Tag: finance

During a press briefing at the White House on Monday, President Trump publicly affirmed that he would be fine with Microsoft or some other major American company buying TikTok from ByteDance, despite opposition from White House advisor Pete Navarro, who took to CNN to express his unhappiness with the deal Monday morning.

What came next surprised many of the journalists in attendance. After insisting that a deal be completed by the mid-September deadline imposed by CFIUS, Trump boasted that the US Treasury would get a “very large percentage” of the deal (the final number, Trump insisted, would be based on the size of the deal – but it would definitely be substantial. Trump then launched into an analogy, comparing the US government to a landlord and TikTok to a tenant.

“We make it possible to have this great success…TikTok is a tremendous success, but it happened in this country.”

To be sure, Trump and the executive branch have unilateral power to cripple TikTok by adding it (and probably its owner ByteDance) to the US “entity’s list” – the Commerce Department ‘black list’ to which Huawei, and dozens of other Chinese companies, have been added.

Trump’s comments, apparently, created an opening for China’s propagandists, who in an editorial that has grabbed the attention of the Western press, accused the Trump Administration of blatantly trying to “steal” Chinese technology, an act it called a “smash and grab” – likening the US to a desperate drug addict breaking into parked cars to try to find something, anything, to steal and trade for cash.

Read the full editorial below, courtesy of the People’s Daily:

After vowing to ban the popular short-video sharing app TikTok in the United States on Friday, the US president is reportedly weighing the advantages of allowing Microsoft to purchase its US operations.

Such shilly-shallying is a tactic the US administration employed during the trade deal negotiations with China.

The tactic involves the president promising punishment for some perceived wrongdoing, followed by indications from other administration officials that the punishment might not be forthcoming. This is followed soon after by some close to the president saying that he intends to make good on his threat, sparking a sharp rise in tensions again. All with the aim of getting what the US administration wants.

So it was par for the course that after the ban on TikTok was proposed and then left hanging, that US Secretary of State Mike Pompeo told the media on Sunday morning that the president “will take action in the coming days with respect to a broad array of national security risks that are presented by software connected to the Chinese Communist Party”.

Although it is yet to be known how that will work, the message will certainly heighten the concerns of Chinese companies.

As TikTok’s experience shows, no matter how unfounded the claims against them are, as long as they remain Chinese companies, they will be presented as being a “Red threat” by the administration.

That being said, selling its US operations to Microsoft might be preferable for ByteDance, TikTok’s parent company in China, as it is working “for the best outcome”. And that being the case, the top US diplomat’s comments on Sunday were tantamount to inviting potential.

US purchasers to participate in an officially sanctioned “steal” of Chinese technology.

Washington is well aware that Beijing will be cautious about retaliating like-for-like as it values foreign investment in China, and the sizable US investment in China is of more importance to the Chinese economy than the much smaller and shrinking Chinese investment is to the US economy.

Also, there is the additional bonus that coercing Chinese companies to divest their US business to US enterprises will not incur job losses.

The US administration’s bullying of Chinese tech companies stems from data being the new source of wealth and its zero-sum vision of “American first”. With competitiveness now dependent on the ability to collect and use data, it offers an either-or choice of submission or mortal combat in the tech realm. There are no carrots to promote cooperation only sticks.

But China will by no means accept the “theft” of a Chinese technology company, and it has plenty of ways to respond if the administration carries out its planned smash and grab.

The People’s Daily’s demand is ironic, since President Trump’s ascendance to the presidency was due in part to his aggressive stance toward China, which he accused of stealing jobs, technology and economic might from the US.

Four years later, China’s modus operandi for stealing American technology is well known. First, there are the “joint ventures” that China requires all foreign companies to establish before they can do business in China. This system is clearly designed to give Chinese firms access to valuable American technology as simply the price of doing business.

China’s cyberespionage activities, run through the Ministry of State Security, have infiltrated some of the biggest companies in the west.

Sometimes, technology theft is orchestrated by Chinese companies, presumably on behalf of the MSS, like the now-infamous theft by Huawei engineers of “Tappy”, a piece of technology developed by a team of engineers at T-Mobile, which figured heavily into a lawsuit filed early last year.

We could go on. But as for what this means for TikTok, the competing pressures from Beijing and Washington might make any deal impossible, particularly within the timeline demanded by the US.

Isaias topped sustained winds of about 85 mph Monday, right before making landfall in Ocean Isle Beach, North Carolina, around 23:00 ET. The hurricane was downgraded Tuesday morning to a tropical storm, set to unleash torrential rains and high winds across Mid-Atlantic and Northeast states, reported the National Hurricane Center (NHC).

After making landfall in the Carolinas, now inching up the East Coast, and fast approaching Maryland, Delaware, New Jersey, and New York, Isaias is set to arrive in southern Maryland to the Washington, D.C. area around morning rush hour. 

Washington, D.C., Baltimore, Philadelphia, and New York City are expected to face tropical storm conditions throughout the day on Tuesday. Interstate 95 corridor from Richmond, Virginia, to New York could see wind gusts around 45-65 mph, heavy rains, and elevated flash flooding risks. 

CNN quoted Ross Dickman, a meteorologist at the National Weather Service (NWS) in New York, who said Isaias is expected to be one of the strongest storms seen in the Northeast in years. 

“The wind and flooding impacts from Isaias will be similar to what the city has seen from some of the strongest coastal storms,” such as nor’easters — “but we haven’t seen one this strong in many years,” he said.

PowerOutage.US is reporting 364,026 customers are without power in North Carolina and 77,649 in Virginia. Widespread power outages are expected across the Mid-Atlantic area on Tuesday. 

