US PREMARKET THEMES 17TH AUGUST: US equity futures remain resilient despite postponed US/China Phase One review

Analysis details (09:50)

OVERNIGHT: Asian equity markets began the week somewhat mixed amid uncertainty following the indefinite postponement of the US-China trade agreement review talks and with President Trump increasing the pressure on ByteDance and is said to be looking at pressuring other Chinese companies including Alibaba. In Europe, a positive start has been undermined by the Travel & Leisure sector, with airlines under pressure amid new travel restrictions in Europe after last week’s announcement from the UK. The sector landscape is mixed, with around half in positive territory (led by Materials, Tech, Health Care), and the other half negative (Telecoms are the biggest loser, followed by Utilities and Financials). Equity trade has been choppy in the early part of the day.

US PREMARKETS: The paused talks between US/China haven’t caused any angst (scheduling conflicts were cited along with the need to allow time for more Chinese purchases of US exports), while no new date for the initial six-month Phase One review has been set. US equity futures are once again demonstrating resilience, trading up by between 0.2% and 0.5%; the Nasdaq-100 mini (NDX) (overnight range: 11,142-11,208) is faring better than the value-orientated Dow mini (YM) and Russell 200 mini (RTY); the S&P 500 Emini trades around 0.3% higher (3,364-3,375), once again moving horizontally at levels just in reach of its record high beneath 3,396.50. After the sharp steepening seen in the recent trading sessions, the Treasury curve is bull-flattening, with yields lower by only 0-2bps, however. The Dollar Index is flat, and that is helping EUR and CNY stay near flat levels amid a lack of fresh new catalysts (weekend news flow was, for the most part, quietish, with nothing out shifting the narrative); nevertheless, activity currencies aren’t deviating too far from neutral, EMFX is mixed; Crude benchmarks are trading higher on news that China is planning to increase imports of US oil in the coming months; some reports suggest that tankers have been booked by Chinese state-owned oil firms to carry at least 20 million barrels of US crude for August and September.

TODAY’S AGENDA: The docket is pretty light (today’s economic calendar can be accessed here), although we do begin to get August regional Fed manufacturing surveys (Empire manufacturing at 08:30 EDT/13:30 BST), which will help guide our expectations for the ISM manufacturing report due 1st September. The earnings slate is calming down (weekly earnings calendar can be accessed here), although this week will see the release of key earnings from retail names (WMT on Tuesday, for instance) and key tech earnings (NVDA on Wednesday). This week also features the FOMC, ECB and RBA Minutes; rate decisions from the PBOC, Norges Bank and CBRT; there is also the OPEC JMMC, flash PMIs, Canada and UK CPI (you can access our week ahead preview here).

ELECTION: The Democratic National Convention gets underway today, and will run through Thursday (full schedule here). Going into the convention, the Democratic candidate for President Joe Biden's momentum against the incumbent President Donald Trump has waned slightly since levels of around +10 seen in the middle of June, but still has a gap of around 7.5 points nationally (analysts note the gap in swing states is much tighter); most analysts assume that the Democrats will get a boost out of the Convention due to increased media coverage, but the Republicans will likely see a similar outturn after their convention (24-27 August). In terms of the substance of the convention, there is not a lot that could significantly change the dynamic for traders, some analysts suggest. Some local contacts have told the desk they’ll start paying closer attention to the particulars of polling after Labor Day (7 September), when the polls begin to give a more accurate feel of how the race may play out. Elsewhere, United Parcel Service (UPS) and FedEx (FDX) on Friday shot down social media calls that they step in to deliver mail-in ballots from the US Postal Service (USPS), which is warning states of potentially “significant” delays (Rtrs).

VACCINE: Heads of GlaxoSmithKline (GSK) and Sanofi (SNY) note “rapid progress” is being made to treat COVID-19, but the race for a vaccine is a marathon and not a sprint (Times). German biotechnology firm CureVac (CVAC) does not rule out a speedy approval process for its prospective vaccine against COVID-19; last week, the company said it expects to put its vaccine on the market by mid-2021 (Rtrs). China's vaccine specialist CanSino Biologics Inc has won a patent approval from Beijing for its COVID-19 vaccine candidate Ad5-nCOV, state media reported (CNBC).

