stay in focus after Bloomberg reported that the company is preparing to make 75 million iPhones in its big round of launches in October, a figure that's roughly in line with last year and suggests demand for its flagship product has held up well through the pandemic.

4. PMIs point to global resilience

The Institute for Supply Management will release its purchasing managers index for the U.S. at 10 AM ET (1400 GMT).

Releases of similar surveys around the world have mainly come in stronger than expected, with the Caixin PMI for China, which monitors the country’s private sector, rising to 53.1.

In Europe, the picture was more uneven, with manufacturing PMIs pointing to faster growth in Germany, Italy and the Netherlands, but a return to contraction in Spain, where the surge in Covid-19 cases in recent weeks is now approaching the level seen during the virus’ first wave in spring. The eurozone jobless rate rose to 7.9% despite the widespread availability of government wage subsidies, while the collapse in energy prices drove the consumer price index to a year-on-year decline of 0.2%.

Elsewhere, South Korea, whose chip- and electronic-heavy economy occupies a key place in global value chains, said its second-quarter GDP had fallen only 3.2%, after a 1.3% drop in the first quarter, slightly better than the 3.3% drop forecast.

5. Oil grinds higher; API numbers eyed

Oil prices ground higher in overnight trading after positive economic data from Korea and Germany gave some reassurance to those worried about the strength of global demand.

By 6:30 AM, U.S. crude futures had risen 1.1% to $43.08 a barrel, while the global benchmark Brent had risen 1.2% to $45.84 a barrel.

The market was supported by figures released late on Monday by the U.S. government showing the extent of the drop in U.S. output earlier in the summer. With Baker Hughes’ oil rig count still bumping along the bottom of a multi-year trend at 180 last week, U.S. output seems unlikely to revive quickly.

The American Petroleum Institute’s weekly estimate of U.S. oil supplies is due at 4:30 PM, as usual. They're likely to reflect the disruptions to the market from last week's hurricanes in the Gulf of Mexico.

Top 5 Things to Know in the Market on Monday, August 31

2020-08-31 18:11:29

1. China throws a wrench into the TikTok deal

The sale of TikTok’s U.S. operations has been complicated by new Chinese regulations restricting the export of artificial intelligence technology.

The regulations appear to give Beijing an effective veto on the deal and turn the tables on the U.S., which has clamped down on Chinese investment in the country in recent years citing the risks of sensitive technology transfers.

Various reports had suggested that a deal would be agreed at the weekend to sell the operations to a U.S. buyer. Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and even Walmart (NYSE:WMT) had been linked with the deal.

2. China's domestic economy strengthens, but bank results point to problems

The yuan strengthened against the dollar to its highest in 15 months after an official business survey came in surprisingly strong.

The official purchasing managers index for August rose to 54.5 from 54.1 in July, thanks largely to agriculture and services – the more domestically-focused pillar of the Chinese economy. The survey suggests that domestic demand is starting to catch up with the recovery in industrial production since March.

However, the pandemic has still left its scars on the Chinese economy: the country’s largest banks reported their biggest quarterly drop in profits in a decade, thanks to a rise in bad loans and tighter lending spreads.

3. Stocks set to open higher; Clarida, Bostic speeches eyed.

U.S. stock markets are set to open higher as the ongoing ‘melt-up’ refuses to lose momentum, having been seemingly underwritten by Federal Reserve Chairman Jerome Powell’s speech last Thursday.

By 6:25 AM ET (1025 GMT), the Dow futures contract was up 42 points or 0.2%, while S&P 500 Futures were up 0.2% and the Nasdaq 100 futures contract was up 0.4%.

On a generally light day for data, participants are likely to pay heed to Fed vice-chairman Richard Clarida, whose speech at 9 AM ET (1300 GMT) will flesh out the finer points of the Fed’s shift to ‘average inflation targeting’. The shift has been broadly interpreted as locking in near-zero interest rates for as much as five years.

Atlanta Fed president Raphael Bostic is also due to speak at 10:30 AM ET. The Dallas Fed’s monthly business survey is due out at the same time.

4. Buffett bets on Japanese trading houses

Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) placed a $6 billion bet on a handful of the big commodity trading houses in Japan, in the latest surprising instalment of a hunt for yield worldwide.

Berkshire said at the weekend it had taken stakes of around 5% in Itochu. (T:8001), Marubeni (T:8002), Sumitomo (T:8053), Mitsui. (T:8031) and Mitsubishi (T:8058) companies that have dominated the process of feeding Japan’s manufacturing sector with raw materials for decades.

The move comes after a net outflow of foreign money from Japanese equities that has run to $132 billion over the last two and a half years, suggesting that Buffett is calling time on that particular trend.

Overnight, official data showed Japanese data showed industrial production rose 8.0% in July, well ahead of expectations. The Ministry of Trade and Industry expects the rebound to flatten out over the next two months, however.

