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Market Evolution - A Daily Summary of the Financial Markets

June 23, 2020

Asia-Pacific stocks rise as Peter Navarro says US-China trade deal still on track

Shares in the Asia-Pacific region were bullish on Tuesday, June 23, in the midst of a turbulent session, as White House advisor Peter Navarro caused a misunderstanding in an interview and had to rectify and clarify that the U.S.-China trade agreement is not over. Navarro said his comments had initially been interpreted out of context.

Navarro’s interview caused a strong backlash in the Asia session and futures recovered after the White House trade adviser had to rectify.

Mainland Chinese stocks had a bullish tone, with the Shanghai compound rising slightly. Hong Kong’s Hang Seng index rose by 0.97% at the end of the session. In Japan, the Nikkei 225 rose by 0.96%. South Korea’s Kospi was also up 0.46% and Australia’s ASX 200 was virtually unchanged.

US stocks rose on Monday, June 22, building on last week’s strong gains. Stocks of major technology companies led the positive market tone. Major indices briefly reduced some of their gains towards the end of the session, after Texas Governor Greg Abbott said that the coronavirus is spreading at an unacceptable rate.

Apple shares rose more than 2% and reached a record high after the company made a major announcement at its annual Global Developers Conference. The technology giant announced the latest version of iOS and also said that its new Mac computers from now on will no longer use Intel chips.

Microsoft went up more than 2% to lead the Dow. Amazon advanced 1.5%. Netflix was up 2.6%. Facebook made a slight gain. Retailers, which are directly linked to the economic reopening, were also among the best.

European stocks closed lower on Monday, June 22, as investors reacted to the rise in coronavirus cases. The pan-European Stoxx 600 ended down 0.7%, with almost all sectors in negative territory.

International investors are closely following the pandemic’s development, following news that cases are increasing rapidly. Germany’s Robert Koch Institute for Public Health said the coronavirus reproduction rate, which indicates how many people an infected person can infect on average, jumped to 2.88 on Sunday from 1.79 the day before. Experts have set out to keep the reproduction rate below one to contain the outbreak.

Oil showed little change during Tuesday’s Asian session. The price of West Texas is at $40.56 a barrel.

Gold fell in Tuesday’s Asian session on expectations of positive manufacturing data from the Euro-Zone. Economists expect the Eurozone composite PMI to rise to 42.4 in June from 31.9 last month as European economies gradually reopen.

However, concerns about the second wave of the pandemic are keeping the metal safe near its highest level in more than a month.

No one is currently questioning the issuance of common debt in Europe

Portuguese Prime Minister António Costa is optimistic about the political will shown at the summit of the European Union’s heads of state and government.

Costa has stated that the issue of common debt will be carried out, to create a fund that will allow economic recovery in Europe.

The European Commission’s proposal is best suited to the current situation and will allow each Member State to design its own recovery plan.

Although there was no agreement at this summit, and a second will be held in Brussels in mid-July in person, Costa assured that there has been a rapprochement between the positions of the member countries.

Cruise line operators’ shares dropped sharply

Shares declined after the International Association of Cruise Lines announced the suspension of cruise operations in U.S. ports.

The major cruise lines have agreed to voluntarily extend the suspension of operations until September 15.

Norwegian Cruise Line and Carnival each fell by more than 5%, while Royal Caribbean fell by 6.8%.

On the other hand, Arizona and Florida reported records in confirmed cases of Covid-19, while the states continue their reopenings in phases. California on Thursday reported more than 4,000 new cases in a single day, the highest daily number in history.

Negative news about the pandemic led to shares at their lowest level

Apple said it is closing eleven stores in Florida, Arizona, South Carolina and North Carolina again.

All the stores had been reopened since Apple initially closed them in March because of the coronavirus outbreak.

Shares in the technology giant traded 0.5% lower.

On the other hand, China suspended chicken imports from Tyson Foods’ plant in Springdale, Arkansas.

China made this decision because of coronavirus infections among workers at the plant.

Tyson Foods said it was investigating the issue, but added that it was confident its products were safe and hoped the problem would be resolved as soon as possible.

For years investors have been forced to change their approach to the market

They have gone from ‘value’ to reaction to intervened markets.

Investors must now react more to the liquidity policies and stimuli of the authorities than to any other market-related factor, some macro data or even corporate results.

Central bank support for the markets in recent years has been massive and in recent weeks has been exaggerated.

It is the authorities themselves who claim that their mission is not geared to monitoring the behaviour of the stock markets. However, every time the market hints at signs of weakness, some central bank appears to announce new developments in the form of stimuli and bailouts. What it does is offer much more money to reassure investors and promote price increases.

The crisis has forced central banks to inject much more liquidity than initially expected. The result is that an unprecedented monster has been engendered: a very complex financial bubble and a truly disturbing universe of zombie companies.

For the moment, the green listing screens lead one to believe that there is reality behind the price formation, when the real reason behind the increases is almost exclusively artificial.

The interventionist frenzy is such that there is a great disconnection between the real economy and the financial one, a distortion between quotations and company profits.

Politicians like Donald Trump, and others in general, follow the stock market and often imply that the strength of the stock market reflects their own management.

Politicians need stock price rises and bright green in everyone’s mind to face their election campaigns with a chance of success.

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June 24, 2020

Asia-Pacific markets mostly up

Asia-Pacific shares rose on Wednesday, June 24, with the shares of the Chinese technology giant Tencent, which is listed in Hong Kong, reaching new highs.

Mainland China shares were mixed, with the Shanghai compound rising slightly at the end. In Hong Kong, the Hang Seng index was slightly positive and Tencent shares reached a new record of over HK$500.

In South Korea, the Kospi led the way among the region’s major markets, rising by 1.73%. Shares of Samsung Electronics and chip manufacturer SK Hynix each rose more than 3%. In Japan, the Nikkei 225 was up slightly. Australia’s S&P/ASX 200 was up 0.43%.

The Nasdaq’s composite reached a new record on Tuesday, June 23, with Apple leading technology companies as investors applauded the news announced at the technology giant’s World Developers Conference.

