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With bond yields glued near record lows and stocks soaring back to (or beyond) record highs, The Fed’s mammoth efforts have “succeeded” in driving US financial conditions to their easiest since February…

Source: Bloomberg

As Nomura’s Charlie McElligott notes, this has been the key macro factor input behind the collapse in cross-asset volatility, and in turn, the vol wipeout has acted as an accelerant to the risk-on trade in standard “tail wags the dog” market-structure fashion.

This has also driven re-leveraging of “vol control”-type strategies, with the Nomura QIS CTA Trend model’s estimated portfolio gross-exposure back to “pre-shock” levels and a remarkable 92.3%ile rank since ‘11

And Nasdaq options delta (exposure) back to 96.7%ile since 2013

And so with all this rebound in buying and short-covering, what could go wrong?

Nomura’s McElligott has a warning.

It’s worth noting, he concludes, that the monthly VIX expiration is tomorrow, which many times over the past year-plus has marked a local / tactical inflection-point in Equities…

…perhaps marking a short-term bottom in Vol…

The question is, of course, just how quickly any post-VIX-expiration dip is bought back to highs.

Authored by Patrick Buchanan via Buchanan.org,

Is her racial diversity America’s greatest strength?

So we are told. Yet, even before America becomes a majority-minority nation, 25 years from now, recent changes in the composition of the country are going to impact both parties in 2020.

According to Brookings Institution demographer William Frey, between 2010 and 2020, while America’s population grew by 20 million, our white population fell for the first time since the 1790 census.

White Americans fell as a share of the population in all 50 states, in 358 of 364 metropolitan areas, in 3,012 of 3,141 counties. During that same decade, our Black population grew by 3 million, our Asian population by 4 million and our Hispanic population by 10 million.

What’s the significance of those numbers? In presidential elections, Hispanics and Asians vote 70% Democratic and African Americans vote 90%.

White folks, who made up 69% of the U.S. population in 2000 when George W. Bush was elected, have fallen today to 60%.

For children under 16, the white share has fallen to less than half.

Minority kids are now the majority in California, Nevada, New Mexico, Arizona, Texas, Florida, Georgia, Hawaii, Mississippi and Maryland.

Whites are also the oldest Americans, with a median age of 44. For Asian Americans, it is 37, for Black Americans, it is 35, and for Latinos, it is 30.

Bottom line: The pool of Democratic voters is growing inexorably while the largest pool of potential GOP voters is aging, stagnating and shrinking.

For the GOP, this is an existential crisis. If demography is destiny, and the party does not either increase its share of the white vote or attract millions more Black, Asian or Hispanic voters, then its national fate and future are sealed.

All one need do is look to California. There, Democrats occupy every statewide office and two-thirds of both houses of the legislature. Both senators are Democrats as are 45 of the 52 members of the U.S. House.

Nor are Democrats unaware of the opportunity demography offers.

As persons of color in America — Asians, Blacks, Hispanics, Native Americans and people of mixed race — grow in number, the Democrats’ job is a simple one.

Get more people of color registered and voting.

So, today, Democrats are pushing for amnesty and a path to citizenship not only for the DACA “Dreamers” but also the 11 million to 22 million other immigrants here illegally. Democrats may be found enlarging the electorate anywhere they can, even if it means allowing convicted felons and prison inmates to vote.

If Democrats capture the White House and Senate, the “Muslim ban” on immigration is history, and America’s doors will be opened anew.

But Joe Biden and his generation of Democrats have their own problem.

Even as people of color make up a growing share of the nation, around 40%, they are an even larger, and still growing, share of the Democratic base.

Without the huge majorities Asians, Blacks and Hispanics give them, Democrats could not win the White House. Yet, in this year’s primaries, the six top finishers in delegates were Biden, Bernie Sanders, Mike Bloomberg, Elizabeth Warren, Pete Buttigieg and Amy Klobuchar.

