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Asia markets updates on 06/08/2020

Sterling at 5-month peak as BOE stands pat, Dollar eases as investors fret over U.S. recovery, Asian shares subdued - Thursday, August 6th, 2020

Market Roundup

  • Oil prices gains on lower U.S. crude stocks
  • Gold holds near record high growth outlook dims

Economic Data Ahead

  • (0400 ET/0800 GMT) Italy Industrial Output s.a. (MoM)(Jun)
  • (0400 ET/0800 GMT) Italy Industrial Output w.d.a (YoY)(Jun)
  • (0430 ET/0830 GMT) UK Markit Construction PMI(Jul)

Key Events Ahead

  • No Significant Events Scheduled

FX Beat

DXY: The dollar slumped to an over 2-year trough on rising perception that the U.S. economic recovery could be hobbled by the country’s poor performance in containing the COVID-19 outbreak. Top congressional Democrats and White House officials negotiations headed toward an end-of-week deadline with no sign of an agreement. The greenback against a basket of currencies traded 0.1 percent down at 92.69, having touched a low of 92.52 earlier, its lowest since May 2018.

EUR/USD: The euro rallied to an over 2-year high as investors continued to cheer on yesterday's data showing Eurozone business activity returned to modest growth in July as some curbs imposed to stop the spread of the coronavirus were lifted. The European currency traded 0.3 percent higher at 1.1895, having touched a high of 1.1915 earlier, its highest since May 2018. Investors’ attention will remain on a series of data from Eurozone economies, ahead of the U.S. unemployment benefit claims. Immediate resistance is located at 1.1930, a break above targets 1.1957. On the downside, support is seen at 1.1809 (5-DMA), a break below could drag it below 1.1755 (10-DMA).

USD/JPY: The dollar declined, extending losses for the third straight session, after data showed U.S. private payrolls growth slowed sharply in July, indicating the labour market recovery was faltering. Investors now await weekly data due later in the day, which is expected to show a slight decline in initial claims to 1.415 million last week from 1.434 million in the preceding week. On Friday government data is likely to show U.S. payroll growth slowing to 1.6 million in July from 4.8 million in June. The major was trading 0.1 percent down at 105.46, having hit a high of 106.47 on Monday, its highest since July 24. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. ADP unemployment benefit claims. Immediate resistance is located at 105.94, a break above targets 106.19. On the downside, support is seen at 105.09, a break below could take it near at 104.77.

GBP/USD: Sterling advanced to a 5-month peak after the Bank of England kept its benchmark interest rate at 0.1 percent and also left unchanged the size of its bond-buying programme at 745 billion pounds. The major traded 0.4 percent higher at 1.3164, having hit a high of 1.3183 earlier, it’s highest since March 9. Investors’ attention will remain on the geopolitical developments, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.3210, a break above could take it near 1.3230. On the downside, support is seen at 1.3074, a break below targets 1.3020. Against the euro, the pound was trading 0.2 percent up at 90.25 pence, having hit a high of 89.80 on Friday, it’s highest since July 13.

AUD/USD: The Australian dollar rose, hovering towards a 1-1/2 year high hit in the prior session, as the greenback weakened as top congressional Democrats and White House officials appeared to harden their stances on new coronavirus relief legislation. The Aussie trades 0.1 percent higher at 0.7195, having hit a low of 0.7076 on Monday, it’s lowest since July 24. Investors will continue to track overall market sentiment, ahead of U.S. economic releases. Immediate resistance is located at 0.7230, a break above could take it near 0.7254. On the downside, support is seen at 0.7161 (5-DMA), a break below targets 0.7120.

Equities Recap

Asian shares traded within narrow ranges as investor focused on negotiations over a new U.S. stimulus package.

Tokyo's Nikkei fell 0.4 percent to 22,418.15 points, Australia's S&P/ASX 200 index surged 0.7 percent to 6,042.20 points. South Korea's KOSPI gained 1.3 percent to 2,342.61 points.

Shanghai composite index rose 0.3 percent to 3,386.46 points, while CSI 300 index traded 0.3 percent down at 4,762.76 points.

Hong Kong’s Hang Seng traded 1.05 percent lower at 24,832.79 points. Taiwan shares added 0.9 percent to 12,913.50 points.

Commodities Recap

Crude oil prices surged, hovering towards a 5-month high recorded in the previous session after the Energy Information Administration reported a much bigger than expected drop in U.S. crude stockpiles.  International benchmark Brent crude was trading 0.7 percent up at $45.50 per barrel by 0606 GMT, having hit a high of $46.21 on Wednesday, its highest since March 6. U.S. West Texas Intermediate was trading 0.6 percent higher at $42.41 a barrel, after rising as high as $43.50 on Wednesday, its highest since March 6.

Gold prices rallied towards an record peak scaled in the previous session as dismal U.S. jobs data hammered the dollar, while increasing worries about a recovery in the pandemic-ravaged global economy boosted the safe-haven metal's appeal. Spot gold was up 0.5 percent at $2,047.36 per ounce by 0614 GMT, having hit an all-time high of $2,055.92 on Wednesday. U.S. gold futures rose 0.4 percent to $2,056.60.

Treasuries Recap

The U.S. Treasury yields edged lower, with the benchmark 10-year note yield trading at 0.545 percent.

Source: FXWire

Facebook removes Trump post over false Covid-19 claim for first time

Post included video in which Trump wrongly said that children were ‘almost immune’ from illness

Facebook has removed a post from Donald Trump’s page for spreading false information about the coronavirus, a first for the social company that has been harshly criticized for repeatedly allowing the president to break its content rules.

The post included video of Trump falsely asserting that children were “almost immune from Covid-19” during an appearance on Fox News. There is evidence to suggest that children who contract Covid-19 generally experience milder symptoms than adults do. However, they are not immune, and some children have become severely ill or died from the disease.

“This video includes false claims that a group of people is immune from Covid-19 which is a violation of our policies around harmful Covid misinformation,” a Facebook spokesperson said.

During a press briefing on Wednesday afternoon, Trump repeated his false claims about children and the disease.

Trump’s presidential campaign and tenure in office have been defined by his aggressive use of social media platforms to spread racism, xenophobia, threats, and misinformation. For years, the US-based social media platforms that enabled his broadcasts were hesitant to enforce their own rules against him.

But the combined crises of the coronavirus pandemic and widespread civil unrest over the police killing of George Floyd appear to have inspired greater resolve among social media executives, with Twitter and Twitch taking action against Trump for threatening protesters, spreading misinformation about voting and, in Twitch’s case, using hate speech.

Facebook was a holdout, prompting anger among Democrats and civil rights activists who objected to the double standard that allowed Trump to continue to spread misinformation that would probably have been taken down if posted by other accounts.

While this is the first time that Facebook has taken action against Trump’s account for coronavirus misinformation, earlier this year the company did remove a series of ads and an organic post by the Trump campaign that featured a symbol historically associated with Nazis.

The Guardian has contacted the White House and the Trump campaign for comment.

Kari Paul contributed reporting - The Guardian

US markets updates on 06/08/2020

Dollar stays weak Amid signs of lagging U.S. economy, Wall street gains, Gold scales new record, Oil moves up on big Crude inventory decline-august 6th,2020

Market Roundup

• US Jul  ADP Nonfarm Employment Change  167K, 1,500K forecast, 4,314K previous

• US Imports 208.95B, 199.49B previous

• US Exports 158.25B, 144.69B previous

• Canada Jun Exports  39.71B, 38.80B forecast, 33.90B previous

• US  Jun Trade Balance  -50.70B, -50.10B forecast, -54.80B previous

• US  Jun Trade Balance  -3.19B, -0.90B forecast, -1.33B

• US Jul  Services PMI 50.0, 49.6 forecast, 47.9 previous

• US Jul  Markit Composite PMI 50.0,50.3, 50.0, 47.9 previous

• US ISM Non-Manufacturing Business Activity  67.2, 60.0 forecast, 66.0 previous

• US Jul ISM Non-Manufacturing PMI 58.1, 55.0 forecast, 57.1 previous

• US Jul  ISM Non-Manufacturing Employment 42.1, 43.1 previous

• US Jul ISM Non-Manufacturing Prices 67.7, 62.4 previous)

•US Jul  ISM Non-Manufacturing New Orders 67.7,  61.6 previous

• US Crude Oil Inventories -7.373M,-3.001M forecast, -10.612M previous

• US Cushing Crude Oil Inventories 0.532M,1.309M previous

Looking ahead Economic Data (GMT)

• 22:45 New Zealand Labor Cost Index (QoQ) (Q2) 0.3% forecast, 0.3% previous

• 22:45 New Zealand Labor Cost Index (YoY) (Q2) 1.9% forecast, 2.4% previous

• 23:50 Japan Foreign Bonds Buying -565.0B previous

• 23:50 Japan Foreign Investments in Japanese Stocks 70.6B previous

• 03:00 New Zealand Labor Inflation Expectations (QoQ) 1.2% previous

Looking ahead other events and schedules (GMT)

• No significant events

Currencies Summaries

EUR/USD: The euro strengthened against dollar on Wednesday after economic data pointed to a return to growth in the bloc, while investors remained broadly cautious as they waited for Washington to agree on a fiscal plan for the United States.Euro zone business activity returned to growth in July, with Wednesday’s final Composite Purchasing Manager’s Index (PMI) at 54.9 in July, compared to June’s 48.5 and the flash estimate of 54.8.European retail sales rebounded to pre-pandemic levels, with online shopping falling for the first time this year in June as consumers returned to physical stores. Immediate resistance can be seen at 1.1922 (23.6% fib), an upside break can trigger rise towards 1.2000 (Psychological level).On the downside, immediate support is seen at 1.1801 (38.2 %fib), a break below could take the pair towards 1.1774  (9 DMA).