Apple rose 2.1% to an all-time high. Facebook advanced 1.3%. Amazon reached an all-time high, closing up 1.9%. Bank shares rose overall with JPMorgan Chase, Citigroup and Bank of America all up 0.7% on average.

The Nasdaq index closed up 0.7%, marking its eighth consecutive daily gain. This marks its longest run of gains since December, when it advanced eleven consecutive sessions. The Dow Jones rose by 0.5%. The S&P 500 ended the session up 0.4%. The rally put the S&P 500 over 42% of its March 23rd intraday low.

European stocks are expected to open lower on Wednesday, June 24, as rising coronavirus cases in the U.S. and other countries, such as Germany, scare investors. The German Ifo Institute’s survey on German business sentiment will be closely watched during Wednesday’s session.

Crude oil futures fell during Wednesday’s Asian session, extending the previous day’s losses, after U.S. crude oil reserves rose more than expected, adding to concerns about oversupply. U.S. crude oil inventories rose by 1.7 million barrels more than expected last week, according to the American Petroleum Institute (API). The figure is well above expectations for a 300,000 barrel rise.

Gold prices rose in Wednesday’s Asian session to their highest level in almost eight years, as demand for this safe asset is driven by concerns about an increase in infections.

Fears of a second wave of cases, particularly in the U.S. and Latin America, are raising concerns about a weak economic recovery and that is certainly supporting safe-haven assets such as gold.

Navarro makes the markets stagger

White House trade advisor Peter Navarro scared the markets, questioning the trade agreement with China.

Navarro’s comment came during a Fox News interview, when the trade adviser listed the complaints the White House has with Beijing.

Among other things, such as the origin of the pandemic, he was also asked about the trade agreement saying that, given everything that has happened, is the trade agreement over? And Navarro answered: ‘It is finished’.

The futures sank immediately after the comments. Navarro later retracted his comment, saying his words were interpreted out of context and asserted that the trade agreement has not ended.

President Trump wrote on Twitter that the trade agreement with China is completely intact and that the Chinese are expected to continue to comply with the terms of the agreement.

The hardest opponents of China, such as Navarro, could gain positions to take action against that country. This is expected to make the markets very agitated in the second half of this year, due to the double blow of the tensions with the COVID-19 and the China/US war.

Industrial and service activity recovers

The US manufacturing PMI jumped to 49.6 in June. That’s a four-month high and a strong rebound from 39.8 in May, according to IHS Markit.

On the services side, the IHS PMI rose to a June reading of 46.7, up from 37.5 in May.

The improvement indicates an easing of the economic crisis, while the blockage is beginning to lift.

Production and jobs are now coming to more acceptable values in both manufacturing and services, and the improvement fuels hopes that the economy can return to growth in the third quarter.

Stocks tend to go down when they are highly overvalued

The data collected by RBC showed that stocks could have problems during the next year, given how overvalued the market is.

S&P 500 valuations are 1.64 standard deviations above their long-term average.

On average, according to the data, the S&P 500 records single-digit losses per year when valuations are so far above their long-term average.

The most important thing Apple just announced

The iOS 14 will give iPhones a new home screen and stop using Intel chips.

Apple announced on Monday a new software for its iPhones, iPads, Macs, Apple TV and Apple Watch.

It also said that future Mac computers, including one to be launched later this year, will use chips made by Apple instead of Intel.

Apple said the chip change will allow the company to deliver faster performance on its laptops and desktops.

Apple is also introducing the iOS 14, the latest version of the iPhone software, which includes updates with the ability to set a default mail or browser application, a redesigned home screen and new software programs that require few resources, called ‘App Clips’.

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June 25, 2020

South Korea falls almost 2% with the rest of Asia, while the IMF cuts forecasts again

Asia-Pacific stocks fell on Thursday, June 25, after the International Monetary Fund further reduced its economic forecasts.

The markets in China and Hong Kong are closed on Thursday for holidays.

South Korea’s Kospi led the losses among the region’s major markets, falling 1.77%. In Japan, the Nikkei 225 fell 0.99%. Stocks in Australia also fell, with the S&P/ASX 200 losing 1.62%.

U.S. stocks fell sharply on Wednesday, June 24, as rising numbers of coronavirus cases reduced expectations of a rapid economic recovery. The latest news about the pandemic is not positive for the stock market, which was betting that the worst of the recession is behind us.

European stocks are expected to open slightly higher on Thursday, June 35, as investors digest the latest economic forecasts. The International Monetary Fund has released its new forecasts, warning of rising debt levels. It forecasts a 4.9% contraction in global gross domestic product by 2020, up from the 3% drop it predicted in April. The fund also reduced its GDP forecast for 2021. It now expects a growth rate of 5.4%, down from the 5.8% forecast in April. The IMF said the downward revisions are due to social distancing measures that are likely to continue during the second half of the year, with productivity and supply chains affected.

Oil prices fell during Thursday’s Asian session, extending losses of more than 5% from the previous session. Prices have been weighed down by record U.S. crude oil inventories, which rose by 1.4 million barrels, bringing inventories to an all-time high for the third week in a row. There have also been concerns that a resurgence of the Covid-19 cases could hurt the revival of fuel demand.

Analysts say the increase in U.S. inventories is mainly due to a fleet of Saudi shipments, which had been held back by U.S. refineries when prices fell in March, that are now being put back into circulation.

Gold fell in Thursday’s Asian session, losing the highest level in eight years from the last session. Sales in the stock markets are now leading some investors to dump their safe-haven assets. The pattern seen this year is that when stocks and energy are down, there is a rush to make liquidity available in all asset classes, including gold.

The European Union is considering reopening its borders

The European Union is discussing how to reopen its external borders, while the region is slowly trying to revive its economy.

European nations should open their internal borders on 15 June and slowly lift the travel ban on foreign visitors from 1 July.

Thirty European countries decided to close their external borders in March, to contain the spread of Covid-19, and the travel restriction has been extended three times.

The Commission believes that the reopening of external borders should be a coordinated exercise among European governments, reviewed regularly.