Tornado watches have been posted for Virginia, Maryland, Deleware, and southern parts of New Jersey.

Tornado threats in New York City could surge later in the day.

The latest European Centre for Medium-Range Weather Forecasts (ECMWF) suggests the storm will head into the interior Northeast. 

There’s one town in Maryland, called Ellicott City, that is prone to some of the craziest flash flooding in the country. We reported a couple of years ago, a storm wiped out the historic town. Residents spent Monday filling sandbags as they fear another flash flood could be seen Tuesday. 

#Isaias Preps Underway in Ellicott City, MD tonight >>
• Parts of the city submerged in 2016 and 2018…
• This is Main Street, where the sandbags are out
• Parking will be banned on Main for 24 hours starting 11PM, in case catastrophic flooding returns @WUSA9 #DCwx pic.twitter.com/NRemSlnTeY

— Mike Valerio (@MikevWUSA) August 3, 2020

Another disturbance has been spotted behind Isaias. 

The 2020 Atlantic Hurricane Season has already been off to a busy start. 

Authored by Paul Joseph Watson via Summit News,

Democratic Houston Mayor Sylvester Turner has announced that police will begin issuing citations against people not wearing masks, hitting them with a fine of $250 dollars.

“For months, we have been focusing on education and not citations, but now I am instructing the Houston Police Department to issue the necessary warnings and citations to anyone not wearing a mask in public if they do not meet the criteria for an exemption,” the mayor said Monday at a press briefing.

Police said that the wouldn’t respond to call outs reporting people for not wearing masks, but they would issue the fine if they saw someone not covering up during regular patrols.

The citation comes with a $250 fine. Lives are at stake, so I am taking this step to save lives and slow the virus from spreading in the month of August.

— Houston Mayor’s Office (@houmayor) August 3, 2020

Turner asked residents to not “get mad” at police officers, asserting, “It’s all about public health and driving our numbers down.”

As we highlighted yesterday, Dr. Deborah Birx suggested that Americans should wear masks inside their own homes to protect elderly loved ones from coronavirus.

The efficacy of masks is far from the settled science that the mainstream media purports it to be, with the Netherlands refusing to enforce the wearing of masks, while health authorities in Sweden have described them as “pointless.”

Last week, Dr. Anthony Fauci raised the prospect of face coverings becoming even more cumbersome when he suggested Americans may wish to start wearing eye goggles in addition to a mask.

*  *  *

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Yesterday’s brief interruption in the demise of yield (driven by rate-locks due to the massive Alphabet issuance), has ended with Treasury yields erasing the entire move and then some.

Source: Bloomberg

Aside from the flash-crash spike lows on March 9th, this is the lowest 10Y yields have been ever…

Source: Bloomberg

And stocks refuse to pay attention…

Source: Bloomberg

Because “Vaccine” or “V-shaped recovery” or “Fed put” or “Washington put” or…

And as yields plunge, negative-yielding debt soars and sends alternative assets higher…

Source: Bloomberg

Trade accordingly.

One week ago, the Turkish Lira which had flatlined for the better part of a month on what strategists said were an unprecedented array of novel capital controls and bank selling of dollars, suffered a sharp hiccup as local authorities briefly lost control of the currency, with USDJPY spiking briefly from its “pegged” level of 6.85 to as high as 7.00 before instantly reversing.

And while a precarious balance had returned in the subsequent few days, the lira resumed its gradual drift lower in what many saw an ominous deja vu of what happened in the summer of 2018 when the lira plunged only to see the central bank hike funding costs in an attempt to crush shorts.

Sure enough, with Turkey ostensibly running out of reserves to sell and keep the TRY quasi pegged, overnight Turkey resorted to the currency bazooka when it unexpectedly ramped up the interest rate on Turkish lira overnight swap transactions in the London market, which initially soared to 280% on Tuesday from 6.8% on July 29, according to Refinitiv data, before exploding as high as 1024bps, the highest on record.

Turkish banks have previously cut funding to the London swap market, effectively making it impossible to short the lira, in order to curb falls in the currency. Today’s desperation move follows heavy dollar sales by state banks last week, which drained lira liquidity as the trades settle, Bloomberg said citing two traders.

Needless to say, for Turkey to resort to such draconian “Plan Z” measures where it effectively nationalizes the FX market, it means that its economy is on the verge of collapse, a view reaffirmed overnight by the FT which writes that Turkey’s tourism sector – a key source of economic growth – continues to reel due to convid.

At this time of year, Murat Tugay, who runs the 240-room Hotel Aqua in the Mediterranean resort of Marmaris, should be dealing with a packed guestbook and all the challenges of peak season. Instead, the hotel is closed and Mr Tugay is banking on a late summer recovery. “We still have August. We still have September,” he says.

This implosion in Turkey’s tourism sector comes at a time when President Recep Tayyip Erdogan has been desperately seeking to assure the population (and much needed foreign investors) that all is well, hailing a sharp fall in interest rates and praised measures taken to block “malicious” attacks on the Turkish lira. Such steps, he said, were “strengthening the immune system of our economy against global turbulence.”

That could not be further from how most economists see the Turkish picture. The collapse in tourism as a result of the coronavirus pandemic has left a gaping hole in the country’s finances. Foreign investors have fled, pulling out a large volume of funds from the country’s local-currency bonds and stocks over the past 12 months.

In the face of those outflows, the country has burnt through tens of billions of dollars of reserves this year in a bid to maintain an unofficial currency peg — a move that marks a rupture with a two-decade policy of allowing a free float. But, in a sign that those efforts are floundering, as we showed last week, the lira lurched towards a record low against the dollar even as authorities spent billions trying to defend it.