GBP/USD: Sterling edged 0.6% higher on Wednesday against a broadly weaker dollar as the U.S. coronavirus relief package stalled in Congress and U.S. bond yields sank. Sterling climbed back toward pre-pandemic highs and was advancing towards a five-month peak hit last week versus the greenback. The British currency rose as much as 0.6% against the dollar to $1.3150 by 1436 GMT and was down 0.1% against the euro at 90.40 pence. Sterling has had a strong recovery against the dollar in the past few weeks.. Immediate resistance can be seen at 1.3293 (Dec 31st high), an upside break can trigger rise towards 1.3174 (23.6%fib).On the downside, immediate support is seen at 1.3101 (5DMA), a break below could take the pair towards 1.2962 (38.2%fib).

USD/CAD: The Canadian dollar climbed to its highest in more than five months against its broadly weaker U.S. counterpart on Wednesday as oil prices rose, but some gains for the loonie were given back after domestic data showing a wider trade deficit.The loonie was trading 0.3% higher at 1.3280 to the greenback. The currency touched its strongest intraday level since Feb. 21 at 1.3230. Immediate resistance can be seen at 1.3333(Daily high), an upside break can trigger rise towards 1.3382 (38.2%fib).On the downside, immediate support is seen at 1.3218 (23.6%fib), a break below could take the pair towards 1.3053 (22nd Jan low).

USD/JPY: The dollar declined against the Japanese yen on Wednesday as investors are worried the U.S. response to the coronavirus pandemic is dealing a body blow to the dollar. Concerns that the U.S. economy is stalling amid a surge in coronavirus cases has increased calls for more fiscal aid, a move investors have welcomed.But after more than a week of talks and few signs of progress, top Democrats in Congress and White House officials were said to be aiming for a deal to be passed next week. Strong resistance can be seen at 105.88 (Daily high), an upside break can trigger rise towards 106.06 (38.2% fib).On the downside, immediate support is seen at 105.06 (38.2% fib), a break below could take the pair towards 104.16 (July 31st low).

Equities Recap

Positive earnings reports and a surge in commodities shares lifted European stock markets on Wednesday, but losses in defensive sectors and worries about surging coronavirus cases globally tempered the mood.

UK's benchmark FTSE 100 closed up by 1.14 percent, Germany's Dax ended up by 0.47 percent, France’s CAC finished the day up by 0.90 percent.

U.S. stocks climbed on Wednesday on the heels of a surprise quarterly profit from Disney and as investors stayed optimistic that a deal was near for a U.S. coronavirus fiscal aid package.

Dow Jones closed up by  1.39% percent, S&P 500 closed up by 0.64% percent, Nasdaq settled upby 0.52%  percent.

Treasuries Recap

The U.S. government bond yield curve steepened on Wednesday as prices fell on the prospect of increased supply in longer-dated debt after the Treasury Department said it would borrow more in the third quarter than previously anticipated.

The benchmark 10-year yield was last up 3.6 basis points at 0.549% and the 30-year yield was up 3.8 basis points at 1.299%. The short end of the curve was roughly flat, with the two-year yield 0.1 basis point higher at 0.121%.

Commodities Recap

Gold pushed further past $2,000 an ounce on Wednesday in the face of a weak dollar and expectations of more stimulus measures for the pandemic-ravaged global economy, while stocks in Europe and on Wall Street rallied on encouraging corporate earnings.

Spot gold prices rose 1.1% to $2,039.59 an ounce, after earlier reaching a record $2,055.10. U.S. gold futures hit a record $2,070.30 and settled up 1.4% at $2,049.30.

Oil prices rose on Wednesday after inventory data showed a big drop in U.S. crude stocks although gains were capped by concerns over fuel demand with mounting global COVID-19 cases.

Brent crude was up by 31 cents, or 0.7%, at $44.74 a barrel by 0713 GMT. The contract rose 0.6% on Tuesday to its highest close since March 6.

Source: FXWire

Wall Street Breakfast: Gold, Stimulus, Trade

The precious metals rally gathered pace overnight as spot gold rose as much as 0.6% to a record $2,031.14 per ounce, while spot silver advanced as much as 1.3% to $26.3473/oz. The printers are running... Investors are counting on even more spending in the U.S. to combat the pandemic's fallout as White House negotiators work "around the clock" to reach a stimulus deal by the end of the week, while markets also latched on to comments from San Francisco Fed President Mary Daly that the U.S. economy will need more support than initially thought. Search for a new reserve currency? Goldman Sachs says gold may climb to $2,300/oz. and RBC Capital puts the odds of a rally to $3,000/oz. at 40%.

Rally continues

U.S. stock index futures are looking to extend gains as traders await progress from Washington on a new coronavirus aid package. "I think the expectation for the market is that we are going to get that stimulus," Ally Invest's Lindsay Bell told CNBC. Better-than-expected earnings from Disney (NYSE:DIS) are also helping sentiment (see below), while closely-watched Moderna (NASDAQ:MRNA) will report before the opening bell. On the trade front, reports suggest that U.S. trade representative Robert Lighthizer and Chinese Vice Premier Liu will meet in mid-August to discuss the Phase One trade deal between the U.S. and China.

100 million streaming subscribers

While Disney (DIS) continued to feel the impact of the COVID-19 pandemic on sectors like its parks business, where revenue tanked 85% from a year earlier, CEO Bob Chapek announced a new streaming service that will launch in fiscal 2021 under the Star brand acquired from Fox (NASDAQ:FOX). In total, Disney now has 100M paid subscribers across its streaming services, which include Disney+, Hulu and ESPN+. Disney+ reached 60.5M paid subscribers, hitting a goal of 60M-90M subscriptions by 2024, four years early.

Wild ride for Novavax

At one point in after-hours trading on Tuesday, Novavax (NASDAQ:NVAX) was down 32% after STAT News reported that eight participants in a Phase 1 clinical trial evaluating COVID-19 vaccine candidate NVX-CoV2373 had to be hospitalized. That data was later found to be erroneous and shares are now up 17% premarket (the stock has rallied 3,800% YTD). Novavax's two-injection regimen when administered with its immune-boosting technology generated antibody responses that were four times higher than those seen in people who had recovered from the disease.

Beirut blast

Lebanon is eyeing a state of emergency following a massive explosion that rocked Beirut with the force of a 3.5 magnitude earthquake on Tuesday and caused widespread damage across the capital. At least 100 people were killed and more than 4,000 wounded, while local officials linked the blast to some 2,750 tons of confiscated ammonium nitrate that were being stored at a port warehouse for the past six years. It's been a rough ride for the country's economy. Lebanon's GDP fell 6.9% in 2019, while the Lebanese pound has lost over 60% of its value in just the past month, and 80% of its value since October.

Opioid epidemic

The U.S. Department of Justice is demanding OxyContin maker Purdue Pharma pay as much as $18.1B in penalties as part of its bankruptcy reorganization plan, WSJ reports. On the civil side, the DOJ is seeking $2.8B - which could be tripled under the law - for tax dollars spent battling the U.S. opioid epidemic, as well as kickbacks to doctors and pharmacies and transferring cash to hide money from creditors. On the criminal side, federal prosecutors want Purdue to pay a $6.2B fine and the forfeiture of potentially $3.5B more over marketing and distribution that violated criminal statutes including anti-kickback laws, misbranding under the Food, Drug and Cosmetic Act and conspiracy.

Tale of two companies

Sir Richard Branson plans to fly on a Virgin Galactic (NYSE:SPCE) spaceship next year after the company settled on an early 2021 date for its first passenger flight. That assumes both demonstration flights go as planned in the fall and yield the "expected results." Meanwhile, Virgin Atlantic is seeking Chapter 15 bankruptcy protection in the Southern District of New York as it tries to nail down a £1.2B rescue plan. Under the proposal, Virgin Group will retain its 51% controlling stake in the airline, while partner Delta (NYSE:DAL) will continue to hold the remaining 49%.

Meet the teenager allegedly behind the Twitter hack

Graham Ivan Clark, 17, of Tampa, Fla., convinced a Twitter (NYSE:TWTR) employee that he was a co-worker, according to prosecutors, and seized control of a phone number via SIM-swapping. He also set up several fake phishing pages, including one that resembled the company’s Okta login portal, a destination used for securely logging into company systems. Once inside, Clark, who entered a not-guilty plea in court Monday, allegedly gained the ability to bypass Twitter's security protections, setting the stage for an hourslong hack on July 15 that held hostage the main communications tool of some of the most powerful people on the planet.

More misconduct

One of the most prominent trade secret cases in recent years has come to a close as Anthony Levandowski was sentenced to 18 months in prison (his incarceration will be delayed until after the COVID-19 pandemic). Levandowski had been a key engineer at Google's (GOOG, GOOGL) Waymo before starting his own self-driving truck company called Otto. The latter was eventually bought by Uber Technologies (NYSE:UBER), where he became the head of its self-driving unit, but Levandowski eventually pleaded guilty to taking thousands of files from his former employer when he left in 2016.

What else is happening...

Fed is expected to commit to push inflation higher.

Kodak (NYSE:KODK) reportedly under SEC investigation over drug deal disclosure.

Ford (NYSE:F) elevates COO Jim Farley to CEO position.

Booking Holdings (NASDAQ:BKNG) to lay off 25% of employees in pandemic measure.

Another delay for Walmart's (NYSE:WMT) same-day delivery service.

EU launches probe into Google's (GOOG, GOOGL) Fitbit (NYSE:FIT) acquisition.

Tuesday's Key Earnings
Activision Blizzard (NASDAQ:ATVI) -1.4% AH despite strong Q2, upbeat guidance.
Beyond Meat (NASDAQ:BYND) -9.9% AH weighed down by heavy costs.
Nikola (NASDAQ:NKLA) -13.4% AH reporting wider loss, light on details.
Square (NYSE:SQ) +9.6% AH posting a 64% jump in revenue.
Twilio (NYSE:TWLO) -4.1% AH despite beating expectations.
Walt Disney (DIS) +6.1% AH reporting 100M paid streaming subscribers.

