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Submitted by Peter Garnry, Head of Equity Strategy, Saxo Bank

Summary:  In today’s equity update we focus on South Korea and the resurgence in new COVID-19 cases, the VIX dipping below 30 and term structure in contango suggesting that the bear market dynamics could soon end, Brazilian equity market trading a deep discount to global equities and finally that the market for fundamentals is still reluctant to jump on the bandwagon of optimism as seen in US technology stocks.

Equities are generally positive this morning as the market is still pricing in a V-shape recovery putting little weight on last week’s dire macro figures ending the week with the US unemployment rate hitting 14.7% in April. We are technically positive on the market as long as the NASDAQ 100 Index remains above its 15-day SMA but we still struggle to be positive on equities based on fundamentals. What are some of the key things to watch in equities today?

KOSPI 200 down 0.6% – number of COVID-19 cases have recently surged and today saw 34 new cases the highest since 9 April as new chains of the virus has started at nightclubs in Seoul.

This comes after Germany just announced that its R0 (virus reproduction value) increased to 1.1 as it opened up society. These stories tell us that reopening the economies may not be that easy and LesEchos has in collaboration with Kayrros-EY Consulting made a new real-time economic activity index based on satellite images. This shows that Chinese activity despite reopening is still down 25% from levels before the COVID-19 outbreak.

VIX dips below 30 – on Friday the VIX Index dipped below 30 for the first time since late February in a signal that option markets are betting on less volatility the next 30 days. The VIX futures term structure has also shifted into the classic contango which should begin to favour selling volatility strategies. This means that the market is structurally beginning to set itself up for normality. The equilibrium point in VIX is historically around 22 so if the index dips below this we are officially out of the bear market dynamics.

Brazilian equities down 51% from peak – while many equity markets have recovered somewhat the Brazilian equity market is still down significantly from the peak in USD terms. Sentiment is obviously bad due to a gross mismanagement of the COVID-19 outbreak by the government but with Brazilian equities valued at a 55% discount to global equities it may be worth making a bet on this EM market. Given the uncertainty over EM markets and the rebound one should consider placing the bet with call options on the main index or an ETF tracking the equity market.

Last week US technology stocks increased their share of the US equity market even further pushing the index concentration closer to an all-time high. Online and technology stocks are perceived as a sure bet fueling the rally but it reminds us of the Nifty Fifty period in the US back in the 1960s/70s when a group of 50 growth stocks were perceived as sure winners sporting very high valuations relative to the rest of the equity market. Growth could not live up to expectations and these 50 stocks caused a prolonged hangover for the US equity market. Could it happen again?

Global equity investors have sent markets soaring in recent weeks on the belief that the global economy can still somehow experience a “V-shaped” recovery. But to say this response is largely based on wishful thinking wouldn’t quite do it justice.

On Monday, Disney reopened Shanghai Disneyland for the first time in the three months since the pandemic closed most of China. However, even as the Shanghai park becomes the only major Disney theme park in operation around the world, strict public health rules imposed by local party officials means the park “will now restrict visitor numbers to 20% of daily capacity, or about 16,000 people – far below a level initially requested by the Chinese government,” reported Reuters.

It also means that visitors will be subjected to a battery of temperature checks, and constant nagging by park employees to observe social distancing rules like remaining 6 feet apart.

Disney scrapped all parades and fireworks, replacing those activities with an evening projection show. The park also shut down all interactive children’s play areas and indoor live shows. 

Andrew Bolstein, the park’s senior vice-president of operations, said most of the rides are open along with restaurants. He added that more attractions and shops would come online, but that will depend on government regulations.

Zhang Zhongyu, 29, a patron interviewed by Reuters, described the experiencing as being a little disappointing.

“I’m a little disappointed, but there’s nothing we can do – thinking of the virus, you have to avoid guests gathering closely, it’s understandable,” Zhongyu said.

The process for entering the park mirrors the procedures for an Amazon worker in America to enter the warehouses where they work Customers will pass through body temperature stations and show their health status on a smartphone app. Masks at Disneyland are required. Once inside, markers tell guests where they can and cannot stand. Audio on loudspeakers regularly reminds people of social distancing rules. Spacing on rides was also seen to limit virus transmissions.

Hand sanitizers, shorter appearances by Disney characters and empty seats on rides — these are some of the measures put in place as Shanghai Disneyland reopened its doors for the first time in 15 weeks. CNBC’s @onlyyoontv with the latest. https://t.co/r84wtltH3C pic.twitter.com/MiuG2R9UbW

— CNBC International (@CNBCi) May 11, 2020

As Bloomberg reports, tickets for Monday’s reopening “sold out in minutes.”

But even so, guest capacity at the park has been significantly reduced versus volumes that were seen in pre-corona times, and – as Kyle Bass pointed out a few weeks ago during an interview on CNBC – there aren’t many businesses that can survive on 20% of normal customer capacity.

So while the American financial press pumps the Shanghai reopening, the more important news out of China on Monday appears to be reports of a lockdown being reimposed at a town near the North Korean border following an alleged outbreak.

Since President Trump pulled the US out of the JCPOA (better known as “the Iran nuclear deal”), Iran has suffered one embarrassing mishap after the next. Earlier this year, the IRGC accidentally shot down a Ukrainian passenger airliner filled with young Iranian students. The fact that the regime ineptly lied about the shoot-down, before finally coming clean in the face of overwhelming evidence, only compounded the embarrassment.