TIK TOK: President Trump ordered ByteDance to divest US operations of its video-sharing app TikTok within 90 days, the latest effort to ramp up pressure on the Chinese company over concerns about the safety of the personal data it handles. Trump’s latest move comes on top of an executive order he issued last week that would prohibit certain transactions with TikTok unless ByteDance divests it within 45 days. ByteDance is already in talks to sell the North America, Australia and New Zealand operations of TikTok to Microsoft (MSFT), while Twitter (TWTR) has also been linked with a purchase. The new order adds to pressure for ByteDance to divest TikTok, and legally buttresses the US government’s crackdown on the Chinese-owned social media app. It authorizes US officials to inspect TikTok and ByteDance’s books and information systems to ensure the safety of personal data while the sale talks are ongoing (Rtrs). Trump said he could exert pressure on more Chinese companies such as technology giant Alibaba (BABA) after he moved to ban TikTok (Rtrs).

BIG TECH: Germany's antitrust authority has launched an investigation into Amazon's (AMZN) relationship with third-party traders selling on its site; the Federal Cartel Office (BKA) is examining whether Amazon is abusing its dominant market position. After the coronavirus pandemic began, there were complaints that Amazon had blocked some traders because of allegedly excessive prices (DW). Facebook (FB) on Friday joined a growing list of developers to publicly criticize Apple (AAPL) over its revenue-sharing policy for in-app purchases, suggesting the iPhone maker’s fee structure is hurting small businesses during a global pandemic (BBG). Social media giant Facebook (FB) said on Monday that it prohibits hate speech and content that incites violence and enforces these policies globally without regard to anyone’s political position or party affiliation (Times of India). Alphabet (GOOGL) criticised proposed Australian antitrust laws, saying its free search service would be “at risk” and users’ personal data could be shared if it is made to pay news organisations for their content; it added that proposed laws would also help big media companies artificially inflate their search rankings, luring more viewers to their platforms and giving them an unfair advantage over small publishers and users of Google’s YouTube streaming website (Rtrs).

CHIPS: International Business Machines (IBM) announced a new processor chip for data centres that it says will be able to handle three times the workload of its predecessor; the chip will be manufactured by Samsung (SSNLF), and will use Samsung’s 7-nanometer chip manufacturing process, similar to the 7-nanometer technology that Advanced Micro Devices (AMD) uses to have its chips made by Taiwan Semiconductor Manufacturing (TSMC). Both IBM and AMD use outside chip factories to compete against Intel (INTC), the dominant provider of central processor chips in data centres (Rtrs).

STREAMING: Streaming giant Netflix (NFLX) is ramping up its mobile-only subscription plans in Southeast Asia and expanding local content, just as arch-rival Disney (DIS) arrives in the fast-growing market. Netflix said more than a million of its nearly 200 million subscribers around the world are in Southeast Asia, home to around 655 million people. But the market is ripe for rapid growth, analysts say, with the Disney+ Hotstar launch in Indonesia next month set to become a key battleground (NYT).

WARREN WATCH: Berkshire Hathaway (BRK) significantly reduced its stakes in JPMorgan (JPM) and Wells Fargo (WFC) in Q2; his Goldman Sachs (GS) holding was gone, and even a wager on PNC Financial (PNC) was cut. But Berkshire isn’t giving up on banks, instead spending recent weeks further building its stake in Bank of America (BAC). The moves were consistent with Buffett’s “extremely cautious” outlook expressed at this year’s shareholders meeting, academics said. Berkshire took a new stake in Barrick Gold (GOLD), marking a shift for a company run by an investor who has expressed his disdain for gold (BBG).

13-F HIGHLIGHTS (NOTE: Not an exhaustive list): Berkshire Hathaway (BRK) takes stake in Barrick Gold (GOLD), exits multiple airline stocks; Elliott Management takes stakes in Welltower (WELL), Forescout (FSCT); Greenlight Capital exits Altice (ATUS), takes stake in Atlas Air (AAWW); Icahn exits stakes in HP (HPQ), Hertz (HTZ), Freeport-McMoRan (FCX); JANA Partners exits stake in Jack in the Box (JACK); Lone Pine takes positions in Booking (BKNG), Datadog (DDOG), Zoom (ZM), exits Alibaba (BABA); Paulson & Co. boosts stake in Bausch Health (BHC), exits Navistar (NAV); Pershing exits Berkshire Hathaway (BRK), boosts Restaurant Brands (QSR) stake; Trian takes new stakes in Sysco (SYY), Mondelez (MDLZ), reduced stake in Procter & Gamble (PG), Bank of New York Mellon (BK), General Electric (GE), NVent Electric (NVT).