Today's Markets
In Asia, Japan -0.3%. Hong Kong +0.6%. China +0.2%. India -0.1%.
In Europe, at midday, London +1%. Paris +0.8%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.7%. S&P +0.5%. Nasdaq +0.4%. Crude +2.5% to $42.72. Gold +1.7% to $2056.20. Bitcoin +1.4% to $11384.
Ten-year Treasury Yield +2 bps to 0.53%

Today's Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:15 International Trade
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories
5:00 PM Fed's Mester: Economic Outlook

 

Source: Seeking Alpha

Asia markets updates on 05/08/2020

Aussie gains on upbeat economic data, Dollar eases on recovery worries, Asian shares consolidate - Wednesday, August 5th, 2020

Market Roundup

    • Oil gains as crude inventories fall
    • Gold at record high on softer dollar, stimulus bets

Economic Data Ahead

    • (0400 ET/0800 GMT) EZ Markit Services PMI(Jul)
    • (0400 ET/0800 GMT) EZ Markit PMI Composite(Jul)
    • (0430 ET/0830 GMT) UK Markit Services PMI(Jul)
    • (0500 ET/0900 GMT) EZ Retail Sales (YoY)(Jun)
    • (0500 ET/0900 GMT) EZ Retail Sales (MoM)(Jun)

Key Events Ahead

    • No Significant Events Scheduled

FX Beat

DXY: The dollar index eased, weighed down by speculation that stalemate over fiscal policy in Washington could leave the Federal Reserve with more to do. The greenback against a basket of currencies traded 0.2 percent down at 93.10, having touched a low of 92.55 on Friday, its lowest since May 2018.

EUR/USD: The euro nudged higher, extending previous session gains, as investors continued to digest yesterday's upbeat data showing Eurozone producer prices rose in June on a monthly basis slightly more than expected, ending their falling trend started in February. The European currency traded 0.1 percent higher at 1.1810, having touched a high of 1.1909 on Friday, its highest since May 2018. Investors’ attention will remain on a series of data from Eurozone economies, EZ Markit services and retail sales, ahead of the U.S. ADP employment change, trade balance, service PMI from both Markit and ISM. Immediate resistance is located at 1.1848, a break above targets 1.1910. On the downside, support is seen at 1.1726 (10-DMA), a break below could drag it below 1.1698.

USD/JPY: The dollar declined as the latest coronavirus relief package stalled in Congress and U.S. yields fell on the prospect that further monetary easing might be needed to support the economy. White House negotiators vowed to work with congressional Democrats to try to reach a deal on coronavirus relief by the end of this week. The major was trading 0.05 percent down at 105.66, having hit a high of 106.47 on Monday, its highest since July 24. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. ADP employment change, trade balance, service PMI from both Markit and ISM. Immediate resistance is located at 106.10, a break above targets 106.48 (21-DMA). On the downside, support is seen at 105.30, a break below could take it near at 104.95.

GBP/USD: Sterling consolidated within narrow ranges below the 1.3100 handle, amid concerns of a second wave of virus infections and a central bank policy meeting later in the week. Last week, British Prime Minister Boris Johnson said he would postpone the next stage of lockdown easing for at least two weeks due to a rise in COVID-19 infection rates. Investors await the Bank of England’s policy meeting on Thursday where money markets are already pricing in the prospects of negative interest rates by early next year. The major traded flat at 1.3074, having hit a high of 1.3170 on Thursday, it’s highest since March 9. Investors’ attention will remain on the geopolitical developments, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.3138, a break above could take it near 1.3170. On the downside, support is seen at 1.3004, a break below targets 1.2944. Against the euro, the pound was trading 0.1 percent down at 90.33 pence, having hit a high of 89.80 on Friday, it’s highest since July 13.

AUD/USD: The Australian dollar surged on data showing country's new home loans in June rose 6.2 percent compared with May, with the housing finance sector adding $17.4 billion in value. Meanwhile, Investment Lending for Homes rose 8.7 percent in June, compared to a 15.6 percent drop in the prior month. The Aussie trades 0.4 percent higher at 0.7186, having hit a low of 0.7076 on Monday, it’s lowest since July 24. Investors will continue to track overall market sentiment, ahead of U.S. economic releases. Immediate resistance is located at 0.7197, a break above could take it near 0.7227. On the downside, support is seen at 0.7133, a break below targets 0.7105.

Equities Recap

Asian shares consolidated within ranges as investors remained concerned over the rising cost of the coronavirus pandemic.

MSCI's broadest index of Asia-Pacific shares outside Japan traded flat.

Tokyo's Nikkei fell 0.3 percent to 22,514.85 points, Australia's S&P/ASX 200 index declined 0.6 percent to 6,001.30 points. South Korea's KOSPI gained 1.4 percent to 2,311.86 points.

Shanghai composite index rose 0.2 percent to 3,378.23 points, while CSI 300 index traded 0.05 percent up at 4,777.42 points.

Hong Kong’s Hang Seng traded 0.4 percent higher at 25,036.19 points. Taiwan shares added 0.7 percent to 12,802.30 points.

Commodities Recap

Crude oil prices rose, extending gains for the fourth straight session, after data showed crude inventories were down by 8.6 million barrels in the week to Aug. 1 to 520 million barrels, compared with analysts’ expectations for a drop of 3 million barrels. International benchmark Brent crude was trading 0.2 percent up at $44.41 per barrel by 0551 GMT, having hit a high of $44.79 on Tuesday, its highest since July 21. U.S. West Texas Intermediate was trading 0.4 percent higher at $41.64 a barrel, after rising as high as $42.06 on Tuesday, its highest since July 23.

Gold prices surged to an all-time peak above the $2,000 mark on a weaker dollar and bets for more stimulus measures to revive a pandemic-ravaged economy. Spot gold was trading 0.1 percent higher at $2,021.53 per ounce by 0559 GMT, having hit a record high of $2,031.13 in early Asian trade. U.S. gold futures rose 0.9 percent to $2,039.40.

Treasuries Recap

The U.S. Treasury yields edged higher, with the benchmark 10-year note yield trading at 0.521 percent.

Source: FXWire

Gold surges to new record, blows past $2,000 per ounce

    • The precious metals rally gathered pace overnight as spot gold (XAUUSD:CUR) rose as much as 0.6% to a record $2,031.14 per ounce, while futures traded as high as $2,048.60 on the Comex. Spot silver (XAGUSD:CUR) advanced as much as 1.3% to $26.3473 an ounce.
    • The printers are running... Investors are counting on even more spending in the U.S. to combat the pandemic's fallout as White House negotiators work "around the clock" to reach a stimulus deal by the end of the week.
    • Markets also latched on to comments from San Francisco Fed President Mary Daly that the U.S. economy will need more support than initially thought, weighing on the dollar and sending long-term Treasury yields into a downward spiral.
    • "People want safety, and safety right now is gold because Treasuries are not yielding up," added Bob Haberkorn, senior market strategist at RJO Futures.
    • Putting it in perspective: The holdings of SPDR Gold Shares (NYSEARCA:GLD), an ETF that owns physical bullion rather than derivatives, has climbed to 1,258 tons (after adding another 15 tons on Monday and Tuesday). That's more than a quarter of all the gold held at Fort Knox, and more than the gold reserves of the Bank of Japan, the Bank of England or the Reserve Bank of India.
    • Bullion is already up more than 30% this year and many see continued gains. Goldman Sachs says gold may climb to $2,300/oz. as investors are "in search of a new reserve currency," while RBC Capital puts the odds of a rally to $3,000/oz. at 40%.
    • Gold ETFs: IAU, PHYS, SGOL, UGLDF, BAR, UGL, AAAU, GLDM, GLDI, DGP
    • Silver ETFs: SLV, AGQ, PSLV, SIVR, ZSL, SLVO, DSLV, DBS, USV

US markets updates on 05/08/2020

Dollar retreats on stimulus talks, Wall street ends higher, Gold gains, Oil edges up to highest since March on hopes for U.S. stimulus-august 5th,2020

Market Roundup

• US Redbook (YoY) -7.1%,-8.7% previous

• US Redbook (MoM) 1.1%, 1.1% previous

• US Jul All Truck Sales  11.02M  , 10.09M previous

• US Jul All Car Sales  3.50M, 2.97M previous

• Canada Jul RBC Manufacturing PMI  52.9, 47.8 previous

• US Jul ISM NY Business Conditions  53.5%,39.5% previous

• US Jul ISM-New York Index  807.8, 806.0 previous

• US Jun Durables Excluding Defense (MoM) 9.5%,  9.2% previous

• US Jun Factory Orders (MoM)  6.2%,5.0%forecast ,8.0% previous

• New Zealand GlobalDairyTrade Price Index-5.1%,-0.7% previous

Looking Ahead Economic Data

• 22:30 Australia Jul IG Construction Index 35.5 previous

• 22:45 New Zealand Unemployment Rate (Q2) 5.8%forecast, 4.2%previous

• 22:45 New Zealand Participation Rate (Q2) 69.80%forecast,70.40% previous

• 22:45 New Zealand Employment Change (QoQ) (Q2) -2.0% forecast, 0.7% previous

• 22:50 Australia Services PMI 58.5 forecast, 53.1 previous

• 00:30 Japan Jul Services PMI  45.2 forecast, 45.0 previous

• 01:45 Chinese Jul Composite PMI  54.254.2

• 01:45 Chinese Jul Caixin Services PMI

Looking Ahead - Events, Other Releases (GMT)

•No significant events

Currencies Summaries

EUR/USD: The euro edged higher against dollar on Tuesday as investors awaited U.S. stimulus breakthrough. Euro held its ground against dollar despite strong U.S. manufacturing data . Focus remains on deadlocked stimulus negotiations in the U.S. which will continue on Tuesday. Focus was also on the European Central Bank’s breakdown of its bond purchases, released late on Monday, which showed Italy continued to benefit from oversized ECB purchases of its debt in June and July under both the emergency and conventional bond buying programmes. Immediate resistance can be seen at 1.1799 (38.2% fib), an upside break can trigger rise towards 1.1829 (23.6%fib).On the downside, immediate support is seen at 1.1711(50%fib), a break below could take the pair towards 1.614 (61.8%fib).

