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Global equities up on vaccine, trade hope
You just can’t keep ‘em down: Stocks surged again as vaccine hopes and positive language around US-China trade lifted the boats. The S&P 500 closed at a new record high at 3,431, led by Energy and Financials, two of the most beaten-up sectors, with Technology and Healthcare were at the bottom. European stocks caught a strong bid with the major bourses rallying around 2% on Monday. Asian markets followed the lead overnight, with Tokyo up more than 1% and although Shanghai and Hong Kong were a tad weaker.
Germany Q2 GDP slump revised, European stocks firm
Today, the narrative is much the same as yesterday. European stocks continued to advance with gains of around 1% as risk sentiment remained robust after official figures showed Germany’s economy shrank less than previously thought in the second quarter. The numbers are still terrible: output declined by –9.7%, but this was an improvement on the –10.1% drop in the original release. Germany’s Ifo business survey showed sentiment is on the rise too.
The euro caught some bid after these two releases to advance above 1.1830 and test trend resistance having come under a bit of pressure yesterday evening again as the near-term downtrend remains the dominant force. Yesterday’s high at 1.1850 is the bulls’ target and this needs to be cleared to suggest the bears have lost control.
The DAX rose above 13,200 to take it near the post-trough high at 13,313 hit on July 21st. The FTSE 100 advanced towards 6,200 with beaten up travel & leisure stocks among the leaders. Both pared gains after the first hour of trading however. US futures point to further gains on Wall Street.
Apple continues to surge, US and Chinese officials discuss trade
Apple shares rose over $500 as investors continued to pile in and analysts noted that its forward earnings multiples are not that rich after all, and certainly not as expensive as rivals. Apple has transformed itself from a pure hardware manufacturer to a full service led tech platform and therefore the stock has rerated.
Top US and Chinese officials discussed the phase one trade agreement after a meeting scheduled for earlier this month was postponed. Both sides are seeing progress in areas like the increase in purchases of US products by China.
The two sides also discussed how China will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer, the US Trade Representative said in a statement. This came after the US and EU agreed to reduce tariffs on some goods.
AstraZeneca begins antibody trials, economists concerned over double-dip recession
Meanwhile vaccine news is still helping rather than hindering risk sentiment. AstraZeneca said today it has begun the phase one clinical trial of its monoclonal antibody combination for the prevention and treatment of Covid-19. However, Hong Kong has reported its first confirmed coronavirus re-infection, with a man found to have been infected months apart by different strains of the virus.
Economists remain concerned about the double dip: according to the National Association for Business Economics, there is a one in four chance the US economy could fall into a double-dip recession. Two-thirds of economists surveyed think the world’s largest economy remains in recession.
Republican convention kicks off with warnings of election rigging
President Trump got the Republican convention off to a belligerent start as he warned of a rigged election as he sought to cast doubt over the voting process ahead of the election. I don’t think the market really needs to worry about there not being a smooth handover of power, but I would think that a close result could see Trump launch multiple legal challenges which would create the kind of uncertainty markets don’t like.
Elsewhere, gold continues within the near-term downtrend but is yet to make a new low since the $1911 trough last week and is catching support from the longer-term rising trend line. US real rates (10yr TIPS) slipped further into negative territory again.
Week Ahead: Tesla earnings and vaccine hopes to drive sentiment
Coming up this week – can Tesla do enough to justify its massive valuation with its second quarter earnings release?
Tesla Q2 earnings
Tesla (TSLA) has enjoyed a stunning rally in 2020, rising 270% year to date. In the last 12 months, the stock has risen more than 500% in what can only be described as one of the most amazing turnarounds in corporate history. Over this period the S&P 500 has gained around 7%. Valuations are out the window and the stock is trading on tech multiples – some would say for good reason, but short interest in the stock – the percentage of shares out on loan to traders betting the stock will fall – remains relatively high at 7.5%.
Tesla stock has soared in the last year
But it’s back to basics this week as Tesla reports its Q2 2020 financial results. The company is likely to report a fourth straight quarterly profit on July 22nd, which would clear the way for it to enter the S&P 500, and may explain the recent rally as funds have decided they will need to own some of it.