For the time being, the main requirement to be taken into account would be the rate of coronavirus infection in the country of origin.

This means that countries with high rates, such as the United States and Brazil, could still be banned from entering European nations, at least for some time.

The International Monetary Fund cuts its forecast for the world economy and warns of rising debt levels

The International Monetary Fund reduced its economic forecasts once again and warned that public finances would deteriorate significantly.

The IMF now estimates a 4.9% contraction in world GDP in 2020, less than the 3% fall it predicted in April.

The pandemic has had a more negative impact than expected in the first half of 2020 and recovery is expected to be more gradual than previously predicted.

Global public debt is projected to reach more than 100% of GDP this year. In addition, the sharp decline in activity is accompanied by a catastrophic blow to the global labour market.

According to the IMF, Spain’s economy will plummet by 12.8% this year and the country will be one of the great dragors of growth and the protagonist of the greatest deterioration in the coming months.

Some investors are betting against the stock market

There is a net short position in the E-mini S&P 500 futures.

When many traders take the same position, there is a mass mentality and now traders are sending a signal.

Until last week, there was a net short position of 303,000 E-mini S&P 500 futures contracts held by non-trading traders.

In early March, the same investors held a positive net position, at a high of about 55,000 contracts.

The United States threatens several European countries with new tariffs

The threat of new tariffs is once again looming over the markets, this time with Europe as the main victim.

The worst affected would be Germany, France, the United Kingdom and Spain, all of them related to Airbus.

The Boeing crisis aggravated the differences and raised the tone of the threats from Washington over European aid to Airbus.

Against the backdrop of the Airbus aid, the White House is considering imposing additional tariffs of $3.1 billion on European countries. It also plans to impose sanctions on Spain on products such as olives.

Investors have reacted with suspicion to the possibility that the European Union will ban American travelers from its borders, and there are fears that the United States will retaliate.

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June 26, 2020

Asian markets are mostly bullish despite new cases of coronavirus

Asia Pacific stocks rose on Friday, June 26, as the pandemic situation in the US continues to be closely watched by investors.

Markets in China were closed on Friday for the holidays. Hong Kong’s Hang Seng index fell by 0.57%, with shares of Chinese giant Alibaba down by almost 3%.

In Japan, the Nikkei 225 rose by 1.48%, with Softbank Group shares rising by more than 3%. South Korea’s Kospi was also up 1.33%.

Meanwhile, Australian stocks advanced, with the S&P/ASX 200 up 1.48%. Australian airline Qantas Airways shares plunged 8% after the company announced it had completed a placement with institutional investors worth approximately A$1.36 billion. The firm has also announced plans to reduce its workforce by 6,000 jobs as part of its recovery from the pandemic.

U.S. stocks ended a volatile session on Thursday, June 25, with solid gains, while investors applauded the new regulation of large banks. The Federal Deposit Insurance Commission said it would allow banks to more easily make large investments in funds such as private equity.

Bank of America, JPMorgan Chase, Citigroup and Wells Fargo all rose more than 3%. Goldman Sachs also gained 4.6% while Morgan Stanley gained 3.9%. Shares of major banks jumped to their day’s highs at the end of the session, as investors awaited the release of stress tests on major banks.

European markets are likely to open higher on Friday, June 26, despite a rise in coronavirus cases and new warnings from the International Monetary Fund. The IMF warned on Thursday that stocks could suffer a second collapse, in the event of another global spike in infections, the reintroduction of blockade measures or an escalation of trade tensions.

Oil prices rose during Friday’s Asian session, extending the previous day’s gains on optimism about a recovery in global fuel demand. It seems that the market is ignoring the fundamentals of supply and demand and is only moving because of psychological factors.

Gold made its third consecutive weekly gain in the Asian session, due to concerns about an increase in coronavirus cases, although prices were held back after a strong dollar and a rise in the stock market offset demand for safe-haven assets.

Coronavirus stifles economic recovery in America

The region most affected by the coronavirus in the world has not yet reached the peak of the disease. The United States has had 2.34 million sick and 121,279 dead.

The American population is beginning to feel the stifling effects of the lack of resources, following the paralysis of the economy and the uncertainty of not knowing when the longed-for new normality will arrive.

In the United States there is a great need for the economy to get back on track. This is a point that President Trump has taken as a fundamental part of his campaign to stay in the White House again.

Mike Pompeo argues that it is important to get Europeans to travel back to the United States and help revive its economy.

The Trump administration is working with its allies on the Old Continent to resume travel, despite recent reports that the European Union may not reopen its borders to American travelers.

Biden’s big lead in the polls could be behind the recent stock market crash

Many Wall Street analysts warn their clients that a Biden presidency will not be good for the stock market.

The former vice president and presumptive Democratic nominee has promised to roll back President Trump’s tax-cutting legislation.

Democrats will be able to enact major economic changes that could affect the market negatively, investors fear.

According to Jim Cramer, Biden could be another president unfavorable to capital. Should the Democrats come to power, Cramer would recommend making liquidity available.

Bank of America found that when the White House passed from a Republican to a Democratic president, the S&P 500 underperformed in the next three months, compared to when a Republican replaced a Democrat.

The German payment company Wirecard declares itself insolvent

Wirecard will file an application to open insolvency proceedings at the Munich District Court.

Wirecard reveals a $2 billion accounting hole due to insolvency and over-indebtedness.

Monday’s admission that there was insufficient cash for his commitments further compounded Wirecard’s problems. The company tried to reach an agreement with creditors.

German consumer confidence points to further improvement in July

German consumer confidence has again shown signs of improvement for the second month in a row.

It has been driven by the stimulus measures implemented and the lifting of restrictions.

It rose in July to -9.6 from -18.6 in June, although the figure is the third worst reading in the entire historical series.

The broad support for the economic stimulus packages, such as the announcement of a temporary VAT reduction, is a key factor in the expectation that retailers and manufacturers will pass on these reductions to the final consumer.

Despite the improvement in consumer confidence, the situation remains fragile, given the record number of part-time employees and rising unemployment, against the background of a severe recession in Germany.