And now, it appears that Turkey is running out of reserves to sell and “control” the lira, and instead it is resorting to the bazooka approach, one which it can use to nuke the occasional short here and there, but which in the longer run will cripple the Turkish economy, and merely accelerate its downfall.

And sure enough, after the lira briefly strengthened in the spot market as a result of record surge in overnight rates, it then promptly swung to a loss again suggesting that it is no longer shorts that are in the driver’s seat, that Turkey’s paniced attempt to punish them will have little impact on the continued decline in the currency, and that a full blown currency crisis in Turkey may be about to hit.

BP halved its dividend on Tuesday after reporting a record $6.7 billion quarterly loss due to the collapse in global demand for energy products. 

The dividend cut by BP comes at no surprise. Major oil companies were crushed in the second quarter as coronavirus lockdowns led to a sharp decline in demand for oil and gas products. Royal Dutch Shell is a major oil and gas company that recently announced a cut to its dividend.  

BP said the outlook for energy demand and prices remains “challenging and uncertain,” warning that the virus-induced global recession could weigh on demand for a “sustained period.” As to how long, well, no specific guidance was given. We noted last month, KPMG estimates 14 million fewer vehicles on US highways due to remote working trends and permanent job loss. 

Tuesday’s halving of the dividend (first cut in a decade) to 5.25 cents per share was much larger than what analysts expected, due primarily to the company needing to get its massive debt load under control while adapting to a new environment, one which demand languishes as the global economic recovery is sluggish. 

The company announced in June it would lay off nearly 10,000 workers globally by the end of the year. 

Refinitiv data shows BP’s 2Q loss was one for the record books, posting a $6.7 billion loss for the quarter. The net loss was mostly in line with average analysts’ expectations. The loss is compared with profits of $2.8 billion a year earlier and $791 million in 1Q20.

BP’s new Chief Executive Bernard Looney called the second quarter “challenging:”

“These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent bp. In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact. Beneath these, however, our performance remained resilient, with good cash flow and – most importantly – safe and reliable operations.”

Despite BP’s reduction in its dividend, shares trading in London and New York were higher on Tuesday morning as it announced a new strategy to pivot away from carbon-intensive fossil fuels to a greener initiative. 

BP PLC 

MSCI World Index versus Reuters Global Energy Index 

Maybe the divergence above suggests global stocks are running on fumes. 

Globally, the number of new cases reported on Monday (remember, these cases are reported typically with a 24-hour delay) tumbled to the slowest rate of expansion in nearly three weeks, while the global death toll neared 700,000.

In the US, the death toll surpassed 155,000 yesterday. That comes five days after the US first broke above 150,000 deaths. Though experts like Dr. Fauci and others have warned about the potential for deaths in the US to accelerate, the number of daily deaths has remained anchored at around 1,000.

Over the past two weeks, the worst-hit countries, including the US and Brazil, have seen new cases turn mercifully lower after a streak of record-shattering single-day infection numbers.

Most of the big news out so far on Tuesday comes out of Asia.

One day after placing Manila and its surrounding area on a strict two-week lockdown, the Philippines reported a record 6,352 new coronavirus infections, a new single-day record, bringing the total to 112,593. The 11 new fatalities reported raised the death toll to 2,115.

Yesterday, the WHO’s Dr. Tedros revealed during a press briefing (where he also noted that there may be “no silver bullet” vaccine, at least not right away) that the team of independent scientists from the WHO had finished the first part of their fact-finding mission to Wuhan to investigate the origins of the outbreak. According to a Reuters report published Tuesday morning, the team had “extensive discussions” with scientists in Wuhan and “received updates on epidemiological studies, biologic and genetic analysis and animal health research.”

The mission is the first part of a broader international probe that was demanded by the Trump Administration, Australia, EU and others.

In Japan, Tokyo Gov. Yuriko Koike announced another 309 new infections, up from 258 on Monday. The SCMP reports that the Hong Kong government is building at least 2 new makeshift hospitals that will add 2,400 new beds to the territory’s COVID-19 capacity. The government announced on Monday that it would extend its social distancing restrictions for another week. Hong Kong’s “third wave” of the virus has also been its deadliest yet. Fortunately, the city reported just 80 cases on Tuesday, on par with yesterday’s number. Yesterday, the city’s health authorities reported fewer than 100 new cases for the first time in nearly 2 weeks. Chief Executive Carrie Lam has sought help from the mainland to increase testing and hospital capacity.

India reported more than 50,000 cases for the sixth straight day, bringing total infections to over 1.85 million.

The world’s second-most-populous country also reported another 803 deaths, bringing its total to 38,938.

China reports 36 new cases, down from 43 the previous day. Of those, 28 were in the northwestern region of Xinjiang and two in Liaoning Province in the northeast. Another six were from Chinese arriving from overseas.

After imposing a curfew earlier this week and shuttering a large swath of its economy in another lockdown, new legal measures go into effect on Tuesday whereby anyone caught outside in breach of Victoria’s isolation orders will face fines from AUS$1,652 ($1,200) to AUS$5,000 ($3,559).

Officials warned that noncompliance with quarantine and social distancing rules is widespread. Random checks by police on 3,000 infected people had found more than 800 were not home isolating, as they were supposed to be.

However, the Australian press, for whatever reason, focused on Chief Commissioner Shane Patton’s complaints about a small number of self-declared “sovereign citizens” who have hectored – and in at least one case, attacked – police officers trying to enforce the new orders.

Victoria Police had seen an “emergence” of “concerning groups of people who classify themselves as ‘sovereign citizens'”, the BBC reported Tuesday.

