The major Asia-Pacific stock indexes finished mixed on Monday but mostly lower with both the Nikkei and Shanghai indexes posting more than 1.50% gains while the others sputtered. Japanese shares snapped six consecutive sessions of losses on Monday after the Yen retreated from a 4-1/2-month high against the dollar. Chinese stock jumped as key manufacturing data came in above expectations.
On Monday, Japan’s Nikkei 225 Index settled at 22195.38, up 485.38 or +2.24%. Hong Kong’s Hang Seng Index closed at 24458.13, down 137.22 or -0.56% and South Korea’s KOSPI Index finished at 2251.04, up 1.67 or -0.07%.
China’s Shanghai Index settled at 3367.97, up 57.96 or +1.75% and Australia’s S&P/ASX 200 Index closed at 5926.10, down 1.70 or -0.03%.
China’s Factory Activity Expanded
Sentiment was helped by a survey showing China’s factory activity expanded at the fastest pace in nearly a decade in July, with the Caixin/Markit PMI at 52.8, above expectations for a reading of 51.3 by economists in a Reuters poll. PMI readings above 50 signify expansion, while those that fall below that figure indicate contraction.
US-China Tensions Remain at Forefront
Tensions between Washington and Beijing likely continued being watched by investors, with U.S. Secretary of State Mike Pompeo saying Sunday that U.S. President Donald Trump is set to announce “in the coming days” new actions related to Chinese software companies viewed by his administration as a national security threat.
On Friday, Trump told reporters he will act soon to ban Chinese-owned video app TikTok from the U.S., according to NBC News. Microsoft on Sunday confirmed it has held talks to buy TikTok in the U.S. from Chinese tech firm ByteDance.
Nikkei Rebounds on Wall Street Gains, Yen’s Retreat
Japanese shares ended six straight sessions of losses on Monday after the Japanese Yen retreated from a 4-1/2-month high against the dollar in a short squeeze. Exporters got a boost as the Yen fell to a low of 106.40 Yen against the dollar, moving away from a high of 104.195 yen touched on Friday.
Hang Seng Dragged Down by HSBC First-Half Profits Miss
HSBC reported a 65% fall in pre-tax profits for the first half of 2020 to $4.3 billion – missing analysts’ expectations.
Chief Executive Noel Quinn said the bank was “impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”
HSBC shares in Hong Kong tumbled by more than 3% when trading resumed after a lunch break.
The major Asia-Pacific stock indexes finished mixed but mostly lower on Friday, led by a steep decline in Japan. The sell-off was primarily fueled by a record contraction in U.S. gross domestic product in the second quarter. This was followed by another rise in weekly U.S. initial claims, the inability of Congress to pass another stimulus bill and mixed earnings results. Meanwhile, China’s factory activity beat expectations.
On Friday, Japan’s Nikkei 225 Index settled at 21710.00, down 629.23 or -2.82%. Hong Kong’s Hang Seng Index finished at 24595.35, down 115.24 or -0.47% and South Korea’s KOSPI Index closed at 2249.37, down 17.64 or -0.78%.
China’s Shanghai Index settled at 3310.01, up 23.18 or +0.71% and Australia’s S&P/ASX 200 Index finished at 5927.80, down 123.30 or -2.04%.
US GDP Plunges During Second Quarter
Data released Thursday by the U.S. government showed GDP dropping 32.9% in the second quarter – the worst drop ever, with the closest previously coming in mid-1921. Still, the data print was not as bad as feared, with economists polled by Dow Jones have expected a 34.7% decline.
Continuing claims – which are composed of those receiving unemployment benefits for at least two straight weeks – rose by 867,000 to 17.018 million for the week-ending July 18.
Congress Fails to Agree on Next Coronavirus Stimuli Deal
Republicans and Democrats have made little progress toward a coronavirus relief deal as economic data show an economy still reeling from the coronavirus pandemic. Congressional leaders are blaming one another for the expiration as coronavirus cases continue to increase around the country. Meanwhile, an enhanced federal unemployment benefit is expiring even as initial jobless claims increased for two consecutive weeks.
China’s Factory Activity Beats Expectations in July
China’s factory activity expanded in July for the fifth month in a row and at a faster pace, beating analyst expectations despite disruptions from floods and a resurgence in coronavirus cases around the world.
The official manufacturing Purchasing Manager’s Index (PMI) rose to 51.1 in July from June’s 50.9, official data showed on Friday, marking the highest reading since March. Analysts had expected it to slow to 50.7.
The major Asia-Pacific stock indexes finished mostly lower on Thursday after giving up earlier gains despite the promise of ultra-easy monetary policy globally as the U.S. Federal Reserve pledged to support the country’s virus-battered economy, though record-shattering COVID-19 cases tempered gains.
Fed Policy Announcements Set Early Bullish Tone
On Wednesday, all Fed members voted as expected to leave the target range for short-term rates between 0% and 0.25%, where it has been since March 15 when the virus was beginning to hit the nation.
The unchanged policy setting together with a pledge the Fed would use its “full range of tools” if needed boosted risk appetite overnight with all three Wall Street Indexes finishing firmer.
On Thursday, Japan’s Nikkei 225 Index settled at 22339.23, down 57.88 or -0.26%. Hong Kong’s Hang Seng Index is trading 24757.95, down 125.19 or -0.50% and South Korea’s KOSPI Index finished at 2267.01, up 3.85 or +0.17%.
China’s Shanghai Index settled at 3286.82, down 7.73 or -0.23% and Australia’s S&P/ASX 200 Index closed at 6051.10, up 44.70 or +0.74%.
Australian Stocks Rally Despite Growing Number of Coronavirus Cases
The Australian share market ended Thursday’s trading session higher; shaking off earlier fears a second national coronavirus wave could dent Australia’s economic recovery. The benchmark S&P/ASX 200 Index was led higher by strong gains in technology and consumer staples stocks.
Stocks rallied despite the Australian Bureau of Statistics reporting a month-on-month decline of 4.9 percent in dwelling approvals for June, the largest monthly decline in eight years.
ALS Limited had the largest daily increase with its shares rising 6.5 percent to $8.83 per share, while IOOF Holdings sustained the largest decline, with its shares dropping 7.8 percent to $4.86 each.
In other news, Australia reported a record spike in fresh COVID-19 cases with at least 13 deaths and more than 700 new infections mainly in Victoria State.
Japan Shares End Lower as Virus Spike Hits Capital
Tokyo stocks closed lower on Thursday, with investors rattled by reports the city will ask restaurants and bars to shorten opening hours as coronavirus cases spike in the capital.
Tokyo is expected to hit a record 367 new cases on Thursday, local reports said, about two months after the central government lifted a state of emergency.
Trading was thin with many players sidelined ahead of earnings reports by U.S. tech heavyweights Apple, Amazon, Facebook and Google-parent Alphabet on Thursday.
On the economic front, Japanese retail sales for June declined 1.2% as compared to a year ago, according to a preliminary report by the country’s Ministry of Economy, Trade and Industry. That compared against a median market forecast for a 6.5% year-on-year decline, according to Reuters.
The major Asia Pacific stock indexes finished mixed, but mostly higher on Tuesday as investors weighed progress in U.S. government stimulus efforts against rising tensions with China and the growing coronavirus pandemic.
Investors hoping for a dovish message from the U.S. Federal Reserve this week outweighed growing concerns about how major economies in Australia, the U.K. and the United States are dealing with coronavirus outbreaks.
On Tuesday, Japan’s Nikkei 225 Index settled at 22657.38, down 58.47 or -0.26%. Hong Kong Hang Seng Index closed at 24772.76, up 169.50 or +0.69% and South Korea’s KOSPI Index finished at 2256.99, up 39.13 or +1.76%.
In China, the Shanghai Composite Index settled at 3227.96, up 22.73 or +0.71% and Australia’s S&P/ASX 200 Index finished at 6020.50, down 23.70 or -0.39%.
Nikkei Ends Lower Ahead of Earnings Rush, Mitsubishi Motors Slump
Japanese shares ended lower on Tuesday as investors maintained a cautious stance ahead of corporate earnings, while Mitsubishi Motors plunged to an all-time low after the carmaker posted dismal quarterly earnings.
The index initially was buoyed by a rebound in U.S. technology shares on hopes of more fiscal stimulus from Washington. However, a weak trade provided a tailwind in the afternoon, with many investors on the sidelines ahead of a peak in Japanese earnings announcements this week and next.