GBP/USD: Sterling edged lower on Tuesday erasing earlier gains as fears of a second wave of virus infections and a Bank of England policy meeting later this week capped the pound’s advance.The move lower reversed a trend earlier in the session where the pound had been advancing towards a five-month high hit last week versus the dollar. Sterling fell 0.27% to $1.3043 against the dollar and rose 0.13% against the euro to 90.10pence. Immediate resistance can be seen at 1.3113 (Daily high), an upside break can trigger rise towards 1.3182 (23.6% fib).On the downside, immediate support is seen at 1.2976 (38.2%fib), a break below could take the pair towards 1.2777(50%fib).

USD/CAD: The Canadian dollar weakened against its U.S. counterpart on Tuesday as investors weighed rising coronavirus cases and increased tensions between the United States and China. Canada runs a current account deficit and is a major producer of commodities, including oil, so the loonie tends to be sensitive to the global flow of trade and capital.U.S. crude prices were down 1.6% at $40.35 a barrel amid concerns that a fresh wave of COVID-19 infections will see a global demand recovery stalling due to tighter lockdowns, just as major producers ramp up output .Immediate resistance can be seen at 1.3379 (5 DMA), an upside break can trigger rise towards 1.3461 (21 DMA).On the downside, immediate support is seen at 1.3304 (23.6%fib), a break below could take the pair towards 1.3127(30th Jan low).

USD/JPY: The dollar edged lower against the Japanese yen on Tuesday as political wrangling over a U.S. relief plan and a gloomy economic outlook weighed greenback. After its worst month in a decade in July, the greenback started August on a firm note as some investors trimmed their short positions. Despite a slowdown in new U.S. virus cases and encouraging factory data, investors are reserving judgement on whether a U.S. economy with 30 million people out of work can really lead the world’s recovery. Strong resistance can be seen at 106.41 (50% fib), an upside break can trigger rise towards 107.13(50 DMA).On the downside, immediate support is seen at 105.49 (5 DMA), a break below could take the pair towards 105.13 (38.2% fib).

Equities Recap

A surge in BP shares after it laid out plans to cut its oil and gas output and boost investments in renewable energy offset disappointing earnings reports including from spirits maker Diageo, although European stocks closed largely flat.

The UK's benchmark FTSE 100 closed up by 0.05 percent, Germany's Dax ended down by 0.36 percent, and France’s CAC finished the up by 0.28 percent.

Wall Street ended higher after a choppy session on Tuesday, lifted by Apple and energy stocks but limited by declines in AIG and Microsoft while investors awaited more U.S. government stimulus to fight economic fallout from the COVID-19 pandemic.

Dow Jones closed up by 0.62  percent, S&P 500 ended up 0.36 percent, Nasdaq finished the day up by 0.35 percent.

Treasuries Recap

The five-year Treasury yield hit a record low on Tuesday and the benchmark 10-year Treasury yield fell to a five-month bottom, indicating safe-haven demand from bond investors wary of a slow U.S. economic recovery.

The 10-year yield hit a low of 0.505%, the second-lowest yield ever recorded at that maturity. The lowest was hit on March 9 as the coronavirus pandemic was gathering steam in the United States, prior to the Fed’s intervention in financial markets.

Commodities Recap

Gold surged past the $2,000 mark on Tuesday after Democrats and the White House appeared closer to agreement on new stimulus to help the coronavirus-hit economy while stocks on Wall Street traded mixed as investors awaited more aid from Washington.

Spot gold prices rose 1.42% to $2,004.81 an ounce, after bids earlier hit highs of $2,009.134 an ounce.

Brent oil futures on Tuesday closed at their highest since early March on hopes the United States is making progress on a new economic stimulus package, as well as curbing the coronavirus spread.

Brent rose 28 cents, or 0.6%, to settle at $44.43 a barrel, its highest close since March 6. U.S. West Texas Intermediate (WTI) crude rose 69 cents, or 1.7%, to $41.70, its highest finish since July 21.

Source: FXWire

Booking.com is laying off up to 25% of its workforce due to coronavirus downturn

KEY POINTS
    • Booking.com’s parent company is planning on laying off up to 25% of its global workforce as the Covid-19 pandemic continues to take a wide toll on travel, the company reported in a filing Tuesday.
    • Booking Holdings will finalize its plans and make announcements to employees on a country-by-country basis starting in September, according to the filing.

Booking.com’s plans to lay off up to 25% of its global workforce as the Covid-19 pandemic continues to take a wide toll on travel, the company reported in a filing Tuesday. Booking.com has more than 17,000 employees, a company spokeswoman told CNBC.

Booking Holdings, Booking.com’s parent company, will finalize its plans and make announcements to employees on a country-by-country basis starting in September, according to the filing. Booking Holdings is also the parent company of other online travel companies like Kayak and Priceline, but the layoffs will only affect Booking.com, according to the filing.

The travel industry has continued to see dramatic drops in business due to the ongoing pandemic, and many believe a vaccine is needed for travel to widely return to normal. Booking, which operates travel websites such as Priceline.com, Kayak and other sites, reported a 51% drop in first-quarter gross travel bookings year over year. Booking is set to report second quarter 2020 earnings Thursday.

Shares of Booking Holdings were down less than a percent in premarket trading Tuesday. The company’s shares are down 19.65% percent year to date.

“The Covid-19 crisis has devastated the travel industry, and we continue to feel the impact as travel volumes remain significantly reduced,” a company spokeswoman told CNBC in a statement. “While we have done much to save as many jobs as possible, we believe we must restructure our organization to match our expectation of the future of travel.”

Europe markets updates on 04/08/2020

Sterling heads lower after early gains, European shares dips,gold edges back from record peak, Oil falls as rising virus cases overshadow demand recovery-august 4th,2020

Market Roundup

• French June Government Budget Balance  -124.9B, -117.9B previous

• Spanish Unemployment Change -89.8K, 5.1K previous

• Eurozone PPI (YoY)  -3.7%, -3.9% forecast  -5.0% previous

• Eurozone PPI (MoM)  0.7%,0.5% forecast, -0.6% previous

Looking Ahead - Economic data (GMT)

•12:55 US Redbook (MoM) 1.1% previous

• 12:55 US Redbook (YoY) -8.7% previous

• 13:30 Canada Jul RBC Manufacturing PMI  47.8 previous

• 13:45 US Jul ISM NY Business Conditions  39.5% previous

• 13:45 US Jul ISM-New York Index  806.0 previous

• 14:00 US IBD/TIPP Economic Optimism 44.0 previous

• 14:00 US June Durables Excluding Defense (MoM)  9.2% previous

• 14:00 US Jun Factory Orders (MoM)  5.0% forecast,8.0% previous

• 14:00 US Jun Factory orders ex transportation (MoM) 2.6% previous

• 15:20 New Zealand GlobalDairyTrade Price Index -0.7%-0.7%

 Looking Ahead - Economic events and other releases (GMT)

•No significant events

Fx Beat 

EUR/USD: The euro edged higher against dollar on Tuesday as investors awaited U.S. stimulus breakthrough. Euro held its ground against dollar despite strong U.S. manufacturing data . Focus remains on deadlocked stimulus negotiations in the U.S. which will continue on Tuesday. Focus was also on the European Central Bank’s breakdown of its bond purchases, released late on Monday, which showed Italy continued to benefit from oversized ECB purchases of its debt in June and July under both the emergency and conventional bond buying programmes. Immediate resistance can be seen at 1.1799 (38.2% fib), an upside break can trigger rise towards 1.1829 (23.6%fib).On the downside, immediate support is seen at 1.1711(50%fib), a break below could take the pair towards 1.614 (61.8%fib).

GBP/USD: Sterling gave up its earlier gains against the dollar on Tuesday as concerns of a second wave of virus infections and a central bank policy meeting later this week kept investors from away from the market . Signs that dollar weakness has been the major driver of pound gains can be seen from the performance of the British currency versus the euro and the Japanese yen. Sterling’s recovery has been impressive in recent weeks. It registered its biggest monthly rise in more than a decade in July even though prospects of a breakthrough in Brexit negotiations with Europe before a December deadline remain elusive. Immediate resistance can be seen at 1.3113 (Daily high), an upside break can trigger rise towards 1.3182 (23.6% fib).On the downside, immediate support is seen at 1.2976 (38.2%fib), a break below could take the pair towards 1.2777(50%fib).

USD/CHF: The dollar strengthened against the Swiss franc on Monday as as dollar rebound faltered   as political wrangling over a U.S. relief plan and a gloomy economic outlook weighed on the currency. Despite a slowdown in new U.S. virus cases and encouraging factory data, investors are reserving judgement on whether a U.S. economy with 30 million people out of work can really lead the world’s recovery. Top White House officials and Democratic leaders in the U.S. Congress were due to try again on Tuesday to narrow gaping differences over a fifth major coronavirus-aid bill. Immediate resistance can be seen at 0.9163 (38.2%fib), an upside break can trigger rise towards 0.9212(50% fib).On the downside, immediate support is seen at 0.9100 (23.6% fib), a break below could take the pair towards 0.9051 (31st July low).

USD/JPY: The dollar edged higher against the Japanese yen on Tuesday as strong U.S. manufacturing data and upbeat tech stocks boosted dollar against yen, though broader worries about the coronavirus and global economy kept gains in check. An industry gauge released overnight indicated U.S. manufacturing activity expanded in July at the fastest pace in more than a year, which helped Wall Street shares rise on Monday.However, some investors remain cautious due to worries about a resurgence of the coronavirus and a diplomatic tussle over Chinese tech companies’ operations in the United States. Strong resistance can be seen at 106.41 (50% fib), an upside break can trigger rise towards 107.13(50 DMA).On the downside, immediate support is seen at 105.49 (5 DMA), a break below could take the pair towards 105.13  (38.2% fib).

