A dual Trump pump … for the stock market and his electoral chances
Moderna (MRNA) are working hard to develop a cov1 COVID-19 vaccine. Trump jumping onto the bandwagon. The government deal with Moderna is worth around USD1.5bn to the firm.
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Dow, S&P 500 see 7-day winning streaks
The Dow Jones Industrial Average US:DJIA finished with a loss of 104.53 points or 0.4%, at 27,686.91. The blue-chip gauge was up more than 300 points at its session high. The S&P 500 US:SPX ended 26.78 points lower, a loss of 0.8%, at 3,333.69. The Dow and the S&P 500 both snapped seven-day winning streaks. The tech-heavy Nasdaq Composite US:COMP dropped 185.53 points, or 1.7%, closing at 10,782.82.
The Russell 2000 index US:RUT of small-capitalization companies gave up 9.57 points, or 0.6%, ending at 1,575.10.
Thought For A Day
Are climbing bond yields about supply or demand?
US Treasury yields climb ahead of auctions
It’s a big week in the Treasury market with record-high sales starting with three-year notes today.
With that, Treasury yields have jumped higher. US 10-year notes are up 6.4 bps to 0.6415% today. That’s after hitting a low of 0.5036% last week. The turn in the market came on the refunding announcement as coupon-issues were upsized and now we’re left to ponder what the latest move means.
The optimistic take is that this signals improvement on the virus and the economy. The other side of the argument is that a flood of bonds is going to push up rates.
I’m more sympathetic to the optimistic side, if only because Trump’s executive orders mean that more stimulus spending is less likely and will probably be lower. At the same time, a capital gains cut would blow another hole in the budget.
What does it mean for the US dollar? It’s positive.
BMO today highlights that even at 0.16%, US three-year notes are relatively attractive.
While the past few sessions’ concession will aid the takedown of this afternoon’s offering, at just 16 bp, 3-year yields are not abundantly cheap on an outright basis. However, when compared to overseas yields that have pushed to extremely negative territory, there is an argument to be made that the still-positive nominal rate on Treasuries will increasingly drive foreign interest.
At the same time, they see this latest move as more about supply than a ‘fundamental rethink’ of the econoy.
So the overall message from bonds right now is murky and it’s risky to take any big signals in mid-August.
The S&P 500, the economy, and the money supply.
European shares end the session with solid gains
Major indices up sharply
The flow funds into the European markets continue today with sharp moves to the upside in the major indices. A look at the provisional closes are showing:
- German DAX, +2.1%
- France’s CAC, +2.4%
- UK’s FTSE 100,
- Spain’s Ibex +2.8%
- Italy’s FTSE MIB, +2.8%
For the year, the European shares are still down sharply:
- German Dax -2.2%
- France’s CAC, -15.9%
- UKs FTSE -18.4%
- Spain’s Ibex, -24%
- Italy’s FTSE MIB, -14.05%
German ZEW survey data highlights a broader longer-term theme for markets to consider
Will the economic recovery eventually live up to the hype?
One of the above charts is not a “V”. And therein lies a potential longer-term problem that market participants will have to consider down the road.
As we move on from Q2 to Q3, the expectation is that ‘the worst is behind us’ when it comes to the pandemic and the economic fallout from the virus crisis.
While that will certainly be true, what it doesn’t say is that the economic recovery and the path towards “normalisation” may perhaps take much longer than anticipated.
Russia president Putin says have approved first Russian-produced coronavirus vaccine
Putin says that his daughter has been vaccinated from the coronavirus
- Says that Russian health ministry has approved coronavirus vaccine developed by Moscow’s Gamaleya Institute
- Says hopes Russia will start mass production of coronavirus vaccine
Take what you will and believe what you want from the headlines above, but this may lay the groundwork for other countries to start prepping their own “breakthroughs” sooner rather than later. As with everything related to the pandemic thus far, all it takes is for one country to set a precedent and the others will take that as an opportunity to follow.
Hong Kong goods to be labelled ‘Made in China’ for export to the US after 25 September – report
SCMP reports on the matter
The report cites a draft US government notice, as to saying that goods made in Hong Kong for export to the US will have to be labelled as ‘Made in China’ after 25 September.
Adding that the move will see Hong Kong companies be subject to the same trade tariffs levied on mainland Chinese exporters.
Despite the move, this isn’t likely to have a significant impact considering Hong Kong has always been a “transit” hub as it serves as a logistical gateway to mainland China for goods coming in and out of the country.
So, this will likely expand the existing $550 billion of US tariffs on Chinese goods but not by a whole lot. That said, the move here is more symbolic more than anything else.
For the US, it is all about sending a message to China that they are dissatisfied with how the whole Hong Kong saga has panned out over the past few months.
EU’s top credit rating can survive €750bn stimulus, say ratings agencies
Moody’s and Fitch both say triple AAA status not under threat
Financial Times with the article, the gist of which is:
- EU’s plan to issue €750bn of bonds to fund its Covid-19 recovery poses no immediate threat to the bloc’s credit rating despite big divisions between member states on how to pay the money back.
“Pay the money back”. How quaint.
Link to the FT for more (may be gated)