The stock pushed to all-time highs close to $1,800 after the company said it delivered 90,650 vehicles in the second quarter, well ahead of both what the company had guided and the Street expectation for 83,000 vehicles. The company has successfully ramped production at its Fremont site and the Shanghai plant also came back online after being forced to shutter in the first quarter due to Covid. China sales are picking up with Tesla selling almost 12,000 Model 3s in May. The stock also got a lift after Wedbush Securities increased its price target on the stock to $1,250 from $1,000, whilst the bull scenario got a PT of $2,000.
Analysts remain divided on Tesla…
…but hedge funds have been increasing their holdings
Other earnings this week to watch come from Microsoft, Coca-Cola and Unilever.
AstraZeneca and Oxford University vaccine results
Hopes for a vaccine continue to underpin equity market sentiment despite signs of a slower recovery than the V-shaped rebound everyone had hoped for. Much hope is being pinned on a candidate vaccine being developed by AstraZeneca and Oxford University – results from phase one clinical trials are due on Monday and could set the tone for the rest of week in equity markets.
Also watch for a reaction in AstraZeneca shares, which have rallied strongly this year to make it the largest stock on the FTSE 100.
Economic data to watch
As ever on Thursday we are anticipating an important update from the US which will help show the pace of reopening and economic recovery in the shape of weekly initial and continuing unemployment claims.
On Friday we have UK retail sales for June, which are expected to show improvement after rebounding a healthy 12% in May following the –18% decline in April at the height of the lockdown.
Friday also sees the release of the latest flash PMIs for the Eurozone, which a month ago showed a decent rebound. PMIs, which are diffusion indices, are particularly challenged by the speed and magnitude of the economic contraction. So, whilst they may make a V-shape, it does not mean the recovery is V-shaped. PMIs only ask if survey participants think things are better or worse than the previous month, so they give a pretty imperfect snapshot of economic activity in times of crisis. A reading over 50 only tells us things are better than the prior month, which right now is not a high bar to clear.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|17.00 UTC||20-Jul||Blonde Markets|
|From 15.30 UTC||21-Jul||Weekly Gold, Silver, and Oil Forecasts|
|14.45 UTC||23-Jul||Master the Markets with Andrew Barnett|
|17.00 UTC||23-Jul||Introduction to Currency Trading – Is it For Me?|
Top Earnings Reports this Week
Here are some of the biggest earnings reports scheduled for this week:
|After-Market||20-Jul||IBM – Q2|
|07.00 GMT||21-Jul||UBS – Q2|
|Pre-Market||21-Jul||Coca-Cola Co – Q2|
|Pre-Market||21-Jul||Philip Morris – Q2|
|Pre-Market||22-Jul||Biogen – Q2|
|After-Market||22-Jul||Tesla – Q2|
|After-Market||22-Jul||Microsoft – Q2|
|After-Market||22-Jul||Gilead Sciences – Q2|
|07.00 GMT||23-Jul||Unilever – Q2|
|Pre-Market||23-Jul||AT&T – Q2|
|Pre-Market||23-Jul||Twitter – Q2|
|After-Market||23-Jul||Intel – Q2|
|23-Jul||Southwest Airlines – Q2|
|Pre-Market||24-Jul||Verizon – Q2|
|Pre-Market||24-Jul||American Express – Q2|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|01.30 GMT||21-Jul||RBA Monetary Policy Meeting Minutes|
|02.30 GMT||21-Jul||RBA Governor Lowe Speech|
|12.30 GMT||21-Jul||Canada Retail Sales|
|00.30 GMT||22-Jul||Japan Flash Manufacturing PMI|
|01.30 GMT||22-Jul||Australia Retail Sales|
|12.30 GMT||22-Jul||Canada CPI|
|14.30 GMT||22-Jul||US EIA Crude Oil Inventories|
|06.00 GMT||23-Jul||German GfK Consumer Climate|
|12.30 GMT||23-Jul||US Weekly Jobless Claims|
|14.30 GMT||23-Jul||US EIA Natural Gas Storage|
|06.00 GMT||24-Jul||UK Retail Sales|
|07.15-08.00 GMT||24-Jul||Flash Eurozone Services, Manufacturing PMIs|
|08.30 GMT||24-Jul||Flash UK Services, Manufacturing PMIs|
|13.45 GMT||24-Jul||US Flash Manufacturing PMI|