All are white, as are the two top Democratic leaders in the House, Nancy Pelosi and Steny Hoyer; the two top Democratic leaders in the Senate, Chuck Schumer and Dick Durbin; and the overwhelming majority of the 47 Democratic senators and 24 Democratic governors.

Democrats may prattle on about their glorious “diversity,” but a closer look reveals a predominantly white senior officer corps, atop an army of minorities, whose shock troops are the Black Caucus, Black Lives Matter, antifa and The Squad, the latter consisting of four women of color.

There is something else of interest here.

While the statues being torn down in the revolution of the Democratic left are a variety of explorers, conquerors, colonists, missionaries, Confederates and presidents, all appear to have one thing in common.

All are white men.

The Democratic left wants to terminate the succession of white folks making the history of the country.

Thus the Democrats’ problem that comes with Biden’s choice of a running mate. Though demands are being made that minorities, who deliver half of all Democratic votes, be represented on the ticket, Biden is said to be leaning toward a white woman, Elizabeth Warren.

Choosing Warren would make this Democratic ticket like every other one in 220 years, save for Barack Obama’s — an all-white ticket. It would pass over half a dozen women of color and put a white woman first in the line of succession to the presidency. And the 77-year-old Biden is promising to be a transition president.

If Biden overlooks the women of color being considered as running mates and picks a white woman, the rumbling of the coming rebellion of the minorities inside the Democratic Party will be heard loud and clear.

The US and UK are increasingly lockstep in responding to China, including presenting a united front on the Huawei issue, and this was on full display during Secretary of State Mike Pompeo’s visit and statement Tuesday morning from Downing Street alongside Foreign Secretary Dominic Raab. 

He lashed out at China’s behavior related to Honk Kong, it’s handling of coronavirus, as well as seeking to hack Western research on COVID-19 as “disgraceful”. His explosive comments even targeted President Xi Jinping directly:

“On behalf of the American people I want to extend my condolences to the British people for your losses from this preventable pandemic.

This CPC exploitation of this disaster to further its own interests has been disgraceful and rather than helping the world, General Secretary Xi has shown the world the party’s true face.”

📺 | @SecPompeo doesn’t mince his words in today’s press conference with Dominic Raab. 👍

COVID: “The CCP’s 🇨🇳 exploitation of this disaster to further its own interests has been disgraceful. Rather than helping the world, General Secretary Xi has shown the Party’s two-faced.” pic.twitter.com/paRtZEv4e3

— Leave.EU (@LeaveEUOfficial) July 21, 2020

As we’ve noted before, we’re now witnessing full court press diplomatic war by English speaking nations (the so-called intelligence “five eyes”) against Beijing. Pompeo told the British people “well done” for the latest punitive measures targeting China. 

“We began with the challenge presented by the Chinese communist party in the COVID-19 virus which originated in Wuhan, China,” Pompeo emphasized, while calling on all  democratic countries to unite against the “threat” of Chinese aggression.

He demanded that China behave “consistent with international order”. Interestingly, it’s much the same rhetoric used against Russia a mere months ago.

The statement followed “candid” talks with PM Boris Johnson focused on China. 

And on the same morning of Pompeo’s Downing Street presser, this headline has emerged:

US prosecutors accuse two Chinese hackers of stealing trade secrets and targeting firms working on COVID-19 vaccine.

Last week it was the Russians, and now it’s the Chinese. In this case, the pair of Chinese nationals, who it appears will not be brought to justice given they reside in China, are charged with stealing hundreds of millions of dollars worth of trade secrets and intellectual property.