Among the companies that announced quarterly results on Monday, Mitsubishi Motors tumbled 12.64% to a record low after the carmaker posted dismal sales in its key Southeast Asian market and forecast a huge loss for this financial year.
Nissan Motor fell 4.63% following a Bloomberg report that cited the automaker will forego an annual dividend this fiscal year.
On the bright side, shares of Fujifilm rose 3.1% after U.S. President Donald Trump announced Monday that the U.S. government awarded the firm a $265 million contract for coronavirus vaccine manufacturing.
South Korean, Hong Kong Stocks Edge Higher on Recovery Hopes
The South Korean KOSPI Index and Hong Kong’s Hang Seng Index rose on Tuesday, buoyed by hopes of economic and corporate earnings recovery, though concerns over a fresh wave of domestic coronavirus cases kept gains in check.
In South Korea, shares of industry heavyweight Samsung Electronics soared 5.4%, helping to lift the KOSPI. The rally was also aided by robust foreign investor buying and expectations of another U.S. stimulus package. Samsung’s gains were driven by growing expectations that the chipmaker may benefit from Intel Corp’s plan to outsource more manufacturing.
Philippine Shares Rocked by Volatility, but Still Manage to Finish Sharply Higher
Stock markets in India, Malaysia and South Korea all saw strong gains, however, the Philippines recovered from an initial crash following President Rodrigo Duterte’s State of the Nation speech to rise almost 1.0%.
In his address on Monday night, Duterte defended his approach to fighting the pandemic even as new cases continue to climb, while threatening to close or have the government take over telecom firms that he accused of “lousy” services.
The Nikkei has formed an inverted head and shoulders pattern. The price is bullish and the pattern might provide a breakout to the upside.
22600-650 is the POC zone. We can see the bottom of the right shoulder as the price is trying to bounce. The first target is the trend line confluence around D H3 22800. A successful break of the trend line will aim for bullish continuation towards W H5/ D H5 camarilla pivot. 23000-23075. As long as the price is kept 22450, bulls should be safe.
Emerging market currencies are fully participating, with the JP Morgan Emerging Market Currency Index posting its fifth gain in six sessions. The greenback’s retreat appears to have become decoupled with the equity market. The yen’s strength, for example, had a limited impact on Japanese shares, which were narrowly mixed, with the Topix rising and the Nikkei falling.
Asia Pacific bourses were mixed, though most of the large ones, including China, South Korea, Australia, and Taiwan advanced. Note that the shake-up in the chip space that saw Intel shares crushed at the end of last week lifted Taiwan Semiconductor Manufacturing Company up 10% and helped the Taiex rise 2.2%. European stocks were struggling, but the better than expected German IFO helped equities recover. US equities are trading higher after the S&P 500 posted back-to-back losses at the end of last week for the first time this month. Bond markets are also mixed.
The European core is doing better than the periphery, but yields are +/- 2 bp. The US 10-year is near 57 bp. Gold is rallying for the seventh consecutive session at around $1944 is at new record levels. Its 2% gain is the most in three months. Oil, on the other hand, is little changed with the September WTI contract trading quietly around $41 a barrel, inside the pre-weekend range.
Japan reported it May All Industries Activity Index fell 3.5% in May after the April reading was revised to -7.6% from -6.4%. This is like a proxy for GDP. While the US and EMU report Q2 GDP this week, Japan’s first estimate is not due until the middle of next month. Separately, the May Leading Index was revised lower (to 78.4 from 79.3) but still held on to a small gain from April’s 77.7.
Hong Kong’s imports and exports recovered in June, but not by as much as had been hoped. Exports fell 1.3% from a year ago, a 7.4% slide in May. Economists had project outright growth. Imports fell 7.1% from a year ago. Economists had expected that May’s 12.3% slump would have been halved. The net result was an HKD33.3 bln deficit. Of note, Hong Kong’s exports to China rose 8.8% from a year ago, while its exports to the US were 21.4% below a year ago (-14.4% in May). Exports to Taiwan were also stronger. Exports to Europe were weaker.
Helped by the economic recovery and government infrastructure spending, China reported June industrial profits rose 11.5% year-over-year, following May’s 6% improvement. Still, profits were off 12.8% in H1 from a year ago. Private sector and foreign businesses trailed in the profit-recovery, underscoring the role of state-owned enterprises. Although the manufacturing sector led the rebound in the PMI to be released at the end of the week, it is the service sector that appears to be recovering quicker.
The dollar was sold through JPY106 before the weekend while Tokyo was on holiday. The market was cautious and took it back to JPY106 at the close. Japanese traders sold the dollar back off to around JPY105.45 before Europe entered the fray and has kept it in a narrow range near its trough, awaiting the US market leadership. Initial resistance is seen near JPY105.70. The Australian dollar is firm near $0.7120.
It reached a high last week, closer to $0.7180. The intraday technicals suggest it is poised to move higher in North America today. The PBOC set the dollar’s reference rate at CNY7.0029, which was stronger than expected, and the yuan snapped a three-day decline. The greenback finished the mainland session near its reference rate.
The German IFO survey lent credence to the improvement seen in the preliminary PMI before the weekend. The current assessment rose to 84.5 from 81.3. It is the best since March. The expectations component improved to 97.0 from 91.6, its best since November 2018. This lifted the assessment of the overall business climate to 90.5 from 86.3. It has not been this high since January.
The idea that Europe is outperforming the US is so far limited to some recent PMI surveys and may be vulnerable to the new flare-up in Covid-19 in several countries, including Spain and France. The divergence is unlikely to be reflected in this week’s first estimate of Q2 GDP. The eurozone contracted by 3.6% quarter-over-quarter in Q1 and is expected to have shrunk by another 12% in Q2. The US contracted by 5% at an annualized pace in Q1, which is about 1.2% quarterly. The median forecast for Q2 GDP in the Bloomberg survey is for a 35% annualized decline, which is about 7.8% on a quarterly basis.
The EU debt issuance under the Recovery Plan is embraced by some as the Hamiltonian moment. We recognize its potential but are reluctant to extrapolate to a fiscal union from what could be one-off emergency measures. We have suggested it could be scaffolding but that the building of the greater union is still in the distant future. Bundesbank President Weidmann cautioned that while he endorsed the action, it should not serve as “a springboard for large scale EU debt for regular household financing.” He emphasized the temporary nature of it, and urged a control mechanism to ensure the funds are spent “wisely and efficiently.”
The euro’s run higher is being extended for the 10th session of the past 11. It has fallen once since July 9. Today’s push in the Asia Pacific timezone saw $1.1725 before consolidating and easing to almost $1.1680 in the European morning. This pullback may provide a better buying opportunity for North American dealers who have been consistent dollar sellers in the run. Sterling is bid as well and has moved above last month’s high (~$1.2815) to rise to its best level since March (~$1.2860). Support now is seen near $1.2800. Meanwhile, the euro, which had tested the GBP0.9000 area last week, tested the upper end of this month’s range near GBP0.9140.
The US reports June durable goods orders today and the Dallas Fed’s manufacturing survey. The manufacturing and housing market seems to be leading the US recovery, and this is expected to be evident in today’s reports. Headline durable goods orders are expected to have risen by around 7% after the 15.7% gain in May.
However, the May report was bolstered by defense and aircraft orders. Excluding these, June orders will likely be stronger than May’s 1.6% increase. The report may help economists fine-tune their forecasts for Q2 GDP, which is released later this week. Of course, the FOMC’s two-day meeting, which concludes Wednesday, is the other main highlight of the week.
The moratorium on evictions from federally-backed rental properties enshrined in the CARES Act came to an end over the weekend. The landlords can give tenants a 30-day notice to vacate the premises. Prior to the passage of the moratorium, federally-backed apartment buildings accounted for a third of eviction cases.
The $600 a week extra unemployment insurance is set to expire at the end of the week. Some Republicans are pushing for an employment bill to be passed this week, which would tie the extra compensation to the previous pay, capping it at around 70%, according to press accounts. Part of the problem, and why this approach was previously rejected, is the logistical challenge that may prove to be beyond the capacity of many states to properly implement.
At just below 59 bp, the 10-year posted its lowest weekly close in history. The 10-year real yield closed at a record low of minus 92 bp. A dovish FOMC statement is expected amid the mounting virus cases and the escalation of US-China tensions, as officials prepare for additional measures as early as September. Unlike a year ago, the US-China tensions are not being spurred by rounds of tariffs but geopolitics. In fact, it appears that China has stepped up its purchases of US agricultural products in recent weeks.