Equities Recap

European shares slipped on Tuesday as disappointing earnings reports from Diageo and Bayer took the shine off a jump in growth-linked cyclical stocks, while investors awaited signs of progress on more U.S. fiscal stimulus.

At (GMT 12:15),UK's benchmark FTSE 100 was last trading down at 0.04 percent, Germany's Dax was down by 0.64 percent, France’s CAC finished was down by 0.19 percent.

Commodities Recap

Gold was little changed on Tuesday, hovering below the previous session's record peak as fears over the pace of economic recovery amid surging coronavirus cases were offset by upbeat U.S. manufacturing data.

Spot gold   was down 0.1% at $1,975.57 per ounce by 0951 GMT, about $9 shy of the all-time high hit in the previous session. U.S. gold futures  rose 0.4% to $1,994.20.

Oil prices eased on Tuesday amid concerns that a fresh wave of COVID-19 infections will see a global demand recovery stalling due to tighter lockdowns, just as major producers ramp up output.

U.S. West Texas Intermediate (WTI) crude futures were down 68 cents, or 1.7%, at $40.33 a barrel at 1020 GMT, while Brent crude futures were 72 cents, or 1.7%, lower at $43.43 a barrel.

Source: FXWire

Wall Street Breakfast: Back To Earnings

Reporting a record $6.7B loss overnight as the oil industry struggles, BP (NYSE:BP) halved its dividend to 5.25 cents per share following in the footsteps of rival Royal Dutch Shell (RDS.A, RDS.B). Analysts are still scratching their heads, with the stock up 8.2% premarket, though some are attributing the big move to business segments that are getting overshadowed. BP said it had "an exceptionally strong contribution" from trading (more than $1B for the quarter) and launched a new green strategy. It pledged to increase low-carbon spending to $5B a year by 2030 and boost renewable power generation to 50 gigawatts while shrinking oil and gas output by 40% compared with 2019.

More earnings

Disney (NYSE:DIS) will lead the earnings charge after the market close today, with results also expected from Activision Blizzard (NASDAQ:ATVI), Beyond Meat (NASDAQ:BYND) and Nikola (NASDAQ:NKLA). While the House of Mouse has reopened theme parks in Asia, France and Florida, and inked a deal with the NBA to resume the season at its facilities, the company is not out of the woods yet. It has had to contend with shuttered cruise lines, disrupted production schedules, slashed advertising budgets and indefinitely delayed major theatrical releases. Disney+ promises to be a rare bright spot, but from a revenue perspective, the streaming service is still only a small piece of the sprawling media empire.

Clock is ticking on TikTok

The drama surrounding TikTok (BDNCE) prompted Chinese state media to lash out overnight, with the China Daily and Global Times labeling the U.S. a "rogue country" and likening the potential sale to Microsoft (NASDAQ:MSFT) as "open robbery." President Trump has also come under fire for saying "key money" would have to be paid to the U.S. Treasury for making the deal possible (he previously said TikTok would be banned from Sept. 15). The crackdown has split many in the industry, with some advocating a "whatever it takes" approach in the "technology war," while others decry the betrayal of values like free speech and capitalism. Remember, services like Google Search (GOOG, GOOGL), YouTube, Facebook (NASDAQ:FB), Instagram, Twitter (NYSE:TWTR) and Snapchat (NYSE:SNAP) are all banned in China, while the U.S. has introduced recent measures to eliminate Chinese IP and trade secret theft.

Futures dip after tech-powered rally

Stocks began August on the front foot as a basket of positive news sent the major stock averages higher with the Nasdaq Composite notching its 29th record close of the year after topping 11,000. Big Tech dealmaking, an Eli Lilly (NYSE:LLY) antibody trial and strong manufacturing data lifted markets, though U.S. futures fell 0.3% overnight, giving back some of the big gains. Democratic leaders and White House officials are still at odds over a new coronavirus aid package. While the two sides have agreed on another round of stimulus checks, they remain deadlocked on whether to cut a $600-a-week federal jobless supplement.

Google roundup

Talk about the tech rally... Google (GOOG, GOOGL) announced a long-term partnership with ADT yesterday that sent shares of the latter up 56%. The deal will see the company invest $450M for a 6.6% stake in ADT, with Google hardware and services set to be integrated in ADT's installation, service and professional monitoring network. In related news, Google parent Alphabet locked in some of the lowest borrowing costs ever for a U.S. company, completing a $10B sale of bonds across six maturities ranging from five to 40 years.

Space news

Virgin Galactic (NYSE:SPCE) inked a non-binding memorandum of understanding with Rolls-Royce (OTCPK:RYCEF) to collaborate in designing and developing engine propulsion technology for supersonic commercial travel. It also unveiled its initial design concept of a high-speed aircraft - that would have capacity for 9 to 19 people at an altitude above 60K feet - before disclosing earnings results and a new 20.5M stock offering that weighed on shares. On Sunday, SpaceX (SPACE) ferried astronauts Doug Hurley and Bob Behnken back from the International Space Station for a landing in the Gulf of Mexico, marking the first splashdown in the last 45 years of NASA travel.

Covid trends: Cloud surge and retail bankruptcies

Companies worldwide spent a record $34.6B on cloud services in Q2, up roughly 11% from the previous quarter and 30% from the same period last year, according to research firm Canalys. Example: Jones Lang LaSalle (NYSE:JLL), one of the world's largest commercial real estate services firms, has shifted roughly 90% of its employees to remote work due to the coronavirus, representing about 90,000 workers. However, as social distancing and lockdowns become part of the daily vocabulary, other sectors of the economy are not faring as well. 2020 is on track to have the highest number of retail bankruptcies in a decade, according to S&P Global Market Intelligence. Le Tote, owner of Lord & Taylor, and Tailored Brands (NYSE:TLRD), parent company of Men's Wearhouse, became the latest to join the retail graveyard this past Sunday.

What else is happening...

Which is the best ETF for FAAMG momentum?

Twitter (TWTR) to pay up to $250M over use of personal data.

FAA proposes four key Boeing (NYSE:BA) 737 MAX design changes.

Monday's Key Earnings
Clorox (NYSE:CLX) -1.9% despite mega sales growth, new CEO.
Realty Income (NYSE:O) +1% AH collecting 91.5% of July rent.
Virgin Galactic (SPCE) -8% on new 20.5M share offering.
Williams Cos. (NYSE:WMB) +0.9% AH as total costs dropped 24%.

Today's Markets
In Asia, Japan +1.7%. Hong Kong +2%. China +0.1%. India +2%.
In Europe, at midday, London +0.2%. Paris +0.1%. Frankfurt -0.5%.
Futures at 6:20, Dow -0.2%. S&P -0.3%. Nasdaq -0.3%. Crude -1.6% to $40.35. Gold +0.3% to $1992.30. Bitcoin -0.2% to $11280.
Ten-year Treasury Yield -2 bpst to 0.54%

Today's Economic Calendar
Auto Sales
8:55 Redbook Chain Store Sales
10:00 Factory Orders

Asia markets updates on 04/08/2020

Aussie steadies as RBA keeps policy steady, Dollar gains against Yen as investors await U.S. stimulus deal, Asian shares surge - Tuesday, August 4th, 2020

Market Roundup

  • Oil prices fall amid fuel demand concerns
  • Gold steadies near record high as virus fears persist
  • RBA holds cash rate at 0.25 percent

Economic Data Ahead

  • (0500 ET/0900 GMT) EZ Producer Price Index (YoY)(Jun)
  • (0500 ET/0900 GMT) EZ Producer Price Index (MoM)(Jun)

Key Events Ahead

  • No Significant Events Scheduled

FX Beat

DXY: The dollar consolidated within narrow ranges after a Reuters analysis found the United States had a second straight week of slowing infections, but a fourth week in a row of rising deaths. Additionally, Chicago Fed President Charles Evans reiterated overnight that the next help for the virus-battered U.S. economy must come from fiscal policy, shifting investors focus on signs of progress in Washington.

EUR/USD: The euro steadied after tumbling to a 1-week low in the prior session, after data showed factory activity across the euro zone expanded, reflecting an improvement globally as China, Britain and the United States reported upbeat numbers. The European currency traded 0.1 percent higher at 1.1768, having touched a high of 1.1909 on Monday, its highest since May 2018. Investors’ attention will remain on a series of data from Eurozone economies, and EZ producer price index, ahead of the U.S. factory orders. Immediate resistance is located at 1.1848, a break above targets 1.1910. On the downside, support is seen at 1.1698 (10-DMA), a break below could drag it below 1.1641.

USD/JPY: The dollar surged, hovering towards an over 1-week peak hit in the previous session, after top Democrats in Congress and White House negotiators said they had made headway in talks on the latest coronavirus relief bill. Moreover, a better-than-expected expansion in the Institute for Supply Management’s U.S. manufacturing index further supported the bid tone around the dollar. The major was trading 0.1 percent up at 106.09, having hit a high of 106.47 in the prior session, its highest since July 24. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. factory orders. Immediate resistance is located at 106.56 (21-DMA), a break above targets 106.90. On the downside, support is seen at 105.68, a break below could take it near at 105.30 (5-DMA).

GBP/USD: Sterling declined, extending losses for the third straight session, weighed down by Brexit, the UK’s high COVID-19 death toll, and the risk of negative interest rates. According to a Reuters tally of official statements, Britain has the fourth-highest coronavirus death toll in the world. The major traded 0.1 percent down at 1.3061, having hit a high of 1.3170 on Thursday, it’s highest since March 9. Investors’ attention will remain on the geopolitical developments, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.3128, a break above could take it near 1.3170. On the downside, support is seen at 1.3000, a break below targets 1.2944. Against the euro, the pound was trading 0.2 percent down at 90.81 pence, having hit a high of 89.80 on Friday, it’s highest since July 13.

