Monex Morning Report – Tue 25 Aug 2020

OVERNIGHT HIGHLIGHTS

S&P500 hits another record, closes above 3,400 for the first time as Apple and airlines rise; Asian stocks set to gain with U.S. at record highs

Republicans nominate Trump for re-election on first day of convention; Pelosi says next move on stimulus up to the Trump administration

Top Market News

Apple Stock Could Surge Even Higher Following $2 Trillion Valuation, Morgan Stanley Says

Despite Apple surpassing a valuation of $2 trillion last week—becoming the first U.S. company to do so, Morgan Stanley analysts argue that the tech giant remains undervalued, raising their price target for the stock to the highest among major Wall Street firms. “We increasingly believe that Apple should be valued like a technology or consumer platform, rather than a more cyclical hardware company,” Morgan Stanley’s note said. “Apple proves that a more diverse portfolio combined with loyal customers and increasing engagement translates to more secular, not cyclical growth.” The analysts estimate that in a base case, between 2021 and 2026, the company will grow its revenue 8% annually and earnings per share by 11% annually.

Originating Source

Global companies raise most funds for the month of August in a decade

Companies raised the most funds in global equity and debt markets for the month of August in a decade as homebound bankers spend their summer fixing deals off the back of trillions of dollars of stimulus worldwide to fight the coronavirus pandemic. Companies have raised $65.5 billion through initial public offerings (IPOs) and high-yield bond issuances globally so far in August, the highest for that month in at least 10 years, according to Refinitiv data. They raised $98.6 billion in July and $126.5 billion in June, which was the highest in 20 years. It comes as governments and central banks have made at least $15 trillion of stimulus available to help economies withstand the fallout of the coronavirus pandemic.

Originating Source

Leon Cooperman says Fed fuels a debt binge the economy can’t handle

The Federal Reserve has created a speculative bubble that has pushed debt levels beyond what the U.S. economy can support, Leon Cooperman said. “They have created a real speculative environment,” Cooperman said Monday on Bloomberg Television. “I am uncomfortable at the present time, not because of the virus, because I’m focused on something the market isn’t focused on. And that is the amount of debt that’s being created. Who pays for the party when the party is over?” It took the U.S. “244 years to go from zero national debt to $21 trillion,” he said. “We will probably end this year with $27 trillion. That’s a growth rate in debt far in excess of what the economy is growing at and I think that’s going to be a problem down the road.”

Originating Source

Fed’s Barkin warns young workers face slog and urges retraining

Young people may face a long slog in the U.S. labor market as customer-facing jobs at restaurants and in services may not recover fully from the Covid-19 pandemic, Federal Reserve Bank of Richmond President Thomas Barkin said, urging increased retraining of American laborers. “It seems quite possible that — even with a vaccine or treatment — we will be in a world where highly exposed personal service sectors, such as restaurants, retail, and entertainment continue to operate at reduced capacity, which would mean fewer jobs in those sectors,” Barkin said in an essay posted on the bank’s website Monday.

Originating Source

Pelosi says next move on stimulus up to the Trump administration

While the weekend saw House lawmakers return to Washington from a weeks-long break, any hopes that meant there would be progress on stalled economic stimulus talks remained illusory. Asked Monday afternoon if Americans should be hopeful Congress and the White House can soon reach an agreement to pass a second large coronavirus aid package, House Speaker Nancy Pelosi (D., Calif.) urged caution. “A lot of that will be up to the administration, if they stop making misrepresentations to the American people.” House members returned briefly to Washington Saturday to vote on a bill to provide $25 billion to the U.S. Postal Service and keep it from making changes that would slow mail delivery heading into an election where many voters are expected to vote by mail.

Originating Source

Republicans nominate Trump for re-election on first day of convention

The Republican party nominated Donald Trump for re-election on Monday, on the first day of a national convention meant to strike a contrast with Democrats and, in the president’s own words, deliver a “very uplifting and positive” message. But any such message was upstaged by the president himself, in an unscheduled appearance in Charlotte, North Carolina. Basking in chants of “Four more years! Four more years!”, Trump accused Democrats of trying to “steal” the election by expanding absentee voting during the coronavirus pandemic. He went so far as to say it was impossible for him to lose a fair contest in November.

Originating Source

Closed Borders Pose Worker Shortage Threat to Australian Harvest

Australia’s grappling with a farm labor shortage just weeks from the start of the country’s winter grain harvest, which is tipped to be the biggest in years following several drought-affected seasons. Restrictions imposed on state and international borders to stem the spread of coronavirus have left a shortfall of thousands of workers across the agriculture sector, which relies on backpackers and temporary visa holders to fill seasonal roles. Border closures are just the latest blow for a sector that’s still reeling from years of prolonged drought as well as the impact of the country’s escalating trade tensions with China. Industry groups fear that if restrictions are not eased, produce could perish and animal welfare could be put at risk.