The US dollar bears have their sights set on last month’s low near CAD1.3315. The greenback was sold through CAD1.34 last week but straddled the area in the previous two sessions. The Canadian dollar often lags behind the other major currencies in moves against the US dollar. The CAD1.3400 area should offer initial resistance, and a move above CAD1.3450 would likely squeeze the greenback shorts.
Mexico reports its June trade balance today. It is expected to return to surplus after two months of large deficits (~$3.5 bln). The dollar is trading a little above this month’s lows (~MXN22.1550). A break could see MXN21.90-MXN22.00. The peso’s strength is not so much a reflection of its domestic economic situation as much as it is about the broader risk appetites and its high real and nominal rates.
The major Asia Pacific stock indexes plunged on Friday as sentiment across the region dropped in response to the diplomatic spat between China and the United States.
Tensions between the two economic powerhouses rose to the forefront after China’s Foreign Ministry announced Friday that it is revoking the license for the U.S. consulate general in the southwestern Chinese city of Chengdu. The ministry also ordered the consulate general to cease operations, according to an online statement.
“The current situation between China and the U.S. is something the Chinese side does not want to see,” the foreign ministry said in an online Chinese-language statement, according to a CNBC translation.
“The responsibility lies entirely with the U.S. side,” the statement added. “We again urge the U.S. side to immediately revoke its relevant wrong decisions, to create necessary conditions for the two countries’ relationship to return to normal.”
When contacted by CNBC, the U.S. Embassy in Beijing declined to comment on the Chengdu consulate.
The announcement comes after the U.S. ordered China to close its consulate in Houston. U.S. State Department spokesperson Morgan Ortagus said the directive to close China’s consulate general in Houston was made to protect American intellectual property and the private information of its citizens. Beijing had condemned the decision and warned of firm countermeasures.
On Friday, Hong Kong’s Hang Seng Index finished at 24705.33, down 557.67 or -2.21% and South Korea’s KOSPI Index closed at 2200.44, down 15.75 or -0.71%. Markets in Japan were closed for a holiday.
In China, the benchmark Shanghai Index settled at 3196.77, down 128.34 or -3.86% and in Australia, the S&P/ASX 200 finished at 6024.00, down 70.50 or -1.16%.
Hong Kong Stocks End Week Lower as Sino-US Tensions Escalate
Hong Kong stocks also fell on Friday to close the week lower as escalating tensions between China and the United States assuaged optimism about a swift post-pandemic economic rebound.
China ordered the Unites States to close its consulate in Chengdu, while U.S. Secretary of State Mike Pompeo also took aim at China, calling for Washington and its allies to use “more creative and assertive ways” to press the Chinese Communist Party to change its ways.
Shares in Hong Kong weakened because another escalation in tensions in the Sino-U.S. relationship is extremely unfavorable to economic recovery under the impact of the pandemic. Furthermore, traders will continue to monitor the situation as an escalation could have an adverse effect on the implementation of the Phase 1 trade deal between the two economic powerhouses.
At the close, China’s A-shares were trading at a premium of 31.52% over Hong Kong-listed H-shares.
Australian Shares Fall, Wiping Out Week’s Gains
Australian shares closed lower on Friday, led by tech stocks, wiping out a week’s worth of gains in the process. The main catalyst behind the sell-off was a steep break on Wall Street, while another surge in COVID-19 cases added to the negative vibe. Shares were also pressured by deteriorating relations between the United States and China, Australia’s major trading partner.
Financial stocks fell 1.5% with all the Big Four banks closing in negative territory. Lower oil prices were a drag on the energy index. Cooper Energy Ltd was down 7.2% and Whitehaven Coal lost 3.6%.
The major Asia Pacific stock indexes finished lower on Wednesday after giving up earlier gains, while shares in China bucked the trend to finish the session higher. Some traders blamed a warning from the White House about the spread of the coronavirus for the weakness, while lingering uncertainty over the timing of new stimulus, worried others.
In the cash market on Wednesday, Japan’s Nikkei 225 Index settled at 22751.61, down 132.61 or -0.58%. Hong Kong’s Hang Seng Index is trading 25444.56, down 191.10 or -0.75% and South Korea’s KOSPI Index closed at 2228.66, down 0.17 or -0.01%.
China’s Shanghai Index settled at 3333.16, up 12.27 or +0.37% and Australia’s S&P/ASX 200 Index finished at 6075.10, down 81.20 or -1.32%.
Trump Warns US Coronavirus Outbreak Will Probably ‘Get Worse Before It Gets Better’
President Donald Trump warned Tuesday the coronavirus pandemic in the United States will probably “get worse before it gets better.”
“That’s something I don’t like saying about things, but that’s the way it is, it’s what we have,” he said during a White House briefing on the pandemic. “You look over the world, it’s all over the world.”
“We understand the disease to a large extent. Nobody’s going to maybe every fully understand it. But we’ll end up with a cure, we’ll end up with therapeutics, we’ll end up with a vaccine very soon.”
“A permanent shut down was really never an option in terms of what we’re doing right now,” he added.
Congress Returned This Week with Only Days to Pass New Coronavirus Relief as Pandemic Rages
Congress returned to Washington to kick off talks on the next coronavirus relief bill. Lawmakers face pressure to pass legislation before the end of the month, when the $600 per week federal unemployment insurance benefit is set to expire.
Republicans and Democrats have to resolve differences on several issues, including the jobless benefit, liability protections for businesses, aid to state and local governments and direct payments to Americans.
Japan’s Nikkei Falls on Weak Economic Data
Japan’s Nikkei 225 Index settled lower after the country reported the 13th consecutive month of contraction for Japan’s manufacturing activity. The preliminary data relating to the manufacturing PMI of Japan, drawn up jointly by Markit and Jibun Bank, indicates a rise to 42.6 points for the month of July, compared to the previous 40.1 points. But the data remains in the contraction phase, as it is below the threshold of 50 points, the dividing line between the contraction phase – values less than 50 points – and between the expansion phase – values above.
Australian Shares Fall Amid Rising Concerns of Second COVID-19 Wave
Australian shares dipped on Wednesday as fresh fears of a second COVID-19 wave were realized following a jump in the number of Victorian cases.
Wednesday’s market slump came despite a 2.4 percent rise in retail turnover that showed the Australian economy could be normalizing.
Westpac senior economist Matthew Hassan said the ongoing trading environment would be determined on Australia’s ability to clamp down on the Victorian cluster.
Resolute Mining had the largest share price surge of the day, with its stock rising 12.9 percent to $1.40 each. Healthcare company Mesoblast had the largest drop. Its share price fell 6.8 percent to $3.45 each.
Major banks all ended the session down. Commonwealth Bank closed the day down 0.4 percent to $74.13 per share, while ANZ fell 0.6 percent to $18.61 per share.
The major Asia Pacific stock indexes rebounded on Tuesday following Monday’s mixed performance with some hitting five-month highs after European Union leaders agreed on a massive stimulus plan for their coronavirus-blighted economies.
The indexes opened higher following Wall Street’s lead on hopes that vaccines against the COVID-19 disease might be ready by the end of the year, following promising early data from trials of three potential vaccines.
On Tuesday, Japan’s Nikkei 225 Index settled at 22884.22, up 166.74 or +0.73%. Hong Kong’s Hang Seng Index is trading 25527.10, up 469.11 or 1.87% and South Korea’s KOSPI Index closed at 2228.83, up 30.63 or +1.39%.
China’s Shanghai Index is trading 3321.38, up 7.23 or +0.22% and Australia’s S&P/ASX 200 closed at 6156.30, up 154.70 or +2.58%.
Asian Shares Boosted by EU Recovery Fund Deal
European Union (EU) leaders reached a deal on a 750 billion Euro ($857 billion) recovery fund to help the region recover from the coronavirus crisis.
European Council President Charles Michel said he believes this deal will be seen as a “pivotal moment” for Europe. “We did it! Europe is strong. Europe is united,” he said in an early Tuesday press conference announcing the agreement. “These were, of course, difficult negotiations in very difficult times for all Europeans.”
Asia Pacific markets were supported early in the session on Tuesday after investor sentiment was supported by a slew of positive news on the coronavirus vaccine front.
Pfizer and BioNTech reported early positive data on a joint coronavirus vaccine Monday and another candidate from Oxford University and AstraZeneca also showed a positive immune response in an early trial.