5. FDA head Hahn walks the tightrope

Food and Drug Administration head Steve Hahn said he’s open to fast-tracking authorization for drugs treating Covid-19 but only if the benefits to public health outweigh the risks.

Hahn’s comments, made in an interview with the Financial Times, come a week after President Donald Trump accused the FDA of delaying drug authorizations in order to hurt his chances of re-election in November.

“It is up to the sponsor [vaccine developer] to apply for authorization or approval, and we make an adjudication of their application,” Hahn told the FT. “If they do that before the end of Phase Three, we may find that appropriate. We may find that inappropriate, we will make a determination.”

He pledged that any decision taken by the FDA would be “a science, medicine, data decision. This is not going to be a political decision.”

Top 5 Things to Know in the Market on Friday, August 28th

2020-08-28 16:23:12

1. Dollar falls, gold rises as Powell goes easy on inflation

The dollar weakened and gold prices rose sharply as the market absorbed the implications of Federal Reserve Chairman Jerome Powell’s speech on Thursday.

Powell had said the Fed will tolerate inflation overshooting 2% for some time in order to compensate for years of sub-target inflation – raising speculation that the Fed will increase its monetary stimulus to support an economy that is making an uneven recovery from the pandemic.

The dollar index, which tracks the greenback against a basket of six developed market currencies, fell 0.7% to its lowest level in two weeks, testing a new 28-month low. The euro rose back above $1.19 and sterling tested the $1.33 level.

Gold futures rose 1.4% to $1,960 an ounce, encouraged by the apparent vindication of the currency debasement narrative that has driven much of the recent rally.

2. Sayonara, Shinzo

Shinzo Abe, Japan’s longest ever serving Prime Minister resigned due to ill health. In eight years in office, Abe has been frustrated by a series of crises and by Japan’s internal economic problems and has failed to fulfil his promise of victory over deflation.

The Nikkei 225 index fell 1.4% to a two-week low on the news, while the yen strengthened in a reflex reaction to the political uncertainty created.

That uncertainty ought to stay within limits. Abe’s Liberal Democratic Party is likely to stay in power for the foreseeable future, and many of the mooted successors are people hand-picked by Abe over the years because of their closeness to his thinking.

3. Stocks set to open mixed, with DJIA leading again

U.S. stock markets are set to open mixed on Friday with industrials again set to outpace tech stocks in the wake of Powell’s policy shift on Thursday.

By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was up 88 points or 0.3%, while the S&P 500 Futures contract was up 0.2%. The Nasdaq 100 contract, by contrast, was down 0.2%.

Stocks likely to be in focus later include Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and Walmart (NYSE:WMT), all at the center of speculation that a deal for video-streaming app TikTok’s U.S. operations is imminent. Commerce Secretary Wilbur Ross said the sale was necessary not only on national security grounds, but also to increase competition in the social media space.

4. Clouds on Europe's horizon

Europe’s economic recovery stumbled a bit in August as the coronavirus showed signs of returning, exploiting the relaxation of lockdown and social distancing measures to accommodate the summer tourism season.

German consumer confidence weakened and French consumer spending fell in month-on-month terms, although economists argued that the headline numbers were worse than the underlying trends.

Italian business and consumer confidence both rose, however – although in the case of business, the improvement was less than hoped. The flattening out of the recovery hasn’t proved a material drawback to the continent’s bond markets yet: Italy managed to sell 10-year bonds at a rate of 1.11% earlier.

5. Oil prices stay well bid as Hurricane Laura passes

Crude oil prices gave ground as Hurricane Laura moved up through the U.S. in much-diminished form, having failed to cause any kind of lasting damage to the Gulf region’s energy infrastructure, either offshore or among refineries and storage facilities.

By 6:30 AM ET, U.S. crude futures were down less than 0.1% at $43.02 a barrel, while the global benchmark Brent was also down less than 0.1% at $45.58.

The passing of the hurricane allows the market to refocus on what has been a generally supportive set of news this week, with demand holding up well enough to take another decent bite out of U.S. stockpiles.

Baker Hughes’ weekly rig count will round the week off later.

Top 5 Things to Know in the Market on Thursday, August 27th

2020-08-27 16:08:23

1. Powell's big reveal

U.S. Federal Reserve Chairman Jerome Powell will deliver a keynote speech that’s expected to lay the groundwork for a fundamentally looser monetary policy for the foreseeable future.

Powell is expected to detail the conclusions of a long review into the Fed’s policy framework, and most analysts expect him to announce a shift to Average Inflation Targeting, under which the Fed would let inflation run above its current 2% inflation target to make up for years of undershooting it. That means keeping interest rates lower for longer. Bloomberg reported on Wednesday that it could mean no rate hikes for as much as five years.

