Markets Update Thursday 16/07/2020 – Mixed Signals

Frankfurt – 16/07/20

Mixed Signals

A good way to describe today’s trading day is that there was nothing much new. Wall Street more or less stood still and could move neither in one direction nor in the other. Some profits were taken, especially for some of the Nasdaq Composite listed tech-heavyweights and some chart experts expect more pressure here. At the moment, the stock exchanges are taking two steps forward and then one step back again. 

One negative factor remains the ongoing tensions between the USA and China, market observers stated. The world’s two largest economies are crossed over on numerous issues such as the security law for Hong Kong. The other factor holding back the markets, and first and foremost, the economy in general, is the virus situation and the way it is being looked at and treated. 

US Markets at a glance

The US stock exchanges ended Thursday trading with losses. After a weak performance, the Dow Jones dropped 0.50 per cent to 26,734.64 points. The NASDAQ Composite also slipped on Thursday and ended the day with a discount of 0.73 per cent at 10,473.83 points.

While the indices on the two previous days were driven by hopes for a vaccine against the coronavirus, disillusionment is now returning. The continuing rapid increase in the number of new infections in the USA is fuelling concerns about renewed restrictions on economic activity. Although the majority of the latest US economic data were somewhat better than expected, they were of little consequence given these concerns and mixed data releases from China. 

Far East Markets at a glance

Most of Asia’s major stock markets posted negative results on Thursday. The sentiment was weighed down by the intensification of tensions between the US and China, as well as by mixed Chinese economic data. Although the Chinese economy recovered more than expected from the Corona crisis in Q2, the latest retail sales data from the country was weaker than expected.

In Tokyo, the Nikkei slipped 0.40 per cent to 22,678.45 points. On the Chinese mainland, too, the Shanghai Composite is once again heading down: On Friday the stock market barometer lost 0.51 per cent to 3,193.82 points. Meanwhile, signs of recovery can be seen in Hong Kong: With a plus of 0.61 per cent to 25,123.58 index points, the Hang Seng can make up for some of the previous day’s losses.

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European Markets at a glance

European markets went down on Thursday. The EuroSTOXX 50 had started with a moderate minus and then went down 0.38 per cent more easily at 3,365.35 points.

The Dax 30 had also already given way at the start and was unable to recover today. The stock market barometer closed 0.43 per cent lower at 12,874.97 index points. The TecDAX, on the other hand, turned positive in the course of trading ending the day 0.41 per cent higher at 3,086.10 index units.

The increasing conflicts between the USA and China also affected European investors. Hopes for progress on a vaccine against the coronavirus were receding into the background because of the growing number of infected persons, particularly in the United States.

The European Central Bank’s interest rate decision, on the other hand, hardly moved at all, as the guardians of the currency left the key interest rate unchanged, as expected in advance.

Forex, gold, oil and crypto

In the Forex market, the euro exchange rate came under pressure again on Thursday in a very volatile trading session. The common currency slid well below $1.14 in US trading and was last quoted at $1.1373.

Oil prices fell moderately on Thursday. Market observers justified the markdowns with the weak stock market sentiment and the prospect of somewhat higher oil production. The barrel (159 litres) of Brent crude is trading 37 cents lower today at 43.42 US dollars. The price of a barrel of West Texas Intermediate (WTI) fell 36 cents to $40.84.

The price of the troy ounce of gold fell slightly and even dropped below the $1,800 mark in the US trading session. At the close of trading, the troy ounce was quoted at $1,796.

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Cryptocurrencies consolidated their losses, and some of the most valuable tokens even managed to post significant gains. The top mover was Stellar Lumens with a 13.9 per cent increase to $0.1035. ChainLink also continued its upward trend, putting another 2.2 per cent on top of the recent gains and is now trading at $8.41. Bitcoin, on the other hand, didn’t move much and even lost a marginal 0.1 per cent to $9,100. Ethereum increased its value by 0.2 per cent to $234, while XRP rose 0.6 per cent to $0.1930. 

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Corporate and world news

Economic data

At first glance, encouraging news came from China. Following the shock of the coronavirus outbreak, the Chinese economy recovered more sharply than expected in the second quarter with a growth rate of 3.2 per cent. However, there are some weaknesses in the Chinese economy, such as lower retail sales, Commerzbank analysts wrote in a commentary.

The US job market produced a few more dim figures: Last week another 1.3 million Americans filed for unemployment benefits for the first time. This means that there were only about 10,000 applications less than in the previous week. The persistently high number shows that the world’s largest economy is still in a severe crisis despite the relaxation of the corona conditions. The only ray of hope came from the US real estate market. It has mostly recovered from the slump in the corona crisis. The NAHB house market index rose in July by 14 points to 72 points compared to the previous month. Analysts had expected a smaller increase to 61 points.

Concerns about the economy are also continuing to cause problems. Although US retail sales in June rose by a surprisingly strong 7.5 per cent, this was not enough to keep the US economy afloat. But against the background of coronavirus infections, which are on the rise again, the question arises as to how things will continue, said Michael Hans, head investor of the asset manager Clarfeld Citizens. After all, special pandemic aid for the self-employed expired at the end of the month. Besides, the business climate in the US region of Philadelphia (Philly Index) clouded over again somewhat in July. The indicator of the regional central bank fell to 24.1 points – after 27.5 points in June.

Car sales in Europe shrunk again

The European car market continued to suffer from the consequences of the coronavirus pandemic in June. A total of 949,722 new passenger cars were registered in the European Union (EU), 22.3 per cent less than in the same month last year, according to the responsible industry association Acea, which was announced this morning in Brussels. As a result of the easing of regulations in many countries and the reopening of car dealerships after the lockdown, the decline was now much smaller than in May. Due to the crisis, all EU markets, except for France, continued to record apparent decreases, according to the figures.

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Morgan Stanley benefits from trading boom

The financial market turbulence in the wake of the Corona pandemic brought the US investment bank Morgan Stanley record profits and earnings in the second quarter.

Net earnings rose by around 45 per cent year-on-year to 3.2 billion dollars (‘2.8 billion), the financial group announced in New York on Thursday. Revenues – the bank’s total income – rose by 30 per cent to 13.4 billion dollars.

Morgan Stanley benefited from the trading boom in the financial markets, where many portfolios were restructured, and companies had to meet high financial requirements. Although Morgan Stanley is also preparing itself for the crisis with provisions for payment defaults, it is doing so to a lesser extent than major banks such as JPMorgan or Citigroup because of its relatively manageable lending business.

The figures exceeded expectations, and the share price reacted with price gains. On the New York Stock Exchange (NYSE), Morgan Stanley shares rose 2.51 per cent to 52.64 US dollars.

Bank of America profit collapses

…Bank of America presents a very different picture.

A higher provision for credit losses has also haunted Bank of America’s results. Net income slumped 54 per cent to $3.28 billion, the second-largest US bank after JPMorgan announced on Thursday. Because of the bleak economic outlook, the bank increased its loan loss provisions by four billion to 5.1 billion dollars. CEO Brian Moynihan spoke of “the most stormy times since the Great Depression” in the 1930s. Revenues declined by three per cent to 22.3 billion dollars. As the US Federal Reserve lowered its key interest rate to near zero per cent, net interest income fell by eleven per cent. In NYSE trading, Bank of America shares temporarily lost 2.72 per cent to $23.93.

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