Crashing GDP

WHAT’S NEW- Apple, Amazon, Alphabet, Facebook - beat, beat, beat, beat. Yesterday's quarterly after- market releases stand out for the structural changes triggered by IT in our daily lives, including investing.

WHAT’S NEW- Apple, Amazon, Alphabet, Facebook - beat, beat, beat, beat. Yesterday's quarterly after- market releases stand out for the structural changes triggered by IT in our daily lives, including investing. But yesterday turned also out to be a broad stock correction day in the light of two further US events: President Trump’s proposal to delay the November election, and, even more, the worst quarterly GDP figures since 1946, although not surprising with the pandemic-related lockdowns in the second quarter. The US economy contracted by 9.5% in non-annualized rates, similar to the -10.1% second-quarter figure released for Germany yesterday. The lockdown hit demand in all components except government spending. Exports even crashed by almost two thirds.

OUR TAKE- In April, Covid-19 headwinds marked the low point for the economy. In May, the removal of shutdowns resulted in a recovery trend, as activity and further industrial, retail and housing data show. Nevertheless, not only due to the current worsening virus situation in many states, the recovery in US GDP looks to be halted for now. However, the figures from the four big tech companies show that corona tailwinds are speeding the digital revolution considerably.

WHAT’S NEXT- While the combination of ugly GDP data and Trump’s election games put many stock markets under pressure, the Nasdaq once more closed higher even before the stellar tech figures were out, pushing their share prices in after-close trading some further 5% higher on average. While it looks like their ride is not over, the election, with Biden’s upcoming nomination of his likely female vice president candidate, and the Democrats' nomination from 17-20 August will be key topics next month. Trump's proposal to delay the election is hardly likely to become a reality, since it’s for Congress to decide, not him.


EUROPE- European equity indices closed lower Thursday. Yields are also broadly lower across major government bonds.

There was focus on macro data, with a worse-than- expected drop in German flash second-quarter GDP, though more jobless data unexpectedly dropped. Eurozone unemployment came in a bit higher than forecast. The final economic sentiment data were in line with the flash. Also, Germany's Ifo Institute said companies are gradually easing off furloughs amid the lifting of lockdown measures. Meanwhile, industry data showed UK car production is at its lowest since the 1950s. European second-quarter earnings on balance have been downbeat, especially for banks.

USA - US equities were mostly lower in Thursday trading. Treasuries were stronger with the curve flattening. The dollar was weaker on the yen and euro crosses, reversing earlier gains. Gold finished down 0.6% after eight straight sessions of gains. WTI crude oil settled down 3.3% to finish below USD 40 per barrel.

Weakness was attributed to pessimistic views of negotiations on the fifth round of coronavirus stimulus and persistent fiscal-cliff concerns, a record-setting drop for second-quarter GDP, another week of rising jobless claims, and President Trump's suggestion that the November election could be delayed.

The latest batch of results has pushed beat rates, which were already extremely high, even higher. Just over 82% of reporters have surpassed consensus earnings per share estimates and, on aggregate, companies are beating earnings by nearly 15.5%. High beat rates are function of record negative revisions during the second quarter.

ASIA - Asian equities are mixed to lower Friday. The Nikkei is under pressure as the yen strengthens to mid- March highs against the greenback. China manufacturing PMI came in better than forecast as production and new orders accelerated. Non- manufacturing PMI edged down, but remained in positive territory. Tokyo is set to announce a record high of more than 400 coronavirus infections today, one day after Governor Koike described situation as "very critical". Mainland China reported 123 infections, including 112 from the western region of Xinjiang.


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