The #FBI and our partners have announced that a federal grand jury returned an indictment earlier this month charging Li Xiaoyu and Dong Jiazhi for their alleged participation in a global computer intrusion campaign. https://t.co/BJOJtDA8cH pic.twitter.com/zMVJkmHubL

— FBI (@FBI) July 21, 2020

It seems the DOJ announcement was timed precisely to come amid Pompeo’s UK visit where he continues talking tough on China. The details, according to ABC News, are as follows: 

The Justice Department has announced an 11-count indictment charging two alleged Chinese hackers accused of carrying out a massive global cyber intrusion campaign to steal trade secrets, including most recently targeting companies conducting research for a COVID-19 vaccine.

Li Xiaoyu and Dong Jiazhi, both Chinese nationals currently living in China, are alleged in the indictment to be active leaders of a hacking campaign that has been ongoing for more than 10 years and has targeted hundreds of companies in more than 11 countries, including the U.S.

“The hackers stole terabytes of data which comprised a sophisticated and prolific threat to U.S. networks,” the DOJ’s press release said. “More recently, the defendants probed for vulnerabilities in computer networks of companies developing COVID-19 vaccines, testing technology, and treatments.”

Here is the full grand jury indictment:

Two Chinese Hackers Working with the Ministry of State Security Charged with Global Computer Intrusion Campaign Targeting Intellectual Property and Confidential Business Information, Including COVID-19 Research https://t.co/4PAHFfxja0

— James Mulvenon (@jmulvenon) July 21, 2020

China has lately warned the UK not to “dance to the tune of the Americans”. But this dictum and appeal appears too late.

Authored by Tsvetana Paraskova via OilPrice.com,

If presumptive Democratic candidate Joe Biden wins the presidential election in November, Iran could suddenly turn from a bullish driver for oil prices into a bearish factor if it resumes up to 2 million barrels per day (bpd) of oil exports.   Currently, there is a consensus among analysts and international agencies that the oil market is tightening and will continue to tighten, lifting oil prices through next year.   

Oil demand is expected to rise next year by between 5 million bpd and 7 million bpd compared to this year’s lows, according to OPEC and the International Energy Agency (IEA)—in the absence of a mass return to lockdowns. The OPEC+ group is set to further ease its collective production cuts. In theory, the current expectations of supply and demand in 2021 are bullish for oil prices. 

Yet, the market shouldn’t discount one political and geopolitical factor that could upend current oil price forecasts for next year. The U.S. presidential election in November could install a new administration in the White House – of a President Biden – that would be inclined to renegotiate the Iran nuclear deal and potentially ease the current sanctions on Tehran’s oil exports. 

The return of 1-2 million bpd of Iranian oil on the global market would cap oil price gains next year, a leading oil analyst said last week.

“If you have Joe Biden as president he could basically take the US back into the [Iranian] Nuclear deal and you could see a million plus Iranian barrels hit the market. These are the kind of things I think will be very important into the trajectory of oil into 2021,” Helima Croft, head of commodity strategy at RBC Capital Markets, told Business Insider in an interview last week. 

If Biden wins the November election, he could be inclined to revisit and renegotiate the Iran nuclear deal, potentially easing some sanctions in exchange for Tehran returning to compliance under some revised form of the Joint Comprehensive Plan of Action (JCPOA). 

“The recent killing of Qasem Soleimani, the commander of Iran’s Quds Force, removed a dangerous actor but also raised the prospect of an ever-escalating cycle of violence in the region, and it has prompted Tehran to jettison the nuclear limits established under the nuclear deal,” Biden wrote in an essay in Foreign Affairs earlier this year.

“Tehran must return to strict compliance with the deal. If it does so, I would rejoin the agreement and use our renewed commitment to diplomacy to work with our allies to strengthen and extend it, while more effectively pushing back against Iran’s other destabilizing activities,” he said. 

Iran’s oil will not return overnight to the market if Biden becomes president. But the prospect of renegotiation of the nuclear deal will likely keep oil prices depressed, making Iran a bearish factor for the market. This would be in contrast with the bullish factor that Iran has been for oil prices during the Trump Administration so far, with the renewed sanctions on its oil and the occasional flare-up of Iran-U.S. and Iran-Saudi tensions in the most important oil shipping lane in the world, the Strait of Hormuz. 