Under the current “stage four” lockdown, Melbournians can leave home only to shop, exercise and provide essential medical care, or do frontline work. Residents must shop and exercise within 5 kilometers (3 miles) of their home, and for no longer than 1 hour at a time.

This, despite a growing body of evidence that the lockdown in Victoria is having little impact on suppressing the growth of cases.

S&P futures posted a rare overnight drop alongside shares in Europe as President Trump’s moves to force China-owned TikTok into a sale of its U.S. operations drew a sharp rebuke from Beijing, ratcheting up tensions as the world slides into a pandemic-fueled recession; at the same time a string of poor earnings illustrated the continuing hit from the pandemic while jittery investors also awaited news on whether fresh fiscal stimulus in the U.S. will get approval. The dollar reversed overnight losses and 10Y yields tumbled back to all time lows.

On Monday, the S&P 500 closed Monday within 3% of its all-time high, powered over the past four months by a stimulus-led rebound and a rally in tech-related stocks including Apple Inc, Netflix Inc and Amazon.com Inc. In earnings-related news, insurer AIG fell 2.8% in premarket trading after posting a 56% fall in quarterly adjusted earnings. Take-Two Interactive Software Inc O) rose 4.7% as it raised its annual adjusted sales forecast on demand for its videogame franchises “Grand Theft Auto” and “NBA 2K”. Rival Activision Blizzard Inc gained 3.8% ahead of its results due after the closing bell.

“We see U.S. stocks at risk of fading fiscal stimulus,” BlackRock Investment Institute strategists led by Mike Pyle wrote in a note. “U.S. employment figures are in focus this week as this fiscal cliff nears and the pandemic’s spread in Sunbelt states is starting to affect economic activity.”

The MSCI world equity index was up 0.4% after reaching a five-month high on Tuesday morning. Friction between the world’s top two economies took a back seat in the first half of 2020 as the COVID-19 pandemic crushed global growth, and an escalation now would hamper the recovery of some exporters and importers and fan fears of a deeper economic slump. With Microsoft Corp looking to buy short-video app TikTok’s U.S. operations, Trump said on Monday the U.S. government should get a “substantial portion” of any deal price. On Tuesday, state-backed newspaper China Daily said the country will not accept the “theft” of the technology company. Investors are also focused on whether U.S. Congress will approve fresh stimulus. The pressure is building, with the Senate set to leave on a break Friday, when crucial job data is due.

Europe’s Stoxx 600 reversed an early gain of as much as 0.6%, dropping 0.4%, and London’s FTSE 100 flat on the day with defensives shares among the worst performers. Disappointing earnings reports from the world’s largest spirits maker, Diageo Plc and German drugs and pesticides giant Bayer took the shine off growth-linked cyclical stocks. Food-and-drink shares fall the most after Diageo slumps on sales miss. Health-care shares also lag, while autos and banks outperform and BP boosts oil-and-gas shares. Shares in BP jumped after it cut its dividend and posted a record loss that was in line with expectations. On the other end, the Stoxx 600 Automobiles & Parts Index rises as much as 2.4% after Renault’s CEO outlines a focus on margins, Bankhaus Metzler double-upgrades Daimler on profitability prospects and Jefferies analysts say 2Q results support current terms for the PSA Group-Fiat Chrysler merger. The automotive index was +1.7% at 1:35pm in Paris, with Renault +5.5%, Nokian Renkaat +4.1%, PSA +3.7%, Fiat Chrysler +3.4%, BMW +2.2%; non-index member Schaeffler +8.6%. The sector has second-biggest gain in Stoxx Europe 600 Index, which is down 0.4%

Earlier in the session, stocks in most Asian markets rose, with gauges in Japan, Hong Kong, Shanghai, Taiwan and South Korea advancing led by energy and industrials, after rising in the last session. All markets in the region were up, with Japan’s Topix Index gaining 2.1% and Hong Kong’s Hang Seng Index surged in afternoon trade, with property stocks leading gains. The gauge rose as much as 2.2%, the most since July 21, before paring the gain to 1.9% led by Wharf Real Estate Investment +7% and New World Development +4.1%. Japan’s Topix gained 2.1%, with GSI Creos and Plant rising the most. The Shanghai Composite Index rose 0.1%, with Heilongjiang Interchina Water Treatment and North Navigation Control Technology posting the biggest advances.

As noted above, U.S.-China tensions worsened as President Donald Trump said that he will ban Chinese app TikTok in the U.S. unless a tech company such as Microsoft buys it. China said it would not accept the “theft” of a Chinese company and that is has “plenty of ways to respond if the administration carries out its planned smash and grab.”

“This kind of rhetoric lines up with our view that U.S.-China frictions may increase into the U.S. elections, injecting volatility into related assets like China tech ADRs (American Depository Receipts) while also supporting insurance assets like gold,” wrote UBS Global Wealth Management’s chief investment officer, Mark Haefele.

The United States and China are also clashing over Chinese journalists working in the United States, who may be forced to leave the country if their visas are not extended.

Elsewhere, investors were waiting for Washington to make progress in talks over the next round of fiscal stimulus. A $600-per-week enhanced unemployment benefit, which provided a lifeline for the tens of millions of Americans who lost their jobs due to the pandemic, expired on Friday. Lawmakers said they had made “progress” in the talks, and U.S. House Speaker Nancy Pelosi will meet again with Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows on Tuesday, raising hopes for a breakthrough.

“A second wave of Covid-19, contested elections, civil unrest and escalating tensions with China could provide a toxic cocktail for the final quarter of the year,” Philip Marey, senior U.S. strategist at Rabobank, wrote in the bank’s monthly outlook. Marey said that he expects another economic contraction, or at least a “substantial slowdown” in the fourth quarter, which could force the Federal Reserve into action.