Alibaba’s Ant Could Be Bigger than Some Wall Street Banks
Ant Group, an affiliate of Alibaba, announced plans for its long-awaited dual listing in Shanghai and Hong Kong on Monday. E-commerce giant Alibaba Group Holding’s Hong Kong shares jumped 6.59% on the news.
Ant Group runs Alipay, one of China’s most popular mobile payment apps, but has also been expanding into products such as wealth management and loans.
Ant Group has not priced its shares yet but one analyst said the company could be valued at over $200 billion.
The major Asia Pacific stock indexes traded steady to mixed on Monday, but mainland Chinese stocks jumped as China’s central bank maintained its benchmark lending rate for the third straight month, much to the delight of investors. China shares were also supported after regulators lifted equity investment cap restrictions for insurers, giving them the greenlight to buy stocks more aggressively.
Early in the session, Asian shares were pressured by weak commodities such as crude oil and copper, as a spike in global coronavirus cases cast a pall over markets awaiting efforts from the Euro Zone and United States to stitch together fiscal stimulus plans to battle the pandemic.
On Monday, Japan’s Nikkei 225 Index settled at 22717.48, up 21.06 or +0.09%. Hong Kong’s Hang Seng Index is trading 24996.42, down 92.75 or -0.37 and South Korea’s KOSPI Index finished at 2198.20, down 2.99 or -0.14%.
In China, the Shanghai Index settled at 3314.15, up 100.02 or +3.11% and Australia’s S&P/ASX 200 Index closed at 6001.60, down 32.00 or -0.53%.
Chinese Markets Supported by Two Strategic Moves
Over the weekend, China’s regulators raised the limit on how much insurers can invest in equity assets to 45%, according to Reuters, in an effort to bring more long-term funds into the market.
On Monday, China kept both its one-year and five-year loan prime rate unchanged, according to Reuters, as its economy continued to recover after reopening following the coronavirus crisis. Last week, official data showed that its economy grew 3.2% in the second quarter from a year earlier, better than the 2.5% expected by analysts, according to Reuters.
Japan’s Volatile Nikkei 225 Index Inches Higher
Japan’s benchmark Nikkei, which had started firm, faltered by late morning, only to turnaround into the close. The earlier weakness was attributed to data that showed the country’s exports suffered a double-digit decline for the fourth month in a row in June.
Japan’s exports dived 26.2% in June from a year earlier, the report showed, according to Reuters. Economists were looking for a 24.9% decline. Imports fell 14.4%, compared with an estimate of a 16.8% decline, according to Reuters.
Hong Kong Shares Tumble as Government Tightens Restrictions
Hong Kong tightened COVID-19 restrictions on Sunday, closing amusement parks, gyms and 10 other types of venues for another seven days, while a requirement for restaurants to only provide takeaway after 6pm was extended. Face masks will be mandatory in indoor public areas, and non-essential civil servants were told to work from home this week.
Australian Shares Fall on Renewed Virus Recovery Concerns
Australian shares closed lower Monday, dragged by the energy sector on weaker oil prices, and as authorities warned that the coronavirus outbreak in the country’s second-most populous state could take weeks to control.
Australia’s chief medical officer said the outbreak in Victoria State could take weeks to subside despite a lockdown and orders to wear masks.
Prospects of a prolonged recovery from the outbreak hit travel stocks hard, with Victoria and New South Wales being busy commercial air traffic hubs.
The energy index fell 2.6 percent to its lowest close since May 18 as oil prices declined on fears that a recovery in fuel demand could be derailed by a rise in the pace of coronavirus infections globally.
Not much was achieved at the European meeting on Friday, and that wasn’t exactly a surprise. The €750 billion rescue package was at the centre of the talks, and the original proposal was that €500 billion would be allocated as grants, and that €250 billion be distributed as loans.
The Netherlands, Austria, Sweden and Denmark, expressed opposition to €500 billion being allocated as grants without conditions. There were concerns that funds wouldn’t be used to tackle the health crisis. The countries in question, have been dubbed the ‘frugal four’, and they also called into question the size of the proposed grants, as they would prefer to see a higher percentage of loans.
Talks continued over the weekend. In a bid to win over the ‘frugal four’ it was suggested that €400 billion be dished out as grants rather than €500 billion. It was reported The Netherlands and Austria are pushing for €390 billion in grants, and €360 billion in loans, but nothing has been agreed upon yet. Discussions will continue this afternoon.
It was put forward that a ‘super emergency break’ be included in the package, meaning that any one government could question the use of the funds that are being deployed. Such a move would help ensure that the cash was been used for its appropriate purpose. The sooner the bloc can agree on the terms of the rescue the better for everyone, especially countries like Spain and Italy, which were hard hit by the health crisis, and are rely heavily on tourism.
Stocks in Asia are mixed as the CSI 300 is showing solid gains, the Nikkei 225 is flat, while the Hang Seng has turned positive.
The US posted mixed data on Friday. Building permits for June were 1.24 million, and that was a small increase from the 1.22 million in the previous update. The housing starts reading was 1.18 million, which was a decent jump on the 1.01 million registered in May. The preliminary reading of the University of Michigan consumer sentiment was 73.2 in July, its lowest in three months. The heath situation deteriorated in recent weeks, and a number of states have paused the reopening of their economies. That is probably why consumer sentiment slipped.
The US dollar had a negative run last week and on Wednesday it fell to its lowest level in nearly one month. In the last few months the currency has been a popular flight to quality play, and conversely, when dealers have been in risk-on mode, it has typically suffered. Risk appetite has been a bigger factor in the dollar’s moves lately, than economic indicators.
Inflation in the eurozone ticked up in June to 0.3% from 0.1%, but the core reading cooled to 0.1% from 0.3%. The core reading is often deemed to be a better gauge of underlying demand as it removes commodity prices from the measurement. Last week, Christine Lagarde, the head of the ECB, said that inflation is expected to remain low.
In the first week in July, gold hit is highest level since September 2011, but last week it traded sideways. The commodity has a track record of being a safe haven trade, but since the greenback has also become a popular risk-off trade, that has reduced gold’s volatility, due to their inverse relation relationship.
Oil lost a little ground last week as it was announced that OPEC+ will increase their output as of next month. In May, the group cut output by 9.7 million barrels per day (bpd) as a way of propping up the energy market. The ‘historic’ cut helped oil hit a three month high in June. Last week, it was announced the body would ease up on the production cuts to a reduction of 7.7 million bpd as of next month.
The original agreement stipulated that production would be increase in August, and last week that was confirmed. It is worth nothing that oil hasn’t fallen that much from the three month high that was registered in June. By Friday’s close, WTI and Brent crude are only down 2.4% and 1.9% respectively from the June highs.
At 7am (UK time) German PPI will be posted and economists are expecting it to rise from -2.2% in May to -1.6% in June.
EUR/USD – since late June it has been in an uptrend, and if the positive move continues, 1.1495 should be on the radar. If it moves through that level, it could target 1.1570. A break below the 1.1168 area might pave the way for 1.1060, the 200-day moving average, to be targeted.
GBP/USD – has been trading sideways in the past few sessions. A move higher might run into resistance at 1.2698, the 200-day moving average. A move through that level should put 1.2813 on the radar. Should it move lower, it might find support at 1.2418, the 100 day moving average.
EUR/GBP – should the bullish move from late April continue, it could target 0.9239. A break below the 50-day moving average at 0.8983, could put the 0.8800 zone on the radar.
USD/JPY – has been drifting lower for over one month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.
FTSE 100 is expected to open 8 points lower at 6,282
DAX 30 is expected to open 5 points higher at 12,924
CAC 40 is expected to open 6 points lower at 5,063
The major Asia-Pacific stock indexes are trading mixed early Monday as investors awaited the release of China’s benchmark lending rate. Shares in Japan rose despite a dive in the country’s exports. Weakness in the financial sector are pushing down shares in Australia and Hong Kong is called lower in anticipation of a reaction to city-tightened restrictions.
At 01:26 GMT, Japan’s Nikkei 225 Index is trading 22674.73, down 21.69 or -0.10% and South Korea’s KOSPI Index is at 2190.39, down 10.80 or -0.49%.
China’s Shanghai Index is trading 3213.74, down 0.39 or -0.01% and Australia’s ASX/200 Index is at 6010.20, down 23.40 or -0.39%.