“But if we are talking about a recovery into the $50-60 a barrel next year, a million or even two million barrels of Iranian exports hitting the market is going to put a temporary lid on how high prices can go,” RBC’s Croft told Business Insider. 

Iran’s current crude oil exports are estimated at between 100,000 bpd and just over 200,000 bpd, compared to 2.5 million bpd in April 2018, just before President Donald Trump withdrew the U.S. from the Iran nuclear deal and re-imposed sanctions on its oil. 

Due to the sanctions and to the coronavirus crisis, Iran’s oil production has plummeted to below 2 million bpd in the second quarter, compared to an average of 3.553 million bpd in 2018, according to OPEC’s latest Monthly Oil Market Report (MOMR). 

It’s not clear how fast Iran could boost its oil production in case sanctions are eased and exports become no longer punishable. But the Islamic Republic has a lot of oil in storage, due to the sanctions and the pandemic. In early July, Iran probably had more than 50 million barrels of oil stored in tankers at sea and more than 60 million barrels in onshore storage, analysts and industry sources told Reuters earlier this month. 

Nothing is certain in the oil markets, especially in today’s global economic and health crisis, but a Biden presidency could turn Iran from a bullish into a bearish factor for oil prices.

Libya’s proxy war just grew hotter, with outside powers supporting opposite sides of the conflict finding themselves more directly intervening on Libyan soil.

Though Turkey, which supports Tripoli’s UN-backed Government of National Accord (GNA) has sent troops and weapons since last year to help fend off Haftar’s (now failed) advance on the capital, Egypt just made a huge and unprecedented move.

On Monday Egypt’s parliament voted to approve sending its armed forces to fight “criminal militias” and “foreign terrorist groups” on a “Western front”. Previously Egypt has only flown sorties over neighboring Libya, however, this would mark the first ever direct ground intervention.

Though the parliamentary vote didn’t name Libya directly, it’s widely known that “Western front” is a clear reference to the growing chaos along Egypt’s border with Libya. Cairo continues to see Haftar as a necessary ‘stabilizer’ for the country which has remained in a state of chaos and bloodshet since the US-NATO toppling of Gaddafi in 2011.

The parliament unanimously voted for “the deployment of members of the Egyptian armed forces on combat missions outside Egypt’s borders to defend Egyptian national security… against criminal armed militias and foreign terrorist elements,” according to a statement.

Reuters underscores that the vote is a big deal and somewhat unprecedented:

Egyptian state TV later ran banners on the screen saying: “Egypt and Libya, one people, one fate.”

The last time Egypt sent ground troops abroad for combat was in 1991 in Kuwait as part of a U.S.-led coalition to drive out Iraqi troops.

This comes after weeks of Egyptian President Abdel Fatah el-Sisi making threats against both Tripoli and its Turkish backer.

Regional media has even speculated of late that Turkey and Egypt are fast stumbling toward war inside Libya.

Indeed Monday’s parliamentary approval for Sisi’s Libya policy brings the two major regional players much closer to direct clash.

Authored by Erik-Jan van Harn, of Rabobank

Summary

• Heads of state have discussed the EUR750bn recovery fund that was proposed by the European Commission

• There were a number of hurdles to be taken in the run up to the meeting, such as the size and composition of the recovery fund and the distribution key

• After 90 hours of negotiations, the European leaders managed to reach an agreement. The deal is a watered down version of the initial proposal. Concessions were made to win over the ‘Frugals’ (Netherlands, Denmark, Sweden, Austria)

• After consensus in the European Council, the proposal has to pass the European Parliament and has to be ratified by national parliaments. The majority of the funds will probably be distributed in 2021/2022

They’re talking billions

This weekend, the heads of state of the 27 EU member states met in Brussels to discuss the revamped EUR 1074bn multi-annual financial framework (MFF) and the EUR 750bn ‘Next Generation EU’ stimulus package. The revamped MFF and the recovery package, aimed at mitigating the economic damage of the COVID-19 crisis, spurred the debate on European solidarity in the past months.

