23 June 2020
Another week in which the US presidential media circus took centre stage. With the President’s approval rating slipping, new allegations of corruption published in a memoir by a former National Security Adviser, and polls indicating that he is trailing Biden by 10 percentage points nationally, Trump strove to re-energise his campaign with a rally in Tulsa, Oklahoma. In the event, only 6,200 people turned out despite Trump claiming, only five days earlier, that one million tickets had been requested. Bizarrely, in his stump-speech Trump admitted to asking his staff to reduce testing for Covid-19. Even more bizarrely, Trump later in the week claimed that the 2020 presidential election had already been “rigged”. Despite these minor ructions, markets largely moved sideways during the week and seem to be discounting, or are simply ignoring, the likelihood of a less market-friendly president.
Separately, one of the President’s economic advisers sent markets into a tailspin when he claimed that the trade with China was “over”, once China had “sent hundreds of thousands of people to this country to spread that virus”. The President issued a swift denial and markets recovered. Markets are, unquestionably, still very sensitive to news of the US-China trade deal despite ignoring the far bigger breakdown in relations between the US and China over Hong Kong, and the pandemic. Earlier in the week, equities had risen on news that China plans to accelerate purchases of American farm goods to comply with phase one of the trade deal following a secretive, high level meeting in Hawaii between the two sides.
Markets also seem to be ignoring extensive evidence of a second wave of the pandemic in southern US states, notably Arizona, California, Florida and Texas, where the seven-day moving average number of new cases continues to rise rapidly. Few of these states have put credible plans in place to reduce the number of new infections. However, the rising case numbers have yet to lead to higher death rates, possibly because the median age of new Covid-19 cases in outbreak states is declining: in Florida, for example, the median age fell from 65 in March to 35 last week. In any case, the real danger is not so much that large numbers of young adults will die, but that their contact with other people will drive up infection rates among the more vulnerable segments of the population.
In other virus news, Australia’s second most populous state, Victoria, extended its state of emergency for four more weeks, after it reported 19 new infections on Sunday, the fifth day of double digit-rises. The state has now had 1,836 total confirmed cases, a quarter of the cases in Australia. Meanwhile, the authorities in Beijing managed to test several million residents in response to the recent outbreak in a wholesale market, which now appears to have been contained.
The Bank of England’s Monetary Policy Committee voted to increase its quantitative easing (QE) programme by £100 billion, taking it to £745 billion in total, matching expectations. The decision to take until "around the turn of the year" to complete these purchases came as a surprise, as the BoE’s QE programme had been the most aggressive in the world, spending 6.6% of GDP in the second quarter. Moreover, the outlook for prolonged weakness in wage growth and inflation both suggest that more, and more rapid, actions need to be taken. In another surprise, the new Governor Bailey broke with his predecessor by suggesting that the bank’s balance sheet should be allowed to shrink before base rates increase. In any case, this eventuality is still some time off; perhaps more than a year.
Wirecard, the German payment processor and financial services provider, endured a scandal-laden week as €1.9 billion was found to be missing from its accounts, and may not even exist. The company delayed the publication of its 2019 financial results last Thursday after its auditors couldn't account for the missing cash. Markus Braun, the company's CEO, resigned on Friday and was, today, arrested by German authorities. The missing money was supposed to be held in accounts with two Asian banks and accounts for around a quarter of its total balance sheet. The company had endured a challenging 18 months as allegations of fraud, attacks by short-sellers and questions over its accounting practices plagued the company. The share price has fallen from €104.5 (close 17/06/20) to €14.44 (close 22/06/20) per share.
Apple announced yesterday that all future Macs will use custom Apple chips, moving away from a 15 year and multi-billion dollar relationship with Intel processors. Although iPhones and iPads are powered by Apple's A-Series ARM-based processors, the Mac computers use Intel chips. Apple said the transition from Intel will help the company to offer faster performance on its desktops and laptops.
HSBC has been hit with a £1.3 billion lawsuit over film investment schemes. The UK law firm Edwin Coe has filed a claim against HSBC UK for the losses caused by its private banking division in the financing schemes, known as Eclipse Partnership. The 371 investors involved claim HSBC is liable for fraud after alleging HSBC introduced them on the false promise that Eclipse was a genuine opportunity to invest in blockbuster Disney films. Investors were promised returns and legitimate tax deferrals, but they said they only ended up with huge losses and potential liabilities.
Sanofi, the French pharmaceutical company, has said it expects to get approval for the potential COVID-19 vaccine it is developing with GlaxoSmithKline by the first half of next year. - faster than previously anticipated.
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