“If they don’t want to cut policy rates below zero, yield curve control is the next logical step,” he said. “Meanwhile, any failure by Congress and the White House to provide sufficient fiscal stimulus going forward will only speed up the Fed’s thinking process.”

In FX, the dollar rebounded from a new bout of overnight selling, as traders re- balanced their portfolios in the run-up to key U.S. economic data releases this week. The Australian dollar’s rally followed the central bank’s pledge to resume quantitative easing from Wednesday; the euro and Swiss franc also climbed. Japanese government bonds edged higher after an auction of 10-year debt attracted decent demand, while the yen halted a two-day loss

In rates, 10-year TSY yields were around 0.54%, richer by ~2bp vs Monday’s close; Bunds outperformed slightly with ten-year German bond yields edged down to -0.5400%, but remained above the two-month lows reached at the end of last week. European peripherals outperform, led by Portugal and Spain.

Long-end Treasuries were near session highs after catching a bid in London hours as S&P 500 E-mini futures pared gains, flattening the yield curve. Price action has been broadly muted ahead of Wednesday’s supply announcement, however, while another heavy IG credit issuance slate is possible following Monday’s strong start to the week. Yields lower by 1bp to 2.5bp from belly out to long end, flattening 2s10s spread by nearly 2bp, 5s30s by 1.4bp

Spot gold edged down from all-time highs, at $1,974.3033 per ounce, amid mounting COVID-19 cases and a warning from the World Health Organization that the road to normality would be long. Oil prices slipped on fears that a new wave of COVID-19 infections could curtail a pick-up in fuel demand, just as major producers ramp up output. WTI crude futures fell 59 cents, or 1.44% to $40.42 a barrel. Brent crude futures fell 59 cents, or 1.3% to $43.56 a barrel

Looking at the day ahead, economic data include June factory orders and final reading for durable goods. Disney, Fox Corp, Activision Blizzard, Twilio and KKR are due to report earnings

Market Snapshot

• S&P 500 futures down 0.3% to 3,279.25
• STOXX Europe 600 down 0.2% to 362.90
• MXAP up 1.7% to 168.02
• MXAPJ up 1.5% to 558.93
• Nikkei up 1.7% to 22,573.66
• Topix up 2.1% to 1,555.26
• Hang Seng Index up 2% to 24,946.63
• Shanghai Composite up 0.1% to 3,371.69
• Sensex up 1.6% to 37,535.54
• Australia S&P/ASX 200 up 1.9% to 6,037.55
• Kospi up 1.3% to 2,279.97
• Brent futures down 1% to $43.72/bbl
• Gold spot unchanged at $1,976.95
• U.S. Dollar Index down 0.06% to 93.49
• German 10Y yield fell 1.0 bps to -0.533%
• Euro up 0.1% to $1.1776
• Brent Futures down 1% to $43.72/bbl
• Italian 10Y yield fell 0.5 bps to 0.882%
• Spanish 10Y yield fell 3.7 bps to 0.299%

Top Overnight News

• House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin head into another round of negotiations on a new virus relief package after talks on Monday yielded “a little bit” of progress
• With the talks dragging on, President Donald Trump on Monday said he was considering executive action to restore a moratorium on evictions that expired, and the White House was looking at other steps the administration could take without action by Congress
• China’s government may take action against Washington, if a sale of TikTok’s U.S. operations to Microsoft Corp. is forced, the state-run China Daily said in an editorial
• California and Arizona reported fewer new coronavirus cases after battling a surge in infections last month, while Germany and Poland recorded increases
• BP Plc slashed its dividend for the first time in a decade after the coronavirus pandemic upended the oil business

Asian equity markets traded positively as the region took its cue from the constructive handover from Wall St where sentiment was underpinned by strong ISM Manufacturing PMI data and with advances led by a continued tech rally after Apple shares extended on record highs and with Microsoft the biggest gainer in the DJIA amid a potential TikTok acquisition. ASX 200 (+1.9%) outperformed and broke above the 6000 level as tech names found inspiration from their counterparts stateside and a potential WFH boost due to the impending tougher lockdown restrictions in Victoria state, with notable strength also seen in the top-weighted financials sector. Nikkei 225 (+1.7%) remained underpinned by favourable currency flows and with slight encouragement also provided by firmer than expected Tokyo inflation data, as well as comments from BoJ Governor Kuroda that the central bank could extend the period of corporate support. Hang Seng (+2.2%) and Shanghai Comp. (+0.1%) conformed to the upbeat tone but with less conviction in the mainland after another notable liquidity drain by the PBoC and continued US-China tensions with the US attempt to force a sale of TikTok being branded by Chinese press as a robbery and with allegations from US Secretary of State Pompeo that the Chinese Communist Party is running an espionage operation in the US. 10yr JGBs were initially flat with demand sapped by the gains in Tokyo stocks and as participants were sidelined ahead of the 10yr JGB auction which saw mixed results but nonetheless attracted higher prices and eventually spurred 10yr JGBs in late trade.