At around the same time the coronavirus was just beginning its spread across Western Europe, Ieaked reports out of Iran revealed that the mysterious new virus was already spreading like wildfire, dropping hundreds of bodies as public health officials scrambled to jerry-rig a credible response plan, while American sanctions limited the country’s ability to import critical supplies like medicine (a problem that Iran’s sympathizers in the EU helped it solve).

And now, in the early hours of Monday morning, Iran’s military has stumbled into another epic f*ckup: The NYT reports that 19 Iranian sailors have died, 15 were injured and nearly 2 dozen more are missing after a missile test at sea went horribly awry. An Iranian ship sustained “friendly fire” as a target-seeking missile slammed into its stern instead of striking the dummy “target” thw ship had just towed out to sea.

Official details of the incident were scant, and the navy said that 15 other people were injured. But four people with knowledge of the incident said that the ship, identified as the missile boat Konarak, was hit and sunk by a missile from the frigate Jamaran by mistake. They spoke on the condition of anonymity to avoid reprisal from Iranian officials.

“The scope of the incident is under investigation by experts,” Iran’s Navy said in a statement.

According to the Intelligence Firm Jane’s Information Group cited by the Washington Post, the ship was struck not far from the Iranian port city of Jask, near the Strait of Hormuz by a Noor an anti-ship cruise missile that has long been a part of Iran’s anti-ship arsenal.

Notably, this latest “mishap” – which happened during a missile test in the Gulf of Oman – occurred shortly after President Trump ordered US Navy ships in the area to fire on Iranian ships if they felt threatened. Critics of the repressive, hard-line Islamic theocracy leapt at the chance to highlight the government’s ineptitude.

The reports of the latest mishap drew criticism of the government on social media.

“Firing at your own targets, whether military or civil, in such a short space of time is not human error. It’s a catastrophic failure of management and command,” tweeted Maziar Khosravi, a journalist aligned with reformist politicians.

The friendly-fire case occurred on Sunday afternoon in the Sea of Oman, near the Iranian port city of Jask. Iran routinely conducts military exercises in the Persian Gulf and Sea of Oman with a dual purpose: testing new domestically produced equipment and showcasing its military might as tensions between Washington and Tehran escalate and the threat of military conflict looms.

[…]

It was not immediately clear whether human error or faulty equipment was involved in Sunday’s accident.

Senior military officials in Iran were at a loss for words, with one tweeting that the accident was “very sad for all of us” (but especially for the families of the dead, right?)

“This accident is very sad for all of us,” tweeted Seyed Mohamad Razavi, a prominent media adviser to conservative politicians, including Mohamad Baqer Ghalibaf, the incoming speaker of Parliament and a former Revolutionary Guards commander.

The gunboat that fired the missile, known as the Jamaran, is one of Iran’s most prized military ships.

The Konarak

The Dutch-made vessel was in service since 1988 and usually carries a crew of 20 sailors, the AP said. The loss of the Konarak, the ship that was struck, will “not have a significant impact on the capabilities of the Iran Navy,” one analyst told WaPo.

The Konarak had not sufficiently distanced itself from the target when the missile was fired. Instead of hitting the target, the missile slammed into the tail of the Konarak, according to the Telegram channel, called SepahCybery, and Mr. Razavi.

The Jamaran is considered one of the prides of Iran’s fleet, and a triumph of homegrown naval technology. Iran’s supreme leader, Ayatollah Ali Khamenei, inaugurated the Jamaran in 2010 in unusual appearance onboard the ship.

Military analysts around the world hurriedly warned that this latest incident is just the latest example of how the next Middle Eastern war could be just one “human error” away.

Military experts said that Sunday’s episode was a significant setback for Iran’s navy and its ambitions to project itself as a power player in the Persian Gulf and beyond. Together with the downing of the Ukrainian airliner, it undermines an effort by Iran to present its military as a force capable of countering the United States and its regional allies, they said.

“This really showed that the situation with Iran is still dangerous, because accidents and miscalculations can happen,” said Fabian Hinz, an expert on Iran’s military at the Middlebury Institute of International Studies at Monterey. “It doesn’t give you confidence about the stability of the Persian Gulf.”

It’s also worth noting – since the American MSM almost certainly won’t – that this mishap is just the latest embarrassment that undermines the credibility of the Iranian regime abroad and, more importantly, at home. Since Trump has adopted his hard-line approach, the Iranian hardliners have been on their heels. For the first time in decades, the notion that the regime might collapse, or at the very least be forced to undertake some important domestic reforms (and capitulating on its military missile and nuclear programs). As history has repeatedly shown, appeasement of the enemy seldom succeeds in eliciting change. Only pressure can do that.

Authored by Paul Joseph Watson via Summit News,

Police in the UK are apparently investigating people online who post tweets critical of the coronavirus lockdown.

Toby Young’s LockdownSceptics.org website was contacted by a reader who regularly dissents against the shutdown of the UK on social media.

“I was contacted by a reader who has been very critical of police over-reach on Twitter,” writes Young.

“He saw a Tweet from another sceptic complaining the police had checked his profile on LinkedIn and thought, “That can’t possibly be true. Surely, they’ve got more urgent maters to attend to?”

He then checked his own LinkedIn profile and found this.”

A screenshot shows that the individual’s LinkedIn profile was accessed nine times between April 28 and May 5, and that one of the visitors was someone working for Metropolitan Police in London.

Not content with using surveillance drones to publicly shame remote countryside dog walkers, the authorities are now also apparently keeping tabs on anti-lockdown social media posts.

Because it’s not like there’s much real crime to deal with in London, is it?

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