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June 29, 2020

Japan falls by 2% while global coronavirus deaths exceed 500,000

Stocks in Asia-Pacific declined on Monday, June 29, as the number of coronavirus cases worldwide continues to rise.

Mainland China shares declined at the end of the session, with the Shanghai compound down 0.71%. Hong Kong’s Hang Seng index fell by 1.59% and AIA life insurance stocks were down 3.64%.

In Japan, the Nikkei 225 fell by 2.14%, as shares of Fast Retailing and the Softbank Group conglomerate each fell by more than 2%. South Korea’s Kospi also fell by 1.66%. Meanwhile, Australia’s S&P/ASX 200 fell by 1.92%.

US markets fell sharply on Friday, June 26, after Texas withdrew some of its reopening measures. This raises concerns about the pandemic and its impact on the economy.

Friday’s losses led to the second weekly drop in major indices. The Dow and the S&P 500 fell by 3.3% and 2.9%, respectively, during the week and the Nasdaq lost 1.9%. Virus cases are on the rise and reopenings are being delayed. Shares of companies that would benefit from the economic reopening collapsed. United Airlines, American and Delta fell by over 3%. The cruise operator Norwegian Cruise line fell by 5%.

European markets closed down on Friday, June 26, amid concerns about rising cases of coronavirus. The pan-European Stoxx 600 closed slightly down, with most sectors and major exchanges in negative territory. The markets had advanced to 1.1% at the beginning of the session.

On Thursday, the IMF warned that stocks could suffer a second collapse in the event of another global spike in infections, the reintroduction of blockade measures or an escalation of trade tensions.

Oil prices fell at the end of the Asian session, with Brent futures down 1.93% and West Texas futures also down 1.97%.

Two pricing agencies intend to launch new US crude oil references. The new S&P Global Platts reference, called Platts American GulfCoast Select, would reflect the value of light sweet oil transported by water and supplied from the Permian Basin in West Texas and New Mexico. Argus’ new daily crude price assessment, Argus AGS, is also designed to reflect the growing importance of the U.S. Gulf Coast as a major export hub and to address current market concerns about WTI landlocked crude. The two agencies will use different methodologies for their new price assessments.

The Bank of America is supporting gold at an all-time high this year. Gold has continued to rise lately as the resurgence of the pandemic, particularly in the United States, has dented investors’ optimism about the speed of a recovery. The precious metal has risen by around 16% since the beginning of the year and the rally continues as uncertainty about the virus increases and global trade tensions resurface. According to Bank of America, the upward trend in gold prices will reach a 2012 high of $1,790-1,805 per ounce next week.

Google yields to regulatory pressure

Google will pay some news publishers to license their content. It’s a big turnaround for the Internet giant.

Google has, for years, avoided the demands of the media to pay for the distribution of its work.

The company said Thursday it will introduce a licensing program that will pay publishers for high-quality content. The content will be published on a new service that it hopes to launch later this year.

Initially it will include local and national news publications: Der Spiegel from Germany, InQueensland and InDaily from Australia and Diarios Associados from Brazil.

Google said that, when available, it will also offer free access to paid articles on news sites.

The move follows requests from antitrust regulators in France and Australia for Google to pay for news content.

Texas pauses the reopening plan

Texas Governor Greg Abbott announced that his state is returning to confinement as coronavirus cases and hospitalizations increase.

Businesses that were allowed to open in the previous phases can continue to operate under conditions dictated by the Texas Department of State Health Services.

Abbott said that … 'The last thing we want to do as a state is go back and close business. This temporary pause will help corral the spread of the virus until we can safely enter the next phase of opening’.

Last Thursday, Abbott ordered all hospitals in Bexar, Dallas, Harris and Travis counties to reserve their capacity to accommodate Covid-19 patients. Those counties include the state’s largest cities: Houston, San Antonio, Dallas and Austin.

The Federal Reserve lowers its balance sheet

The stock markets are completely hooked on the money that rains down from the central banks and this is why they are so high up, despite the difficult situation.

Central bank purchases, globally, are moving at the rate of 2 billion dollars an hour!

The Nasdaq is in a bubble and the Internet sector has a PER of 160. When money rains above nominal growth, excess liquidity is deposited in assets that it puts in bubble.

The Fed has been reducing its balance sheet for two weeks. Since June 10, the balance sheet has fallen from $7.18 trillion to $7.06 trillion. That was a long time ago and an $80 billion cut in the balance sheet has led to a 6.8% decline in stocks.

The big problem is that the whole history of aid has caused overvaluation on the stock markets, which had not been seen since the 2000 bubble and that was a lost decade.

Why is the gold moving?

Gold is a market where the strong hand always goes in and out with a lot of money.

It is said that gold is the refuge value when things go wrong in equities.

Historically, it has been shown that this is not so clear. Sometimes, as happened in the previous crash, it was even sold heavily along with publicly traded securities.

It is also said that gold follows the evolution of the dollar, with which it has an inverse correlation, but not always.

However, gold, in the long term, has a huge correlation with balance sheet increases in central banks and now this correlation is activated to the maximum.

It seems very clear that for the strong hand the refuge for excess money printing and purchases of all kinds is gold. It is used as a hedge.

At present there can be no further purchases and increases in central banks’ balance sheets and if this long-term correlation is maintained, gold has very good prospects.

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June 30, 2020

Japan up almost 2%, accompanying the positive tone of the rest of Asia-Pacific

Asia-Pacific stocks rose on Tuesday, June 30, as China’s official manufacturing index for June beat expectations.

Mainland China stocks rose at the end of the session, with the Shanghai composite rising by around 0.6%. China’s official manufacturing PMI for June reached 50.9 against 50.4 forecasted by analysts. Hong Kong’s Hang Seng index rose by 0.89% as China passed the controversial national security law for the city.

Japan’s Nikkei 225 rose 1.78%, after falling more than 2% on Monday. However, Japanese data on Tuesday showed that industrial production in May fell by 8.4% from the previous month.

In South Korea, the Kospi rose by 1.61%. Meanwhile, Australia’s S&P/ASX 200 added 1.45%.