Top Asian News

• RBA Keeps Key Rate, Yield Unchanged, Will Resume Bond Purchases
• Modi Reimposes Kashmir Clampdown a Year After Autonomy Ended
• Most Valuable Indian Lender Gets New Chief After 26 Years
• China’s Hottest Stocks Stumble in Push Toward Five Year- High

The initial optimism seen in Europe at the cash open somewhat petered out – with the region now posting a mixed performance despite a lack of fresh fundamental catalysts and a positive APAC handover. No major under/outperformers are seen across major European bourses, but DAX saw a notable reversal into negative territory from a firm positive performance earlier in the session – potentially on the back of heavyweight Bayer (-3.3%) extending on post-earnings losses after cutting its guidance, whilst the turnaround in the tech sector prompted SAP (-2.5%) to tumble to the bottom of the index, albeit Infineon (+4.7%) remains positive despite the broader erosion in the tech sector after raising its revenue guidance.. Sectors are now mixed as earlier gains recede, albeit the detailed breakdown sees cyclical sectors Oil & Gas, Autos, Bank and Travel & Leisure retaining their top positions whilst defensives hold onto losses. The auto sector has seen little by way of fresh news, although pre-market, the German Ifo institute noted that the auto industry business expectations rose significantly for a second straight month, thus potentially underpinning the sector. Individual movers largely consist of earnings: BP (+7.5%) extends on gains despite a 50% cut to dividends after posting a smaller than expected loss and noting that the current financial breakeven is at USD 40/bbl. Diageo (-5.5%) holds onto losses after missing on expectations across the main metrics whilst refraining from providing guidance. Easyjet (+12%) drifts higher after upping its Q4 capacity to 40% from the prior 30%, with the performance also supporting the likes of Air France-KLN (+5.5%), Lufthansa (+3.5%) and peers. Other earnings-related movers include Hugo Boss (+2.1%), Fraport (+0.3%), Evonik (+3.6%) and Metro AG (+4%).

Top European News

• Bond Titans Led by Pimco Double Down on Their Bet on Europe
• Former King Abandons Spain in Disgrace as Legal Woes Pile Up
• Schaeffler Mulls More Cost-Cutting to Deal With Covid Crisis
• German Bonds Fated to Stay Rich If ECB Has Any Say: Markets Live

In FX, it remains to be seen whether the Buck stops retreating and stages another rebound, but for now it looks as though yesterday’s narrow failure to recapture the 94.000 level in DXY terms was telling from a psychological standpoint if nothing else. Indeed, the index has drifted down from a lower 93.612 high through 93.500 to 93.268 and lost inverse correlation with broad risk sentiment that briefly returned yesterday. Ahead, relatively 2nd tier data scheduled and unlikely to have a major impact given the lack of meaningful or last reaction to Monday’s manufacturing ISM that was largely better than expected in headline and sub-component terms. However, technical factors may direct trade given near term support at 93.169 and resistance at 93.997 ahead of last Friday’s 94.007 high.

• AUD/EUR/CHF/CAD – The Aussie has taken advantage of Greenback’s pull-back to reclaim 0.7100+ status and the 10 DMA (0.7144) in wake of the RBA policy meeting that maintained rates and guidance, but in acknowledgement of the COVID-19 resurgence in Victoria will see the Bank resurrect its QE program from Wednesday. Elsewhere, the Euro has retested 1.1800 from Monday’s low just under 1.1700 and the Franc is back over 0.9200, with the former topping out ahead of Fib resistance at 1.1823 and the latter into 0.9150, while the Loonie is meandering between 1.3404-1.3360 parameters in the run up to Canadian manufacturing PMI.
• JPY/NZD/GBP/NOK/SEK – Lagging their G10 counterparts, albeit to varying degrees, as the Yen pivots 106.00, Kiwi straddles 0.6600 in advance of NZ jobs data and Pound fades within a 1.3107-1.3047 range having failed to get close enough to stir or arouse stops said to be waiting for a break of 1.3120. Similarly, the Scandinavian Crowns have slipped both slipped from best levels against the Euro, though in tight bands of 10.7675-7200 and 10.3045-2740 respectively and the Nok eyeing softer crude prices.
• EM – Try in focus due to Turkish inflation data, but not deflated even though CPI slowed more than forecast on the headline and core measures, with the Lira hovering towards the upper end of 6.9170-9795 extremes vs the Usd. The aforementioned weaker Dollar is clearly a factor, while Usd/Try may also be taking on board Turkey’s manufacturing PMI extending its rising trend to 3 months in a row and reaching its best level since early 2011. Over in Asia, the HKMA has been active again to keep the Hkd pegged, selling over 1.16 bn of the local currency.            

In commodities, WTI and Brent front month futures remain subdued in early European trade as investors weigh the impact a second COVID-19 wave could have on lockdown impositions and reopening delays alongside rising OPEC supply with the implications as reflected by prelim numbers. Aside from that, traders will be eyeing the weekly Private Inventory figures – with expectations currently positing to a headline draw of 3.5mln barrels, with a draw seen in gasoline and a build in distillates. WTI and Brent futures trade ~40.50 (vs. high 40.99/bbl) and around 43.50/bbl (vs. high 44.11/bbl) respectively. Elsewhere, precious metals are uneventful with spot gold trading on either side of 1975/oz, whilst its silver counterpart remains contained below 24.50/oz. Data compiled by Bloomberg showed that ETFs increased gold holdings for a 27th straight session yesterday – equating some USD 580mln at yesterday’s spot price, whilst UBS expects spot gold prices to rise to around USD 2000/oz in H2 2020. In terms of base metal prices, Dalian iron ore saw another day of gains amid concerns regarding Brazilian miner Vale’s ability to increase production of the raw material, whilst London copper prices continue to ease, in-fitting with the performance in sentiment.

