Market Talk – July 28, 2020

Posted Jul 28, 2020 by Martin Armstrong |

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ASIA:

China has said Hong Kong will suspend extradition treaties with Britain, Canada, and Australia after they took similar steps over the territory’s controversial new security law. The Foreign Ministry spokesman accused the countries of “gross interference in China’s internal affairs.” Earlier this month, US lawmakers approved sanctions in response to the law, targeting banks that do business with Chinese officials involved in cracking down on pro-democracy protesters in Hong Kong.

Chinese telecom major Huawei Technologies Co has cut its India revenue target for 2020 by up to 50 percent, and is laying off more than half of its staff in the country amid calls to boycott Chinese goods in Asia’s third-largest economy. Huawei is now targeting $350 to $500 million USD in revenue for 2020, compared with roughly $700 to $800 million USD it was aiming for earlier. Huawei is also cutting 60-70% of its Indian staff, excluding those in research and development, and the global service center.

The Indian government outlined plans on Monday to boost local manufacturing in the bulk drugs and medical device industries to reduce India’s reliance on imports, particularly from China. The plans, which include setting up research and manufacturing sites across the country to develop drugs and medical devices, follow weeks of heightened tensions between India and China.

Bangladesh, for the first time, is expected to secure $1.0 billion USD worth of budget support from Japan next week. The support would help the government weather the impact of the COVID-19 on the economy, officials said on Monday. The Ministry of Finance officials said they are likely to sign a loan deal with the Japan International Cooperation Agency (JICA) on August 5 in Dhaka. This will be the first time in the history that Japan is extending budget support, said the officials.

The major Asian stock markets had a mixed day today:

NIKKEI 225 decreased 58.47 points or -0.26% to 22,657.38
Shanghai increased 22.73 points or 0.71% to 3,227.96
Hang Seng increased 169.50 points or 0.69% to 24,772.76
ASX 200 decreased 23.70 points or -0.39% to 6,020.50
Kospi increased 39.13 points or 1.76% to 2,256.99
SENSEX increased 558.22 points or 1.47% to 38,492.95
Nifty50 increased 168.75 points or 1.52% to 11,300.55

The major Asian currency markets had a mixed day today:

AUDUSD increased 0.00092 or 0.13% to 0.71634
NZDUSD decreased 0.00245 or -0.37% to 0.66607
USDJPY decreased 0.24 or -0.23% to 105.08
USDCNY increased 0.0089 or 0.13% to 7.00560

Precious Metals:

Gold increased 15.82 USD/t oz. or 0.81% to 1,957.70
Silver decreased 0.19 USD/t. oz or -0.77% to 24.420

Some economic news from last night:

Japan:

Corporate Services Price Index (CSPI) (YoY) increased from 0.5% to 0.8%

EUROPE/EMEA:

The London School of Economics has published a report that says Brexit will deliver a double shock to the UK economy with business conditions worsening for those sectors that have survived the impact of coronavirus and lockdown measures – whether Boris Johnson secures a deal with the EU or not. The report outlines the monthly survey of Confederation of British Industry members, the Guardian reported.

The latest data published by Germany’s influential IFO institute showed on Tuesday, that exports expectations for Europe’s economic powerhouse improved sharply in July, as the coronavirus pandemic-imposed border closures re-open. The IFO institute said its index tracking export expectations in the manufacturing sector rose to 6.9 points in July from -2.2 the previous month thanks to an economic recovery in many countries.

Spain reacted angrily on Tuesday to recommendations from Britain and Germany that their citizens avoid its islands and beaches because of an increase in coronavirus cases during what should be the height of the tourism season. The UK government has recently announced it will impose a 14-day quarantine on everyone arriving from Spain.

Heated terraces at French bars and restaurants will be outlawed starting next year, as part of a package of measures aimed at reducing carbon emissions unveiled by the government on July 27. President Emmanuel Macron has pledged bold action for tackling climate change, saying they will be at the heart of the economic stimulus plan for recovering from the COVID-19 crisis.

The major Europe stock markets had a mixed day:

CAC 40 decreased 10.68 points or -0.22% to 4,928.94
FTSE 100 increased 24.38 points or 0.40% to 6,129.26
DAX 30 decreased 3.38 points or -0.03% to 12,835.28

The major Europe currency markets had a mixed day today:

EURUSD decreased 0.00396 or -0.34% to 1.17222
GBPUSD increased 0.00649 or 0.50% to 1.29456
USDCHF decreased 0.00253 or -0.28% to 0.91732

Some economic news from Europe today:

Norway:

Core Retail Sales (MoM) (Jun) increased from 2.8% to 5.7%

Spain:

Spanish Unemployment Rate (Q2) increased from 14.41% to 15.33%

UK::

CBI Distributive Trades Survey (Jul) increased from -37 to 4

US/AMERICAS:

The US Mint is asking Americans to hand over their physical currency and turn toward digital payments. The coin manufacturer claims the coronavirus has caused a coinage shortage, and although there is an “adequate” number of coins circulating, the slowed pace has resulted in coins being unavailable when needed. “We ask that the American public start spending their coins, depositing them, or exchanging them for currency at financial institutions or taking them to a coin redemption kiosk,” the Mint stated this Tuesday.