Market speculation on the shift has contributed both to the dollar’s recent weakness and the strength of stocks, which typically enjoy the prospect of free money forever. Kansas City Fed President Esther George on Wednesday downplayed any threat to financial stability, saying it was more important to focus on the near-term health of the economy

2. Jobless claims, GDP revision due

The health of the economy will be on parade again at 8:30 AM ET (1230 GMT) – before Powell speaks at 9:10 AM ET – with the weekly jobless claims numbers and a revision to the second-quarter data for Gross Domestic Product.

Initial jobless claims are expected at around 1 million again, down from 1.11 million last week, while continuing jobless claims are expected to have edged down by around 400,000 to 14.45 million. As always, the fuller picture will be in the number that also includes those claiming Pandemic Unemployment Assistance.

GDP is expected to be revised up slightly to a mere -32.5% in annualized terms from an initial reading of -32.9%. As UBS Global Wealth Management chief economist Paul Donovan argued in a morning note, the practise of annualizing such figures “is a silly thing to do at the best of times and borderline madness in the midst of a pandemic.”

3. Stocks set to open a tad lower, in holding pattern

U.S. stock markets are set to open lower ahead of Powell’s speech. Having bought the rumor of a shift to easier monetary policy, the temptation will be accordingly to sell the fact when it happens.

By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was down 89 points or 0.3%, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were also down 0.2%. All three are likely to remain in a holding pattern at least until the economic data releases.

It’s a quiet day for corporate earnings, although Abbott Labs (NYSE:ABT) stock may garner attention after its rapid Covid-19 test became the latest beneficiary of fast-tracking by the Food and Drug Administration.

For those refusing to ignore the smaller details, there will also be the Kansas City Fed’s regional business survey at 9 AM ET and pending home sales data at 8AM ET.

4. Back to normal on U.S.-China relations

Having got over the need to say nice words in public about their trade relations, the U.S. and China got back to the daily tussle of riling and provoking each other. The U.S. announced a raft of sanctions on Chinese companies that have helped Beijing build military installations on disputed islands in the South China Sea.

That came on the same day that China tested its latest ‘aircraft-killer’ long-range missiles, in a show of force intended to keep U.S. warships out of waters that it claims.

Elsewhere, U.S. pressure on the Chinese owner of video-streaming service TikTok led to the resignation of TikTok’s chief executive Kevin Mayer, who had joined only a few months ago from Walt Disney (NYSE:DIS).

5. Oil prices well bid as Hurricane Laura hits Louisiana

Oil prices remained well supported as Hurricane Laura made landfall in Cameron, Louisiana, with life-threatening storm surges and winds.

By 6:30 AM ET, U.S. crude futures were down less than 0.1% at $43.37 a barrel, only a few cents off the post-pandemic high they posted on Wednesday. Brent crude was down 0.1% at $46.11.

Gasoline futures were off by 1.5% at $1.3405 a gallon, amid relief that refineries further west in Texas should be able to continue working.

While crude and product stocks are still historically high, Wednesday’s report from the U.S. government showed them still coming down a little faster than expected.

Top 5 Things to Know in the Market on Wednesday, August 26th

2020-08-26 19:59:19

1. As big as Katrina

The National Hurricane Center said the storm front Laura is set to make landfall as a Category 4 hurricane and warned of life-threatening storm surges, extreme winds and flash flooding over eastern Texas and Louisiana.

The NHC’s categorization ranks Laura equal in force with Katrina, which devastated New Orleans in 2005.

"On the forecast track, Laura should approach the Upper Texas and southwest Louisiana coasts on this evening and move inland near those areas tonight or (Thursday) morning," it said.

2. Oil prices edge off highs as Gulf refineries shut down

Oil prices came off five-month highs ahead of the storm, while gasoline futures also edged lower to $1.3863 by 6:30 AM ET (1030).

According to Petroleum Argus, some 2.6 million barrels a day of U.S. refining capacity has been temporarily shut in, with Chevron’s 100,000 b/d Pasadena refinery joining a lengthening list of installations to close on Wednesday. That’s more than 13% of total U.S. refining capacity that won’t be buying any crude for at least a couple of days.

The Bureau of Safety and Environmental Enforcement estimated on Tuesday that around 84% of crude production in the Gulf of Mexico – equivalent to 1.6 million barrels a day - has been shut in.

The hurricane is overshadowing what appears to have been another bigger-than-expected draw on U.S. oil stocks last week. The American Petroleum Institute estimated it at 4.5 million barrels on Tuesday. The Energy Information Administration’s data are due at 10:30 AM ET (1430 GMT)

3. Stocks set to open mixed after Tuesday records

U.S. stocks are set to open mixed after posting yet more all-time highs Tuesday as the implications of collapsing consumer confidence sink in.

The Conference Board’s sentiment index slumped to a six-year low in August as the enhanced unemployment benefits approved in the CARES Act expired without being fully replaced.