China to Keep Benchmark Lending Rate Unchanged for 3rd Straight Month in July: Reuters Poll
China is expected to keep its benchmark lending rate steady for the third straight month at its July fixing on Monday, a Reuters survey showed, encouraged by a stronger-than-expected rebound from the coronavirus crisis.
Thirty-four traders and analysts out of 36 participants in the snap survey this week predicted no change to the one-year Loan Prime Rate (LPR). The remaining two expected a marginal reduction of five basis points (bps) in both tenors.
The one-year LPR is now 3.85% after two cuts this year, while the five-year rate is at 4.65%.
Japan’s Exports Fall Most Since 2009 as U.S. Demand Slumps
Japan’s exports fell in May at the fastest pace since the global financial crisis as U.S.-bound car shipments plunged, bolstering expectations for a deeper contraction in the world’s third-largest economy this quarter.
U.S.-bound exports – Japan’s key market – halved to market the biggest annual drop since March 2009, due to more than 70% declines in shipments of cars and car parts. Japan is the world’s second-largest exporter of autos.
U.S.-bound exports fell to 588 billion Yen ($5.48 billion), the lowest since February 2009, shrinking Japan’s trade surplus with the United States to 10 billion Yen, the smallest since records began in January 1979.
Hong Kong Tightens Coronavirus Restrictions as Cases Hit Record
Hong Kong tightened coronavirus restrictions on Sunday, with non-essential civil servants told to work from home from this week, as the global financial hub reported a record number of daily cases.
Hong Kong leader Carrie Lam told a news conference the city recorded more than 100 cases in the past 24 hours, the most since the pandemic took hold in late January, taking the tally close to 2,000 patients, 12 of whom have died.
The major Asia-Pacific stock indexes finished lower on Thursday, pressured by concerns over deteriorating U.S.-China relations and the economic cost of a resurgence in coronavirus infections that is prompting some places to reimpose containment measures. Losses may have been contained, however, by a slew of Chinese economic data including a better-than-expected GDP report.
On Thursday, Japan’s Nikkei 225 Index settled at 22770.36, down 175.14 or -0.76%. Hong Kong’s Hang Seng Index finished at 24970.69, down 510.89 or -2.00 or South Korea’s KOSPI Index closed at 2183.76, down 18.12 or -0.82%.
China’s Shanghai index settled at 3210.10, down 151.21 or -4.50% and Australia’s S&P/ASX 200 Index finished at 6010.90, down 42.00 or -0.69%.
US Imposes Visa Restrictions on Huawei, Other Chinese Tech Companies, Citing Human Rights Abuses
U.S. Secretary of State Mike Pompeo, citing human rights abuses, said the U.S. will impose visa restrictions on Chinese technology firms, the latest move expected to strain relations between Washington and Beijing.
Pompeo, who has previously described Huawei and other Chinese state-backed businesses as “Trojan horses for Chinese intelligence,” said the actions should serve as a warning for other tech companies.
“State Department will impose visa restrictions on certain employees of Chinese tech companies like Huawei, that provide material support to regimes engaging in human rights violations and abuses globally,” Pompeo said.
In a statement to CNBC, Huawei said it was “disappointed by this unfair and arbitrary action.” The company also said it “operates independent of the Chinese government” and is a “private, employee-owned firm.”
Shares of China’s Biggest Chipmaker SMIC Surge Nearly 202% in Shanghai Debut
SMIC, China’s biggest chipmaker, saw its shares surge over 200% on its first day of trade in Shanghai. SMIC issued 1,685,620,000 shares at 27.46 Yuan per share, raising 46.28 billion Yuan ($6.62 billion).
The share sale is an important moment for the company but also China’s broader ambition to grow its domestic semiconductor industry, a push that has been accelerated by the trade war between the U.S. and China.
SMIC is seen as a key player in China’s ambition to boost its domestic chip industry. The company is known as a contract chip manufacturer, meaning it makes the semiconductors designed by other firms.
South Korea’s Central Bank Holds Rates at Record Low amid Push to Curb Home Price Surge
The Bank of Korea has held the base rate steady at a record low of 0.5%, it announced in a text message, in line with the forecasts of all 30 economists polled by Reuters.
The rate is at its lowest since the central bank adopted the current system in 1999, having slashed a total of 75 basis points since March this year to fight the economic fallout from the coronavirus pandemic.
The central bank has been working in tandem with the government to extend liquidity to businesses hit by the health crisis but is wary of rising debt and high property prices.
The major Asia-Pacific stock indexes finished mixed on Wednesday, bucking the trend on Wall Street amid rising concerns over U.S.-China tensions. Underpinning some and preventing an even steeper sell-off in others was a positive reaction to the latest developments surrounding a potential vaccine for the coronavirus.
On Wednesday, Japan’s Nikkei 225 Index settled at 22945.50, up 358.49 or +1.59%. Hong Kong’s Hang Seng index is trading 25436.99, down 40.90 or -0.16% and South Korea’s KOSPI Index closed at 2201.88, up 18.27 or +0.84%.
In China, the Shanghai Index settled at 3361.30, down 53.31 or -1.56% and Australia’s S&P/ASX 200 Index finished at 6052.90, up 111.80 or +1.88%.
Trump Signs Law Slapping Sanctions on China for Interference in Hong Kong
Shares in China and Hong Kong retreated in response to President Donald Trump’s signing of legislation designed to impose sanctions on China in response to its interference with Hong Kong’s autonomy.
Trump also said that he signed an executive order ending the preferential treatment that Hong Kong has long enjoyed.
The law, dubbed the Hong Kong Autonomy Act, would slap mandatory sanctions on Chinese officials and companies that helped back Beijing’s imposition of a security law that clamps down on dissent in Hong Kong. The sanctions bill passed both houses of Congress earlier this month.
“Hong Kong will now be treated the same as mainland China,” Trump said during a lengthy speech in the White House Rose Garden that quickly drifted away from that legislation to touch on a variety of campaign issues.
“No special privileges, no special economic treatment and no export of sensitive technologies. In addition to that, as you know, we are placing massive tariffs and have placed very large tariffs on China.”
Moderna Says Its Vaccine Produces Antibodies to Coronavirus
Investors are shrugging off reports of a surge in COVID-19 cases in the United States and other countries amid positive developments toward a vaccine that could eventually end the pandemic that has driven demand destruction throughout the world.
Moderna said its coronavirus vaccine produced antibodies in all patients in an early trial, raising hope for a faster economic recovery.
Biotech Moderna’s potential vaccine to prevent COVID-19 produced a “robust” immune response, or neutralizing antibodies, in all 45 patients in its early stage human trial, according to newly released data published Tuesday evening in the peer-reviewed New England Journal of Medicine.
Shares of Moderna surged more than 16% in after-hours trading on Tuesday.
Australia Shares End Higher Tracking Wall Street Gains, Vaccine Optimism
Australian shares closed higher on Wednesday, mirroring overnight gains on Wall Street, with material stocks providing a major lift to the domestic benchmark. Its benchmark index posted its best day since June 30, despite tightened restrictions on movement to contain a fresh outbreak of COVID-19 that has pushed the national tally over 10,000.
Basic material stocks chased overnight gains in their U.S. counterparts, which were also a major boost to the U.S. indices in the last session.
Japan Shares Hit 5-Week High on Vaccine, Economic Growth Hopes
Japanese stocks rose on Wednesday to a five-week high as encouraging results from a coronavirus vaccine study and optimism about swift economic growth supported expectations that corporate earnings would pick up in the second half of the year.
The benchmark Nikkei Index hit its highest level since June 10, with industrial and consumer directional shares leading the advance.
In other news, recent data from many economies has shown signs that corporate activity and consumer spending are recovering from coronavirus-induced sharp declines.
Meanwhile, the Bank of Japan kept monetary policy steady on Wednesday and maintained its view that the economy would gradually emerge from the pandemic.
Investors also appeared to be unconcerned that the vaccine prompted some side effects in these early stage trials, however Asia markets were slightly more mixed with the Bank of Japan leaving rates unchanged.
The Nikkei225, and Korean markets pushed higher, however Chinese and Hong Kong markets slid back in the wake of President Trump signing the legislation revoking Hong Kong’s special trade status.
Markets here in Europe have taken their cues from the late rally in the US, opening higher as the tug of war between the bulls and the bears continues with respect to the next significant move.
The DAX is once again trading back close to the highs we saw in early June, while the FTSE100 is once again back above the 6,200 level, having been in a fairly broad 6,000/6,400 range for the past four weeks.