The Federal Reserve announced plans to continue its lending programs until December 31, 2020. The central bank originally planned to end the initiative on September 30. The commercial paper facility will continue to provide loans until March 17, 2021. When the programs were initially announced in April, the central bank said funding could total $2.3 trillion but has only loaned $110 billion thus far.

JBS, the largest meat processor in the world, lost numerous investors after being linked to deforestation in Brazil’s Amazon. Under the environmental, social, and governmental (ESG) standard, investors are now assessing companies for their environmental and societal impacts. JBS has been accused of sourcing cattle from “dirty farms” that were allegedly built on deliberately deforested land. The meat packing giant maintains it did not purchase cattle from farms involved in illegal activities and monitors every cattle supplier to meet ESG compliance. Still, investors such as Nordea Asset Management, who controls a €230 billion fund, will no longer include the company in their portfolio.

The legal team for Huawei CFO Meng Wanzhou is planning to release documents to prove she was set up by Canada and the US’ FBI. One lawyer, Scott Fenton, boldly claimed his client was not informed of the reason of her detainment. “She was misled; she was tricked, in fact,” Fenton detailed. Meng was arrested in Vancouver in December 2018 for allegedly violating US-imposed Iranian sanctions. Her lawyers are hoping that this new evidence will prevent her extradition to the US.

Vancouver announced plans to “decriminalize poverty” in favor of community-led harm reduction initiatives. Vancouver City Council’s Standing Committee on Policy and Strategic Priorities unanimously passed the motion during a virtual meeting this Monday. The council will readjourn to discuss budgeting and implementation with a goal to “deprioritize policing as a response to mental health, sex work, homelessness, and substance use.”

US Market Closings:

Dow decreased 205.49 points or -0.77% to 26,379.28
S&P 500 decreased 20.97 points or -0.65% to 3,218.44
Nasdaq decreased 134.18 points or -1.27% to 10,402.09
Russell 2000 decreased 14.9 points or -1% to 1,469.76

Canada Market Closings:

TSX Composite declined 40.01 points or -0.25% to 16,121.32
TSX 60 declined 3.39 points or -0.35% to 965.65

Brazil Market Closing:

Bovespa declined 377.79 points or -0.36% to 104,099.29

ENERGY:

The upcoming partial return of curtailed OPEC+ oil production from August is set to create a new four-month supply glut of around 170 million barrels, a Rystad Energy analysis reveals. The analysis is based on the assumption that oil demand will not rebound as quickly as previously thought due to the persistent expansion of the COVID-19 pandemic in key markets, or what we call a mild second wave of the virus. Reuters interviewed seven current and former officials or other sources involved in OPEC, most of whom asked not to be named. They said this year’s crisis that sent oil below $16 a barrel LCOc1 had prompted OPEC and its 13 members to question long-held views on the demand growth outlook.

The oil markets had a mixed day today:

Crude Oil decreased 0.7 USD/BBL or -1.68% to 40.9000
Brent decreased 0.31 USD/BBL or -0.71% to 43.1000
Natural gas increased 0.066 USD/MMBtu or 3.82% to 1.7950
Gasoline decreased 0.0196 USD/GAL or -1.53% to 1.2616
Heating oil decreased 0.0213 USD/GAL or -1.69% to 1.2394

The above data was collected around 15:36 EST on Tuesday.

Top commodity gainers: Natural Gas (3.82%), Ethanol (15.09%), Lumber (1.18%), and Feeder Cattle (1.44%)
Top commodity losers: Crude Oil (-1.68%), Heating Oil (-1.69%), Gasoline (-1.53%), and Palladium (-1.51%)

The above data was collected around 15:42 EST on Tuesday.

BONDS:

Japan 0.03%(+1bp), US 2’s 0.14% (-1bps), US 10’s 0.60%(-1bps); US 30’s 1.24%(-1bps), Bunds -0.51% (-2bp), France -0.20% (-1bp), Italy 1.08% (+3bp), Turkey 12.45% (+51bp), Greece 1.11% (+1bp), Portugal 0.38% (+2bp); Spain 0.36% (+1bp) and UK Gilts 0.11% (+0bp).