Wall Street Breakfast

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


Wall Street Breakfast: Vaccine Optimism Lifts Markets

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A back-to-normal trade is taking place across the globe after early data on coronavirus vaccine trials (see below) raised hopes for a return to the status quo. In the U.S., Dow futures are ahead by 1.3%, with the S&P 500 and Nasdaq up 1.1% and 0.8%, respectively. European shares also advanced, led by travel-and-leisure companies, while shares fell in China following U.S. sanctions over Hong Kong. "Every time we get some sort of positive news on the vaccine front, then understandably markets benefit from that," said Paul Jackson, head of asset-allocation research at Invesco. "The way it's looking at the moment, it really looks as though a vaccine is the only hope. This thing is not going away."

The vaccine front

Moderna (NASDAQ:MRNA) jumped 17% after the closing bell on Tuesday after the company released data that showed its potential coronavirus vaccine producing a "robust" immune response in all 45 patients in its early human trial. The Oxford Covid-19 vaccine that is backed by AstraZeneca (NYSE:AZN) - whose shares are up 4% premarket - is generating the kind of antibody and T-cell (killer cell) response that the researchers would hope to see, added Robert Peston, saying the first data is due to be published soon in The Lancet. Related vaccine players are also on the move this morning, including BioNTech (NASDAQ:BNTX) +4.9% and Pfizer (NYSE:PFE) +1.3%.

Apple wins tax battle with EU

Apple (NASDAQ:AAPL) does not have to pay €13B in Irish back taxes, according to the EU's General Court, which concluded that the tech giant has not been "granted a selective economic advantage and, by extension, state aid." The decision, which can only be appealed "on points of law" to the EU's highest tribunal, is a setback for the European Commission, which ruled in August 2016 that Apple's practice of channeling sales through units in low-tax member states violated the bloc's state aid rules. This case is particularly important due to the EU's crackdown on taxation in recent years and could impact how the bloc deals with similar matters given the recent trend toward digital services taxes.

More bank earnings

As lenders kick off earnings season with their quarterly reports, there appear to be two sides of banking that are faring very differently during the coronavirus pandemic. JPMorgan (NYSE:JPM) recorded a record $33.8B of revenue, with a 54% jump in investment banking fees from a year ago, while Wells Fargo (NYSE:WFC) lost $2.4B in Q2 and Citigroup (NYSE:C) disappointed after highlighting swelling credit loss reserves. On the earnings front for today, more banks are set to report results, including Goldman Sachs (NYSE:GS), U.S. Bancorp (NYSE:USB), BNY Mellon (NYSE:BK) and PNC Financial Services (NYSE:PNC).

Ending preferential treatment of Hong Kong

"No special privileges, no special economic treatment and no export of sensitive technologies," President Trump told a news conference after signing the Hong Kong Autonomy Act, which penalizes banks linked to Chinese interference in Hong Kong. "China will make necessary responses to protect its legitimate interests, and impose sanctions on relevant U.S. personnel and entities," the country's foreign ministry said in response, without elaborating. Hong Kong was the source of the largest bilateral U.S. goods trade surplus last year, at $26.1B, and more than 1,300 U.S. companies operate there, including nearly every major American financial firm.

Increased tensions

Hong Kong is not the only area where a cold war between China and the West appears to be in the making. The United Kingdom has reversed course on Huawei, moving to ban the Chinese equipment maker's gear from any part of its national 5G network and ordering it all stripped by 2027. The U.S. is also sounding the alarm over Chinese-owned TikTok (BDNCE), with President Trump and Secretary of State Mike Pompeo publicly saying the government is "looking at potentially banning" the short-form video app.

Relaxing curbs, but seeking lost cuts

An OPEC+ technical committee that met online Tuesday detailed plans for countries including Iraq, Nigeria and Kazakhstan to make an additional 842K barrels a day of compensatory cuts in August and September, according to delegates. The proposal will be discussed by a ministerial monitoring committee today led by Saudi Arabia and Russia and comes after the nations missed their production targets again in June. Following the meeting, OPEC+ is still expected to announce that overall group cuts of 9.6M barrels a day - about 10% of global supplies - will be relaxed in August as global fuel demand recovers from the COVID-19 pandemic.

Making money off parking lots

The coronavirus pandemic is leaving retail real estate owners scrambling for new revenue sources, with Brookfield Property Partners (NASDAQ:BPY) signing a deal with entertainment company Kilburn Live to turn the parking lots at a number of its malls into drive-in theaters and virtual concerts. "People are desperate to leave home," explained chief marketing officer Michelle Snyder, adding that Brookfield has set up food kiosks around the drive-ins for people to order from the mall's food court. "If we can't rent the mall, we are going to rent other space... We actually have tons of ideas for our parking lots."

Tuesday's Key Earnings

Citigroup (C) -3.9% bolstering credit-loss reserves.
Delta Air Lines (NYSE:DAL) -2.7% issuing cautious outlook.
JPMorgan Chase (JPM) +0.6% on 'eye-popping' trading numbers.
Wells Fargo (WFC) -4.6% slashing dividend, pushing up reserves.

Today's Markets

In Asia, Japan +1.6%. Hong Kong flat. China -1.6%. India +0.1%.
In Europe, at midday, London +1.7%. Paris +2.3%. Frankfurt +1.9%.
Futures at 6:20, Dow +1.3%. S&P +1.1%. Nasdaq +0.8%. Crude +1.3% to $40.83. Gold -0.2% to $1809.40. Bitcoin -0.2% to $9239.
Ten-year Treasury Yield +3 bps to 0.64%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
12:00 PM Fed's Harker: Economic Outlook
2:00 PM Fed's Beige Book


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