By 6:30 AM ET, the Dow futures contract was down 52 points, or 0.2%, while the S&P 500 Futures contract was effectively unchanged. Nasdaq 100 futures were, however, up another 0.3%.

Today's light calendar for data is headed by the release of durable goods orders for July at 8:30 AM ET.

4. Germany extends wage subsidies for another year

Germany’s government agreed in principle to extend the country’s subsidy scheme for workers on shortened hours by another 12 months through the end of next year.

While that reinforces the commitment of Europe’s largest economy to sustaining demand, it also reflects expectations that the effects of the pandemic will be felt on the labor market long after one or more of the vaccines currently in development become widely available. The move contrasts with the U.K., which has said it intends to end its wage support scheme in October.

The benchmark DAX index rose 0.6% by lunchtime in Frankfurt, while the EUR/USD was down 0.2% at $1.1812.

Elsewhere, the French government edged closer to announcing what is expected to be a 100 billion-euro stimulus package next week.

5. Salesforce crushes it

Anyone wondering why Salesforce should replace Exxon Mobil (NYSE:XOM) in the Dow Jones Industrial Average had their doubts answered after the software firm with a huge beat in its quarterly earnings and a big upgrade to its earnings guidance.

The company’s results were typical of the “great acceleration” theme embraced by investors who have bet on the pandemic speeding up the process of business migrating to the Internet, and to Cloud-based technologies in particular.

For the full 2021 fiscal year Salesforce now sees $3.72 to $3.74 in adjusted earnings per share, some 25% above the consensus estimate before the earnings were released.

Intuit (NASDAQ:INTU) and Urban Outfitters (NASDAQ:URBN) also beat expectations with earnings released after the close on Tuesday, but department store Nordstrom (NYSE:JWN) (NYSE:JWN) disappointed.

Top 5 Things to Know in the Market on Tuesday, August 25th

2020-08-25 21:44:59

1. End of an era as DJIA rebalances

Exxon Mobil was dropped from the Dow Jones Industrial Average in a landmark rebalancing of the world’s most famous stock index.

The company, a descendant of John D. Rockefeller’s Standard Oil, has been the embodiment of the private oil and gas industry and its importance to an industrialized economy since its foundation, and its omission is a powerful statement about the long-term decline in influence and value of natural resource extraction.

Other companies losing their place in the DJIA were defense group Raytheon and pharma giant Pfizer. They’ll be replaced by software group Salesforce (NYSE:CRM), biotech group Amgen (NASDAQ:AMGN) (which, oddly, is smaller than Pfizer) and Honeywell (NYSE:HON). The changes are aimed at restoring the weight of technology in the price-weighted index, which was set to drop as a result of Apple’s looming stock split.

2. U.S.-China polite after rescheduled trade talks

The U.S. and China got around to holding trade talks by telephone, less than two weeks after President Donald Trump cancelled a scheduled review of their January deal.

“Both sides see progress” was the official line that followed the call between USTR Robert Lighthizer and Chinese trade representative Liu He. That glossed over the reality that China has bought less than half of what it promised to buy from the U.S. in January, partly as a result of the pandemic that crushed demand for oil and gas imports in the first half of the year.

According to various reports, China has booked ships to import record amounts of U.S. oil next month. The bookings are, however, subject to change.

3. Stocks set to open higher; Software, retail earnings eyed

U.S. stock markets are set to open higher on Wednesday, still supported by signs that the coronavirus pandemic is receding across the U.S., and also supported by the temporary easing of antagonism between the U.S. and China.

By 6:30 AM ET (1030 GMT), the Dow Jones Futures contract was up 176 points, or 0.6%, while futures on the S&P 500 index, which closed above 3,400 for the first time on Monday, were up 0.4%. The NASDAQ Futures contract was up 0.2%.

Salesforce gets a chance to show off its DJIA props later with its quarterly report after the closing bell. It will be joined by Intuit, and by struggling retailers Nordstrom and Urban Outfitters. Medtronic (NYSE:MDT), Best Buy and Hormel Foods all report before the start of trade.

4. German recovery gains strength

The data calendar is a little heavier today, with house price data due at 7 AM ET (1100 GMT), and new home sales and the Conference Board’s consumer confidence index due at 8 AM. Redbook’s latest research update is also out at 6:55 AM.

Overseas, Germany’s second-quarter gross domestic product figures were revised up to show a decline of ‘only’ 9.7% instead of the 10.1% initially estimated. Private consumption and net exports were responsible for most of the decline.

The recovery of Europe’s largest economy continues, however, albeit with signs of it flattening out. The closely-watched Ifo business confidence index rose by slightly more than expected to 92.6, with the surprise coming from a more positive estimate of current conditions. Expectations dimmed slightly.