U.S. stocks rose sharply on Monday, June 29, after good news about Boeing. Major indices reached their session highs minutes before the close. That last-minute rally put the S&P 500 in positive territory for the month as a whole.

Boeing shares rose 14.4% as certification flights for the Boeing 737 Max began. The test is seen by investors as a critical step in Boeing’s worst corporate crisis, which began in March 2019 after two serious accidents that killed 346 people.

Apple was also one of the largest contributors to the Dow’s profits, rising 2.3%. Facebook, meanwhile, closed 2.1% positive, recovering from a previous decline. The social media giant is having a hard time, after more companies added to the boycott of advertising on their platforms.

Confirmed cases of COVID-19 worldwide exceed 10 million and deaths exceeded 500,000 over the past weekend. Texas, Florida and California are among the states that will reverse the reopenings and close businesses such as bars to stop the spread of the coronavirus. On the other hand, the Federal Reserve chairman said Monday that the outlook for the world’s largest economy is extraordinarily uncertain. The recovery will depend on both, containment of the pandemic and government efforts to support the economy.

European shares are expected to open on flat territory on Tuesday, June 30. Investors are likely to show a positive tone because of the new sign of economic recovery in China. European markets appear poised to follow the positive trend in Asia-Pacific, which rose on Tuesday at the end of the session as China’s official manufacturing PMI for June beat expectations.

Oil prices fell in Tuesday’s Asian session as optimism about a recovery in fuel demand faded. Monday’s optimism was based on strong growth in U.S. pending home sales, which reinforces the belief that global demand for fuel may increase steadily as major economies reopen, even with reserves in the face of the dangerous state of the pandemic.

Gold remained stable during Tuesday’s Asian session. It is heading for its biggest quarterly rise in more than four years, as fears about the pandemic continue to drive demand for safe assets.

Fragile economic recovery faces first major test

The first Thursday of July will see the arrival of the June employment report.

The second half of 2020 is already here and now it is up to the economy to prove that the stock market was right about a strong return to growth.

The first big test will be the June employment report which will come out on Thursday, instead of its usual release on Friday, due to the 4th of July holiday in the United States.

Analysts expect 3 million new jobs. If the data is stronger, it will suggest that the improvement is quick. This was already seen in May with good retail sales.

However, investors are now looking askance at the rising number of Covid-19 cases in several states, and this could put a damper on a quick recovery.

Coca-Cola puts advertising on hold on all social media platforms worldwide

Coca-Cola announced that it will pause paid advertising on all social media platforms worldwide for at least 30 days.

Unilever, whose brands include Dove, Ben & Jerry’s and Hellmann’s, said it will stop advertising on Facebook, Instagram and Twitter in the United States at least until December 31. The consumer products giant has spent more than $11.8 million in the United States this year on Facebook.

Starbucks is the latest company to say it will stop advertising on all social media platforms and promises to have discussions internally and with civil rights organizations to stop the spread of hate speech.

Since a group of organizations called on Facebook advertisers to take a break from advertising spending during the month of July, more than 90, including Verizon, Patagonia, REI, Lending Club and The North Face, have announced their intention to join the boycott.

The group of organizations includes the Anti-Defamation League, the NAACP, Sleeping Giants, Color of Change, Free Press and Common Sense.

According to all of them, ‘there is no place for racism in the world and there is no place for racism in social media’.

America’s relationship with Germany may never be the same

Diplomatic ties between Washington and Berlin have diminished significantly in recent years.

The German Foreign Minister has warned that relations between the two countries may never be the same again.

The biggest sign of how strained relations have become is that Heiko Maas said this weekend that the alliance with the United States, which is important in terms of the economy, defence and security, may not recover.

Even if Trump’s White House rival, Democrat Joe Biden, wins the next election, relations between the two countries may not recover. In fact, anyone who thinks that everything in the transatlantic alliance will be as it was under a Democratic president underestimates the structural changes that have taken place.

Disagreements over defence spending, energy infrastructure, the G-7 and trade remain very much alive.

Nancy Pelosi asks the CDC to force Americans to wear masks

House Speaker Nancy Pelosi said a federal mandate on the use of masks is long overdue.

Pelosi said the U.S. Centers for Disease Control and Prevention recommended the use of masks to reduce the spread of the virus. However, they never ordered it so as not to offend President Trump, who has consistently refused to wear a mask.

The President has repeatedly flouted public health guidelines by refusing to wear a mask in public since the beginning of the outbreak.

The use of masks has become a point of contention in the United States, even though research shows that facial masks prevent the transmission of the coronavirus and ‘masks are not about protecting yourself, but about protecting others’.

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July 1, 2020

Asia-Pacific stocks showed a positive tone after good data from the private survey of industrial activity in China

Asia-Pacific markets rose on Wednesday, July 1, as a private survey showed that China’s factory activity in June was better than expected.

Mainland Chinese stocks rose at the end of the session, with the Shanghai composite up 0.91%. The Hong Kong markets were closed on Wednesday for the holidays. A private survey showed that Chinese manufacturing activity in June rose more than expected, with the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) reaching 51.2. It was above expectations for a 50.5 reading.

South Korean stocks also rose, with Kospi up 0.86%. In Australia, the S&P/ASX 200 was up 0.57%. Japan’s shares lagged behind, with the Nikkei 225 dropping slightly.

US stocks rose on Tuesday 30 June, with Wall Street ending its best quarter in decades. Major indices reached their highs right at the end of the session.

The Dow ended the second quarter with a 17.8% gain. It is the largest quarterly rally in this index since the first quarter of 1987. The S&P 500 had its biggest quarterly gain since the fourth quarter of 1998, at almost 20%. Meanwhile, the Nasdaq Composite jumped 30.6% in the quarter, its best quarterly performance since 1999. A combination of stimulus, positive trends in pandemic control, economic reopenings and hopes for a vaccine led to strong stock gains for the quarter as a whole.

European stocks are expected to open in slightly positive territory on Wednesday, driven by activity in Chinese factories in June. European investors are digesting the latest sign of economic recovery in China, after a private survey showed that Chinese manufacturing activity in June grew more than expected.

