Category: zerohedge

Three months ago, we showed that contrary to conventional wisdom and corporate reps and warranties that buybacks had been put on hold for the duration of the covid pandemic, not only were companies still repurchasing their shares but it was the tech names – those who have stormed higher since the March lows – that were the biggest culprits.

Then, about two months after we first unveiled Wall Street’s worst kept secret, the Financial Times also noticed that Corporate America is finding it hard to kick the share buyback habit, even after the US slipped into its worst recession in decades.

Citing Credit Suisse statistics, the FT notes that while total buybacks are indeed expected to drop this year as the downturn caused by coronavirus saps corporate profits, companies in the S&P 500 that have reported second-quarter earnings so far have reduced the number of their outstanding shares by an average of 0.3 per cent from the previous quarter.

Additionally, the latest quarter results showed that some of the largest multinationals continued to buy back their own stock or even accelerated stock repurchases and nowhere more so than the tech names we first highlighted at the end of May.

And now, with the stigma surrounding buybacks that sparked a mini frenzy around the time Boeing was hoping for a taxpayer bailout without giving up any equity to the US government completely forgotten, many other companies are joining the party and as Deutsche Bank writes, having pored over hundreds of Q2 earnings reports, “companies have already restarted buybacks or are considering doing so.“

MA, Mastercard Inc, Information Technology, US – Sachin Mehra, CFO:

Although, we did not complete any share repurchases in the second quarter, we have recently reinitiated our share repurchase program and quarter-to-date through July 27, we have repurchased approximately 3.3 million shares at a cost of $1 billion.

KSU, Kansas City Southern, Industrials, US – Michael W. Upchurch, Executive Vice President, CFO:

As noted on the first quarter earnings call, we temporarily paused our share repurchase program in March to conserve cash during the period of extreme uncertainty. However, we resumed our share repurchases in the second quarter as we felt more comfortable that volumes were sustainably improving after bottoming out in April and early May.

LIN, Linde, Materials, US – Matt White, Executive Vice President & CFO:

You may recall that we paused the share repurchase program at the end of the first quarter to evaluate potential decaps and other higher priority uses of capital. While certain opportunities did not fit our investment criteria, we are still pursuing others, but expect them to take longer to develop than originally anticipated. Given these developments and our continued significant excess cash generation, we are resuming the share repurchase program.

JCI, Johnson Controls International, Industrials, US – George R. Oliver, Chairman & CEO:

We resumed our share repurchase program and began buying back stock in early July. YUM, Yum! Brands Inc, Consumer Discretionary, US Chris Turner, CFO: We are ending the suspension of our $2 billion share repurchase program. We may resume repurchases should business trends persist and should we continue to gain confidence in the time line for achieving a healthy balance sheet

ORLY, O’Reilly Automotive, Consumer Discretionary, US – Thomas G. McFall, CFO:

As one of the measures to preserve liquidity at the onset of COVID-19, we temporarily suspended our share buyback program in the middle of March. We continue to evaluate business conditions and liquidity. And as a result of this evaluation, resumed our share repurchase program on May 29, 2020

DOV, Dover Corporation, Industrials – US Brad Cerepak, CFO:

We are lifting our recent suspension on share repurchase and we will opportunistically buyback stock should the market conditions dictate.

KMB, Kimberly-Clark Corporation, Consumer Staples, US – Maria Henry, CFO:

Second quarter dividends and share repurchases totaled about $400 million. That was lower than normal because of our decision to temporarily suspend share repurchases for most of the second quarter. As we mentioned in this morning’s news release, we will be restarting our share repurchase program beginning tomorrow

SU FP, Schneider Electric SE, Industrials, Europe – Hilary Maxson, CFO:

In terms of buyback, given we’re today reestablishing the targets for 2020, the buyback plan as approved by the Board is technically no longer suspended.

IEX, IDEX Corporation, Industrials, US – Andy Silvernail, Chairman and CEO:

We suspended buybacks in the middle of the quarter or the beginning of the quarter, really. We bought pretty aggressively early on as the stock went down and then, with the — just incredible uncertainty, we paused it. We did have 10b5-1 in place in the second quarter. And so, we’re open to repurchase shares.

RHI, Robert Half International Inc, Industrials, US – M. Keith Waddell, President & CEO:

There were no repurchases during the second quarter. We anticipate repurchase activity to commence again in Q3 and at a reduced rate.

JBHT, J.B. Hunt Transport Services, Inc., Industrials, US – John Kuhlow, Interim CFO:

We expect our capital allocation process in the second half of the year to include stock repurchases and previously forecasted capital expenditures, but we maintain a careful watch on a daily basis.

SLG, SL Green Realty Corp., Real Estate, US – Matt DiLiberto, CFO:

As the share repurchases, we remain committed to a disciplined execution of our program, and after a tailing it back in March pending execution of the billion dollar plan, we commenced buybacks again in late May, taking advantage of extraordinarily low share prices as our liquidity plan was executed in an expedited manner.

CBRE, CBRE Group Inc, Real Estate, US – Leah C. Stearns, CFO:

We view our share price is highly attractive to the current levels and could resume repurchases when appropriate, if we are unable to identify suitable and properly priced acquisition opportunities.

STT, State Street Corporation, Financials, US – Ron O’Hanley, CEO:

As we look ahead, given our strong capital position, we will consider a full range of capital actions, including the resumption of share repurchases in upcoming quarters.

BK, Bank of New York Mellon Corp, Financials, US – Thomas P. Gibbons, CEO, Director:

We will commence buybacks as soon as possible, depending on the economic and regulatory environment, our outlook for the business and outcome of the resubmitted capital plans based on new scenarios we expect to receive later this year.

GOOGL, Alphabet, Technology, US – Ruth M. Porat, CFO & Senior Vice President:

As we indicated in our press release today, our Board has authorized the repurchase of up to an additional $20 billion of our Class C stock.

NSC, Norfolk Southern, Industrials, US – Mark R. George, CFO:

With our cash generation and liquidity profile, we were able to continue to distribute cash to shareholders, maintaining our dividend, while moderating share repurchase activity

ALLE, Allegion plc, Industrials, US – Patrick S. Shannon, CFO & Senior VP:

 

Although we’ve communicated a pause in share buybacks in order to focus on liquidity during this time of market volatility, we intend to put excess cash to use as we continue to see market improvement and stabilization.

 

SHW, Sherwin Williams Co, Materials, US – John G. Morikis, Chairman, CEO:

We paused open market share purchases during the second quarter, believing it’s inappropriate to be buying shares at a time when we were forced to adjust our workforce and pause multiple spending programs. Again, given a stabilizing environment, we would expect to return to repurchases in the second half of the year with a minimum goal of offsetting dilution from options.

NOC, Northrop Grumman Corp, Industrials, US – Dave Keffer, Corporate VP and CFO:

Through the end of the second quarter, our year-to-date share repurchases totaled approximately $500 million and we’ve met our approximate share count target for 2020. Share repurchases remain an important part of our capital deployment strategy.

INFO, IHS Markit Ltd., Industrials, US – Jonathan Gear, Executive Vice President and CFO:

Year-to-date, share repurchase is $852 million. We expect to return to share buybacks later this year or early next year while maintaining our capital policy of operating within the two to three times gross leverage range.

AAPL, Apple Inc, Information Technology, US – Luca Maestri, Senior Vice President, CFO:

We returned over $21 billion to shareholders during the June quarter, including $3.7 billion in dividends and equivalents and $10 billion through open market repurchases of 31.3 million Apple shares. We also began a $6 billion accelerated share repurchase program in May resulting in the initial delivery and retirement of 15.2 million shares.