5. Tell Laura I fear her

Crude oil prices remained well supported both by the trade talks and the German data, but eyes remained chiefly on the two tropical storms rampaging through the Gulf of Mexico.

The National Hurricane Center downgraded the first of the two weather fronts, Marco, to a tropical depression from a tropical storm overnight. That suggests its ability to cause any further trouble will be limited. However, the NHC upgraded Tropical Storm Laura to Hurricane, with landfall on the continental U.S. expected by Wednesday evening.

Over 1 million barrels a day of oil production has been shut in due to the storms, but the greatest sign of tightness has been seen in Gasoline RBOB Futures, which are at their highest since the March panic at $1.3865 a gallon. U.S. crude was up 0.2% at $42.69 a barrel, while Brent was up 0.6% at $45.91.

The American Petroleum Institute's weekly assessment of U.S. oil supplies is due as usual at 4:30 PM ET.

Economic Calendar - Top 5 Things to Watch This Week

2020-08-23 19:41:16

Fed Chair Jerome Powell takes center stage at (virtual) Jackson Hole
Investors will be looking for indications on how the Fed will try to manage the long-term economic recovery in a speech by Chairman Jay Powell on the opening day of the annual Jackson Hole conference on Thursday.

Since the global financial crisis, Fed chiefs have used their keynote speech at the Jackson Hole conference - being held virtually this year for the first time in nearly four decades because of the pandemic - to signal important shifts in monetary policy or the economic outlook.

A major question - particularly ahead of the Fed's September policy meeting - is whether the central bank will shift its inflation targets to an average, which would allow inflation to run higher before interest rates are raised.

Investors may also be on the lookout for signs that the Fed is looking at additional ways to bolster the economy should Congress fail to deliver a new pandemic relief package.

Economic data to point to choppy recovery
The U.S. is to release data on July durable goods orders on Wednesday which is expected to show growth remained solid last month as the economy reopened.

Market watchers will also be keeping an eye on figures for new and pending home sales on Tuesday and Thursday, respectively. Real estate has been one of the bright spots of the economy during the pandemic with mortgage rates near record lows.

The economic calendar also features updates on personal income and spending, consumer confidence and consumer sentiment, along with Thursday’s weekly look at initial jobless claims. Claims unexpectedly rose back above the 1-million-mark last week’s report showed, a setback for a struggling U.S. job market.

Republican convention begins
Markets will continue to follow developments in Washington as the Republican nominating convention for President Donald Trump gets underway on Monday. The convention is expected to culminate in a live acceptance speech from Trump on Thursday night on the South Lawn of the White House.

At last week’s Democratic convention speaker after speaker characterized Trump’s four years in office as chaotic. Trump countered on Friday that Democrats, not he, would bring chaos to the United States if Joe Biden wins the White House in November.

The conventions are happening against a background of a stalemate in talks between House Democrats and the White House over the next coronavirus aid bill as about 28 million Americans continue to collect unemployment checks.

Another big week for stocks?
Last week was a big week for stocks, with the S&P 500 and Nasdaq both closing at record highs on Friday after the S&P 500 recouped all its losses caused by the coronavirus-driven slump. The Dow is still 6% below its all-time high in February.

Spurred by Fed buying of assets, stocks have rallied to record highs, while bond yields have been near record lows.

This week investors will await further clarity from the Fed on what more it can do to help the recovery, including details on possible changes to how it targets inflation.

Twin storms in Gulf of Mexico to disrupt oil production
On Saturday oil producers began to shut down some crude production ahead of tropical storms Laura and Marco that are forecast to hit the Gulf of Mexico in coming days.

Storms Marco and Laura are poised to become hurricanes and make back-to-back landfalls along the central Gulf Coast by mid-week. It is rare to have two simultaneous storms in the region, but neither storm is expected to become a major hurricane, and their potential tracks cover a wide area of the Gulf Coast, said forecasters.

U.S. Gulf of Mexico offshore wells account for 17% of total U.S. crude oil production and 5% of total U.S. natural gas production. The region along the Texas to Mississippi coasts also accounts for 45% of total U.S. petroleum refining capacity.

--Reuters contributed to this report

Top 5 Things to Know in the Market on Thursday, August 20th

2020-08-20 22:13:18

1. Jobless claims due

Thursday means it’s time for the latest update on the health of the U.S. labor market. Initial jobless claims are expected to have fallen further last week to a new five-month low of 925,000, from 963,000 the week before.

Continuing claims, which are reported with a one-week time lag, are expected to fall by nearly half a million to 15.00 million.

However, while that would extend the positive trend, it only covers half the story. Last week’s data from the Labor Department showed 28 million Americans still claiming jobless benefits, when the Pandemic Unemployment Assistance scheme is included.

The Philadelphia Fed’s business survey will also be released at the same time.

