1/WALL STREET WATCHES WASHINGTON
U.S. lawmakers negotiating a fresh dose of stimulus have reached an impasse.
Trillions of dollars injected by the Federal Reserve and huge government spending increases have stemmed coronavirus-linked economic damage, fuelling a rebound in a Citi index that tracks economic data relative to expectations.
But with almost 30 million Americans unemployed and coronavirus still spreading, Fed policymakers have been warning the recovery could sputter unless politicians come through with further measures. The S&P500 index is holding just off record highs. The wait is on to see if negotiations resume and bear fruit.
-White House, Democrats show no sign of budging on U.S. coronavirus aid-COVID-19 crushes U.S. economy in second quarter; rising virus cases loom over recovery
Graphic: Citi’s U.S. economic surprise index https://fingfx.thomsonreuters.com/gfx/mkt/nmovalgrxpa/Pasted%20image%201597333767321.png
2/LET’S BREXIT AGAIN
The twin troubles of Brexit and coronavirus ensured Britain’s second-quarter contraction of 20.4% was greater than any other major economy’s. And recovery will be elusive unless a free-trade deal is reached with the European Union before the post-Brexit transition period ends on Dec. 31.
EU-UK talks begin on Aug 17. The two sides remain far apart, but the meetings may show if they can lay aside their differences in time to reach a deal by the Oct. 2 deadline. An impasse may spell trouble for sterling and further pressure on domestic-focused shares.
The Bank of England is not considering negative interest rates just yet, but the prospect of crashing out of the European Union without a deal might leave it with no alternative.
Graphic: Poised for losses? https://fingfx.thomsonreuters.com/gfx/mkt/dgkpldylbpb/Pasted%20image%201597160873894.png
3/GOLD FOR GREENBACKS
The dollar’s 5% plunge in five weeks has got gold bugs excited. Prices for the metal vaulted to a record above $2,000 per ounce before retreating as the greenback regained some poise.
Dollar weakness could run further — it remains strong across various trade-weighted indexes. But correlations between gold and the dollar, tenuous at best, have weakened under the impact of central bank stimulus, with 90-day correlations approaching cyclical lows.
Finally, rising inflation expectations boost hedges such as gold. Refinitiv data shows U.S., UK, German and Japanese 10-year real, inflation-adjusted yields in negative territory, a first for all of them simultaneously. So even if gold struggles above $2,000, gold bugs can probably rest assured a big selloff isn’t imminent.
Graphic: Gold – shining bright https://fingfx.thomsonreuters.com/gfx/mkt/dgkvldoqmvb/gold.JPG
4/DOING THE SPLITS
Apple (NASDAQ:) and Tesla (NASDAQ:)’s stock-split announcements rekindle memories of the dotcom bubble, when companies were actively dividing shares into multiple new ones. That trend eventually died — is it making a comeback?
Tesla is giving out five shares for each share held; Apple has a four-for-one offer. Companies typically split shares to make them cheaper for retail investors, but these days, with platforms already offering fractional shares for as little as $1, such splits don’t attract investors in droves. Shares have risen since the announcements, but it remains to be seen whether gains continue until Aug. 31, when trading starts on a split-adjusted basis for both Apple and Tesla.
Graphic: Where did all the stock splits go? https://graphics.reuters.com/APPLE-RESULTS/SPLIT/yxmvjrjgevr/chart.png
5/THE BIG AUSTRALIAN
The world’s biggest listed mining company and the third-biggest digger of iron ore, Australia’s BHP, reports annual results on Tuesday. With iron ore prices soaring and rival Rio Tinto (NYSE:) beating forecasts, strong numbers are expected of BHP. But BHP is more than just a miner — steel is a bellwether for economic growth and its main ingredient, iron ore, sits at a critical juncture. Many question whether Chinese demand is enough to offset crumbling orders elsewhere.
BHP is also a gauge of China’s economic health. After July shipments to China from the world’s largest export hub, Australia’s Port Hedland, dipped 17.5% from June, investors will be listening out for management’s view on the outlook.
Graphic: China iron ore imports https://fingfx.thomsonreuters.com/gfx/ce/xlbpgbdxzvq/ChinaIronOreImportsthroughJul2020.png