CL, Colgate Palmolive, Consumer Staples, US – John Faucher, Chief Investor Relations Officer:

While we pause share repurchases under our repurchase program in the second quarter, our full year share repurchase plans have not changed.

GWW, W.W. Grainger, Inc., Industrials, US – Tom Okray, Senior VP and CFO:

With respect to repurchasing shares, right now, with the spike and are we going to have a shutdown to with an abundance of caution, we really haven’t resumed the buybacks, even though we are obviously generating robust cash flow. That, we would probably start to think a little bit harder at the end of Q3. And if we were going to do something, it would likely be in Q4, I would think

PNR, Pentair PLC, Industrials, US – Robert Fishman, EVP, CFO & CAO:

We targeted $150 million of buybacks this year. We completed $150 million. We may resume the share repurchase in the future, but depending on market conditions and our capital needs, we still need to make that decision.

INTC, Intel Corporation, Industrials, US – George Davis, CFO:

As a reminder, we paused our share repurchase program in Q1 as we felt it was prudent to do so in the current economic environment. We expect to complete the balance of our $20 billion share repurchase program and return to our historical capital return practices when market dynamics stabilize.

CMG, Chipotle Mexican Grill Inc., Consumer Discretionary, US – Jack Hartung, CFO:

While we didn’t buy back any stock in Q2 in order to preserve cash and we likely won’t over the foreseeable future, we are open to revisiting the program and returning excess cash to shareholders once the environment stabilizes.

DHI, DR Horton Inc, Consumer Discretionary, US – Bill W. Wheat, Executive VP & CFO:

We did not repurchase any shares during the third quarter and we expect to cautiously manage our level of share repurchases in the near-term to maintain financial flexibility until we have better visibility to future market conditions and our expected operating results.

OTIS, Otis Worldwide Corp, Industrials, US – Rahul Ghai, VP & CFO:

On the share buyback, our plan was always to start share buyback post-debt repayment. So if you accelerate the debt repayment, share buyback can also get potentially accelerated. But the situation is fluid.

Source: Deutsche Bank

Authored by Patrick Buchanan via Buchanan.org,

If the definition of racism is deliberate discrimination based on race, color or national origin, Yale University appears to be a textbook case of “systemic racism.”

And, so, the Department of Justice contends.

Last week, Assistant Attorney General Eric Dreiband charged, “Yale discriminates based on race… in its undergraduate admissions process and race is the determinative factor in hundreds of admissions decisions each year.

“Asian Americans and whites have only one-tenth to one-fourth of the likelihood of admission as African American applicants with comparable academic credentials…

“Yale uses race at multiple steps of its admissions process resulting in a multiplied effect of race on an applicant’s likelihood of admission.

“Yale racially balances its classes.”

Yale defends this admissions policy by claiming it considers the “whole person” — leadership, a likelihood students “will contribute to the Yale Community and the world,” and, says Yale President Peter Salovey, “a student body whose diversity is a mark of its excellence.”

Yet, somehow, when all these factors are considered, the higher-scoring Asian and white students invariably come up short, because the racial composition of Yale’s incoming classes remains roughly the same every year.

The Justice Department refused to wave its big stick — a threat to cut off tax dollars that go yearly to Yale. Incidentally, Yale sits on an endowment of some $30 billion — second only to Harvard’s.

A court case alleging that Harvard emulates Yale, or vice versa, and admits Black and brown students whose test scores would instantly disqualify white and Asian students is headed for the Supreme Court.

At the heart of this dispute over diversity are basic questions, the resolution of which will affect the long-term unity of the American nation.

Is discrimination against white students in favor of Black students with far lower test scores morally acceptable if done to advance racial “diversity”?

And, if so, for how long? Forever?

Is it praiseworthy to advance Hispanic applicants over Asian applicants with far higher test scores and academic achievements?

Why? What did these Chinese, Korean, Filipino and Vietnamese high school seniors do to deserve discrimination in the country to which their parents came where, supposedly, “All men are created equal”?

President Lyndon Johnson first formally introduced this notion of benevolent racial discrimination. Addressing D.C.’s Howard University in 1965, LBJ said in a speech written by Richard Goodwin, “We seek… not just equality as a right and a theory but equality as a fact and equality as a result.”

But what if equality of opportunity, an equal chance at the starting line, fails to produce equality of results?

What if Black Americans dominate America’s most richly rewarded sports such as the NBA and NFL, while Asians and whites excel in academic pursuits and on admissions exams at Yale and Harvard?

Why is it right to discriminate against working-class white kids from Middle America in favor of urban and middle-class Black kids in admissions to prestige colleges?

If so, what does social justice mean? Who defines it?

In California, the state legislature has put on the ballot a measure to overturn the ban on all racial and ethnic discrimination that was voted into California’s Constitution in Proposition 209 in 1996.

That prohibition reads:

“The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.”

What Californians said in 1996 was: No discrimination means no discrimination.

Civil rights activist Ward Connerly, who is fighting the repeal of Prop 209, argues that while street mobs may be tearing down statues, West Coast liberals are tearing down the principle of equality.

It is the character of the republic that is at issue here.

If Asian Americans, outnumbered 5 to 1 by Black and Hispanic Americans, can be indefinitely discriminated against, this would appear to be the very definition of “un-American.”

And if white Americans, the shrinking majority of the nation and a minority in our most populous states, can indefinitely be discriminated against in favor of people of color, they will eventually embrace the tribal politics of race and identity that would risk the breakup of the union, as is happening in Europe and around the world.

The taproot of progressive racism is LBJ’s Executive Order 11246. This altered the meaning of “affirmative action” from guaranteeing the equality of opportunity to bringing about an equality of “results.”

President Donald Trump, before or after Nov. 3, should convene with Ward Connerly and ask him to redefine “affirmative action” to mean exactly what its original author, JFK, intended it to mean.

As for Yale and other Ivy League universities, it is an indictment of conservatives who have held executive power often in the past 50 years that they have not chopped federal funding for these bastions of progressive racism.

Six days ago, The S&P 500 pushed above its previous record closing high (3386.15 on 2/19/20) for the first time.

And after a week of trying and failing, this morning has seen stocks spike up and finally take out the all-time record intraday high (3393.52 on 2/19/20) – erasing all impact of the pandemic and global depression…

…because fun-durr-mentals…

Just Kidding – here’s why!

Hold your nose and buy the record high? Or is the bounce over?

Mission Accomplished?

By Michael Every of Rabobank

More national, more unconventional

As I type, in the US the Democratic National Convention (DNC) is playing out over the internet, reminding us all that we are only 76 days to the US election. Or should it be called the National Unconvention? After all, it’s only on the internet due to Covid-19, and it is featuring a speaker who ran for president as a Republican as recently as 2016, who is not the only Republican present. Unconventional, indeed. As the press state, on day one of four the message is “Trump, Trump, and Trump,” clearly attempting to make the 2020 vote all about Trump himself, which is seen by pundits as the most effective Democrat electoral strategy, rather than Trump vs. Biden. That’s as a CNN poll yesterday placed Trump only 4 points behind Biden nationally, closing the gap by 10 points in two months, and only by 1 in key battleground states; this was also the poll which had led the others in showing a huge swing to Biden in June. However, other polls still show a larger gap: the CNN poll of polls has Biden plus 9 nationally.

Trump himself is doing his own attacks, of course, not just with digital advertising placed around the DNC, which in contrast to a physical convention is now possible, but with his latest actions against Huawei, which Bloomberg describe as a “nuclear option”. From now on China’s flagship tech firm can’t access US technology directly or indirectly, an action which leaves it in extremely difficult circumstances: how do you have a tech product without the tech? It’s a good job that the US-China phase one trade deal review didn’t happen, isn’t it? We now await the Twitter response from the pugnacious editor of the Global Times, who stars in a clip shared on the same medium yesterday giving a speech where he exults “I have to say that China can force the US to an agricultural country,” which gets a round of applause from the audience.