Luxury fashion retailer Burberry has had to contend with a number of challenges over the last 12 months, from the disruption of its Hong Kong business as well as the fallout from weaker Chinese demand and the spread of coronavirus. In May the company reported full-year numbers that saw operating profits slide 57% to £189m Revenues were hit hard by the costs of the disruptions in Hong Kong as well as the closure of various stores due to coronavirus pushing their impairments up to £245m.
This morning’s Q1 numbers are slightly better, with Q1 sales declining 45% while Q2 sales are expected to fall by between 15% and 20%. Retail revenue almost halved from £498m to £257m. This is a little disappointing but not altogether surprising, and given recent news of further restrictions in Hong Kong, could be viewed as being on the optimistic side, which probably helps explain why the shares are lower in early trade.
The improvement in Q1 is mainly down to stores in mainland China and Korea re-opening, however given the recent challenges posed by coronavirus, management appear to be looking towards making some savings in the way the business is run by introducing some changes, taking a restructuring charge of £45m.
Some of these changes, as well as some office space rationalisation could mean a reduction in headcount at its London Head Office, delivering annual savings of £55m.
Electrical retailer Dixons Carphone reported its latest full year numbers, which saw revenues come in around 1% above expectations, at £10.17bn, and down 3% on 2019 levels.
The company posted a loss after tax of £163m, largely down to the impact of Covid-19, which impacted the UK and Ireland mobile operations causing revenues to fall 20%. This was primarily down to the closure of stores at the end of March. All other areas of the business saw revenues increase over the period. While losses have reduced, and the outlook set to remain uncertain, the shares have slipped sharply in early trade, however all other areas of the business performed quite well, which suggests that investors might be overreacting to the losses in the mobile division, which Dixons is pulling away from in any case.
Fast fashion retailer ASOS latest update for the four months to the end of June, has seen the shares push back up towards this year’s high on expectations that profits are likely to be at the upper end of forecasts. Group sales saw an increase of 10% to just over £1bn for the period, with the customer base seeing a rise of 16%. Most of the sales growth came in its EU market, with a rise in sales of 22%. Gross margins were lower to the tune of 70bps, a trend that seems likely to continue given the current environment.
In a sign that fashion companies are becoming increasingly nervous about their brand reputation, ASOS also announced that they were axing contracts to suppliers who were found to be in breach health and safety, as well as workers’ rights regulations.
Homeware retailer Dunelm Group was one of the few success stories in UK retail last year, with the company posting strong operating profits and paying a special dividend. We are unlikely to see anything like that this year. The company closed all of its stores on the 24th March, furloughing employees under the governments job retention scheme, at a cost of £14.5m, and has slowly been reopening the business since late April, when it reopened its on line operations. At the time it said it had enough capital to withstand store closures of up to six months.
Fortunately, that hasn’t come to pass, and the company never had to draw on its £175m financing facilities. All of its stores have now re-opened, with one-way systems and strict social distancing guidelines in place. The in-store coffee shops are expected to reopen by the end of July, while the share price has managed to recover most of its losses for this year. This morning’s Q4 update, has seen total sales for the quarter decline by 28.6%. Online sales more than made up for that with a rise of 105.6% year on year, with the month of May seeing a 141% increase.
In terms of the full year numbers, sales were only down 3.9% on the prior year at £1.06bn, with profits before tax expected to be in the range of £105m to £110m, down from £125.9m the previous year, which given the disruption over the last few months is a pretty decent performance.
In terms of the future, costs are expected to increase to the region of £150k per week, however given how badly coronavirus has affected other retailers, Dunelm has ridden out the storm remarkably well.
The pound is holding up well after a weak session yesterday with the latest inflation numbers showing a modest uptick in June to 0.6%, with core prices rising 1.4%, from 1.2% in May.
Crude oil prices are a touch higher this morning ahead of an online meeting of OPEC+ monitoring committee which could decide whether the group is inclined to maintain the production cuts currently in place, which are due to expire at the end of this month.
US markets look set to open higher, building on the momentum seen in the leadup to last nights close, with the focus once again back on the latest bank earnings numbers for Q2.
Having seen JPMorgan, Citigroup and Wells Fargo collectively set aside another $28bn in respect of non-performing loans yesterday, that number is set to increase further when the likes of Bank of America, Goldman Sachs and Bank of New York Mellon report their latest Q2 numbers later today.
In Q1 US banks set aside $25bn in respect of credit provisions, and the key takeaway from yesterday was that while these banks trading divisions were doing well, their retail operations were starting to creak alarmingly. This is why Wells Fargo suffered its worst year since 2008, given that it lacks an investment banking arm, and could well see the bank embark on some significant cost saving measures over the course of the next few months.
The difference between Wells Fargo and JPMorgan’s numbers couldn’t have been starker, with Wall Street trading operations doing well, while Main Street painted a picture of creaking consumer finances.
Dow Jones is expected to open 190 points higher at 26,832
S&P500 is expected to open 15 points higher at 3,212
The major Asia-Pacific stock indexes were up across the board on Monday, climbing toward five-month highs as investors shrugged off concerns over the rising number of coronavirus cases stateside. Meanwhile, investors continued to bet the U.S. earnings season would see most companies beat forecasts given expectations had been lowered so far by coronavirus lockdowns.
On Monday, Japan’s Nikkei 225 Index settled at 22784.74, up 493.93 or +2.22%. Hong Kong’s Hang Seng Index finished at 25772.12, up 44.71 or +0.17% and South Korea’s KOSPI closed at 2186.06, up 35.81 or +1.67%.
China’s Shanghai Index settled at 3443.29, up 59.96 or +1.77% and Australia’s S&P/ASX 200 Index finished at 5977.50, up 58.30 or +0.98%.
Investors Becoming Immune to Deterioration in Relationship between U.S. and China
The strong move upward for Chinese stocks came despite comments by U.S. President Donald Trump on Friday that the relationship between Washington and Beijing has been “severely damaged” by the coronavirus pandemic, CNBC wrote.
President Trump said he isn’t focused on a possible next phase of the U.S. trade deal with China. Trump blamed China for not stopping the spread of the coronavirus, according to reporters who were traveling with the president on Air Force One en route to Florida.
Trump said he wasn’t even thinking about “phase two” of the trade deal and that he had many other things on his mind.
US Warns Citizens of ‘Arbitrary Detention’ in China
The U.S. has asked its citizens to “exercise increased caution” in China due to a “heightened risk of arbitrary detention”- a claim slammed by Chinese state-backed media Global Times as a “blatant distortion of truth.”
The U.S. advisory was issued on Saturday and did not specify what prompted the alert.
Relations between the U.S. and China have been at their worst in decades. But the U.S. is not alone in warning its citizens of the potential risk that laws may be arbitrarily applied within Chinese territory.
Last week, Australia advised its citizens not to travel to Hong Kong, and to reconsider their need to remain in the city, due to uncertainties surrounding the new national security law there.
China’s Central Bank Sees Little Need for More Emergency Stimulus This Year
At a regular briefing with reporters on Friday, representatives of the People’s Bank of China indicated there was little need for more emergency measures that had been rolled out as COVID-19 hit business activity earlier this year.
“(We must) recognize that appropriately lowering interest rates doesn’t mean the lower, the better,” Guo Kai, deputy director of the central bank’s monetary policy department, told reporters, according to a CNBC translation of his Mandarin-language remarks.
Amid the height of the coronavirus outbreak in the first half of this year, Chinese banks loaned a record high 12.09 trillion yuan, according to central bank data.
“In the next half of the year, the economy will return to normal, and the role of traditional monetary policy may become more obvious,” Guo said at a press briefing. “We have entered a more normal state.”
The major Asia-Pacific stock indexes were higher on Thursday, led by fresh gains in China. European shares are also rising following a two-day setback. The price action indicates that investors are looking past simmering U.S.-China tensions and renewed coronavirus lockdowns to upcoming company earnings, hoping that global stimulus efforts will yield upbeat outlooks.
On Thursday, the Nikkei 225 Index settled at 22529.29, up 90.64 or +0.40%. Hong Kong’s Hang Seng Index finished at 26210.16, up 80.98 or +0.31% and South Korea’s KOSPI Index closed at 2167.90, up 9.02 or +0.42%.
China’s Shanghai Index settled at 3450.59, up 47.15 or +1.39% and Australia’s S&P/ASX 200 Index finished at 5955.50, up 35.20 or +0.59%.
