Market reaction to Biden's withdrawal from the election, problematic China, company stock news
Fundamental Reviews
• Biden has officially withdrawn from the presidential race. The market reaction has so far been restrained. Futures on Wall Street firmed slightly, bond yields fell slightly and the dollar overall was little changed. Biden has endorsed his Vice President Kamala Harris for the job, putting her in a strong position for the nomination, which is officially scheduled for the Aug. 19-22 Democratic National Convention. It is also possible that the party will consider a virtual nomination before the convention.
• Betting site PredictIT showed odds on a Donald Trump win fell 5 cents to 59 cents, while odds on a Harris win rose 13 cents to 40 cents. California Gov. Gavin Newsom, another possible Democratic challenger, trailed by 3 cents. Goldman Sachs said in a note that it does not expect significant changes to Democrats' fiscal and trade policy agenda if Harris is nominated.
• The other main event was the surprise rate cut by China's central bank, which cut its seven-day repo rate by 10 basis points. This has driven long-term borrowing costs down by a similar amount, while bond yields have fallen across the curve, despite recent attempts by the PBOC to push them higher. The yuan also weakened, although the movement was modest. Analysts believed that the People's Bank of China was reluctant to ease rates as it could put downward pressure on the currency.
• Xi Jinping promised to repurpose China's finances and help regions with debts - Bloomberg. The ruling Communist Party has announced its long-term plan, with President Xi Jinping unveiling sweeping plans to shore up the finances of China's indebted local governments. The Chinese authorities are not going to give up their opposition to the West and therefore are trying to solve internal problems using traditional methods of intensifying government intervention. It used to help them. But the example of the late USSR showed the limitations of such methods. In the short term, authoritarianism can be good for the economy. But such methods only hide the problem, and later the “economic disease” will shoot back with triple force.
• The US will assume responsibility for defending Japan with nuclear weapons. The Japanese-American alliance is being pushed to draw up such a document by the “growing nuclear threat from the Russian Federation and China.”
• Trump campaign is preparing a plan to attack Harris if Biden withdraws from the race - The New York Times. The publication writes that the Trump team has already prepared analytical materials on Harris and has similar dossiers on other Democrats who could become presidential candidates if Biden drops out of the election race.
• Poland invites the EU to conduct a large-scale campaign in the US against Russian disinformation – Reuters. Warsaw claims that the Kremlin has launched propaganda in the States that it should stop providing assistance to Ukraine.
• The European Union supported the UN Court's decision on the Palestinian territories. The EU has welcomed a ruling by the International Court of Justice in The Hague that Israel's settlement policy in the West Bank and East
Jerusalem violates international law. The court's conclusion that Israel's presence in the Palestinian territories is illegal generally corresponds to the position of Brussels.
Stock reviews
• Nestlé is caught in a scandal. Investigations found that mineral water sources in France were contaminated with feces, E. coli bacteria and pesticides. Nestlé illegally filtered water and sold it as “natural mineral water”, leading to €3 billion in fraud over the past 15 years. Foodwatch France noted that the company had been selling billions of bottles of substandard water for decades. This is what happens when a business tries to make money by any means, including downright dirty ones.
• Centennial companies in Japan are experiencing a surge in bankruptcies. During this period, 74 companies went through judicial bankruptcy proceedings, which is the highest number for the first half of the year on record since 2000. By the end of the year, the number of bankruptcies may exceed the 120 recorded in 2008 during the global financial crisis.
Fourteen companies blamed their problems on the rising cost of doing business, and 11 said they had no one to take over from aging owners.
• JPMorgan experts called the recovery of the crypto market a “temporary phenomenon.” JPMorgan Chase analysts argue that the recent rise in the rate of Bitcoin and a number of other crypto assets is not evidence of a “bullish trend.” In their opinion, we are talking about a short-term recovery and the industry may face a correction in the near future.
• The Economist why does the yen continue to weaken? Japanese companies' focus on profit is pushing money abroad. Over the course of the year, they invested $178 billion more abroad than foreign companies invested in the country. Meanwhile, rather than bringing home cash earned abroad, Japanese companies are increasingly storing it in high-yield foreign bonds and stocks. And if those earnings are not actually returned to Japan and converted into yen, then they will not support the exchange rate.
• Binance received court approval to invest client funds in US Treasuries. We are talking only about fiat currency, not about crypto assets. According to the conditions, there are a number of restrictions on the choice of currencies. Also, to store funds, the BitGo custodial service, which is used by a significant part of the crypto business in the United States, must be used. Are cryptans hedged with bonds?
The cryptocurrency industry is hoping the upcoming US presidential election will bring someone with a softer approach to law enforcement to the White House. Thus ending the protracted battle with Wall Street's top cop (SEC).
• In 2010, McAfee antivirus had a colossal glitch with Windows XP that took down much of the internet.
The man who was McAfee's CTO at the time is now the CEO of Crowdstrike. The McAfee incident cost the company so much that it eventually had to be sold to Intel. A clear hint of possible future problems for CRWD.
• UBS analysts raised their forecast for the S&P 500. At the end of this year, the forecast was raised to 5,900 points from the previously expected 5,500 points.
The IEA forecasts the fastest growth in global electricity demand in 20 years. Global electricity demand in 2024 and 2025 will be the highest in 20 years, the International Energy Agency (IEA) predicts. This is driven by robust economic growth, extreme heat and increased adoption of electric-powered technologies such as electric vehicles and heat pumps.
• The owner of Gucci has run out of patience - WSJ. French billionaire Francois-Henri Pinault is taking a hands-on approach as he tries to catch up with rival LVMH.
• Rolex prices are falling and supplies are increasing. For investors in Swiss watch brands, new data suggests that the long-term decline in prices will continue.
• Cathie Wood unloads $8 million in growth tech stocks. Its flagship Ark Innovation ETF is down 11% year to date - The Street.
• Big drop in tech stocks adds to pressure on earnings - Bloomberg. The stakes have already been raised for tech giants to account. They're just a lot higher after the Nasdaq 100 had its worst week in three months.
• Buffett's Berkshire sold $1.5 billion worth of Bank of America shares, reducing its stake in the banking giant to a still significant $42.9 billion.
Hot week
About a quarter of the companies in the S&P 500 index will report their second-quarter results this week. Key economic data will include a first look at second-quarter US GDP and the Fed's desired inflation target for June.
- Nucor, NXP Semiconductors, SAP and Verizon Communications report on Monday
- Alphabet, Chubb, Coca-Cola, Comcast, General Motors, Lockheed Martin, Tesla, United Parcel Service and Visa report on Tuesday.
- On Wednesday AT&T, Chipotle Mexican Grill, Las Vegas Sands, Newmont, NextEra Energy and Waste Management.
- American Airlines Group, Honeywell International, PG&E, RTX, Southwest Airlines, Stellantis, TotalEnergies and Unilever
report on Thursday - 3M, Charter Communications and T. Rowe Price Group report on Friday
- The Bureau of Economic Analysis will release its first estimate of US GDP for the second on Thursday quarter.
- The consumer price index for June, due Friday, is expected to rise 2.4% year on year, up from 2.6% in May.
- Other data to watch this week will include S&P Global's manufacturing and services purchasing managers' indices for July and the Census Bureau's June report released Thursday.
The morning is calm and the volatility of VIX and Bitcoin is only increasing.
Key events that could impact markets on Monday:
- Speech by Bank of England Chief Executive Victoria Saporta.
- The Federal Reserve Bank of Chicago releases the national activity index for June.
- Company revenues include Verizon, Nucor and Brown & Brown.