Speaking of agricultural countries, China just hit Australian wine imports with an anti-dumping investigation. This could last up to 18 months and clearly has nothing (nothing!) to do with the deteriorating geopolitical backdrop. That’s now Aussie beef, barley, and wine all subject to various Chinese actions, while Chinese students and tourists can’t arrive at present and are potentially not going to come back at all. Thank goodness for iron ore…but that’s one last big egg in a basket with a handle that’s fraying fast.

And on fraying baskets and nuclear options, Bloomberg Intelligence today says “Hong Kong Banks May Face Fines, Not Dollar Ban” for dealing with individuals sanctioned by the US, noting that this is what happened to two European banks when they violated sanctions on Iran, and that Chinese banks are large enough to be able to afford such fines. So all is well! Perhaps. Then again, European banks are not seen in the same way as Chinese banks by the US, and it would presumably impose a fine specifically large enough to hurt them.

Far more importantly, however, Bloomberg Intelligence don’t seem to have bothered to read the actual Hong Kong Autonomy Act (HKAA). I know, I know, it’s dull to actually go to the source rather than whipping up a precedent that says all ends well. However, let’s be dull. The HKAA specifically states that no later than a year from the imposition of sanctions on HK individuals (which happened on 8 August) then FIVE of the following list of sanctions must be imposed, and a year later ALL of them:

No loans from US financial institutions; Prohibition on designation as US primary dealer; Prohibition on service as a repository of government funds; FX transactions; Banking transactions; Property transactions; Restrictions on exports, re-exports, and transfers; Ban on investment in equity or debt; Exclusion of corporate officers; Sanctions on principal executive officers.

I don’t see “or a large but manageable fine” on that list, which means the most bullish case one can make is that less than a year from now, any bank dealing with individuals sanctioned under the HKAA would be unable to get a loan from a US bank, or be a primary dealer and repository of US government funds, or buy US property, and its executives would be excluded from the US. That would certainly be manageable for a year: but then, on 8 August 2022, it’s the USD and SWIFT.

Meanwhile, in Canada Finance Minister Moreau has had to step down due to his actions over a charity; and in the UK the education secretary is holding on by his fingernails after almost seeing his own government flunk its handling of exam results. He has now decided UK schoolkids can have their results set by their teacher (who has NO self-interest in pushing grades higher in an education system where schools have to compete based on exam results) rather than an algorithm trying to fit outcomes to a bell-curve: which is going to mean everyone gets higher grades rather than lower, of course. Just another area where we don’t have any inflation to add to the list of: private education; health insurance; house prices, and stock prices, etc. The top bureaucrat who had decided an algorithmic bell curve was best apparently used to work for the Financial Times: you’d have thought he would have realized how regulators are supposed to oversee such markets.

Down in Australia, the RBA’s minutes from August show they are worried that cheap funding is not flowing through to growth in borrowing: “…the flow of new commitments has remained well below its peak and was likely to remain subdued…” What? You mean lowering the cost of borrowing does NOT lead to a rise in productive investment? Really?! The mountain of evidence that this is precisely the case, even when rates go negative –as predicted by Kalecki as far back as 1943– has apparently not filtered through to the RBA yet. Then again, should we be surprised given on Friday Governor Lowe stated to parliament “If a bank never makes a loan that goes bad it means it’s not extending enough credit.” Question: what does the RBA have left to throw on the barbie when Kalecki is again shown to be right?

As everywhere: policies that are more “national” and more unconventional.

Before the pandemic, we had Jussie Smollett – the former “Empire” star whose racist 2019 hate-crime hoax destroyed his career, stoked racial tensions nationwide, and cost Chicago taxpayers a reported $130,000 in police overtime thanks the MSM and prominent liberals who breathlessly reported Smollett’s lies as fact.

And according to findings by a special prosecutor tasked with investigating what looked like a massive cover-up by the Cook County DA’s office, State’s Attorney Kim Foxx and her assistant prosecutors committed ‘substantial abuses of discretion,’ but did not break the law.

To review, Smollett claimed that two white Trump supporters in MAGA hats assaulted him on a freezing cold January night at 2 a.m., calling him racist and homophobic slurs before beating him up and leaving a noose around his neck (which he was wearing when police arrived). The actor said he chased the two white men off after the alleged ‘hate crime.’

Kamala Harris – who mentored Cook County DA Kim Foxx and was coincidentally working on an anti-lynching bill at the time with Sen. Cory Booker (D-NJ), called it a ‘modern day lynching.’

.@JussieSmollett is one of the kindest, most gentle human beings I know. I’m praying for his quick recovery.

This was an attempted modern day lynching. No one should have to fear for their life because of their sexuality or color of their skin. We must confront this hate.

— Kamala Harris (@KamalaHarris) January 29, 2019

I’m so excited that @KamalaHarris has decided to run for president. I would not be where I am today without her guidance during my first run for political office, and she has continued to mentor me as I work to reform the criminal justice system in Cook County. —KF pic.twitter.com/O241FGKKMs

— Kim Foxx (@KimFoxxforSA) January 21, 2019

Except, the ‘attackers’ turned out to be Smollett’s twin, drug-dealing, Nigerian bodybuider brothers from Nigeria – one of whom he was in a sexual relationship with. The brothers later told police Smollett paid them to stage the attack, while Smollett says they’re lying.

Despite overwhelming evidence, including the brothers confession and video of them buying rope, Foxx’s office dropped a 16-count Grand Jury indictment against Smollett after Michelle Obama’s former Chief of Staff, Tina Tchen, called in a favor – asking that Smollett’s case be placed in the hands of the FBI.

“Spoke to the Superintendent Johnson,” Foxx told Tchen in a Feb. 1 email obtained by the Chicago Tribune, in reference to Chicago Police Superintendent Eddie Johnson. “I convinced him to Reach out to FBI to ask that they take over the investigation.”

Tchen, who has denied trying to affect the outcome of the case, admitted to contacting Foxx and later evaded a subpoena in the case.

Did we mention Smollett’s sisters worked for the 2008 and 2012 Obama campaigns? Or that Smollett and Kamala Harris attended a 2018 protest together?

‘Substantial abuses’

In a Wednesday statement following the conclusion of his investigation into the Smollett case, special prosecutor Dan Webb said that Foxx and her assistant prosecutors severely mishandled the case – which was marked by chaos and false or misleading statements, as well as a legally meaningless recusal by Foxx.

To review, straight from the horse’s mouth (emphasis ours):

*  *  *

The OSP developed evidence that establishes three substantial abuses of discretion and failures by the CCSAO in prosecuting and resolving the Initial Smollett Case.