AUD/USD: The Australian dollar steadied after slumping to an over 1-week low in the prior session, as the country's central bank left its cash rate at a record low of 0.25 percent, a widely expected decision,  ruling out further easing for the moment amid much economic uncertainty. However, the RBA painted a gloomy picture for the coming months, predicting the jobless rate would rise to 10 percent later this year. The Aussie trades flat at 0.7125, having hit a low of 0.7076 on Monday, it’s lowest since July 24. Investors will continue to track overall market sentiment, ahead of U.S. economic releases. Immediate resistance is located at 0.7164, a break above could take it near 0.7197. On the downside, support is seen at 0.7082, a break below targets 0.7053 (21-DMA).

Equities Recap

Asian shares rose after strong U.S. manufacturing data and gains in tech stocks offset worries about the coronavirus and global economy.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.1 percent.

Tokyo's Nikkei surged 1.8 percent to 22,592.07 points, Australia's S&P/ASX 200 index rallied 1.9 percent to 6,037.60 points. South Korea's KOSPI nudged higher 1.1 percent to 2,275.97 points.

Shanghai composite index rose 0.4 percent to 3,380.99 points, while CSI 300 index traded 0.2 percent up at 4,779.91 points.

Hong Kong’s Hang Seng traded 1.7 percent higher at 24,876.96 points. Taiwan shares added 1.6 percent to 12,709.92 points.

Commodities Recap

Crude oil prices declined amid concerns that a nascent recovery in fuel demand could stall as a fresh wave of COVID-19 infections around the world stoked tighter lockdowns. International benchmark Brent crude was trading 0.1 percent down at $43.84 per barrel by 0459 GMT, having hit a high of $44.43 on Monday, its highest since July 23. U.S. West Texas Intermediate was trading 0.1 percent lower at $40.74 a barrel, after falling as low as $38.74 on Thursday, its lowest since July 10.

Gold prices eased after rising to near record highs in the previous session on worries over the global economic fallout from mounting COVID-19 cases. Spot gold was trading 0.1 percent down at $1,975.07 per ounce by 0507 GMT, having hit an all time high of $1,986.76 on Monday. U.S. gold futures rose 0.3 percent to $1,993.

Treasuries Recap

The U.S. Treasury yields edged higher, with the benchmark 10-year note yield trading at 0.555 percent.

Source: FXWire

New Guyana president sworn in; Exxon oil deal awaits fate

    • Guyana opposition candidate Irfaan Ali was sworn in as president of the newly oil-producing country on Sunday, after he was declared winner of a disputed March election following a recount.
    • Ali's political party has criticized the previous government's 2016 oil deal with Exxon Mobil (NYSE:XOM) - which includes a 2% royalty and a 50% profit share after cost recovery - as too generous and said it shortchanged Guyana of its natural resources.
    • But Ali and his aides have stopped short of promising to renegotiate the terms of the contract that is scheduled to bring unprecedented revenue into the remote South American country.
    • Exxon operates the Liza field offshore Guyana in a consortium with Hess (NYSE:HES) and China's CNOOC (NYSE:CEO).

Coronavirus live updates: California governor reports ‘early good signs’ as cases trend downward

Coronavirus relief talks are re-starting Monday as Democrats meet with the Trump administration to hash out a deal. On Sunday, White House coronavirus task force coordinator Dr. Deborah Birx warned that the U.S. is in a “new phase” of its battle against the coronavirus, which is “extraordinarily widespread” in both urban and rural communities. On Monday, President Donald Trump targeted Birx in a tweet, saying she “hit us” following reported criticism from House Speaker Nancy Pelosi.

Here are some of the biggest developments today:

    • Outbreaks in Florida, Texas, California and Arizona begin to decline
    • Coronavirus talks continue as unemployment benefits divide GOP and Democrats
    • With two more filings, retail bankruptcies approach highest number in a decade
    • Severe Covid-19 can lead to kidney injury or failure, medical studies reveal
    • Eli Lilly starts late-stage study of antibody drug in nursing homes

The following data was compiled by Johns Hopkins University:

    • Global cases: More than 18.1 million
    • Global deaths: At least 689,922
    • U.S. cases: More than 4.66 million
    • U.S. deaths: At least 154,860

Trump says U.S. may have vaccine ahead of schedule

President Donald Trump said the U.S. may have a coronavirus vaccine available to the public ahead of the administration’s goal of the end of the year or early 2021.

“We’re balancing speed and safety and we’re on pace to have a vaccine available this year, maybe far in advance of the end of the year,” Trump said during a White House press briefing. “And we’re mass-producing the most promising candidates in advance so that we’re ready upon approval. We have our military lined up. It’s logistics, it’s all about logistics.”

Though scientists expect to have an effective vaccine widely available by next year, there is never a guarantee. While drugmakers are racing to make millions of doses of vaccines, there’s a chance the vaccine will require two doses rather than one, potentially further limiting the number of people who can get vaccinated once it becomes available, experts say.

Additionally, scientists say that questions remain about how the human body responds once it’s been infected with the virus. The answers, they say, may have important implications for vaccine development, including how quickly it can be deployed to the public. —Berkeley Lovelace Jr.

Trump says nationwide permanent lockdown is ‘not a viable path forward’

President Donald Trump insisted during a press briefing that shutting down the United States in an attempt to curb the coronavirus would cause more harm than good. He said the U.S. only initially shut down to prevent the overflow of hospitals and to allow U.S. health officials and scientists to learn more about the new virus, including developing effective treatments to fight it. He said the U.S. is doing “really well” on developing coronavirus drugs and vaccines.

“It’s important for all Americans to recognize that a permanent lockdown is not a viable path forward producing the result that you want or certainly not a viable path forward and would ultimately inflict more harm than it would prevent,” Trump said during a White House briefing on the virus.

State lawmakers, rather than the federal government, have imposed harsh restrictions on residents and businesses throughout the nation’s coronavirus response. Trump urged Americans to stay “vigilant” against the coronavirus as U.S. officials begin to see new “flare-ups,” including in states like Georgia, Mississippi, Tennessee, Oklahoma and Missouri. — Noah Higgins-Dunn

Trump giving telehealth a greater role under Medicare for people in rural areas

President Donald Trump signed an executive order Monday that calls for Congress to make telehealth doctor visits an integral part of Medicare, the Associated Press reports.

The AP said this order will apply to the portion of the program’s recipients that live in rural areas. Trump administration officials said this step could be the first in more laws creating telehealth options within Medicare for all recipients.

Officials told the AP that the executive order will also see hospitals in rural areas potentially receiving a more steady stream of Medicare payments for reaching higher performance on some measures of quality.

In the last week of April amid the pandemic, 1.7 million Medicare recipients relied on telehealth while only some thousands used telehealth before the coronavirus crisis, according to the news service. –Suzanne Blake

 

Source: CNBC

The record-setting jobs comeback looks like it could be coming to an abrupt halt

KEY POINTS
    • Consensus expectations are that 1.26 million jobs were added in July.
    • However, some economists say signs are increasing that the number could be well below that, and even negative.
    • That would come after record-setting job creation that saw 7.5 million jobs added over the previous two months.
    • Goldman Sachs said its indicators are showing a decline of 1 million positions and a higher unemployment rate.

Record-breaking job creation in May and June appear to be giving way to a more subdued pace, with a possibility that some of those gains even will be reversed.

Current consensus is for July nonfarm payrolls to rise by 1.26 million, according to economists surveyed by Dow Jones. The number would be well below the previous month’s 4.8 million but still easily better than anything the U.S. has seen in the pre-Covid 19 era.

Still, recent signs are indicating that while the previous two months showed surprises to the upside, adding 7.5 million jobs in just two months, July’s story could be different. Spiking coronavirus cases and rollbacks of reopenings in multiple states present roadblocks to continued aggressive gains in jobs.

“High frequency data suggest that the labor market recovery is stalling due to the worsening virus situation,” Goldman Sachs economist Ronnie Walker said in a note. “Workplace activity measures have declined in the states hit hardest with virus spread and moved sideways in others since late June.”

With events changing rapidly due to the evolving course of the pandemic, economists have become increasingly reliant on high-frequency measures such as credit card spending, foot and vehicular traffic, and job searches online as opposed to more traditional metrics.

Goldman’s examination of the numbers points to a different jobs market than the consensus: the firm says the data is consistent with a drop of a million jobs and an increase in the unemployment rate from 11.1% to 11.5% rather than the forecast decline to 10.6%.

The census count

One measure gaining popularity is the weekly Household Pulse Survey from the U.S. Census.

The survey is a relatively new one but gives a rolling idea of how the jobs market is playing out. The numbers for the Labor Department’s reference week, which includes the 12th of each month, paint a bleak picture: nearly 6.5 million fewer people on the employment rolls from the same week in June.

Nomura, which is forecasting a gain of 550,000, also is watching the census numbers and said that the big monthly decline could be the result of rising virus cases. Those would show up in the Labor Department report as paid sick leave and wouldn’t count as job losses.

Nevertheless, “given the swift and substantial changes that have affected the labor market during the pandemic, we cannot rule out an outright decline in nonfarm payrolls during July,” Nomura economists wrote.

The census gauge, combined with other downbeat employment reports, “are suggesting that labor market progress has already rolled over and July payrolls could be negative,” wrote Brett Ryan, senior U.S. economist at Deutsche Bank.

Using the alternative measures, Ryan said indications are for a July decline of 400,000.

Recent moves in weekly jobless benefit claims, though, suggest that while unemployment rolls remain high, progress is being made on getting people back to work.

Amy Glaser, senior vice president at the Adecco job search site, said she continues to see brisk activity.

“Folks are going to be pleasantly surprised on Friday,” Glaser said of the nonfarm payrolls count. “We’re still seeing employers being cautiously optimistic. They’ve adjusted to the new normal.”

Companies are focusing heavily on workplace safety and employee retention, but also looking at getting people back to work, she added. E-commerce is one particularly sector hot sector.

“I’m seeing positive signs for the future,” Glaser said.

Ominous’ market pattern could signal a 10% sell-off, CFRA’s Sam Stovall warns

(CNBC) A summer slump may strike stocks.

