Monday Morning Reads
- Demand Recovery Continuing
- Microsoft Faces Complex Technical Challenges
- Sharp, Short U.S. Recession
- The Wallets of Wall Street
- ‘Mind-Blowing’ Problems
- Pandemic Pain
- $3 Billion Side Bet to Candy Giant
- There Are No Shortcuts
- Economic Sunrise?
The timeline for a U.S. stimulus package is still unclear as neither Democrats nor Republicans are giving a firm date after negotiations collapsed last week. President Trump meanwhile announced four executive actions to work around the impasse, including a $400 weekly enhanced jobless benefit - a quarter of which will be covered by states - as well as student loan relief, an eviction moratorium and a payroll tax holiday (a second round of stimulus checks must be approved by Congress). States can either use money already appropriated by the federal government to provide the 25% of unemployment benefits, according to Treasury Secretary Steven Mnuchin, or they can request a waiver from Trump.
More tensions surfaced over the weekend as China sanctioned 11 American officials in retaliation for similar measures imposed by the U.S. Treasury Department over Hong Kong. Speaking of the new national security law, Jimmy Lai, the outspoken publisher of Hong Kong's pro-democracy newspaper Apple Daily, was arrested Monday on suspicion of foreign collusion, sending a chill across the financial hub. Investors were already on edge after President Trump signed two executive orders banning WeChat (OTCPK:TCEHY) and TikTok (BDNCE), while U.S. regulators recommended that overseas firms listed on American exchanges be subject to public audit reviews from 2022.
S&P 500 on brink of a record high
Rallies in five of the last six weeks have lifted the S&P 500 to within 1% of its all-time high reached in February, and contracts tied to the index are up 0.2% in premarket trade. Dow futures are ahead by 0.4% and Nasdaq futures are little changed. Traders are monitoring the state of stimulus talks, as well as the latest fraying of relations between Washington and Beijing (see above). On the earnings front, keep an eye on the travel and energy sectors, with Q2 results expected from Marriott International (NASDAQ:MAR), Royal Caribbean (NYSE:RCL) and Occidental Petroleum (NYSE:OXY).
Biggest share repurchase for Buffett
Berkshire Hathaway's (BRK.A, BRK.B) Q2 operating earnings fell to $5.51B from $5.87B in Q1 and $6.14B in the year-ago quarter, as its "other businesses" category earnings dropped dramatically Y/Y. Warren Buffett also gravitated to his own firm's shares after keeping cash high during the coronavirus pandemic. He bought back a record $5.1B of stock during the quarter, up from $1.74B in Q1, and may have kept that higher pace through July. Berkshire Class A and Class B shares lagged the S&P 500 during Q2 with declines of more than 1%.
The Elon Musk-led company has rocketed into an elite tier of military suppliers, scoring a multibillion-dollar contract that makes it one of the Pentagon's two primary satellite-launch providers through most of the decade. SpaceX (SPACE) will split (40/60) an estimated nearly three dozen launches through 2027 with United Launch Alliance, a joint venture between Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT), barring a successful protest from snubbed bidders Northrop Grumman (NYSE:NOC) or Blue Origin (BORGN). Until a few years ago, ULA had a virtual monopoly on such business, which focuses on the highest-priority military and intelligence payloads.
Aramco keeps dividend, sees oil recovery
Net profit at Saudi Aramco (ARMCO) slumped 73% to 24.6B riyals ($6.57B) in the second quarter (vs. estimates of 31.3B riyals), as a plunge in energy demand - due to the coronavirus crisis - weighed on sales of the world's biggest oil producer. Aramco still maintained its Q2 dividend of $18.75B, unlike BP (NYSE:BP) and Royal Dutch Shell (RDS.A, RDS.B), which cut their dividends in recent months. "We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies," CEO Amin Nasser declared, helping put a floor under crude above $40/bbl.
The biggest mall owner in the U.S., Simon Property Group (NYSE:SPG) is in talks with Amazon (NASDAQ:AMZN) to transform some of its anchor department store spaces (like those formerly occupied by Sears and J.C. Penney) into Amazon fulfillment centers, WSJ reports. Department stores have traditionally drawn customers into malls. But with the deterioration of department store traffic, Simon would be gaining a steady new tenant if talks result in an agreement. For Amazon, it would locate fulfillment centers close to residential areas and help improve delivery speed in the so-called last mile of the process.
Reports from the WSJ also suggested that Twitter (NYSE:TWTR) held preliminary talks about a potential combination with TikTok (BDNCE). Twitter would be a long shot vs. much-bigger TikTok suitor Microsoft (NASDAQ:MSFT), which is further along in talks and would have an easier time funding a deal that could run into tens of billions of dollars (TikTok is suing the Trump administration over the executive order). Another WSJ article said Qualcomm (NASDAQ:QCOM) was lobbying Washington to roll back an export ban on Huawei, claiming the moves would hand foreign competitors a market worth as much as $8B annually.
The U.S. International Development Finance Corp. has sidelined a loan agreement with Eastman Kodak (NYSE:KODK) to produce drugs that could be used to fight the coronavirus until allegations are cleared. The SEC is probing whether insider trading laws had been broken, citing "unusual trading activity" before the letter of intent was announced. The deal would provide the former photography company a $765M loan to help pay for factory changes needed to make pharmaceutical ingredients in short supply in the U.S.
What else is happening...
How will stocks perform under different U.S. election scenarios?
AT&T's (NYSE:T) WarnerMedia ousts HBO Max's top leadership.
Gold ETF expenses come under scrutiny; here's the cheapest.
Barclays (NYSE:BCS) probed by U.K. privacy watchdog for spying on staff.
Chinese luxury EV maker Xpeng (XPEV) files for an IPO.
The best performing equity ETFs in 2020 don't own FAAMG.
In Asia, Japan -0.4%. Hong Kong -0.6%. China +0.8%. India -0.4%.
In Europe, at midday, London +0.5%. Paris +0.6%. Frankfurt +0.3%.
Futures at 6:20, Dow +0.4%. S&P +0.2%. Nasdaq flat. Crude +1.4% to $41.80. Gold +0.6% to $2040.40. Bitcoin +2.9% to $11746.
Ten-year Treasury Yield flat at 0.55%
Today's Economic Calendar
10:00 Job Openings and Labor Turnover Survey
12:30 PM TD Ameritrade IMX