• First Finding of Abuse of Discretion: The CCSAO’s process and decision-making for resolving the Initial Smollett Case were a substantial abuse of discretion and represented a major failure of the operations of the CCSAO, including in the following ways:
  • On March 26, 2019, 19 days after filing the indictment against Mr. Smollett, the CCSAO dismissed the entire indictment against Mr. Smollett on the following terms: (1) complete dismissal of the 16-count felony indictment against Mr. Smollett; (2) no requirement that Mr. Smollett plead guilty to any criminal offense under Illinois law; (3) no requirement that Mr. Smollett admit any guilt of his wrongdoing (in fact, following the court proceedings on March 26, 2019, Mr. Smollett publicly stated he was completely innocent); (4) the only punishment for Mr. Smollett was to perform 15 hours of community service that had no relationship to the charged conduct; (5) only requiring Mr. Smollett to forfeit his $10,000 bond as restitution to the City of Chicago (a figure amounting to less than 10% of the $130,106.15 in police overtime pay that the City alleges it paid solely due to Mr. Smollett’s false statements to police); and (6) no requirement that Mr. Smollett participate in the CCSAO’s Deferred Prosecution Program (Branch 9) (“DPP”), which would have required a one-year period of court oversight over Mr. Smollett. 
  • Almost across the board, lawyers who currently work in or previously worked in the CCSAO’s criminal division who were interviewed by the OSP—including State’s Attorney Foxx—were “surprised” or “shocked” by at least some facet of the dismissal terms.
  • The CCSAO decision-makers on the Initial Smollett Case (Acting State’s Attorney Joseph Magats and Lead Prosecutor Risa Lanier) did not learn of any new evidence between when the CCSAO filed a 16-count indictment against Mr. Smollett on March 7, 2019, when the CCSAO believed it had a strong case against Mr. Smollett, and March 26, 2019, when the entire indictment was dismissed, as described above.
  • The CCSAO decision-makers on the Initial Smollett Case have significantly and meaningfully divergent explanations for how the resolution was reached, including who negotiated the terms, whether Mr. Smollett was offered the opportunity to participate in the DPP, and whether the terms of the resolution were modeled after the requirements of the DPP.
  • The terms of Mr. Smollett’s resolution do not track the requirements of the DPP.
  • The CCSAO did not screen Mr. Smollett’s case to determine if he was eligible for referral to the DPP.
  • The CCSAO did not rely upon any specific similar CCSAO cases when resolving the Initial Smollett Case. 
  • The CCSAO’s decision to advance the Initial Smollett Case from April 17, 2019 to March 26, 2019 to dismiss it minutes before conducting the dismissal hearing did not provide notice to the media or public, despite knowing there was significant interest in the case, including that the media had filed a petition to have cameras in the courtroom.  
  • Ms. Lanier read a statement during the dismissal hearing that she drafted in conjunction with Mr. Smollett’s counsel, which was atypical.
  • The CCSAO did not consult with the CPD about the terms of the resolution and intentionally chose not to alert the CPD that the case would be dismissed until minutes before the hearing, despite all of the diligent and hard work the CPD put into investigating the case and the fact that many CCSAO interviewees would have considered the CPD a victim of Mr. Smollett’s alleged crimes and/or for purposes of restitution.
• Second Finding of Abuse of Discretion: The CCSAO engaged in a substantial abuse of discretion and breached its obligations of honesty and transparency by making false and/or misleading statements to the public regarding the nature and reasons for the dismissal of the Initial Smollett Case.  Specifically:
  • The CCSAO issued a press statement on March 26, 2019 (the day of the dismissal) that stated: “In the last two years, the Cook County State’s Attorney’s Office has referred more than 5,700 cases for alternative prosecution.  This is not a new or unusual practice.  An alternative disposition does not mean that there were any problems or infirmities with the case or the evidence…This outcome was met under the same criteria that would occur for and is available to any defendant with similar circumstances.”  State’s Attorney Foxx and Mr. Magats made similar statements during interviews with reporters on March 26 and 27, 2019 respectively.  However, the evidence the OSP developed makes it clear that there are fundamental facts that are inconsistent with the CCSAO, Mr. Magats, and State’s Attorney Foxx’s messaging in at least two ways:
    • The Initial Smollett Case did not fit the criteria the CCSAO’s Chief Data Officer used to identify the cited 5,700 figure because all of those cases were referred to a diversion program, unlike Mr. Smollett’s case; therefore, the resolution of the Initial Smollett Case was meaningfully different from how those 5,700 cases were resolved.
    • There were not thousands of (or, arguably any) similar cases that the CCSAO resolved in a similar way to the Initial Smollett Case.  The CCSAO could not identify any specific similar CCSAO cases it relied upon when resolving the Initial Smollett Case. 
  • The CCSAO and State’s Attorney Foxx made false public statements representing that $10,000 was the most Mr. Smollett could have been ordered to pay in restitution under the law when there is no such cap under the provision of the disorderly conduct statute under which Mr. Smollett was charged, 720 ILCS 5/26-1(a)(4).
  • The CCSAO and State’s Attorney Foxx made false public statements representing that Mr. Smollett had no criminal background, though the CCSAO specifically stated at Mr. Smollett’s bond hearing that Mr. Smollett has a prior misdemeanor conviction out of California from September 22, 2007 for DUI, driving without a license, and giving false information to the police, for which he was placed on 24 months of probation. 
  • After telling reporters on March 27, 2019 that the CCSAO had a strong case and would have prevailed at trial, State’s Attorney Foxx published an op-ed in the Chicago Tribune on March 29, 2019 where she falsely represented that the “office believed the likelihood of securing a conviction was not certain.”
• Third Finding of Abuse of Discretion: The CCSAO engaged in a substantial abuse of discretion and breached its obligations of honesty and transparency by making false and/or misleading statements to the public regarding State’s Attorney Foxx’s recusal.

Yet, much like the Horowitz report, everyone gets a slap on the wrist for misconduct which ‘didn’t rise to the level of criminal charges’ – except Smollett, who was sued on April 12, 2019 by the city of Chicago for $130,105.15 in overtime that the Chicago PD says they spent chasing down Smollett’s lie. The actor has filed a counter-suit against the city, claiming that he was the victim of “mass public ridicule and harm.”

Then, in February of this year Smollett was re-indicted on six counts related to making false police reports.

After soaring as much a 6.7% premarket following blockbuster earnings that saw non-GAAP EPS print above the highest sellside estimate and comp store sales which came in at 9.9% vs the 6.2% consensus estimate , Walmart shares turned red as investors were spooked by company commentary about the current quarter. Specifically, the selling started after the company unveiled that topline performance slowed in July to around 4%.

According to RBC analyst Scot Ciccarelli, WMT comments that sales begin to “normalize” in July “may suggest that the outsized gains experienced over the last few months may be starting to ebb” as government stimulus money “tapered off.”

He adds that while Wall Street should be expecting a slowdown from the quarter’s “nearly 10% run rate, the magnitude of change may give some investors pause as sales sustainability is one of today’s key topics in retail.” His price target: $132, or just where the company closed on Monday.

Separately, Bloomberg notes that while MKM’s Bill Kirk wrote that the retailer’s “strong” gross margin was a positive sign for peers, he too would be listening for comments on call regarding the “interruption of stimulus checks” impact on August and what Walmart intends to do with its ~$17bn cash balance.

Investors aren’t likely to show ass much patience, and after pushing the stock as high as $144 premarket, it was last trading some $9 lower.

Authored by Bill Blain via MorningPorridge.com,

“Is it possible a cur can lend three thousand ducats?”

Yesterday the US Primary Investment Grade Bond market touched a record $1.346 trillion issuance this year, surpassing the total for 2017, still with the three busiest months in the new issue market to come. The global volume of new corporate debt in the first half of 2020 exceeded $2.5 trillion. It’s a great year to be a new issue debt banker… 

The market volumes have been extraordinary. The rise in US issuance is in no small part due to the Fed’s unlimited liquidity via its investment grade QE programme. The Fed has barely had to buy any debt – the mere promise to do so has been enough. The ECB’s corporate QE Infinity programme has been equally stimulative.

Right across the investment banking multiverse, new issue desks are preparing themselves for an absolute torrent of new corporate debt to hit the markets when the new issue funding season reopens in September. Actually, it hardly closed for a break in August – the demand for high-grade paper to meet cash inflows into bond funds hasn’t abated!