2 Dollar bounces, commodities sell off as Fed disappoints

The dollar bounced and commodities slipped after the minutes of the Federal Reserve’s July policy meeting failed to give any clear hint of a shift to looser monetary policy. By 6:30 AM ET (1030 GMT), the dollar index was back above 93.000 and the EUR/USD was at $1.1836, over a cent below this week’s high.

Gold futures were down 1.7% at around $1,934 an ounce and U.S. crude oil futures were down 1.1% at $42.63 a barrel.

The Fed warned that government may have to increase stimulus efforts to keep the economic recovery on track – putting the spotlight back on a still-deadlocked Capitol Hill.

San Francisco Fed President Mary Daly is due to speak at 1 PM ET (1700 GMT), where those still hungry for hints of easier money may yet be satisfied.

3. Stocks set to open lower despite Nvidia's blowout quarter;

U.S. stock markets are set to open lower against a backdrop of disappointment over Fed policy, and the latest U.S. move against China. The administration said on Tuesday it will suspend reciprocal tax arrangements between the U.S. and Hong Kong in response to the effective ending of Hong Kong’s political autonomy.

By 6:30 AM ET, the Dow 30 futures contract was down 75 points, or 0.3%, while S&P 500 futures were down 0.3% and Nasdaq 100 futures were down less than 0.1%.

Stocks in focus Thursday are likely to include NVIDIA (NASDAQ:NVDA), which fell 1.4% in premarket despite the chipmaker posting record sales in the past three months, due largely to demand for gaming and remote services.

There are also updates due from Chinese ecommerce giant Alibaba , as well as cosmetics group Estee Lauder and the controversial biotech startup Sorrento Therapeutics.

4. AirBnb files for IPO

The year’s biggest IPO is back on. Airbnb said it has filed confidentially with the Securities and Exchange Commission for an initial public offering, rather than the direct listing that it had previously signalled it intended to pursue.

That means the company is likely to be selling new stock to strengthen its balance sheet, rather than just offering a cash-out for its early investors.

Airbnb was hit hard by the pandemic but its business has bounced back surprisingly quickly, with bookings up 6.7% on the year in July. However, when it sold debt earlier this year to shore up liquidity, the attached warrants converted into stock at a valuation of some $18 billion, barely half of the valuation in its last private funding round.

5. Russian opposition leader in suspected poisoning

Russian opposition leader Alexey Navalny was hospitalized and reported to be unconscious and in a critical condition after a suspected poisoning.

The news will grab the attention of domestic opponents of President Vladimir Putin at a time when the prospect of Russian intervention in Belarus, with the attendant political shockwaves through Europe, is appearing increasingly likely.

Russian state media, having reported relatively cautiously on the violent crackdown following this month’s presidential elections, have now swung firmly behind President Alexander Lukashenko.

Russian stocks were the worst performers in Europe overnight, falling 2.2% to a 10-day low. The ruble fell to a two-week low against the dollar.

Top 5 Things to Know in the Market on Wednesday, August 19th

2020-08-19 20:40:04

1. Pelosi, McConnell signal willingness to compromise

The chances of a compromise deal on the latest round of economic relief measures appeared to rise after House Speaker Nancy Pelosi indicated she would drop many of her demands in order to secure a short-term deal.

“We’re willing to cut our bill in half to meet the needs right now,” Pelosi told an event organized by a Politico, adding: “We’ll take it up again in January.”

Bloomberg later reported her spokesman as clarifying her comments to mean that the Democrats would meet the skinnier Republican proposal halfway, rather than “cutting our bill in half.”

Bloomberg reported that Senate Republicans are now drafting a pared-down proposal, featuring some money for the U.S. Postal Service, supplemental unemployment payments and aid for small businesses and for school reopenings. Senate Leader Mitch McConnell said however that the Senate would not back a bill on funding the USPS currently being prepared by House Democrats.

2. Fed minutes to be scanned for policy shift signs

With fiscal policy still effectively deadlocked, the release of the minutes from the Federal Reserve’s last policy meeting at 2 PM ET (1800 GMT) is likely to garner more attention that it might otherwise do.

Most short-term economic indicators have indicated a flattening out of the rebound since the last meeting, something that will encourage market participants to parse the minutes for any language about what would be sufficient to trigger further stimulus.

John Velis, FX strategist at BNY Mellon (NYSE:BK), said in a note to clients that any sign of a move to yield curve targeting could be interpreted as a signal that the Fed is preparing fresh action. The release comes against a backdrop of mounting speculation that the Fed may shift its strategy to pursue an average inflation target over multiple years, effectively committing it to run the economy hotter for longer as it emerges from the pandemic.

Such speculation continued to weigh on the dollar on Wednesday. By 6:30 AM ET (1030 GMT), the dollar index that tracks the greenback against a basket of developed market currencies was only 0.1% above the 28-month low it hit on Tuesday at 92.237.

