Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 7 Aug 2020, 11:21 AM

 

Wall Street Breakfast: Is Another Bull Run In The Making?

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The latest stock party started in Asia overnight, where China's Shanghai Composite jumped 5.7% to record its largest one-day gain since 2015. Over in Europe, the Euro Stoxx 50 climbed 2%, while S&P 500 futures are ahead by 1.3% in the U.S., building on a strong end to last week following an unexpectedly strong jobs report. The big advance comes despite daily record spikes in coronavirus cases in the states of Florida and Texas, though NYC is entering a Phase 3 reopening today, but without indoor dining. "All of the global monetary policy indicators are flashing green right now. It is very loose and that should mean markets which have underperformed should do well," said Sean Darby, chief global equity strategist at Jefferies.

Lots of dry powder to support equity prices

The amount of money creation so far in the pandemic crisis is similar to what we saw during the financial crisis of 2008/2009, according to JPMorgan analyst Nikolaos Panigirtzoglou, "but has occurred much more quickly, in only a few months, as policy makers responded more aggressively to the impact of the pandemic." And since debt creation and QE will continue to be stronger than normal until 2021, "we believe that the total money or liquidity creation could exceed $15T or more globally by the middle of 2021." Given how low bond yields are at the moment, Panigirtzoglou expects that "most of this liquidity will eventually be deployed into equities as the need for precautionary savings subsides over time."

Major policy U-turn on Huawei

The British government is drawing up plans to strip Huawei gear from its 5G networks by the end of the year, according to The Sunday Times and The Daily Telegraph, backtracking on the 'limited role' previously assigned to the Chinese telecom equipment giant. The reversal was driven by a new report that uncovered "severe" security issues after the U.S. banned the company from using American components - a move that "fundamentally changes" the situation. The U.S. has been on a global campaign for over a year to convince nations to block Huawei from their 5G networks and some countries like Australia, New Zealand and Japan have followed suit.
 

Trade deal targets

The economic wallop caused by the COVID-19 pandemic raises doubts about whether China will be able to buy the U.S. goods it committed to under the Phase One trade deal. Energy purchases were hurt the most; the latest data on U.S. exports for May show that China has bought only $2B of energy from the U.S. YTD, far from the $25B it's agreed to purchase in 2020 (to hit that amount, China would have to start buying more than $3B of energy per month). U.S. Trade Representative Robert Lighthizer points out that the export numbers only reflect finalized exports and don't take into account purchase agreements that have been made but haven't yet been shipped.

Buffett is back with some M&A

Sitting on the sidelines during the coronavirus crisis, Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) broke its silence at the end of a holiday weekend with its largest acquisition in more than four years. The conglomerate is buying Dominion Energy's (NYSE:D) Gas Transmission & Storage segment for $9.7B in cash, which includes more than 7,700 miles of natural gas storage and transmission pipelines and about 900B cubic feet of gas storage. Proceeds will be about $3B, as the deal includes the assumption of $5.7B in debt and there are some taxes to pay (that amount will be used by Dominion to buy back shares).
 

Combining food delivery rivals

Reports suggest that Uber (NYSE:UBER) is close to revealing a deal to acquire food-delivery rival Postmates (POSTM), continuing the trend of consolidation in a sector which has been a big winner due to the COVID-19 pandemic. The $2.65B all-stock agreement is expected to be announced this morning and would see Uber's head of food delivery (Pierre-Dimitri Gore-Coty) run the larger combined business. Postmates was last valued at $2.4B, when it raised $225M in a private fundraising round last September, and accounts for 8% of the U.S. meal delivery market.

Tesla teases short sellers with 'Short Shorts'

Elon Musk has already sent pairs of short shorts to David Einhorn, who has a big short position on Tesla (NASDAQ:TSLA), and announced a similar shipment destined for the SEC, but the latest product offering comes as Tesla's stock tripled this year to $1,208/share. A pair of the limited edition red satin shorts are now being sold at the Tesla Shop for $69.420, the last three digits an apparent reference to Musk's infamous tweet in 2018 that he was considering taking Tesla private for $420 per share. As of mid-June, more than 15M shares of TSLA stock were being sold short and are currently valued at more than $18B, making Tesla by far the most shorted company by valuation on the Nasdaq.
 

Operational readiness review

Following up on last week's formal certification flight tests performed by Boeing (NYSE:BA) and the FAA, the next challenge for bringing 737 MAX jets back into service is slated to play out as early as this week, WSJ reports. Called an operational readiness review, it is among a series of test flights to feature federal pilots along with global airline crews, intended to vet changes to the fleet's flight-control system. If all goes well, the FAA order grounding the planes is expected to be lifted in September and be on a path to resume U.S. service in 2020, though the process has been plagued by delays for more than a year.

Twitter (NYSE:TWTR), Facebook (NASDAQ:FB) to face free speech test in Hong Kong.

Shareholders give Luckin Coffee (NASDAQ:LK) chairman the boot.

President Trump signs bill extending Paycheck Protection Program.

Glaxo (NYSE:GSK), Sanofi (NASDAQ:SNY) near £500M COVID-19 vaccine deal with the U.K.

Latest casualty in retail: Lucky Brand files for bankruptcy.

Kanye West announces 2020 presidential run on Twitter.

Royal Dutch Shell (RDS.A, RDS.B) eyes moving headquarters.

Today's Markets

In Asia, Japan +1.8%. Hong Kong +3.8%. China +5.7%. India +1.3%.
In Europe, at midday, London +2%. Paris +1.8%. Frankfurt +1.8%.
Futures at 6:20, Dow +1.5%. S&P +1.3%. Nasdaq +1.3%. Crude +0.3% to $40.75. Gold -0.4% to $1783.40. Bitcoin +2% to $9209.
Ten-year Treasury Yield +2 bps to 0.69%

Today's Economic Calendar

9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
12:30 PM TD Ameritrade IMX

 

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