Oil prices rose during Wednesday’s Asian session, after a report showed that crude oil inventories in the U.S. fell much more than expected, suggesting that demand is improving even as the coronavirus outbreak spreads.

U.S. crude oil and gasoline stocks fell more than expected last week, while distillate inventories rose, according to data released by the American Petroleum Institute (API) late Tuesday. Crude oil inventories fell by 8.2 million barrels to 537 million, against analysts’ forecasts of a drop of only 710,000 barrels.

The price of gold rose in Wednesday’s Asian session, close to the highest level in eight years, as rising COVID-19 infections in the U.S. dampened hopes of a rapid economic rebound. Investors are being pushed towards the safety of gold bars.

Industrial activity in China expanded in June

China said manufacturing activity expanded in June. The official Purchasing Managers’ Index reached 50.9. The figure was expected to be 50.4.

PMI readings above 50 indicate expansion, while those below that level indicate contraction.

The PMI reading indicates that supply and demand are starting to rise, with the new orders index rising for two consecutive months.

However, uncertainties remain and it is added that the pandemic has not been effectively controlled abroad. In fact, the rate of new export orders is still in contraction territory, reaching 42.6 in June.

Americans will continue to be banned from traveling to Europe

Starting Wednesday, travelers from a list of 15 nations will be allowed to enter the European Union, but the United States is not.

Thirty countries in Europe closed their external borders in March to mitigate the spread of Covid-19. As most of them now reopen their economies, they are also beginning to receive external visitors.

European Union governments decided Tuesday to open their external borders to Algeria, Tunisia, Australia, Canada, New Zealand, Georgia, Japan, Montenegro, Morocco, Rwanda, Serbia, South Korea, Thailand and Uruguay. Chinese travellers will also be able to enter the EU, but only if China announces that it will also accept European visitors.

The decision was taken on the basis of the health situation in the countries of origin and will be reviewed every two weeks.

However, the decision is not binding, which means that EU Member States can reopen their borders to countries of their choice.

China passes controversial national security law for Hong Kong

Chinese President Xi Jinping has signed Hong Kong’s national security law, after the highest decision-making body of the Chinese parliament has voted to approve the legislation.

Few details have been released, but Beijing says the legislation aims to prevent secession, subversion, terrorist activity and foreign interference.

The new law comes into force on Tuesday 30 June.

Critics say the security law will undermine the autonomy promised to Hong Kong for 50 years after it was handed over by the UK to China on July 1, 1997.

Hong Kong is a former British colony governed under the motto of ‘one country, two systems’. It now enjoys some freedoms that other Chinese cities do not. These include limited electoral rights and a legal and economic system largely separate from the rest of China.

British GDP shrinks in the first quarter of the year

British gross domestic product fell by 2.2% in the first quarter of the year, compared to the previous three months. This is its biggest fall since 1979.

Among the sectors that recorded the biggest falls between January and March were services, which fell by 2.3%. The industrial sector also fell by 1.1%. The construction sector fell by 1.7%.

This estimate highlights the impact of the pandemic and containment in the UK.

Earlier this month it was announced that GDP suffered a record 20.4% economic contraction in April. This was due to the closure of shops, bars, restaurants and factories in the country.

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July 2, 2020

Asia-Pacific markets rise amidst hopes for a vaccine

Shares in Asia-Pacific rose during the session on Thursday, 2 July, following positive news on the development of a possible coronavirus vaccine.

Hong Kong’s Hang Seng index led gains among the region’s major markets, rising 1.48 percent after Wednesday’s holiday. Tensions generated by China’s controversial national security law remain high. Hong Kong police have so far arrested at least 370 people.

In Japan, the Nikkei 225 went up slightly and South Korea’s Kospi gained almost 0.9%.

Meanwhile, Australia’s S&P/ASX 200 rose by 1.5%. Australia’s May trade data failed to meet expectations. The May trade surplus was AUD8.02 billion, below expectations for AUD9 billion trade surplus.

The S&P 500 and Nasdaq Composite began the new quarter with solid gains on Wednesday, July 1, with market sentiment receiving a boost from positive news about a coronavirus vaccine and strong U.S. economic data.

A study of a coronavirus vaccine, being developed by Pfizer and BioNTech, showed that the drug created neutralizing antibodies. The results have not yet been reviewed. The company also said that, if the vaccine gets approval from regulatory authorities, it expects to reach 100 million doses by the end of the year and potentially more than 1.2 billion by the end of 2021. Pfizer shares rose 3.2% and BioNTech shares fell 3.9%.

Amazon and Netflix, companies that benefit from the confinements, led the session with a 4.4% and 6.7% increase, respectively. FedEx was the best performing stock in the S&P 500, rising 11.7% on stronger-than-expected earnings.

U.S. manufacturing activity recovered in June, reaching its highest level in more than a year, as the economy reopened. Similar surveys from China, Germany and France point to a recovery in industrial activity, while the ADP National Employment Report showed that private payrolls in June rose by 2.369 million jobs.

European shares rose on Wednesday, July 1, following positive news about the vaccine trial. The Pan-European Stoxx 600 closed up slightly, but gains were limited by the 0.5% drop in the German DAX index. German stocks were affected early in the day by technical problems on the Xetra trading platform, which trades the DAX index, which caused trading volume to be low across the continent at the start of the session.

Oil prices fell in Thursday’s Asian session, after the US recorded its highest daily spike in new infections and California re-imposed some blocking measures. Concerns are now rekindled that a resurgence of the pandemic will halt the recovery in demand for fuel. Analysts highlight concerns about the situation in states that are among the largest consumers of gasoline in the United States.

Gold fell during Thursday’s Asian session. Good U.S. economic data and hopes for a possible vaccine supported investors’ risk sentiment.

Hong Kong makes first arrests under China’s new national security law

Hong Kong police on Wednesday announced their first arrests since China’s national security law took effect.

The controversial legislation came just hours after China’s highest decision-making body in the parliament voted Tuesday to pass the National Security Law.