Who would not want to own corporate debt? Central banks have promised to buy anything investment grade. There is no liquidity threat. Back in 2008, bond markets locked tight as it become impossible to sell paper. Bids evaporated in an offered only market. No problem this time – just call the Fed. 

But.. what about returns? 

Well its now an ultra-safe market.. so why worry about returns? (Yes.. you should worry about zero bond returns…) As demand for corporate debt has soared, so have prices, causing the average yield – the Bloomberg Barclays US Aggregate Corporate Index – to drop to 1.82% earlier this month. A record low yield. If you bought the index in March, you’ve made a very healthy return from when it stood at a distressed 4.5%. 

Supply has been fuelled by corporates scrabbling to finance themselves through a Pandemic lockdown of unknown duration. There has been a stampede towards the new issue funding desks. When I was a Debt Capital Markets banker we always told our clients: don’t fund when you have to.. fund when you can. This is a time when they can.. So they have, and they are still funding. 

Rising leverage is another consequence of QE Infinity. The Fed’s promise to provide liquidity means any investment grade corporate can access as much cash as it wants, and is free to spend it as it sees fit. Are the ratings agencies worried? Don’t know, and they don’t particularly seem to care.. but I ain’t reading many headlines about their rising concerns on debt levels. (What I did spot was these oh so clever rating agencies agreeing the EU borrowing €750 trillion to finance Virus recovery is not apparently a worry… Yeah.. Right?)

But, but and but again… Who wants to own corporate debt at sub 2%? 

If you think it’s going to tighten further – then perhaps, but 2% is not a real risk return. Any Risk vs Return calculation has been massively compromised by the absolute low risk-free rate – Treasury bonds. If government bonds yield close to nothing, then it makes anything positive relatively attractive – but still a negative real yield or close to it. If you really think a 100 basis point risk premium is a fair payment for taking corporate risk on a name one step away from junk in the face of this looming recession… then I have some bonds you really should buy. 

Ultra-low interest rates (ZIRP and NIRP) plus unlimited FED liquidity have fuelled the bond binge. Corporates are loving it – Apple recently issued a $8 bln “general corporate purposes” bond we all know will go to funding stock buybacks. I hope Tim Cook thanks the Fed. Apple is getting that money for practically nothing – the 40 year tranche paid 2.5%. (And I will refrain from idle speculation on whether we will still be buying Bright Shiny Things from Apple in 2060.) 

Over the past 10 years, US corporates have spent around $9.2 trillion buying back their stock – money that wasn’t spent on building new factories, infrastructure, products or creating jobs… but boosting the bonuses of executives and dividends to owners… 

My recollection is that $9.2 trillion pretty much equates to 80% of what they’ve borrowed over the past 10-years (sorry, but I don’t have access to a Bloomberg at home to actually dig out the numbers), which means the last 10-years of artificially low Interest Rates has not created a debt-driven boom in corporate investment, product innovation and expansion, but has basically all gone into the pockets of insiders and owners. 

(I should not complain. Apple is my largest PA stock position. But it doesn’t feel right.)

In April Boeing was able to tap the US investment grade market for $25 bln. That enabled it to avoid the embarrassment of going cap in hand to the US government for a bailout. It should see it through to the end of this year of slowed deliveries and making over 10% of its workforce redundant. Over the past 10 years Boeing has been textbook everything that’s rotten with Corporate America – if failed to develop new models, it compromised safety on its 737 Max (killing 346 passengers and crew) instead, and spent most of its profits and new debt on stock buybacks – leaving the company a fractured mess. It will survive – but only because of its criticality to the US economy (1% of GDP in good years) and it’s a massive defence contractor.

And how much of the corporate debt raised in investment grade and junk markets (which similarly benefit from Central Banking largesse via ETF purchases), is going to be Zombie companies with little chance of repaying that debt should condition deteriorate or interest rates rise? (Ie in both good and bad economic scenarios, most Zombies will… “perish”… ahem..)

Basically, the booming new issue bond market is sustained entirely on ZIRP, QE Infinity and the need for Debt Capital Markets Bankers to earn their bonuses by persuading corporates that open markets today means its time to “fill their boots” issuing new debt. The door is open today.. Tomorrow? Maybe not… 

(Or… if you are prepared to free yourself from the shackles of Central Bank liquidity – we have 4-5% yield secured assets, and double digit project finance deals to finance. Real Assets with real yields..)

Finally, might I refer you to my latest Lite-Bite video commentary I’ve done for Shard Capital.

This week I look at the strength of markets in the face of looming Pandemic recession, and propose a dual investment strategy of arbitraging the Central Banks, while building a “risk-off” investment bunker from Gold and Govt Bonds.

After screaming higher in May and June (after a 3-month collapse), Housing Starts’ rebound was expected to slow drastically in July (while Building Permits were expected to re-accelerate after a disappointing slowdown in June.

However, the analysts could not have been more wrong as both starts and permits exploded higher in July (up 22.6% vs +5% exp, and 18.8% vs +5.4% exp respectively)…

This is the biggest MoM rise in permits since June 2008 (that didn’t end well) and biggest MoM rise in starts since Oct 2016…

Source: Bloomberg

Multi-family Permits surged from 378k SAAR to 467k and single-family permits exploded from 840k SAAR to 983k SAAR (just shy of the record 999k SAAR in Feb 2020)…

This is the biggest MoM rise in multi-family permits since March 2018..

Source: Bloomberg

And the biggest jump in single-family permits since July 1980…

Source: Bloomberg

Multi-family Starts screamed higher from 349k SAAR to its second-highest ever at 547k SAAR (and single-family starts rose from 869k SAAR to 940kl SAAR)…

Bottom line: The permits surge was much higher in single-family which makes sense with rents tumbling… but the surge in starts was led by multi-family units.

The real ‘V’ is soaring as fast as homebuilder sentiment…

Source: Bloomberg

But sentiment among buyers appears decoupled still from that of the builders…

Source: Bloomberg

If we build they will come… despite tightening mortgage loan standards and depression-era unemployment?

As we previously details, the loan standards for most products – such as C&I loans, residential mortgages and credit cards – were hiked so much they nearly matched the standards during the financial crisis when it was virtually impossible to get any new loans.

This was the second quarter in a row in which loan officers reported sharply tighter financial conditions.

“It was like watching an infomercial,” mocks Epoch Times’ Roger Simon as ne reflected on last night’s first two-hour segment of this week’s ‘Virtual’ Democratic Convention.

Most of the quotes were variations on the theme of the aforementioned Orange Man Bad.

Only the most devoted, those already convinced, would want to watch this for four nights or even one to the end. It was weirdly disembodied, preaching to a choir without applause or even an amen.

The night was ‘diverse’ for sure, signaling the “wide net” Biden’s campaign is hoping to narrate.

As AP reports, the first chunk of the convention’s primetime hour was dominated by a quartet of Republicans – part of Democrats’ effort to emphasize the breadth of their party’s coalition, and implicitly contrast it with the narrower one Trump has built.

The four prominent former Republican officials all slammed Trump and praised Biden, hoping to speak to what the Biden campaign believes is a big swath of the electorate that remains uncomfortable with the president. Biden’s ability to unite the country has been a centerpiece of his campaign, and on Monday night Democrats tried to show that by cramming as wide an ideological spectrum as possible into a single hour.

“This isn’t about Republican or Democrat. It’s about a person — a person decent enough, stable enough, strong enough to get our economy back on track,” former Environmental Protection Agency chief Christie Todd Whitman said. “Donald Trump isn’t that person. Joe Biden is.”