European Council chairman Charles Michel has met with each prime minster and president bilaterally in an effort to get everyone on board. Additionally, a number of leaders, such as chancellor Merkel, president Macron and prime minister Conte have met with the Dutch Prime Minister Rutte, leader of the Frugal Four (Netherlands, Denmark, Sweden, Austria), in attempts to persuade the Dutchman to soften his stance towards the deal. The four member states have expressed their concern over the initial conditions of the package. Specifically the notion of grants and the governance of the fund.

Michel unveiled his new proposal on July 10. The plan closely resembled the original plan of the Commission but shifted some of the governance of the fund towards the European Council (and thus the heads of state) and away from the European Commission. Reform plans can now be passed by a qualified majority in the European Council.

Fourfold disagreement

So why did it prove so difficult to reach an agree at the Summit in the first place? Prior to the 17- 19 Summit there was broad support for a recovery package. Heads of state agreed that the COVID-19 crisis is economically affecting Southern member states more extensively compared to Northern states and that individual countries are not to blame for the economic and health toll of this crisis. However, the political route towards a support package proved to be a bumpy one. In a previous article we already argued that there were a number of hurdles to be taken.

First, Frugal leaders argued that countries would have been able to fend for themselves if they have had sound government finances. This is a common feeling for many voters in the Frugal countries. Consequently, in order to be able to sell the deal at home, they took a tough stance on grants. This especially holds for the Netherlands, since elections will be held in 2021.

Second, the governance of the fund was a major issue of disagreement. The Frugals have emphasized the importance of economic reforms, especially for the Southern member states, which in their eyes, have reformed too little in the past decades. Therefore, the Frugals wanted to have a say in how the funds are spend. With the Troika governance of Greece in mind, dependent member states are naturally not too keen on granting veto power to individual countries.

Third, the distribution key was controversial. The initial proposal was based on the size of the economy (GDP), the level of wealth (GDP per capita and) and the historical long-term unemployment. This means that countries with a low GDP per capita and countries with a high historical unemployment would benefit the most. This allocation is not necessarily linked to the economic damage caused by the corona crisis. Under the initial term, Poland for example (a country which is expected to be relatively moderately hit by the corona crisis) would be able to receive on a relative sizeable share of the funds because of its relatively low GDP per capita.

Fourth, including the rule of law in the distribution key was a thorn in the side of Eastern European countries ,such as Poland and Hungary (which is already under increased EU supervision).

A turbulent weekend

As expected, the Summit quickly turned into a heated debate over abovementioned issues. This culminated into tensions rising during the late night dinner on Friday. Chairman Michel launched a second proposal that night in an attempt to win over the Frugal Four and especially the Dutch, who positioned themselves as the leader of the resistance. Michel’s second proposal included an emergency brake on distributions of cash, a EUR 50bn shift from grants to loans and a promise that member states do not have to hand over a larger part of their collected import tariffs (compounding to considerable figures for countries such as Belgium and the Netherlands). Yet, this still wasn’t enough to garner the backing of all members.

Rising tensions and an inability of countries to come to terms over the recovery fund resulted in an extension of the Summit. When Council President Michel launched another proposal on Monday, European leaders were cautiously optimistic about a deal. Early Tuesday morning there was finally white smoke after a 90 hour Summit.