The law stipulates that a person who acts to undermine Hong Kong’s national unification with the mainland faces punishment of up to life imprisonment, depending on the severity of the crime.

Under the new regulations, many of Hong Kong’s protests last year would be punishable by law.

The new law gives Beijing greater control over the city and has already had an impact on the protest movement, with prominent activist Joshua Wong withdrawing from his pro-democracy party.

June Private Payrolls Up According to ADP

In June, businesses continued to bring workers back as the national economy of the United States slowly came back to life.

Private payrolls increased by 2.36 million in June, slightly less than the 2.5 million expected.

The May figure underwent a staggering revision from an initially expected loss of 2.76 million to a gain of 3.06 million.

Workers in the hospitality industry saw the biggest gain, with 961,000 hires, while small businesses overall added 937,000. This sector was among the most affected by the confinement.

Companies with 500 or more workers provided 873,000 new jobs, while medium-sized companies added 559,000.

Let Europe be strong again

German Chancellor Angela Merkel opened the German Presidency of the European Union with an appeal to make Europe strong again, with the challenge of overcoming the consequences of the pandemic.

Ms Merkel admitted that the positions between the EU’s partners with regard to the reconstruction plan proposed by the Commission are still far apart but she is confident that differences can be overcome in the coming weeks.

The European Central Bank sees a risk that the recovery of the countries in the euro area will take place at a different pace, depending on the impact of the crisis caused by the pandemic.

Luis de Guindos of the ECB stressed the need for the most indebted countries to undertake structural reforms once the emergency is over.

It is normal for there to be a recovery when economies are reopened and it is also normal for it not to be known what will happen after the summer, but the most worrying thing is that a two-speed recovery seems to be beginning to emerge.

The new reality will be complex, because GDP will fall significantly and there will be an impact on employment and on the standard of living of Europeans.

The main antidote will not be monetary policy, which will also, but the reforms and fiscal measures of governments.

How Contagion Occurs

Surface contamination and fleeting encounters are less of a concern than close interactions over extended periods of time.

According to scientists, it is not common to get Covid-19 from a contaminated surface. In addition, fleeting encounters with people outside are also unlikely to spread the coronavirus.

Instead, the biggest culprit in the spread is close interaction over long periods of time. Crowded events, poorly ventilated areas, and places where people talk loudly, or sing, maximize the risk.

These findings are helping businesses and governments devise reopening strategies to protect public health and jump-start economies.

Strategies include installing Plexiglas barriers, requiring people to wear masks in stores and elsewhere, using good ventilation systems and keeping windows open.

Acquiring Covid-19 involves three steps:

  1. Coughing, talking and breathing create droplets of various sizes that carry the virus. The drops can transfer the virus from one person to another if they fall into the eyes, nose or mouth.

  2. Enough virus has to fall on, or accumulate around, you to trigger an infection. Long-term exposure is generally defined as 15 minutes or more of unprotected contact with someone less than 6 feet away.

  3. The virus has to make its way into the respiratory tract and use the ACE-2 receptors to enter the cells and replicate. It is very important that there is sufficient ventilation in the places people visit and where they work.

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July 3, 2020

Asia-Pacific markets rise with China’s service sector growing in June and US employment report improving expectations

Stocks in Asia Pacific showed a positive tone on Friday, July 3, as positive economic data increased optimism about the prospects for a strong economic recovery.

Mainland China stocks rose at the end of the session, with the Shanghai composite jumping by 1.04%. A private survey showed on Friday that China’s services sector grew at its fastest pace in more than a decade in June, with the Caixin/Markit Services Purchasing Managers’ Index (PMI) reaching 58.4. This is the best figure since April 2010.

In Japan, the Nikkei 225 rose slightly. South Korea’s Kospi rose by 0.54%. In Australia, the S&P/ASX 200 remained stable.

U.S. stocks rose on Thursday, July 2, after a better-than-expected employment report and as the economy tries to recover from the pandemic. Stocks closed the week positive. U.S. jobs rose by 4.8 million in June, from an estimated 2.9 million. The unemployment rate remains at 11.1%.

European markets are mixed, following the rise of the previous session, on the back of encouraging economic data. The IHS Markit data is expected to be released on Friday and could offer a better understanding of the economic health of the block.

Crude oil prices fell during Friday’s Asian session. The resurgence of the coronavirus worldwide and especially in the United States, which is the world’s largest oil consumer, diminishes the prospects of a recovery in fuel demand. The market is increasingly confident that easing travel and business restrictions will boost demand for oil, but the progress of the pandemic threatens that trend.

Gold remained stable in Friday’s Asian session, trading in a narrow range as concerns about rising cases of coronaviruses around the world and persistent trade tensions between the United States and China overshadow the strong employment data. Geopolitical considerations are also at the forefront. Investors are now definitely moving towards the acquisition of safe securities.

Unemployment rises in the Eurozone and European Union in May

The unemployment rate in the euro area rose by a tenth in May compared with April to 7.4%. This is its worst reading since November last year.

In the European Union as a whole the increase was also one tenth, reaching 6.7%.

On a year-on-year basis, unemployment fell by two-tenths in the 19 countries that share the euro and remained stable in the EU-27.

Spain was the country with the highest unemployment in the EU-27, at 14.5%, ahead of Greece at 14.4% and Cyprus at 10.2%.

At the other end of the scale the countries with the lowest unemployment rates in the EU were the Czech Republic with 2.4%, Poland with 3% and the Netherlands with 3.6%.

It is estimated that 14.36 million people were unemployed in the EU in May 2020 including 12.14 million in the euro area.

Inflation slows down in May in developed countries

Inflation in developed countries slowed slightly in May to 0.7%. This is two tenths less than in the previous month because of lower energy prices.

Energy prices fell by 13.4%, after having fallen by 12.2% in April.

This decrease cushioned the rise in food products, which was 4.5%, three tenths more than the previous month. The rise in foodstuffs is the highest recorded in the OECD since December 2011.

In the euro area annual inflation also slowed down by two tenths to 0.1%.