Former Ohio Gov. John Kasich said he didn’t believe Biden would turn “sharp left.”

Bernie Sanders spoke for the second time in four years as runner-up. But this one felt different.

This time, Sanders delivered an unqualified endorsement of Joe Biden and a harsh indictment of Trump.

“At its most basic, this election is about preserving our democracy,” Sanders said, adding that “authoritarianism has taken root in this country” under Trump. “As long as I am here, I will work with progressives, with moderates and, yes, with conservatives to preserve this nation,” he said.

In another dig, Sanders said: “Nero fiddled while Rome burned. Trump golfs.”

He added a litany of policy examples of “how Joe will move us forward” to address the fundamental economic inequities that Sanders has railed against for decades.

As runner-up, Sanders got his own time slot Monday night. He followed a video montage of more than a dozen other Democratic primary contenders introduced by Minnesota Sen. Amy Klobuchar. They all offered praise of Biden.

And finally, there was Michelle Obama speech, which, as Summit News’ Steve Watson details below, was mocked by President Trump, who noted that it was pre-taped and extremely boring.

“These are all taped speeches. Michelle Obama, her speech was taped,” Trump said during a campaign speech at the Minneapolis-St. Paul airport.

“You want to go to a snooze?” Trump quipped, adding “You know when you hear a speech is taped, it’s like there’s nothing very exciting about it, right?”

The President also noted that taping a speech isn’t very impressive, stating “I’ll tape my speech, next week … I’ll make sure it’s perfecto, every word will be perfect.”

Trump also continued to mock Fox News for covering the DNC

“Fox will broadcast them more than they broadcast us,” he said, adding “You know that.”

During her speech, Obama said Trump was “in over his head,” urging that “Donald Trump is the wrong president for our country.”

“He cannot meet this moment. He simply cannot be who we need him to be for us.”

The first night of the DNC was widely slammed by those who managed to get through watching it.

Former Democrat presidential candidate Marianne Williamson compared watching the speeches to “binge watching a Marriott commercial”:

No I’m sorry but they did not address racism. They showed a lot of beautiful pictures of POC and made references to BLM, but there was not one mention of an actual policy to help end systemic racism. It’s like binge watching a Marriott commercial.

— Marianne Williamson (@marwilliamson) August 18, 2020

She also bemoaned the complete lack of policy prescriptions:

You didn’t miss anything. Beautiful pictures of POC and reference to BLM, but no actual policy on how to end systemic racism. Touching homage to Covid victims and responders, but no actual policy on providing universal healthcare. No policy, period. Except for Bernie.

— Marianne Williamson (@marwilliamson) August 18, 2020

Even leftist ‘reporters’ begged for it to stop:

The DNC so far feels like one long ad on YouTube you’d usually skip

— philip lewis (@Phil_Lewis_) August 18, 2020

I was just thinking this high energy DNC needed a smooth jazz break.

— Mark Hemingway (@Heminator) August 18, 2020

This convention so far makes me think the Democrats are the party ready to lead America into the ’80s.

— Matt Stoller (@matthewstoller) August 18, 2020

Someone please talk me off the ledge. I want to win, and the first 22 minutes of this DNC…I’m scared. Can someone tell me how great this is or something?

— David Pakman (@dpakman) August 18, 2020

Holy cow. I’m dying watching #DNC.

Message is good but wow, just unwatchable. pic.twitter.com/IADaBwyAid

— Elvia Diaz (@elviadiaz1) August 18, 2020

However, as painful to watch as it may have been, we don’t expect the GOP convention to be much better. Virtual is virtual and, as most online students can tell you, it’s a bore and a chore and doesn’t add up too much.

Equities reversed initial losses in a morning devoid of economic data, which saw the Eurostoxx 50 turn solidly green after having dropped as much as 0.9% in early trading, while S&P futures also turned lower at first, before following Europe’s rebound to trade in the green. However, it was Walmart blowout earnings report at 7am that pushed the Emini back to the edge of all time highs despite fresh tensions between U.S. and China over Huawei. Elsewhere, treasuries edged higher and gold climbed back above $2,000 an ounce. Iron ore futures rallied to highest since 2014.

 

Walmart reported non-GAAP earnings per share for the second quarter that beat the highest analyst estimate:

• Q2 revenue $137.7 million, estimate $135.61 billion
• Q2 adjusted EPS $1.56, estimate $1.24.
• Q2 total U.S. comp sales ex-gas +9.9%, estimate +6.2% (CM, average of 11 estimates)

Also of note, Walmart’s U.S. e-commerce sales rose 97% in the quarter, compared with the average analyst estimate of nearly 60%, suggesting that Amazon may be facing some heat as an online retail monopoly. That comes as the coronavirus has catalyzed online purchases, and Walmart has been a primary beneficiary thanks to its revamped website and a new partnership with Shopify to bring more merchants into its fold. Walmart is also planning to introduce a subscription program, dubbed Walmart+, that could challenge Amazon Prime and help it hold onto the millions of new shoppers it has picked up during the pandemic.

U.S. stock index futures edged higher on Tuesday, extending momentum from a tech-fuelled rally in the prior session that saw the Nasdaq hit a record high. Adding to futures upside, Home Depot also rose in pre-market trading after reporting sales growth that was more than double analyst estimates as Americans opened their wallets for home improvement. The home improvement chain rose 2.8% in premarket trade, setting it to hit a record high, after its quarterly comparable same-store sales were much better than expected, as people focused on home repair while staying indoors. Home Depot’s smaller rival Lowe’s and supermarket operator Target will report their quarterly earnings on Wednesday.

In the Stoxx Europe 600 Index, U.K. homebuilder Persimmon Plc was among the biggest gainers after sales reservations increased. The Stoxx 600 erased initial declines, with travel, insurance and banking names leading on the rebound. The FTSE 100 also pared losses to trade flat. The travel subgroup rose 1.1% after falling for two sessions over new travel restrictions imposed on major European countries

Earlier in the session, the S&P 500 futures hit a record high during Asian trade but later lost steam as caution over a Sino-U.S. spat grew after President Donald Trump announced further restrictions on tech giant Huawei Technologies. China firmly opposes the latest U.S. actions against Huawei, Foreign Ministry spokesman Zhao Lijian tells regular news briefing Tuesday in Beijing. Zhao reiterated China’s willingness to retaliate against U.S. actions and said the U.S. move is “nothing short of bullying.”

The latest US-China tensions were not enough to spook Asian markets, which gained, led by health care and communications, after rising in the last session despite slumping chipmakers including Taiwan’s MediaTek, which dropped after the U.S. toughened restrictions on Huawei. Markets in the region were mixed, with Jakarta Composite and India’s S&P BSE Sensex Index rising, and South Korea’s Kospi Index and Taiwan’s Taiex Index falling. The Topix was little changed, with Oisix ra daichi rising and Grace falling the most. The Shanghai Composite Index rose 0.4%, with Amlogic Shanghai and Guangdong Rongtai Industry posting the biggest advances.

In rates, despite the latest stock levitation, treasuries also edged higher although they pared gains as E-Minis flirted with record highs. Treasury futures were off the highs of the day into early U.S. session, although yields remain richer across the curve following continued Asia session buying. Yields were lower by as much as 2bp across long-end of the curve in bull flattening move with front-end yields anchored; both 2s10s, 5s30s spreads subsequently tighter by ~1bp. Treasury 10-year yields around 0.677% with gilts and bunds both little changed, slightly underperforming. Bund, treasury and gilt curves bull flatten; 10s trade off best levels, with treasuries outperforming bunds by 1bp.