Originating Source

Amgen, Salesforce.com, Honeywell Added To Dow Jones Industrial Average

Amgen (AMGN), Salesforce.com (CRM) and Honeywell International (HON) will be added to the Dow Jones Industrial Average in a shuffling of the index that will give it more of a technology flavor. Biotech giant Amgen will replace Pfizer (PFE), another drugmaker. Honeywell replaces defense contractor Raytheon Technologies (RTX), and Salesforce.com is taking the place of oil giant Exxon Mobil (XOM). The changes go into effect before the start of trading on Aug. 31. The index changes are the result of Apple’s (AAPL) 4-for-1 stock split, which will reduce the index’s weight in the Global Industry Classification Standard (GICS) Information Technology sector. The changes help offset that reduction, Dow Jones Indexes said in a statement after Monday’s closing bell. The new components also help diversify the index by removing some overlap in certain industries, and “adding new types of businesses that better reflect the American economy.”

Originating Source

Top Trump News

FDA

President Donald Trump accused unnamed officials of delaying the process of drug authorizations by the Food and Drug Administration in order to prevent his re-election. Trump said “deep state” interests were “making it very difficult for drug companies to get people in order to test the vaccines and therapeutics. Obviously, they are hoping to delay the answer until after November 3rd.” The comments came as the FDA issued an Emergency Use Authorization of convalescent plasma for treating Covid-19 patients. FDA commissioner Steven Hahn, a Trump appointee, said that the decision isn’t a full approval and that it is still evaluating it for effectiveness and safety. Separately, the Financial Times reported that Trump is also pushing for AstraZeneca’s experimental Covid-19 drug to get EUA.

Originating Source

Providing food to American families

“President Donald Trump said on Monday his administration would provide an additional $1 billion to a program that provides food to American families dealing with the economic hardship from the coronavirus pandemic. The Farmers to Families Food Box program is one of several government efforts to help struggling Americans. It aims to buy food from farmers who typically produced for restaurants but lost business because of coronavirus-related shutdowns, and deliver it to the millions of people who were thrown out of work or were otherwise hurt by the pandemic. “”Today I am proud to announce that we will provide an additional one billion dollars to fund the Farmers to Families Food Box program,”” Trump said during an visit to a North Carolina food packing plant. ”

Originating Source

TikTok

TikTok asked a federal judge to block the Trump administration from enacting a ban on the fast-growing social media network, bringing a geopolitical fight over technology and trade into a U.S. courtroom. TikTok and its Chinese parent, ByteDance Ltd., sued on Monday in federal court in Los Angeles to challenge an Aug. 6 order from President Donald Trump prohibiting U.S. residents from doing business with TikTok. Trump says TikTok is a security risk for user data. The company said the president’s decision was made “for political reasons,” is unconstitutional and violates rights to due process. While the order doesn’t take effect for weeks, it has escalated tensions between the U.S. and China. On Aug. 14, Trump ordered ByteDance to sell its U.S. assets and said the U.S. should receive a cut of the proceeds. Microsoft Corp. and Oracle Corp. have already shown interest in buying TikTok, which argues it poses no security threat.

Originating Source

Economic Indicators

New Zealand Retail Sales QoQ

The volume of total retail sales in New Zealand declined a seasonally adjusted 14.6 percent in the second quarter of 2020 following a revised 1.2 percent drop in the previous period, as coronavirus restrictions dented demand. It was the largest drop in total volume sales since the series began in 1995, as sales dropped for supermarket & grocery (-0.2 percent vs 8.7 percent in Q1); electrical and electronic goods (-1.5 percent vs 0.9 percent) and motor vehicles and parts (-15 percent vs -8.8 percent). Year-on-year, retail sales were down 14.2 percent.

United States Chicago Fed National Activity Index

The Chicago Fed National Activity Index in the US fell to 1.18 in July of 2020 from a record high of 5.33 in June and compared to market forecasts of 2.73. The reading pointed to slower growth in economic activity compared to June but still well-above-average (0.01). All four broad categories came lower than in June but three made positive contributions: production-related (1.09 vs 2.21); employment-related (0.38 vs 1.94); personal consumption and housing (0.02 vs 0.42) and sales, orders and inventories (-0.31 from 0.77). The index’s three-month moving average rose to +3.59 in July from –2.78 in June, pointing to the first expansion since January. Periods of economic expansion have historically been associated with values above –0.70.

Economic Calendar

Tuesday

Germany German GDP (QoQ) (Q2)

Tuesday

Germany Ifo Business Climate Index (Aug)

Wednesday

US New Home Sales (Jul)

Wednesday

US Core Durable Goods Orders (MoM) (Jul)

Thursday

US Crude Oil Inventories

Thursday

US GDP (QoQ) (Q2)  

Thursday

US Initial Jobless Claims

Thursday

US Fed Chair Powell Speaks  

Friday

US Pending Home Sales (MoM) (Jul)

Friday

UK BoE Gov Bailey Speaks