Amongst the world’s major economies only France saw its inflation rise in May to lie at 0.4%.

Inflation remained the same in Japan and fell in Canada, where prices fell by 0.4%.

In the United Kingdom and the United States, inflation fell by two-tenths to 0.7% and 0.1%, respectively.

In the G20 as a whole, inflation rose from 2.4% to 2.1%.

Dividend falls less than expected at U.S. companies

U.S. companies are cutting their dividends less than investors had anticipated. This could give a boost to the stock market.

It is likely that S&P 500 companies will see an aggregate decline of 2% in dividend payments by 2020, compared with the expected 10% decline.

This is good news for investors, at a time when a series of interest rate cuts by the Federal Reserve has driven US Treasury yields to near zero.

Apple will close thirty more stores

Apple will close an additional 30 stores in the United States, bringing the total number of closures to 77.

Stores in Alabama, California, Georgia, Idaho, Louisiana, Nevada and Oklahoma will close Thursday. Other stores in Florida, Mississippi, Texas and Utah are closed as of Wednesday.

Apple has 271 stores in the United States and its stock fell with this news.

Apple stores tend to be in busy shopping malls.

The fact that they are closing in such large numbers can be seen as a negative indicator of the development of retail sales after the pandemic.

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July 6, 2020

Shanghai shoots up over 4% leading asian gains while bullish sentiment dominates

Asia-Pacific stocks were positive on Monday, July 6, with mainland China leading the way in regional gains.

Shanghai’s composite shot up 4.24%. Mainland China’s bullish sentiment boosted the rest of the markets. For the time being, coronavirus outbreaks do not seem to affect the markets much. Hong Kong’s Hang Seng index also made strong gains, rising by 3.45%.

Elsewhere in the region, Japan’s Nikkei 225 rose by 1.6%. South Korea’s Kospi rose by 1.68%. Meanwhile, stocks in Australia rose slightly.

US markets were closed on Friday July 3 for the holiday and US stock futures traded higher on Sunday night. Wall Street is trying to build on the momentum of strong performance, after a short week due to the July 4th holiday. The Dow and the S&P 500 rose by 3.3% and 4% respectively last week, and the Nasdaq rose by 4.6%.

European equities closed lower on Friday, July 3, as concerns about rising infections in the Americas dampened optimism following the release of encouraging economic data in the US, China and the euro zone.

The Pan-European Stoxx 600 closed down around 0.9%, with core funds falling 1.7% and leading losses. Travel and leisure stocks halted the downward trend with a slight rise.

European markets failed to gather momentum on Friday from Asia Pacific, where stocks advanced after a survey showed that China’s services sector grew in June at its fastest pace in more than a decade.

In Monday’s Asian session, oil prices offered a mixed picture, with Brent crude rising, supported by tighter supply, and West Texas falling on concerns that an increase in coronavirus cases could dampen demand for oil in the US. For the moment, the pace of demand recovery is not as good as expected.

Gold rose during Monday’s Asian session as concerns about rising coronavirus infections in the U.S. dented optimism about signs of economic recovery. Investors continue to rely on the precious metal as a safe haven asset. More than 11.35 million people have been infected worldwide so far.

Gold has also benefited from lower interest rates around the world, and from widespread stimulus measures by major central banks, as gold is seen as a hedge against inflation and currency depreciation.

Eurozone economic decline slows in June but job losses continue

The deterioration of economic activity in the euro area slowed down substantially in June as the restrictions imposed to contain the pandemic came to an end.

The IHS Markit Purchasing Managers’ Index (PMI) stood at 48.5 points, up from 31.9 the previous month. However, companies have continued to cut jobs due to weak demand and uncertainty.

Activity in the euro area service sector improved in June to 48.3 points compared to 30.5 points in May.

The manufacturing PMI rose to 39.4 points, from 33.4 the previous month.

The recovery of activity in the private sector in the month of June represents the second highest rise in the entire historical series. The rebound shows a remarkably rapid change in the difficult situation of the economy.

While confidence in the future has improved, it remains well below the levels seen at the beginning of the year.

The French Prime Minister resigns and leaves the way open for a major reorganization of the government

French Prime Minister Edouard Philippe resigned from his government post amid speculation that President Emmanuel Macron was about to replace him. It seems that the Prime Minister had become more popular, after the pandemic, than the President himself.

Macron’s press office said that Philippe had handed in his resignation. However, the current cabinet will remain in place until a new team is put in place. Macron is preparing a government reorganization to focus on post-coronavirus economic recovery.

In France, the president selects the prime minister and then forms a government.

Macron will face a new presidential election in 2022 and the rest of his term is likely to be greatly affected by the current health and economic crises.

The French central bank said in June that it expects the country’s economy to contract by 10.3% this year, before returning to growth in 2021 and 2022.

Amazon Air contractors face safety risks

The coronavirus pandemic casts doubt on the treatment of Amazon workers’ safety.

Amazon has changed the way its stores operate to improve safety and has offered additional benefits to workers who become ill, in addition to creating a fund to help delivery contractors.

But a crucial piece of Amazon’s transportation operations has been left out of the company’s response.

Workers at Worldwide Flight Services, a company that services Amazon’s air transport network, say they have been left without many of the benefits offered to warehouse employees and delivery contractors.

They also say they were not provided with bonuses, hourly wage increases, paid sick leave or unlimited unpaid time off, despite working long hours at the height of the pandemic.

Moderna’s shares fall after the vaccine trial has been delayed

Moderna’s shares fell to 9.4% last Thursday, after a report said the trial of the last stage of a possible coronavirus vaccine would be delayed.

The company, which works with the National Institutes of Health, expected to begin a phase 3 trial with 30,000 participants later this month.

However, changes are being made to the trial plan and the planned start date has been pushed back. It is not clear for how long.

Moderna’s experimental vaccine contains genetic material called messenger RNA, or mRNA. The mRNA is a genetic code that tells cells what to build. In this case, an antigen that can induce an immune response to the virus.

Dr. Anthony Fauci, America’s leading expert on infectious diseases, has often promoted this company’s potential vaccine.

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