The number of cases in the U.S. surpassed the 3 million mark, according to Johns Hopkins University. As cases and deaths rise, data compiled by Apple Maps shows driving activity is slowing down across the country, which could be a warning sign for the economic comeback.
Globally, more than 11.88 million people have been infected while at least 545,398 lives have been taken, according to data compiled by Johns Hopkins University.
China Reports Inflation Data
In fresh inflation data out of China early in the session, the country’s producer price index was down 3% year-on-year in June, compared to expectations for a 3.2% decline according to analysts polled by Reuters.
The consumer price index, meanwhile, fell in line with Reuters-polled expectations, rising 2.5% year-on-year for the month.
Australian Share Market Closes Higher
The Australian share market closed higher, after shares in Afterpay led a rally among tech stocks, while mining and energy stocks also boosted the market.
Mining and energy stocks led the broad-based rally. Technology shares surged, led by buy-now, pay-later operators Afterpay and Zip Co.
Rio Tinto said more than 2,000 jobs would go in New Zealand, as it announced plans to close its aluminum smelter in the country because of high power prices.
Meanwhile, Afterpay shares hit a fresh record high above $75 following an upgrade from Morgan Stanley. Analysts there raised their price target on the stock to $101, saying the company’s latest earnings were much stronger than expected.
Markets elsewhere in Asia were slightly less exuberant, with the Nikkei225 slipping back from three-week highs.
To that end markets here in Europe have opened lower with profit-taking kicking in ahead of the peaks that we saw in June. While optimism of a v-shaped recovery still remains quite high it is being tempered by concerns about rising coronavirus cases globally, translating into a similar percentage rise in mortality rates. This doesn’t appear to be happening at the moment, however with the markets back close to their June peaks it would appear that the overriding sentiment is one of ahead of those June peaks.
These types of moves are becoming emblematic of how markets have been moving over the last month. We’ve seen sentiment ebb and flow from being quite bearish, to fairly bullish without ever breaking out of the range we’ve been in since we posted those June peaks.
The rebound in the FTSE100 on the other hand has been much more modest, as the index continues its underperformance, with the index way off its June peaks, unlike the rest of Europe where the recent rally has seen us move back close to those highs.
One retailer that has managed to ride out the worst of the coronavirus storm has been automotive parts and cycle retailer Halfords who reported their full year numbers this morning, though you wouldn’t know it given the share price reaction this morning, with the shares dropping sharply.
Classed as an essential business it largely remained open throughout the lockdown, though some stores were closed. The business benefited from a boost from higher bicycle sales as people sought to avoid public transport, and make use of the good weather to move around in a healthy way as part of their daily exercise regimen.
At the beginning of May Halfords said that full year results would be boosted by increased sales during the lockdown which would push profits up to £50m to £55m.
Today’s numbers saw revenues rise to £1.155bn, with auto centres providing an 18.8% boost. The retail part of the business saw a 2.7% decline, not surprising given lower footfall towards the end of its financial year. Underlying profit before tax came in above expectations at £55.9m, with cycling sales showing a rise of 2.3%, while gross margins improved by 27bps.
In terms of current trading 77 stores still remain closed, while group sales for the 13 weeks to 3 July were lower by -2.8%, year on year, which, while disappointing was still better than expected back in March. Cycling has been the outperformer, with sales up by 57.1% on a like for like basis, while motoring has seen revenue decline 45.4% on a like for like basis, as people use their cars less.
Management also offered some guidance, based on three separate scenarios, and it is this it would appear that is responsible for this morning’s share price weakness, as all three scenarios paint a picture of much lower profit numbers. The worst scenario saw profits falling to zero or lower, with net debt rising to £60m, while scenario three saw profits fall to between £10m and £20m and net debt coming in at mid £40m.
The reason for the lower profit estimates, was purely down to a sales mix more geared towards cycling, which is a much lower margin business and away from its auto centres business.
Another sector hit hard by the shutdowns has been the retail sector, which has already been struggling in the lead up to the crisis. The recent collapse of retail landlord Intu last month points to the vicious circle of falling sales, putting pressure on rents.
Unlike a lot of its peers JD Sports Fashion was one of the few retailers that had managed to set aside the weak retail outlook with a solid performance in 2019, sending its shares to record highs of 884p in December last year. In the space of four weeks in February and March this all changed as the shares plunged to a low of 275p before finding a base, and rebounding. We have managed to recover most of that lost ground, trading just shy of 700p, however management do face some challenges.
This year’s full year numbers for the year ended 1st February don’t cover the period of the shutdown of the UK economy, reflecting the success of last year, with revenues rising 30% to £6.11bn, helped by an increase in stores across Europe, and the Asia Pacific region, with 52 of those in Europe. Profit before tax saw a rise of 3% to £348.5m, however all of this is rear view mirror stuff, and bears no relation to the outlook now.
In March management took the decision to close all of its stores in the UK, Europe and the US, though online sales still remained open. The suspension of business rates will help cushion some of the effects of this government enforced lockdown, with management suspending future guidance until further notice. Stores have now begun to reopen, with the majority of stores now trading again, however footfall has been weak, particularly in shopping centre locations, as consumers avoid high density areas.
The company also had to take note of the recent decision by the Competition and Markets Authority to block its £86m acquisition of Footasylum, despite the brand only accounting for 5% of the retail market. Management have confirmed their intention to appeal the decision while also working with the CMA, in conducting the divestment process.
For now, the Footasylum business will continue to be run separately, however given the weak retail environment it is highly unlikely that JD Sports will be able to find a buyer for the business without taking a sizeable loss on any forced sale, assuming of course they can find a buyer for an asset, that to all intents and purposes is now worth a lot less than what was paid for it.
The hotel and leisure sector has also been hit hard by the coronavirus shutdown, and Premier Inn owner Whitbread has been at the forefront of that.
Having reported some decent full year numbers in May, the coronavirus shutdown blew a huge hole in its expectations for this year, with all but 39 of its hotels in the UK remaining closed, with the assumption that they would have fairly low occupancy until September. This looks set to change in the coming weeks as the UK gets set for a big reopen, with the company saying that 270 UK hotels and 24 restaurants have now reopened with the rest of the property real estate to set to re-open by the end of the month.
In Germany, there was also positive news with all 19 hotels there now re-opened, with most of these open since 11th May.
While the hotel chain now has the luxury of an extra £1bn from its recent rights issue, management remained cautious about the outlook for the rest of the year.
Unsurprisingly its Q1 numbers don’t paint a pretty picture, with a 79.8% decline in like for like sales, but today’s update was never about that, it was more about management expectations of demand for the months ahead at a time when Whitbread is uniquely placed to benefit for higher bookings for the summer season, even if business bookings in more metropolitan areas struggle to recover.
The tone of the statement suggests some optimism that areas that benefit from tourism should be able to cope, however with sports events still closed to the wider public, and business bookings also subdued, it is likely to be a long road back for the Premier Inn owner, and this morning’s early fall in the share price appears to reflect that early pessimism.
Fresh from yesterday’s news that Commerzbank CEO Martin Zielke was stepping down the bank, this morning the bank announced it would be shutting half of its branches in Germany, as it attempts to draw a line under a restructuring process that has endured numerous fits and starts over the past two to three years.
For the second day in a row, German economic data undershot expectation in May, even as the economy continued its reopening process. After two months of large declines industrial production rebounded by 7.8%, well below expectations of 11%, though it was still much better than the 17.9% decline seen in April. Yesterday factory orders also undershot expectations, suggesting that while the German economy was getting back on its feet, the process of doing so was proving slightly more difficult than expected.
The US dollar is outperforming today, largely as a result of the weakness in equity markets as it benefits from some haven buying.
US markets look set to take their cues from today’s weaker European session, with a lower open, as profit taking kicks in after yesterday’s exuberant move higher.
Crude oil prices are also slightly softer on the back of the weaker sentiment prevailing in early trading this morning.
On the companies front Levi Strauss will be releasing its latest Q2 numbers later today. Since the company IPO’s last year, the share price has drifted lower. The underperformance, has been particularly disappointing given that the company is actually profitable, unlike most of last year’s tech stock flotations. This quarter is likely to see the company fall into a loss due to the pandemic hit and the fact that most if its retail outlets were closed.