3. Stocks set to build on new S&P high

U.S. stock markets are set to open modestly higher, with the S&P 500 building on the new record high close it achieved on Tuesday.

By 6:30 AM ET, the Dow 30 futures contract was up 41 points or 0.1%, while US 500 Futures and Nasdaq 100 futures were up in parallel.

The day starts with an earnings update from Target and Lowe’s and discount fashion giant TJX and ends with reports from L Brands – owner of Victoria’s Secret – and, more importantly, chipmaker Nvidia.

4. Inflation ticks up in Europe

Inflation ticked up in the U.K. and euro zone in July, but analysts dismissed the development as "noise" generated by the difficulties of collating data in the current circumstances. The core CPI rate in the euro zone rose to 1.2% from 0.8%, due largely to clothes and services prices. The headline number would have been even higher without the temporary cut in VAT in Germany, whose price basket accounts for 28% of the total.

In the U.K., meanwhile, consumer prices rose 0.4% on the month, rather than the 0.1% drop expected.

In both the euro zone and the U.K. analysts say the July numbers are at odds with the longer-term trend, given the disinflationary forces created by rising unemployment and higher economic uncertainty. Claus Vistesen of Pantheon Macroeconomics noted that the drag from lower energy prices was easing, "but the truth is that we still don’t have a clear view of the underlying core inflation trend in (the euro zone)."

5 Oil calm as OPEC+ ministers review output deal

Oil ministers from most of the world’s biggest producers will gather virtually to review the state of the global market.

The Joint Ministerial Monitoring Committee convened by the so-called OPEC+ bloc, which starts at 10 AM ET, isn’t expected to recommend any major changes to production policy, given the relatively high degree of compliance with previously-agreed cuts in output.

Elsewhere, the U.S. Energy Information Administration will release its weekly assessment of crude oil inventories. The American Petroleum Institute estimated on Tuesday that crude stocks fell by 4.29 million barrels, markedly more than the 2.9 million-barrel draw expected.

Despite that, U.S. crude futures still haven’t made headway beyond the $43 a barrel level. At 6:30 AM, they were down 0.9% at $42.69, while Brent futures were down 1% at $45.01 a barrel.

Top 5 Things to Know in the Market on Tuesday, August 18th

2020-08-18 20:16:54

1. Dollar hits 28-month low

The dollar slid to its lowest in over two years, amid expectations that the loss of fiscal support will slow the U.S. economy and force the Federal Reserve to ease monetary policy again, further eroding its traditional yield premium over other reserve currencies.

By 6:25 AM ET (1025 GMT), the dollar index, which tracks the greenback against a basket of six developed-market currencies, was down 0.4% at 92.493, having earlier hit a 28-month low of 92.457.

The dollar also slid to its lowest since January against the yuan, to trade at 6.9258 yuan on the official market and 6.9209 offshore.

The dollar’s weakness has revived the rally in gold and silver in recent days. Gold futures rose back above $2,000 an ounce overnight, while Silver, at $28.40 an ounce, is now up 20% in the last five days.

2. U.S. cranks up pressure on Huawei; Oracle eyes Tiktok

Shares in Asian semiconductor makers slid after the U.S. administration said it would extend sanctions against Huawei further.

Under a new rule announced by Washington on Monday, non-U.S. companies will need a special license to sell Huawei any chips made using U.S. technology. The rule extends even to widely available, mass-produced chips made by overseas firms, crimping Huawei’s ability to source components.

Meanwhile on another front of the U.S. campaign against Chinese tech, Bloomberg reported that Oracle is considering joining the race to buy the U.S. operations of video streaming service TikTok from its Chinese owner Bytedance.

3. Stocks set to edge higher at open

U.S. stocks are set to open fractionally higher, with none of the three major indexes really responding to the latest efforts by Senate Republicans to break the deadlock over a stalled stimulus package.

By 6:25 AM ET, the Dow 30 futures contract was up 76 points or 0.3%, while US 500 Futures were up 0.2% and the Nasdaq 100 futures contract was up 0.3%.

The day’s biggest earnings release will come before the open from Walmart. Home Depot has already got the ball rolling with a resounding 23% gain in comparable sales in the last three months that illustrate how lockdown measures have diverted more energy into home improvement. Adjusted earnings rose by a forecast-beating 27% from a year earlier.

Results are also due from Sea Ltd (NYSE:SE), the south-east Asian Internet platform operator which has been compared to Tencent and which has been on a hot streak ever since the pandemic swept across the world.

4. Housing starts, building permits data due

Home Depot’s earnings will sharpen appetites – in the absence of anything more substantial - for the latest news from the housing market, which is due at 8:30 AM ET.

The housing market has been a beacon of relative strength in recent weeks, with the National Association of Home Builders’ market index rising to match its highest level ever, amid a flurry of interesting from urbanites flocking to less densely populated suburbs.