After the S&P 500 gained 5.5% in July, CFRA’s Sam Stovall sees it falling 5% to 10% over the next two months.

“We have a lot of concerns out there — in particular the overbought condition of the market right now, tech and large-cap dominance, the concerns surrounding soaring gold prices, the falling dollar, historically low interest rates, as well as just traditional optimism,” the firm’s chief investment strategist told CNBC’s “Trading Nation” on Monday.

Yet, the market kickoff to August didn’t reflect the risks. With potential headway on a coronavirus aid bill and Microsoft announcing its intention to buy TikTok in a multibillion-dollar deal, the S&P 500 and tech-heavy Nasdaq were off to a running start. The S&P gained 0.9%, while the Nasdaq rallied 1.6% to a record high.

But Stovall said the enthusiasm will have a short shelf life.

Stovall, who has been on Wall Street since 1985, warns the market faces “ominous” seasonality in August and September.

“Over the last 25 years, the S&P on average has fallen in price by about 1% [in August],” he said. “Only utilities and technology have been able to eke out advances.”

He notes defensive groups such as gold, food distributors and water utilities typically perform best in late summer while consumer discretionary and industrials face the most challenges.

Even though 2020 is far from a typical year, Stovall contends historical trends still apply.

“Certainly, the catalysts change over time. But reactions to those catalysts don’t, mainly because of human emotional involvement,” he said.

Despite his sell-off forecast, Stovall said he believes the bull market is back. He sees the S&P 500 at 3,435 next summer — a 1% gain from the all-time high hit last February.

He’s in the virus vaccine camp, and he’s not getting spooked by the weakening dollar.

“It has more to do with the improvement of what is being seen overseas rather than the big concern as to what will likely happen here in the U.S. I don’t see inflation becoming a major concern,” said Stovall. “We had a similar situation when Ben Bernanke was Fed chair, that he basically flooded the system with cash. But we did not end up buying loaves of bread with wheelbarrows full of dollars.”

He expects the dollar will make multinational companies more attractive.

“Investors will do what they normally have done, and in this kind of a scenario I think that they will engage in rotation — rotation among sectors as well as rotation among regions — rather than retreating from stocks altogether,” Stovall said.

The dollar index is off more than 5% over the past three months.

Treasury yields bounce slightly from last week’s record-setting drop

(CNBC) Treasury yields edged higher on Monday following last week’s decline that pushed some of the frond-end rates to record lows.

The yield on the benchmark 10-year Treasury note was higher by 2 basis points at 0.562%, recovering slightly after falling to its lowest level since March 9 on Friday. Meanwhile, the yield on the 30-year Treasury bond was up 5 basis points at 1.251%. The 30-year rate slipped to its lowest level since April 29 in the previous session. Yields move inversely to prices.

Yields on the 2-year, 3-year and 5-year notes also climbed higher on Monday after each hitting record low last week.

The number of coronavirus cases continues to rise worldwide, with the World Health Organization reporting that the 24 hours through to Friday marked the largest ever single-day increase of new Covid-19 infections.

Almost 300,000 new cases of the virus were reported on Thursday, with more than half stemming from the Americas.

To date, more than 18 million people have contracted the coronavirus worldwide, with 689,347 related deaths, according to data compiled by Johns Hopkins University.

On the data front, a final reading of manufacturing Purchasing Managers’ Index (PMI) for July will be released at 9:45 a.m. ET. The Institute for Supply Management’s index of national factory activity for July and construction spending figures for June will follow at 10 a.m. ET.

Third-quarter senior loan officer survey data and light vehicle sales for July will be released slightly later in the session.

The U.S. Treasury will auction $54 billion of 13-week bills and $51 billion of 26-week bills on Monday.

Tech keeps climbing as more benefit from megacap mania

    • Technology enthusiasm is gripping the market before trading gets underway for the week.

The SPDR Tech Sector ETF (XLK, +1.3%), which rose 5% last week and 5.7% in July, is on the front foot again as Microsoft (MSFT, +2.3%). Apple (AAPL +1.4%) is also higher.

Microsoft is gaining as it looks to move forward with its acquisition of TikTok, which is, along with Instagram, the essential app for the younger users. Pinterest (PINS, +3.1%) added to its huge Friday gains as Pivotal Research upped the stock to Buy from Hold, noting the “astounding” growth rate.

While megacaps are unsurprisingly rising again following last week’s earnings, other stocks are enjoying their Midas Touch as deal activity picks up.

Globay Payments (GPS, +3.7%) is the top gainer in XLK premarket. It announced a new multi-year collaboration agreement with Amazon Web Services, for a cloud-based issuer processing platform to financial institutions.

ADT (ADT, +85%) is in the stratosphere after Google (GOOGL, +0.6%) took a 6.6% stake.

Tech will continue to dominate and investors are “not really in the mood” to be concerned about valuation or balance of risk, James Athey told Bloomberg.

If that attitude continues, techs and tech-adjacent sectors will continue to set the pace for broader market gains.

“At nearly 28% of the index, Tech is at its highest proportion of the S&P 500 since 2000 when the market began a three-year losing streak,” Ploutos wrote on Seeking Alpha last week.

“Some sector classification choices may actually understate tech's weight of the S&P 500. Alphabet, the parent of Google, and its $1 trillion market capitalization, now shows up in the Communications sector. The same can be said for Facebook, and its $650B market capitalization, and Netflix and its over $200B market capitalization. Together, these three companies make up another 6% of the S&P 500, and have pushed the weight of the Communications sector to its all-time high as well. Similarly, Amazon, which alone makes up 4.7% of the index, is captured in Consumer Discretionary.”

Sector Watch

Economic indicators are getting deserved attention as recent numbers show an inflection point where the recovery might stall.

The ISM manufacturing PMI, out at 10:00 a.m. ET, is expected to edge up just slightly in July from June. A big miss or beat will likely affect the lagging Industrials, which couldn't find traction last week after mixed earnings.

Wall Street Breakfast: Microsoft Back On Track To Acquire TikTok’s U.S. Operations

Microsoft is committed to trying to buy TikTok's U.S. operations, after CEO Satya Nadella discussed a potential deal during a phone call on Sunday with President Trump. Microsoft (NASDAQ:MSFT) said in a blog post that it will move quickly to pursue discussions with TikTok parent ByteDance (BDNCE), aiming to complete negotiations by Sept. 15. "Microsoft fully appreciates the importance of addressing the President’s concerns," the company said. "It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury." The company's aim is to build on TikTok's popular user experience with adding privacy and security protections. The proposed transaction has gained the blessing of top Trump administration officials, including Treasury Secretary Mnuchin, as well as several Republican lawmakers, after the president's Friday night comments that he preferred a TikTok ban in the U.S. instead of a sale took all sides by surprise.

All eyes on U.S. payroll data

The U.S. July employment report, to be released this Friday, will have a binary flavor to it. If the jobs situation is consistent with economists' views, it should give investors more confidence in the economy's health while weak data will weigh on investors' near-term enthusiasm. Current consensus is a rise of 1.65M jobs, albeit a bearish drop of ~27% from last Thursday's projection of 2.25M. Congress is trying to cobble together another stimulus package but, unsurprisingly, Republicans and Democrats are at loggerheads over the specifics.

MLB draws strong TV ratings in opening week

Despite concerns over a truncated 60-game season and empty seats in stadiums, Major League Baseball's opening week has been a resounding success. Games aired nationally during opening weekend (July 23-26) drew more than twice as many viewers as a year ago. Walt Disney's (NYSE:DIS) ESPN said that its first 12 broadcasted games averaged ~1.2M viewers, up 34% compared to last year. Fox Sports (NASDAQ:FOX) also enjoyed a double-digit rise in ratings. According to Michael Mulvihill, Fox Sports head of strategy and analytics, the strong start reflects pent-up demand and little competition from other major U.S. sports. The season, though, is facing its first stern test after 18 members of the Miami Marlins tested positive for COVID-19 leading to the cancellations of certain games by several clubs. 17 games have been postponed to date.

Fed to "relax" approach to managing inflation target

The Fed is preparing to abandon its long-held practice of raising interest rates to preempt overheating in the economy, citing persistently low U.S. inflation. Chairman Jerome Powell hinted at the shift in a news conference last week when he disclosed that the central bank would soon complete a comprehensive review of its policy-making strategy. The change is unlikely to alter much since interest rates are barely above zero and are expected to remain low for the foreseeable future. Longer term, central bankers, economists and investors expect rates to return to a more normal 4% or so once the economic recovery/expansion has matured.

Trump readies action against Chinese software firms

During an interview yesterday on Fox News' Sunday Morning Futures, Secretary of State Mike Pompeo said that President Trump will announce new action this week against Chinese software companies that he perceives are threats to national security, including TikTok and WeChat that, he says, are "feeding data directly to the Chinese Communist Party." In a separate interview, Treasury Secretary Steve Mnuchin declared that "we are not keeping TikTok in its current form." The expected actions will be the latest salvo in the deterioration in U.S./Sino relations.

Apple sued in China over voice assistant patent

Shanghai Zhizhen Network Technology Company, known as Xiao-i, has filed a lawsuit in a Shanghai court against Apple (NASDAQ:AAPL) claiming infringement on a patent covering a voice assistant similar to Siri. The company seeks 10B yuan ($1.43B) in damages and, if successful, could prevent the tech giant from selling many of its products in China. In late June, China's Supreme Court ruled that Xiao-i owns the patent which ended a process that involved several trials since 2012. It is the third time in less than a decade that Apple has faced trademark and patent challenges in its #2 market (behind the U.S.). The company has yet to comment on the matter.