US Event Calendar

• 10am: Factory Orders, est. 5.0%, prior 8.0%; Factory Orders Ex Trans, prior 2.6%
• 10am: Durable Goods Orders, est. 7.3%, prior 7.3%; Durables Ex Transportation, est. 3.3%, prior 3.3%
• 10am: Cap Goods Orders Nondef Ex Air, prior 3.3%; Cap Goods Ship Nondef Ex Air, prior 3.4%

DB’s Jim Reid concludes the overnight wrap

Yesterday it was Bronte’s turn to provide the high drama at home as on a dog walk with my wife and three kids she ate a whole discarded chocolate bar in one sitting having come across it on the floor. She is totally food obsessed but never goes for chocolate as there must be some knowledge that it is potentially lethal for dogs. We must be starving her. Anyway a trip to the vets, forcing her to be sick, and a big bill later and all was well. That wasn’t the only big bill yesterday. We are looking to convert a dilapidated building in our garden at some point over the next year and require planning permission. As part of this we need to do a bat survey to check there are none living in it as they are a protected specie. We were confident there weren’t. On the day of the survey yesterday the “bat man” found fresh bat droppings and says we now have to send it off for analysis and then have a team camp out overnight in the garden to “track and trace” the bat and find a way of protecting Mr or Mrs Bat and any offspring. When I saw the potential bill for this I went a bit batty. Think of a suitable number and then times it by about 7 and you’ll be at around the right ballpark. So an expensive animal led day yesterday.

With slightly better than expected PMIs in major countries and technology stocks continuing to lead the way, US equities started August on the front foot. The S&P 500 rose +0.72%, led by a mix of Software (+2.90%), Autos (+2.17%), and Tech Hardware (+2.03%), while defensives like Real Estate (-1.47%) and Utilities (-1.14%) lagged. With the strength in technology stocks it was another record close for the Nasdaq, finishing +1.47% higher. In line with PMIs, equites in Europe outpaced those in the US with the STOXX 600 finishing +2.05% higher, the biggest 1 day rise since mid-June with every sector finishing higher. With the economic optimism from macro data, cyclical sectors like autos (+3.76%) and construction (+3.15%) led the index higher yesterday. Bank underperformed, but were still up (+1.57%), with poor earnings results from SocGen and HSBC who cited trading losses and a weak economic outlook respectively.

On those final July PMI data points, similar to the flash PMI readings roughly two weeks back, final July manufacturing PMI readings showed stronger economic momentum in Europe than in the US. Although the US PMI impressed. In general PMIs mostly beat estimates or the recent flash levels, which is good news for the recovery, but there is one note of caution. A recurring theme from the data was a weaker employment component, showing that there is still fragility on this front. The Euro area saw an upward revision from the flash estimate, up to 51.8 from 51.1, with gains in output overcoming continued job cuts as corporates report they are operating under capacity. It was the first time the measure was in expansion for the Euro area as a whole since January 2019.

Germany also came in above the flash estimate at 51 vs. 50, with new orders driving the improvement from June, however again the rate of job losses was near the largest since 2009. France’s final July PMI was only marginally higher than the flash (52.4 vs 52.0), as both softer demand and employment levels dragged on the index. Italy (51.9 vs. 51.2) and Spain (53.5 vs. 52.3) saw their strongest levels since Q2 2018. The UK was one of the few countries that was slightly lower, with the final manufacturing PMI 0.3 lower than the 53.6 flash print. In the US, the ISM manufacturing index rose to 54.2 from 52.6 last month, (vs. 53.6 estimates), which was the fastest pace since Mar 2019. The US Markit PMI measure was at 50.9, under the 51.3 flash print, but still the best print since January and just slightly in expansionary territory.

Back to markets and core sovereign bonds were slightly higher or unchanged as risk sentiment improved yesterday. German 10yr yields were largely unchanged (+0.1bps) at -0.52%, while US 10yr yields were +2.6bps higher at 0.554%. The dollar rose +0.21%, rising for consecutive sessions for the first time since 29 June.

Asian markets have largely tracked Wall Street this morning with the Nikkei (+1.42%), Hang Seng (+0.83%), Kospi (+1.06%) and ASX (+1.82%) all posting decent gains but with the Shanghai Comp trading flat. Futures on the S&P 500 are marginally down at -0.08%.

On the virus, Norway’s government is banning cruise ships from entering all ports for two weeks after an outbreak on board a cruiseliner led to about 40 new cases, according to Trade Minister Nybov yesterday. Meanwhile, the UK is in talks with Portugal to ease quarantine rules on travelers returning from the country on the Iberian Peninsula. The UK are looking into more closely tailoring rules for specific regions, according the government. This comes while the government has put together plans to lockdown London in case of another surge of cases, according to Prime Minister Johnson’s Spokesman Slack. The plan, he said, sets out “the possibility of a power to restrict people’s movement and potentially close down local transport networks.” Concerns across the continent are rising as daily case growth is again starting to accelerate from low levels in much of Europe, even as it’s gently falling from high levels in the US. Across the other side of the world, state of Victoria in Australia has announced that it will start imposing on the spot fines of as much as AUD 5,000 on anyone who flouts isolation rules while repeat and serious offenders could attract a court imposed penalty of AUD 20,000. The move comes as the state is battling to control the spread of virus.

Back to the US and the main late-June/mid-July hot spots are continuing to cool down with California reporting the fewest new cases in four weeks (4,982), which is well below the average increase of 8,700 over the past 7 days. Arizona also saw new cases hit the lowest levels since the end of June, with just over 1030 versus the 7-day average of over 2400. Regardless of the improving news, as highlighted above the overall numbers are still high with economic restrictions in place to reduce these case numbers. This continues to encourage focus on the fiscal stimulus package that Congress is debating. Republican and Democratic leaders have still been unable to agree on the specifics of the latest stimulus bill ahead of their month long recess from this Friday. There was a little more positivity yesterday but nothing concrete yet.

Here in the UK, Bloomberg has reported overnight that the government will invest c.GBP 1.3bn in building projects and provide GBP 2bn in energy efficiency grants in an effort to create jobs and rally the pandemic-hit UK economy. Relatively small numbers but the direction of travel is clear.