The final deal is a considerable rapprochement to the Frugals and the Visegrad countries. The following adjustments have been made:

• The overall size of the fund has remained the same but the composition has shifted from EUR500bn in grants to EUR390bn in grants.
• The Frugals receive higher rebates on their EU contributions and a bigger role in the governance of the fund.
• Disbursement of funds for proposed investment plans have to be ratified by a qualified majority. Member states can object to funds being disbursed within 3 months after acceptance. The final decision is formally up to the European Commission.
• As for the rule of law, Poland’s Mateusz Morawiecki asserted that there is no direct link between the rule of law and the funds in the deal. The mechanism has yet to be created by a group headed by Chancellor Merkel and is to be accepted by the European Council later on. Since the Council requires unanimity, Poland and Hungary can veto disadvantageous proposals.

As for the MFF, the overall size has remained fixed at EUR1074bn. Countries have to plug a hole of roughly EUR10bn as a result of Brexit, but managed to reach unanimous agreement on the budget. The MFF draft of February constitutes as the basis for the new deal, but the spending on healthcare will be increased. Additionally, the EU will work towards reforming its own resources over the coming years through taxation on non-recycled plastic, the carbon border adjustment mechanism, a revised ETS scheme and a digital levy. A more controversial topic is the possible introduction of a financial transaction tax. But the latter will be decided at a later point in time.

Looking forward

For the MFF and recovery fund to come into effect, the European parliament should agree on the package and national parliaments would have to ratify. The working assumption in Brussels is that the ratification process will only be completed at the beginning of 2021. With every country more or less pleased with the result, ratification will probably not cause any issues, but there is a risk involved1 since the ratification requires unanimity. The Dutch elections for example could spur the debate regarding the fund on a national level.

Once the European Commission has raised the capital it will take a while for the funds to be distributed. The majority of the funds will most likely be distributed in 2021/2022. If it turns out to be the case that these funds are not distributed timely, countries can tap into the EUR 100bn SURE facility and if necessary apply for bridge loans from the ESM/EIB.

Because it takes a while for the funds to be distributed, we do not expect a large economic impulse. Rather, the fund decreases the risk of further divergence between member states. A risk that has serious consequences, as we argued earlier.

Two major topics are left out in the open. First, the conditions regarding the rule of law as mentioned earlier. Second, the exact distribution key which was a major topic to begin with. For now we assume that no major changes have taken place there. And even though the final distribution key is unknown at present, a senior Italian official expects2 Italy to receive about EUR 82bn in grants and EUR 127bn in loans according to initial estimates3 . If this proves to be correct, the money has found its way to the countries mostly in need of extra funding (and as a side effect, to the Visegrad countries)

New estimates from Counterpoint Research published Monday (seen by Apple Insider) show US smartphone sales volume tumbled 25% YoY in 2Q20. 

Counterpoint said Apple iPhone sales in the US plunged 23% in the period, but volumes increased through the quarter, due mostly to the low-cost iPhone SE. 

Sales of iPhone SE were propelled through the quarter because of the reopening of retail stores and promotional deals at Walmart, Metro by T-Mobile, and Boost.

“Apple volumes grew through the quarter and were especially helped by iPhone SE volumes. The device has been successful and selling above expectations in both postpaid and prepaid channels,” said Jeff Fieldhack, Counterpoint’s North American Research Director.

We outlined in May, credit and debit card data showed some folks were using their stimulus checks to buy iPhones. 

Counterpoint doesn’t believe increasing iPhone SE sales volume would deter customers from purchasing new iPhones with 5G technology later this year.

 “Our checks show that iPhone SE sales are unlikely to be cannibalizing fall 5G iPhone sales. iPhone SE buyers are more pragmatic about price, less concerned with 5G, and the smaller display is not considered a hindrance,” Fieldhack stated.

Fieldhack also said the low-cost iPhone is attracting Android users, and estimates at least 26% of iPhone SE users have switched from an Android device. 

Apple shares are up 34% YTD. 

Apple trades at a high premium versus 2020 earnings per share estimates mean of 37 analysts that follow the tech stock.

As consumers gravitate to cheaper iPhones during the virus-induced recession, this doesn’t bode well for demand for +$1,000 iPhone with 5G network capabilities, expected to be debut in the coming months.