AUTOS: Chinese automaker Geely booked a 43% drop in half-year profit and trimmed its full-year sales goal, as the coronavirus outbreak continues to trouble the world’s biggest auto market. The results come as China’s overall auto sales slowly recovers from a virus-blighted start to the year. Sales climbed for the fourth consecutive month in July yet are still down 12.7% for the year to date (Rtrs).

DEFENSE: Lockheed Martin (LMT) has been awarded a USD 62bln ten-year contract for new production of F-16 aircraft (DOD); Taiwan formally signed an agreement to buy 66 of the latest model F-16 jets built by Lockheed Martin (LMT), the first sale of advanced fighter jets to the island since 1992 (BBG). After the Pentagon closed bids to supply new engines to keep its fleet of 76 B-52s in service until 2050, there is a three-way dogfight for the B-52 contract between Rolls-Royce (RYCEY), General Electric (GE) and Pratt & Whitney (RTX), its American engine-making rivals, the latter being the present supplier to the B-52 (The Times).

SUPERMARKETS: Tesco (TSCDY) is set to confront Amazon (AMZN) in the UK online grocery arms race by introducing free delivery for customers on its Clubcard Plus loyalty scheme (Telegraph).

ENERGY: US oil producer Hess Corp (HES) is cutting about 10% of its workforce and streamlining operations after reporting its fifth quarterly loss in a row, sources say. Energy companies have slashed spending and production as petroleum prices have dropped 31% this year. A sharp decline in fuel demand due to the COVID-19 pandemic has oil companies girding for a prolonged period of weak prices (Rtrs). Chaparral Energy (CHAP) filed for bankruptcy protection for the second time in four years, another financial reckoning for one of the many cash-starved shale drillers punished by sluggish oil prices. It listed estimated liabilities and assets both in the USD 500 million to USD 1 billion range (BBG). Separately, Commodity trade financing by the world’s banks is drying up at a rate not seen in more than 20 years, leaving small and medium sized firms most exposed, banking and trading sources said. Banks are retrenching after the coronavirus crisis led to defaults by some trading houses, intermediaries in the global movement of oil, metals and agricultural goods which link producers and end-users, and also exposed a series of frauds (Rtrs). 

STOCK SPLITS: After Apple (AAPL) and Tesla (TSLA) recently announced stock splits, shares of each promptly rallied some 20%. Given those big gains, investors can expect more companies with high-priced stocks to follow suit. The average stock price has been moving up briskly. For the S&P 500, it’s about USD 150, versus USD 82 five years ago; prior to 2015, it was under USD 50 in many years. Which stocks seem most likely to split? Barron's suggests Berkshire (BRK), and S&P 500 companies that boast share prices above USD 1,000, including Amazon (AMZN), Alphabet (GOOG), AutoZone (AZO), Chipotle Mexican Grill (CMG), Booking Holdings (BKNG), and NVR (NVR). But, since there’s no assurance a division will happen, buyers should also have other reasons for purchasing the shares (Barron’s).

BARRON’S: Barron's had positive mentions for Zoetis (ZTS), Merck (MRK), Disney (DIS); said tech stocks like CSCO aren’t immune to COVID crisis; Barron’s thinks TGT will perform better than WMT in earnings (here); It notes that some large regional banks are able to maintain dividends (USB, TFC, PNC, FITB, CFG, KEY, RF, MTB, HBAN) here;

M&A: Sanofi (SNY) is to acquire Principia Biopharma (PRNB) in an all-cash deal valued at approximately USD 3.4bln; SNY expects to complete the purchase in Q4 2020. Under the deal, all outstanding Principia Biopharma shares will be bought for USD 100/shr (vs. USD 90.74/shr close on Friday) (Newsquawk).

PHARMA: FDA approves Roche’s (RHHBY) ENSPRYNG for Neuromyelitis Optica Spectrum Disorder (NMOSD) (Globe Newswire).

LEASING: Hertz (HTZ) announced CFO Jackson has resigned to pursue a new opportunity; will remain with HTZ until September 11 (Hertz).

17 Aug 2020 - 09:50- MetalsData- Source: Newsquawk