In Q1 the company posted revenues of $1.51bn, above expectations, which meant the company was able to pay a dividend of $0.08c a share. This week’s Q2 result is unlikely to come anywhere close to Q1’s, however managements withdrawal of guidance in Q1, means that expectations are low. On the plus side its international reach means that they will still be able to shift product, even if some markets are closed. It also has $1.8bn in liquidity which means it should be able to ride out the current uncertainty. The company is expected to post a Q2 loss of -$0.41c a share
Dow Jones is expected to open 220 points lower at 26,067
S&P500 is expected to open 20 points lower at 3,159
The major Asia-Pacific stock indexes finished mostly higher on Monday with some scaling four-month peaks as investors bet heavily on a revival in Chinese activity to sustain global growth. MSCI’s broadcast index of Asia-Pacific shares outside Japan climbed 1.5% to its highest since February.
Even more impressive was a jump in Chinese blue chips which surged nearly 6.0%, on top of a 7% gain last week, to their loftiest level in five years.
On Monday, Japan’s Nikkei 225 Index settled at 22714.44, up 407.96 or +1.83%. Hong Kong’s Hang Seng Index finished at 26339.16, up 966.04 or +3.81% and South Korea’s KOSPI Index closed at 2187.93, up 35.52, up 1.65%.
In China, the Shanghai Index settled at 3332.88, up 180.07 or +5.71% and Australia’s S&P/ASX 200 Index finished at 6014.60, down 43.30 or -0.71%.
China’s Blue Chip Vault to 5-year High on Hopes of Economic Recovery, Policy Support
China stocks closed higher for a fifth straight session on Monday, extending a robust rally, led by financial shares on hopes of a quick economic recovery, Beijing’s continued reforms in the capital markets and ample liquidity, Reuters reported.
The blue-chip CSI300 index closed up 5.7% at 4,670.09 points, its highest value since June 25, 2015, while the Shanghai Composite Index climbed to its highest since March 2018. The CSI300 also posted its biggest one-day gain since February 25, 2019, while SSEC logged its best session since July 9, 2015.
“China has become a safe haven for investors now, as the recent coronavirus outbreak in Beijing helps investors realize the impact from a second wave of outbreak, if any, in the country would be very limited,” said Zhang Chengyu, vice general of Beijing-based Shiji Hongfan Asset Management Company.
“The rally now is just the beginning of a strong rising trend, and more money would pour into the A-share market,” Zhang added.
Hong Kong Stocks Track Mainland Gains, End at Over 4-Month High
Hong Kong shares closed at a more than four-month high on Monday, tracking equities in the mainland.
The Hang Seng Index rose 3.81%, while the China Enterprises Index gained 4.7%. The sub-index of the Hang Seng tracking energy shares rose 3.9%, while the IT sector rose 1.05%; the financial sector ended 4.85% higher and the property sector rose 4.21%.
Border Closures Hurt Share Market
The Australian stock market closed lower on Monday as state border closures with Victoria sparked fear of a second wave that could damage the country’s economic rebound.
Monday’s slight market slump comes off the back of a Deloitte Access Economics report, which flagged economic growth would contract by 3 percent in 2020 as a result of the COVID-19 shutdown.
Major bank shares made little movement throughout the day. The energy and material sectors also suffered declines. Additionally, refreshed lockdowns on travel also impacted the share price performance of Qantas.
Germany is in focus throughout the week. Key stats include May’s factory orders, industrial production, and trade figures.
We would expect factory orders and industrial production to have the greatest influence. These are figures from May, however, that should limit any material impact on the EUR.
From the Eurozone, retail sales figures on Monday will likely have a muted impact on the EUR.
Consumer spending and a bounce back in service sector activity remain key to a swift economic recovery. Following last week’s member state numbers, however, there shouldn’t be too many surprises.
From the EU, economic forecasts are due out on Wednesday that will garner plenty of attention. With the recent uptick in private sector activity and bounce back in consumption, the markets will want some better forecasts…
The EUR/USD ended the week up by 0.26% to $1.1248.
On Monday, June’s Ivey PMI is due out on Monday, with June employment figures due out on Friday.
While the Ivey PMI will influence, expect the employment figures to have the final say in the week.
Mid-week, housing starts, and building permit numbers will have a muted impact on the Loonie.
At the start of the week, the BoC will release its Business Outlook Survey that will influence the Loonie. Sentiment will need to materially improve to support a more optimistic economic outlook.
Away from the calendar, COVID-19 updates and any chatter about trade tariffs will also provide direction.
The Loonie ended the week up by 1.03% to C$1.3547 against the U.S Dollar.
Out of Asia
For the Aussie Dollar:
It’s a particularly quiet week ahead for the Aussie Dollar.
There are no material stats due out to provide the Aussie with direction in the week. While there are no stats, however, the RBA will deliver its monetary policy decision on Tuesday.
We don’t expect any moves, which puts the focus on the RBA rate statement.
A lack of stats and the lack of an RBA move would ultimately leave the Aussie Dollar in the hands of COVID-19 and trade chatter…
The Aussie Dollar ended the week up by 1.08% to $0.6939.
For the Kiwi Dollar:
It’s a relatively quiet week ahead on the economic calendar.
On Tuesday, 2nd quarter business confidence figures are due, with electronic card retail sales due out on Friday.
Expect both sets of numbers to influence, though electronic card retail sales should garner more interest.
From elsewhere, updates from the U.S and the EU on COVID-19 and any chatter on trade will also influence. The last thing that the Kiwi Dollar needs is a 2nd wave…
The Kiwi Dollar ended the week up by 1.68% to $0.6531.
For the Japanese Yen:
It is a quiet week ahead on the economic calendar.
Economic data is limited to May’s household spending figures and current account numbers. In a normal world, we would expect some influence from household spending figures.
At present, however, the Yen remains wedged between the Greenback and riskier assets.
Expect market risk sentiment to remain the key driver in the week.
The Japanese Yen ended the week down by 0.27% to ¥107.51 against the U.S Dollar.
Out of China
It’s a quiet week ahead on the economic data front. Key stats include June’s inflation figures. Don’t expect too much influence from the numbers, as the global markets grapple with COVID-19 and Trump…
The Chinese Yuan ended the week up 0.17% to CNY7.0663 against the U.S Dollar.
There’s still no good news on the Brexit front, which continues to leave the Pound languishing at sub-$1.30 levels.
Following the lack of progress from last week, British PM Johnson began to talk positively about a no-deal Brexit.
Talks ended 1-day early on Thursday, with significant differences remaining and scuppering any hopes of progress.
The markets are not expecting Boris Johnson to compromise, which will leave the markets and the Pound in limbo until the talks resume.
There was some gamesmanship from the EU. Angela Merkel had reportedly requested that negotiators should prepare to leave trade talks without a deal.
We expect the news wires to be active on Brexit in the week ahead. It had been on the quieter side as the markets focused on economic data.
Foreign policy with China will be in the spotlight in the week as tensions between the U.S and China spike.
News from the weekend should certainly leave the markets in a cautious mood going into the week.
Reports of the U.S sending aircraft carriers to the South China Sea as China holds drills in the region is alarming.
Last week, the U.S moved forward on legislation to hit banks doing business with China. The move came in response to China’s national security law on Hong Kong. China has warned of taking every countermeasure available should the U.S President sign the Hong Kong Autonomy Act that the Senate approved last week.
Over the weekend, news updates of a fresh spike in new COVID-19 cases will give the markets little comfort.
China, Germany, Italy, and South Korea all reported localized clusters. From the U.S, 12 states are reportedly pausing reopening. There was a new record high number of new cases reported on Saturday.
From the market’s perspective, the 3 key considerations have been:
Progress is made with COVID-19 treatment drugs and vaccines.
No spikes in new cases as a result of the easing of lockdown measures.
Governments continue to progress towards fully opening economies and borders.
Based on the figures last week and from the weekend, points ii) and iii) in particular have been market negative.
As the threat of a 2nd wave rises, it is also unlikely to have a vaccine in the coming weeks.
This is also market negative should the number of new cases continue to rise, as it would require the need for another total lockdown in affected economies.
At the time of writing, the total number of coronavirus cases stood at 11,378,918. Monday to Saturday, the total number of new cases increased by 1,339,869. Over the same period in the previous week, the total number had risen by 1,048,069.
Monday through Saturday, the U.S reported 361,275 new cases to take the total to 2,935,770. This was up from the previous week’s 239,880. On Saturday 4th July, there were 107,457 new cases.
For Germany, Italy, and Spain, there were 6,397 new cases Monday through Saturday. This took the total to 736,462. In the previous week, there had been 6,948 cases over the same period.