U.S. COVID-19 pandemic in new "widespread" phase

According to White House coronavirus task force coordinator Dr. Deborah Birx, the pandemic is in a "new phase" that is different from the March/April period with "extraordinarily widespread" cases in both urban and rural areas. Reemphasizing the essential role of wearing masks and distancing, Dr. Birx said, "To everybody who lives in a rural area, you are not immune or protected from this virus and that is why we keep saying, no matter where you live in America, you need to wear a mask and socially distance, do the personal hygiene pieces." She also says super-spreading events are the main concern, not super-spreading individuals. Per Johns Hopkins case tracker, U.S. infections are now over 4.6M with over 154K deaths.

GOP and Dems tussle over fourth round of U.S. stimulus

Talks between Republican and Democratic leaders over the specifics of the latest round, the fourth, of economic stimulus are proceeding down the familiar contentious path. Both sides agree on sending $1,200 checks to most Americans but the GOP is apparently balking at a boost to unemployment insurance which was set at $600 per week but recently lapsed. Democrats want to preserve the $600 amount while Republicans want to cut it to $200 due to cost concerns. House Speaker Nancy Pelosi is accusing President Trump of standing in the way of a deal. On Face the Nation yesterday, Chief of Staff Mark Meadows said, "I'm not optimistic that there will be a solution in the very near term."

7-Eleven to acquire Speedway for $21B in cash

Seven & i Holdings (OTCPK:SVNDF) indirect subsidiary 7-Eleven has agreed to acquire Speedway from certain subsidiaries of Marathon Petroleum (NYSE:MPC) for $21B in cash. The Enon, Ohio-based chain operates ~3900 convenience stores in 36 U.S. states. The transaction, which includes a 15-year fuel supply agreement for about 7.7B gallons per year, should close in Q1 2021.

China's Caixin manufacturing PMI hits nine-plus year high

The Caixin China manufacturing purchasing managers index hit its highest point since 2011, lending more credence to inklings of a recovery there. China's official PMI rose to its own four-month high last week, and it's got a bigger sample, focused on larger state-owned companies. Caixin focuses on smaller manufacturers, and it hit 52.8, the third straight month it was over 50, signaling expansion.

Rio Tinto sues Australia's Monadelphous over 2019 fire

Rio Tinto (NYSE:RIO) has sued Monadelphous Engineering Associates (OTCPK:MOPHY) over a fire at Rio's Western Australia iron ore processing facility last year. Monadelphous says Rio is claiming MEA breached terms of a contract, and that Rio is seeking A$493M (about $351M) tied to its inability to process iron ore at the plant during repairs.

What else is happening...

Siemens Healthineers (OTC:SEMHF) merges with Varian Medical Systems (NYSE:VAR) in $16B deal.

SpaceX (SPACE) and NASA splashdown breaks 45-year drought.

Blackstone (NYSE:BX), TPG rejigger REIT debt to sidestep margin calls.

Iran stock market hits record high despite sanctions and battered economy.

Today's Markets
In Asia, Japan +2.24%. Hong Kong -0.56%. China +1.75%. India -1.64%.
In Europe, at midday, London +0.56%. Paris +0.97%. Frankfurt +1.86%.
Futures at 6:20, Dow -0.05%. S&P +0.10%. Nasdaq +0.52%. Crude -1.32% to $39.74. Gold +0.02% to $1,986.30. Bitcoin -0.75% to $11,164.
Ten-year Treasury Yield +1.3bps to 0.549%

Today's Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending

Home Depot: Decent Return Potential, But A Potential Pullback Would Make It More Attractive

Summary
    • Home Depot offers tangible capital returns, fueled by stock buybacks and rapid DPS growth.
    • The stock is likely to deliver high single-digit medium-term returns based on prudent assumption, and its current share price.
    • Despite the consistent cash flows, there are some risks to consider.
    • We believe investors would be better off by buying at a lower price, which would potentially boost the total return potential.

During July, the Nasdaq hit a new all-time high, driven by the ever-living rally of FAANG and most tech-related stocks. Last week, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and Facebook (NASDAQ:FB) reported surprisingly good results, justifying the market's ongoing optimism. However, the higher the market rallies, the more difficult it becomes for investors to find stocks with tangible capital return policies at a decent valuation. Still, some options do remain. One such stock, we believe, is Home Depot (HD). The home improvement retailer operates almost 2,300 stores in the US, Canada, and Mexico, which generate around ~110 billion in annual revenues.

In this article, we will:

    • Explore Home Depot's financials and growth prospects.
    • Go over the stock's potential medium-term returns.
    • Highlight some risks.
    • Conclude why a potential correction could yield more attractive returns going forward.

Financials and growth prospects
Home Depot's total number of stores has remained relatively stable over the past decade. However, its EPS has been growing rapidly as a result of strong pricing power, operational synergies, and massive stock buybacks.

Over the past decade, EPS CAGR (Compound annual growth rate) has been around 19.7%, while the same figure over the past five years has been around 12.2%. Despite the recent challenges, the company has been reporting robust results. In Q1, the company reported revenue growth of 7.1%. Still, we estimate the company to end FY2020 with a lower EPS of around $9.0, to reflect this year's operational lagging.

Source: Company Filings, Author

Further, amid a historically low payout ratio, DPS CAGR has been around 20% over the past five years. Still, after such rapid increases, the payout ratio remains quite healthy, at 2/3 of net earnings, assuming our reduced EPS estimate of $9.50.

Year 2015 2016 2017 2018 2019 2020
Payout ratio 44.19% 42.79% 47.72% 42.34% 53.07% 66.67%

Source: Author, Company Filings

As I mentioned, we are looking for companies that tangibly increase shareholder value. Home Depot has been not only swiftly increasing its distributions, but it has also been executing major stock buybacks that have driven the majority of the stock's long-term returns.

Since 2002, the company has repurchased around 54% of its shares outstanding, while since 2010, this figure remains impressive, at around 36%. In other words, over the past decade, Home Depot has been reducing its shares outstanding by an average of around 9.3% annually. Hence, its rapid EPS growth.

Medium-term return projections
In order to project Home Depot's medium-term returns potential, we need to estimate its future EPS and DPS growth approximately. We expect an EPS and a DPS CAGR of 10%. We believe these are prudent estimates, considering the following points:

    • Our FY2020 EPS estimate of $9.0, suggest an annual EPS decline of 12.1%. In the last quarter, which can be considered the one with the most adverse conditions, the figure "only" declined by 8.4%.
    • Management's commitment to buybacks remains solid. While their rate decelerated by around 42% compared to last year, we expect buybacks to normalize, in-line with the company's future performance.
    • Our DPS growth estimate is comparatively very low, considering the company's decade-DPS-performance and its latest DPS increase, whose growth endured at 10.3%.

By applying these rates, we get the following projections:

Source: Author

Despite being optimistic about the company's growth figures, we are concerned when it comes to Home Depot's valuation. The stock is currently trading at a P/E of around 26.6. This multiple lies on the upper end of the stock's historical valuation. Therefore, the risk of valuation contraction could potentially limit shareholder returns.

To project Home Depot's medium-term returns, if one were to buy the stock at its current price of ~$265, we are examining several different future (2025) valuation scenarios.

As you can see, even if shares undergo a valuation contraction at around 25X earnings, the stock should still return high single-digit returns of around 8.5% annually. We consider this to be the most likely scenario, like most other giant retailers. For example, Target and Walmart currently have P/Es attached of 23.31, 24.61, respectively. Overall, we expect even the company to produce medium-term returns of around 7-9% under prudent projections and a potential valuation contraction.

We believe that while these returns may not excite a high proportion of investors, considering the company's robust cash flows, its multi-year investment program of around $8.7B in the company's stores, technology, and supply chains, could unlock further efficiencies going forward, beating our most conservative projections.

Source: Company presentation

Risks

Despite consistently good financials, the company's distribution moat, and its growth potential, there are some risks to consider as well.

Firstly, the company's balance sheet currently holds an all-time high long-term debt position of $30.3B billion. The company is taking advantage of cheap borrowing rates to return capital to shareholders. Its current cost of debt is just over 3.6%, which makes sense that it should be utilized the way it does, by the company's CFO.

However, this holds potentially significant risks, in the scenario where the company has to refinance its debts at higher rates. This would adversely affect both its operational results and shareholder returns. The sustainability of ever-increasing debt to buy back stock in order to return capital, may not be sustainable on a forever basis.

Further, the company's supply chain and other operations could be significantly disrupted in the near term, should another global COVID-19 shutdown occurs. This poses a considerable risk, in our view.

Conclusion

Home Depot has been a consistent return compounder over the past decade, generously rewarding its shareholders with market-beating returns. Over the past decade, the stock has delivered 27.88% CAGR returns.

Source: dqydj.com

We believe that the stock offers an attractive return profile, even with prudent FY2020 estimates, considering a low-volatility business model. However, the majority of these returns are driven by massive stock buybacks, which may not be viable in the future. The company is loading up on long-term debt, which while being well-covered now, future more expensive refinances may further burden the balance sheet. Regardless, management is committed to delivering shareholder returns, rapidly growing the dividend in addition to the massive buybacks. We believe that investors should wait for a moderate correction, allowing them to secure a higher total return, in our view. Here are the potential medium-term returns, for example, by buying the stock at $230, all else previous estimates staying constant.

Source: Author

Therefore, tapping into a more compelling risk/reward ratio.

Microsoft confirms effort to buy TikTok as Nadella, Trump discuss deal

    • Microsoft (NASDAQ:MSFT) says it is committed to try to buy TikTok's U.S. operations, after CEO Satya Nadella discussed a potential deal during a phone call today with Pres. Trump.
    • Following the conversation, the company issued a blog post saying it would move quickly to pursue discussions with TikTok parent ByteDance (BDNCE), aiming to complete negotiations by Sept. 15.
    • "Microsoft fully appreciates the importance of addressing the President’s concerns," the company said. "It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury."
    • Microsoft said TikTok operations under its ownership would build on the popular user experience while adding privacy and security protections.
    • The proposed transaction has gained the blessing of top Trump administration officials, including Treasury Secretary Mnuchin, as well as several Republican lawmakers, after the president's Friday night comments that he preferred a TikTok ban in the U.S. instead of a sale took all sides by surprise.