Finally to the day ahead, markets will receive data on the Euro Area June PPI while, manufacturing PMI from Canada will be seen alongside US June factory orders, and final durable goods orders. In terms of earnings, there will be results from Bayer, Diageo, Fidelity, BP, Walt Disney and Activision Blizzard.

In a break with tradition that probably came as a welcome relief to the country’s creditors, who may have been gearing up for a 16-plus-year odyssey in what would have been the economically troubled South American nation’s third sovereign default in 20 years, Argentina has struck a deal with its creditors to restructure a $65 billion debt. 

And in the spirit of the global COVID-19 outbreak, during which the IMF has urged developed nations to help ease the financial burden faced by poorer nations as it doles out billions of dollars in loans around the world, Argentina and its perennially troubled economy – which has been rattled over the years by spats with creditors following the severe economic mismanagement of reckless left-wing populists – will evade the brunt of repercussions for debt that was accrued long before COVID-19 emerged.

Committees representing Argentina’s creditors, based mostly in the US and Europe, have agreed to exchanged their defaulted bonds for new bonds under a settlement worth roughly 55 cents on the dollar. While most institutions and investors who have agreed to lend money to Argentina have lost out, a cadre of distressed investors who bought the Argentinian bonds for pennies on the dollar stand to make a handsome profit from the new bonds.

Per WSJ, major investors in Argentine bonds include Fidelity Management & Research Co., Monarch Alternative Capital LP, VR Capital Group, Greylock Capital Management and Pharo Management LLC.

Ecuador and Lebanon have already turned to the IMF for bailouts this year, and Argentina’s economy minister had threatened to start negotiations with the IMF if creditors didn’t come to a deal.

According to media reports, a willingness by the Argentine economy minister to accelerate series of payments due next year helped lead to the breakthrough with creditors. The payments were moved to January and July, from March and September. And here’s a breakdown of the new bonds and their amortization schedules.

• New USD, EUR bonds due 2030 to start amortizing in July 2024, mature in July 2030
• New USD, EUR bonds due 2038 will be offered in exchange for discount bonds, start amortizing in July 2027 through January 2038
• Bond included in the offer for unpaid interests will begin amortization in 2025 and mature in 2029

Markets rejoiced in the decision as Argentina’s “Century Bond”, the poster-child for the global thirst for yield, rallied to its highest price in five months.

For those who aren’t familiar with Argentina’s 20-year history of battling with international creditors, here’s a brief summary: In 2001, Argentina stopped payment on more than $80 billion in debt, the largest sovereign default in history at that time.

During negotiations, most bondholders settled for roughly 30 cents on the dollar, but a minority battled for full repayment, eventually winning a US court ruling that eventually led to another default in 2014 (the second in this series of three), before a settlement in 2016 that delivered enormous gains to the holdouts, including Paul Singer’s Elliott Management.

Having witnessed the ruthlessness and determination that Singer brought to bear over more than a decade of negotiations with Argentina just to get his money (or rather, the money lent by the original lenders) back, one would think investors approached the country with a heightened degree of scrutiny once it made its triumphant return to international capital markets.

Nope. Its first global issuance in 20 years was 3x oversubscribed.

Authored by John Vibes via TheMindUnleashed.com,

According to a former member of the Royal guard who worked on Prince Andrew’s security detail, The London Metropolitan Police have destroyed evidence that could have revealed where Prince Andrew was on the night that he is accused of having sex with a teenager that was being trafficked by Jeffrey Epstein and Ghislaine Maxwell.

The night in question is March 10th, 2011, as well as the morning hours of March 11. Virginia Giuffre, who was known by the name Virginia Roberts at the time, says that she was taken to London by Epstein and Maxwell and was expected to have sex with Prince Andrew.

Giuffre says that she was just 17-years-old at the time and remembers being taken to the “Tramp” nightclub in London, as well as one of Maxwell’s homes in the city.

Andrew was questioned about Giuffre’s accusations during an interview with BBC, and he made numerous mistakes and fumbles that brought his credibility into question.

In the interview, Andrew vehemently denied knowing Giuffre and insisted that he was not at that nightclub on March 10th.

He claimed that he was at a Pizza Express location in Woking, for a party, but at least one other witness has come forward to corroborate Giuffre’s claim. The witness says that she distinctly remembers seeing the prince at the nightclub on that evening.

There should be records of what the prince was doing on that evening, which would either exonerate him or prove that he was lying. Members of the royal family are regularly accompanied by police guards in their day to day activities and there are records of where and when the officers were sent, or at the very least a record of which officers worked on which day.

If these records were to be made available, the investigators could easily determine where Prince Andrew was on the night in question. Initially, police refused to release this information to the media, insisting that revealing such sensitive information about the royal family could be a “threat to national security.”

One of the guards who was assigned to work Andrew’s security detail on that night, remembers having an issue with the prince when he returned to Buckingham Palace.

He says that Andrew ended up making his return to the palace very late that night, but wanted to obtain the records to confirm that this was the same night.

A few months ago, the former guard requested to see his shift records from his time working Andrew’s security detail. He got no response for months, but was eventually contacted by a caseworker with the London Metropolitan Police.

The caseworker told him that the records were destroyed, and said that it is the agency’s policy to only keep records for two years, which is a bit of a strange policy in the computer age where files don’t take up much space.

“I am very disappointed. Why on earth did it take nearly five months to respond with such a non-informative answer? I’m also surprised to discover that any records regarding the Royal family and their police protection are destroyed, much less after just two years,” the guard told the Daily Mail.