In FX, the Bloomberg dollar index slid to the lowest level since 2018, weighed down by disappointing U.S. data and a deadlock in stimulus talks. Demand for the British pound in early London trading from corporate and algo accounts fueled broader dollar weakness, according to two traders in Europe. Sterling may gain further if there are positive developments between between U.K. and European Union officials after Brexit talks resumed Tuesday. The U.K. aside, the lack of news and a thin data calendar has kept the lower-dollar narrative going, spurring direct price action in the cash market. That’s pushed the euro and yen to fresh day highs.

In commodities, WTI and Brent front month futures oscillate between gains and losses as prices recover from overnight lows alongside the stock markets’ grind higher. The weekly API Private Inventory report is due today, with forecasts for headline crude inventories to have fallen ~2.9mln barrels over the last week. Elsewhere, spot gold and spot silver trade on a firm footing above USD 2000/oz and 26/oz respectively, aided by a softer USD. Base metals overnight continued to be bolstered by the PBoC’s recent liquidity injection, with Dalian iron ore rising some 3%.

Meanwhile, traders remain preoccupied with the prospect for more government stimulus. Democrats and Republicans have been deadlocked in negotiations over a stimulus package and the S&P 500 has stalled just below its February closing record.

“A lot of investment professionals as well as retail investors are on the sidelines partially because they are waiting for this second stimulus package,” Erin Gibbs, president and chief investment officer at Gibbs Wealth Management, said on Bloomberg TV. “It’s not a full-on risk-on environment just yet.”

Looking ahead, investors will get further hints on the state of the U.S. housing market when July housing starts data is published later on Tuesday.  Expected data include housing starts. Home Depot, Kohl’s, Walmart and Agilent are reporting earnings.

Market Snapshot

• S&P 500 futures little changed at 3,382.50
• STOXX Europe 600 up 0.1% to 369.79
• MXAP up 0.3% to 172.06
• MXAPJ up 0.2% to 568.09
• Nikkei down 0.2% to 23,051.08
• Topix up 0.06% to 1,610.85
• Hang Seng Index up 0.08% to 25,367.38
• Shanghai Composite up 0.4% to 3,451.09
• Sensex up 1.1% to 38,463.56
• Australia S&P/ASX 200 up 0.8% to 6,123.36
• Kospi down 2.5% to 2,348.24
• German 10Y yield fell 0.8 bps to -0.459%
• Euro up 0.2% to $1.1895
• Italian 10Y yield fell 5.7 bps to 0.805%
• Spanish 10Y yield fell 0.9 bps to 0.317%
• Brent futures down 0.1% to $45.33/bbl
• Gold spot up 1% to $2,005.05
• U.S. Dollar Index down 0.3% to 92.60

Top Overnight News

• Face-to-face Brexit negotiations are resuming Tuesday in Brussels. Both sides seek to find an agreement by the start of October, but so far neither the U.K. nor the EU have made enough concessions to reach a breakthrough.
• Germany recorded its highest number of new daily Covid-19 cases in almost four months. The country’s infection rate held above the threshold of 1.0 — meaning the spread of the virus is accelerating — fueling fears about European virus resurgence. South Korea’s prime minister announced worship services and large gatherings are now banned in greater Seoul, as cases are rising in the capital and threatening to spread nationwide.
• U.K. retailer Marks & Spencer announced plans to cut 7,000 jobs — a tenth of its workforce — in the next three months as a result of coronavirus impact.
• China called the Trump administration’s decision to impose fresh restrictions on Huawei “nothing short of bullying” and said the move can only backfire.

Asian equity markets traded mixed following a similar indecisive performance for stocks on Wall St amid a lack of fresh developments on the macro front and with participants tentative ahead of the risk events later in the week. ASX 200 (+0.8%) and Nikkei 225 (-0.2%) were varied with Australia kept afloat by strength in healthcare, tech and metal miners as gold made its way back closer towards the USD 2000/oz level, although gains were capped for the index by disappointing earnings with financials pressured after Westpac scrapped its dividend citing a highly uncertain outlook and BHP shares were subdued by weaker results. Furthermore, consumer staples suffered after Coles reported a slump in pre-tax profits and with Treasury Wine Estates the worst performing stock due to China launching anti-dumping investigations on imports of Australian wine. Conversely, the Japanese benchmark was negative with exporters hampered by a stronger currency, while Hang Seng (+0.1%) and Shanghai Comp. (+0.4%) remained positive after the PBoC continued its liquidity efforts and with Hong Kong set to announce a 3rd round of COVID-19 relief, although tensions persisted as reports suggested the delay in trade review talks was likely due to a lack of atmosphere and the US also recently tightened restrictions on Huawei’s access to US technology and semiconductors. Finally, 10yr JGBs were higher amid weakness in Japanese stocks and following the gains seen in T-notes, but with further gains restricted by mostly weaker results at the 30yr JGB auction in which the bid to cover and accepted prices declined from prior.

Top Asian News

• Singapore Leads on Libor Replacement in Asia With Note Sale
• China DNA Firm Unit Said to Consider $1 Billion Shanghai IPO
• Jack Ma’s Ant Group Is Said to Plan Consumer Finance Firm
• Turkey’s Lenders May Have to Borrow at Highest Central Bank Rate

European bourses trade mostly firmer [Euro Stoxx 50 +0.5%] after recovering from broad-based losses seen at the cash open, despite a lack of fresh catalysts and against the backdrop of thinner August volumes. The initial defensive bias seen across sectors has somewhat faded, with broader sectors now mostly higher with no clear risk profile to be derived. The detailed breakdown sees Travel & Leisure and Autos the top performers, whilst Banks and Financial Services hold onto losses amid a lower yield environment, whilst ECB’s VP de Guindos also noted that banks are unlikely to fully recovery from the pandemic before 2022. In terms of individual movers, Clariant (+5.2%) holds onto opening gains with traders citing reports yesterday that the group and China’s Chemtex have agreed on a biofuel partnership, in which the two parties will collaborate to market and sell Clariant’s sunliquid technology licenses, as well as services and supplies for advanced biofuel plants in China. Elsewhere, mining-giant BHP (-1.5%) remains subdued post-earnings after missing analyst expectations across a number of metrics, albeit share prices have lifted off lows alongside the broader markets, with BHP losses potentially cushioned by the announcement of thermal coalmine sales within two years. Meanwhile, AstraZeneca (+0.5%) outperforms the healthcare sector as the Co’s Imfinzi has been grated priority review in the US. Finally, the Bank of America August Global Fund Manager Survey showed that investors say long US tech was most crowded trade, then long gold, whilst top tail risks are COVID-19 second wave followed by US-China trade war and the US election.

Top European News

• EU Is Most Preferred Equity Region Globally, BofA Survey Shows
• Nordic Capital Said to Raise About $5.9 Billion For New Fund
• U.K. Hits Online Realtor Purplebricks With Money-Laundering Fine
• Pandora Sees 2020 Sales Falling as Much as 20% Amid Pandemic

In FX, another retreat in real rates for Gold bugs to embrace and reload long positions to the broad detriment of the Dollar, as the index retreats further to fresh ytd lows (92.469) after a failing to sustain gains above 93.000 in listless seasonal trade. Ahead, US housing data is highly unlikely to alter the landscape before Wednesday’s FOMC minutes, initial claims and flash PMIs, but tomorrow’s 20 year auction could conceivably impact Treasuries after last week’s Quarterly Refunding prompted pronounced bear-steepening with ramifications for the Greenback and other currencies by default.