Housing starts are expected to have posted a third straight monthly gain to 1.24 million in July, while building permits are expected to rise to 1.32 million.

5. Crude drifts off highs ahead of API data

The American Petroleum Institute will publish its estimate of last week’s movements in U.S. oil inventories at 4:30 PM, with analysts looking for a further drawdown of stocks that accumulated when demand collapsed in the second quarter.

Consensus forecasts for the government’s official data, due on Wednesday, indicate a draw of 2.48 million barrels. That would represent a fourth straight weekly draw, albeit the smallest draw of those four weeks.

The figures come a day ahead of a meeting of OPEC+ technical experts, which according to reports is unlikely to recommend any deviation from the planned path of output by the cartel and its allies.

By 6:30 AM, U.S. crude futures were down 0.3% at $42.78 a barrel, while Brent futures were down 0.1% at $45.71 a barrel.

Top 5 Things to Know in The Market on Monday, August 17th

2020-08-17 23:12:50

1. China injects stimulus as recovery falters

China’s stock markets rose after the central bank injected around $100 billion of liquidity into its money market through a 12-month lending facility.

The net addition of liquidity is smaller than the headline number, as around three quarters of the amount will replace loans to commercial banks that are due to be repaid over the next 10 days.

Market participants interpreted the move as a sign that the People’s Bank of China is still prepared to loosen policy further in case the economic rebound falters.

Data published last week showed China’s economy slowing down in July, with industrial production growth slowing and retail sales still down from year-earlier levels.

2. U.S., China scrap potentially embarrasing review of trade deal

Chinese stocks in the U.S. remain under pressure however after President Donald Trump during his press conference on Saturday that he’s “looking into” fresh measures against them. Alibaba ADRs fell 1.2% in premarket trade.

Over the weekend, it emerged that the U.S. and China have postponed talks on reviewing the implementation of their ‘phase 1’ trade deal. Chinese purchases of U.S. products have totaled barely half of what was pledged under January’s deal, due not least to the pandemic, which has, at least temporarily, put Chinese demand for oil, liquefied natural gas and agricultural products on a lower trajectory.

3. Stocks set to open a tad higher; NAHB index due

U.S. stocks are set to open marginally higher, with few clear drivers except – perhaps – relief that the U.S. avoided having to acknowledge the non-observation of the U.S.-China trade deal. That spares the administration from having to follow through on its threats of more economically damaging tariffs ahead of the election in November.

By 6:40 AM ET (1040 GMT), the US 30 Futures contract was up 59 points, or 0.2%, while the US 500 Futures contract was up 0.3% and the US Tech 100 Futures contract was up 0.6%.

At the same time, a closely-tracked indicator of volatility, the VIX futures contract, has fallen to its lowest since the pandemic erupted in March.

Earnings season is winding down, and with 90% of S&P 500 companies having reported, earnings are down on average by 53% from a year-earlier, while sales are down 11%. The figures underscore how much the summer’s rally owes to massive stimulus from the Federal Reserve and federal government. The former in particular has allowed stock analysts to base their valuations on the assumption of nearly-free money far into the future.

The NAHB house price indicator at 10 AM ET is the only major economic data due. Overnight, Japan confirmed a slightly smaller drop in second--quarter GDP than that recorded in Europe and the U.S.

4. Lukashenko talks tough after securing Russian support

Belarusian President Alexander Lukashenko told protesters that they would have to kill him to get new elections, a day after the eastern European country witnessed its largest-ever demonstration demanding his resignation.

Lukashenko’s comments came after a weekend telephone call with Vladimir Putin, president of Belarus’ most powerful ally and biggest creditor. The two sides offered differing versions of the call, with Belarus saying Russia had promised military assistance to keep Lukashenko in power (the Kremlin has recognized him as the legitimate winner of last weekend’s elections). The Kremlin, by contract, merely acknowledged Belarus’ assertion of “external factors” aiming to destabilize the country.

EU foreign ministers, who refused to acknowledge the election results at a meeting on Friday, called another emergency meeting for Wednesday. Poland (WA:GPW) and Russia, two countries that border the country, were two of the worst performing European markets on Monday, losing 0.9% and 0.3% respectively. The dollar rose 1% against the ruble

5. Oil prices drift down from five-month highs

Crude oil prices drifted lower after hitting new post-pandemic highs over the weekend in response to China’s latest stimulus measures.

Prices were supported by signs of a further decline in U.S. drilling, as Baker Hughes’ U.S. rig count fell by another 4 to a fresh multiyear low of 172.

Offsetting that was another drop in the number of hedge funds willing to bet on higher prices. Net speculative long positions in crude fell by 16,000 contracts last week, according to the CFTC’s data.

By 6:30 AM, U.S. crude futures were down 0.1% at $41.97 a barrel, while the international benchmark Brent was down 0.2% at $44.70 a barrel.