• GBP/CAD/JPY – The Pound has recovered from Monday’s lethargy and rebounded to the top of the major ranks, with Cable establishing a firmer base on the 1.3100 handle and within striking distance of early August highs (1.3186), while Eur/Gbp has drifted back down to pivot 0.9050. Elsewhere, the Loonie is extending advances vs its US counterpart beyond 1.3200 ahead of Canadian CPI tomorrow and not showing any real adverse reaction to news of Finance Minister Morneau’s resignation, while the Yen has made a decisive break through 106.00 to expose recent peaks around 105.32-30 in wake of an improvement in Japan’s Tankan index, albeit still deeply negative.
• EUR/AUD/CHF – Also firmer against the Buck, as Eur/Usd retests resistance above 1.1900, the Aussie eyes loftier levels over 0.7200 amidst more constructive cross-flows down under and hardly a flinch on the RBA minutes that merely reiterated forward policy guidance (accommodation to continue as long as required alongside 0.25% 3 year yield target for progression towards full employment and inflation remit). Similarly, the Franc registered a new multi-year apex circa 0.9038 before Swiss trade and ip data on Thursday.
• NZD/NOK/SEK – The G10 laggards, with the Kiwi still reeling from COVID-19 2nd wave concerns and also having to contend another dovish RBNZ call after ANZ joined the chorus anticipating further easing to -0.25% by early Q2 next year. Nzd/Usd is straddling 0.6550, but Aud/Nzd has extended to 1.1040+ following brief retracement through 1.1000 overnight. Meanwhile, the Swedish and Norwegian Krona have both lost impetus vs the Euro around 10.3300 and 10.5100 after a decline in industrial inventories and against the backdrop of waning crude prices.
• EM – Most regional currencies are retrieving losses or appreciating further vs the Dollar, but yet again the Lira is flagging just above 7.4000 awaiting the latest CBRT rate meeting in stark contrast to the Yuan heading towards 6.9100 irrespective of ongoing US-China tensions outside of Phase 1 trade deal terms that Beijing claims will be adhered to even though the meeting to discuss progress has been delayed.

In commodities, WTI and Brent front month futures oscillate between gains and losses as prices recover from overnight lows alongside the stock markets’ grind higher. That being said, news flow has again remained light for the complex ahead of the JMMC meeting tomorrow – where no major surprises are expected. Meanwhile, Russian Energy Minister Novak has contracted the coronavirus, but is showing no symptoms and will tune in to tomorrow’s meeting via videocall. Before that, the weekly Private Inventory report is due today, with forecasts for headline crude inventories to have fallen ~2.9mln barrels over the last week. Elsewhere, spot gold and spot silver trade on a firm footing above USD 2000/oz and 26/oz respectively, aided by a softer USD. Base metals overnight continued to be bolstered by the PBoC’s recent liquidity injection, with Dalian iron ore rising some 3%. Separately, LME copper continues to grind higher as it tracks the stock markets and with falling LME inventories also supportive for the red metal. Finally, BHP’s outlook notes that there was extremely challenging demand in H1 for its products and expects iron ore prices to ease from current spot levels and China’s growth to moderate over time.

US Event Calendar

• 8:30am: Housing Starts, est. 1.25m, prior 1.19m; Housing Starts MoM, est. 4.97%, prior 17.3%
• 8:30am: Building Permits, est. 1.33m, prior 1.24m; Building Permits MoM, est. 5.33%, prior 2.1%

DB’s Craig Nicol concludes the overnight wrap

It may have been another fairly slow summer Monday but yesterday was the closest yet that the S&P 500 (+0.27%) has come to striking a new all-time high on a closing basis. Just over 4 points separate it from a new record now. Yesterday was one of the more dull Monday’s that we’ve had though with the intraday range on the S&P 500 just 8.4pts points (0.25%) – the tightest daily range since the shortened trading day of Christmas Eve 2019 – while the VIX nudged down another -0.7pts to the lowest since February 21 now at 21.4.

The news that we did get included President Trump praising China’s purchases of corn, beef and soybeans, while Peter Navarro, the Director of the Office of Trade and Manufacturing Policy, said that the Phase One deal reached with China was on track. It’s hard to be upbeat about the progress of fiscal talks however, with Senate majority leader Mitch McConnell saying that although discussions were “still going on”, that “I can’t tell you with certainty we’re going to reach an agreement”. That being said, late last night there were reports that Senate Republicans are planning to introduce a new version of the stimulus bill that is more pared down than the $1tn bill already submitted. Overnight, Bloomberg reported that the pared down legislation would include a $300 a week enhanced unemployment benefit, money for small business aid, additional U.S. Postal Service funding and protection for employers against lawsuits stemming from Covid-19 infections.

Speaking of fiscal stimulus, we did hear yesterday about the prospect of further measures in Germany, where finance minister Scholz has proposed extending the country’s job support scheme from 12 to 24 months, in a move that will cost €10bn. A government spokesman said that Chancellor Merkel was open to the programme continuing in principle, and the proposal is interesting when you consider that Germany is set to undergo a more moderate contraction compared with its European partners this year (DB forecasting -6.4% decline in 2020 vs. -11.0% for both France and Italy).

The focus overnight has turned to the US Commerce Department’s decision to impose further restrictions on Huawei aimed at cutting the Chinese company’s access to commercially available chips. The new restrictions built upon the existing ones announced in May by adding 38 Huawei affiliates in 21 countries to an economic blacklist. Despite that news the Shanghai Comp +0.42% and Hang Seng +0.15% are still higher this morning along with the ASX (+0.74%), however the Nikkei -0.23%, Kospi -0.15% and Taiwan’s TAIEX index -0.42% are down. Meanwhile, futures on the S&P 500 are trading flat and yields on 10y USTs are down -1bp.

Back to yesterday, where talk of further stimulus didn’t dent the performance of sovereign bonds, which made gains on both sides of the Atlantic. By the close, 10yr yields on US Treasuries (-2.1bps), Bunds (-3.0bps) and Gilts (-2.7bps) had all fallen, and the spread of Italian yields over bunds fell by -2.7bps to their tightest in nearly 6 months. That move for Treasuries also saw the curve bull flatten, with 2s10s actually back down -2.7bps to 53.5bps having struck 56.6bps at the highs last week. Meanwhile, European equities similarly moved higher, with the STOXX 600 up +0.32%, while the dollar lost ground for a 4th straight session (-0.31%), putting it close to its 2-year low reached earlier in the month. The drop in yields and the dollar saw precious metals gain sharply. Gold gained +2.07% yesterday after enduring a weekly loss for the first time since the first week of June, while silver similarly rallied +3.93%.

While equities pushed on, credit was a touch weaker yesterday with IG and HY spreads ending +1bp and +3bps respectively in both USD and EUR. There was a milestone of sorts reached in the USD IG market however, with issuance hitting a new record of $1.34tn, and surpassing 2017’s full year total despite only being 8 months into the year.

In other news, the Democratic convention kicked off, though thanks to Covid-19 it was a much more subdued affair than in previous election cycles. There wasn’t a great deal that was newsworthy in the speeches, but we did get a Washington Post/ABC News poll out yesterday showing Biden with a 53-41 lead over President Trump. Overall, the RealClearPolitics polling average of the last two weeks shows the former Vice President 7.7pts ahead of President Trump.

As for data yesterday, the Empire State manufacturing survey for August came in at a lower-than-expected 3.7 (vs. 15.0 expected). However, it’s not worth over-interpreting the decline since this is a diffusion index, where respondents are simply asked whether conditions have improved or worsened, rather than by how much. The other release from the US was the NAHB housing market index for August, which rose to 78 (vs. 74 expected), matching its record.

Finally, looking at the day ahead, the data highlight will be US housing starts and building permits data for July. From central banks, we’ll hear from ECB Vice President de Guindos, and earnings releases include Walmart and Home Depot.