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Dow surged Wed on coronavirus vaccine hopes and Trump's infra deregulation plan but also faded the high on escalating U.S.-China cold war narrative; Dow Fut slips early Thu

calendar 16/07/2020 - 16:28 UTC
  • Dow Fut slips early Thursday on increasing Biden lead over Trump
  • Escalating U.S.-China cold war tensions and coronavirus infections, leading to mini lockdowns
  • Mixed economic data from China and below expected U.S. jobless claims

The U.S. stock market (Dow Jones Industrial Average) closed around 26870.10 Wednesday, surged almost +0.85% (+228 points) on coronavirus vaccine hopes and Trump’s infra deregulation plan but also faded the high on escalating U.S.-China cold war narrative despite Trump blinks on hard China sanctions. On Tuesday, there was some concern that Trump may impose sanctions on key Chinese officials ‘responsible’ for the South China Sea maritime and Hong Kong National Security Law issues. Trump holds a presser on China sanction after the closing of the U.S. market late Tuesday.

But a tired-looking Trump refrained from any real action on China over HK National Security Law and said HK will be treated like the rest of China. There was a lack of usual ‘fire & fury’ approach towards China in Trump’s hour-long Tuesday Rose Garden speech. Later Trump said in an interview Tuesday that he is currently ‘not interested’ in holding phase-2 trade talks with China because of China’s ‘Wuhan virus’ negligence: We made a great trade deal. But as soon as the deal was done, the ink wasn't even dry and they hit us with the plague.

Overall, Trump launched an election campaign speech against his opponent Biden in the Rose Garden, White House, while the market was concerned that he will announce some bellicose sanctions against China over the Hong Kong and South China issues. Trump mentioned the word ‘Biden’ almost 32 times and China almost 51 times in his hour-long speech, in which he basically blamed Biden for China’s present prosperity and rise as a global economic superpower.

Trump said nothing new about China on Tuesday, which the market doesn’t know. But he actually blamed Biden to support China, noting that China is now a fierce competitor of the U.S. from economics to geopolitics (military). Trump also pointed out the EU as another fierce competitor of the U.S. and it was basically created to compete with the U.S.

So, Trump will now fight with Biden in the Nov election on China policy, law & order situation in blue states (DNC), economy & job, and incompetence of blue states (DNC-NY, NJ, etc) to properly deal with COVID-19, resulting in so many terrible deaths.

In the subsequent Q&A session, Trump was asked as he spent most of his hour-long speech about explaining, why the American should choose him rather than Biden-is Trump seeing himself as an underdog in the Nov election. Trump reiterated almost all the opinion polls, predicting his losses are fake as was during 2016 and he is confident about his re-election.

Trump was also asked when the last time he spoke with his ‘best friend’ was Xi (China’s Prez) and if he has any plan to talk with him in the near future, Trump replied ‘straightforwardly’: No, I haven’t spoken to him. No, I don’t — I have no plan to speak to him.

On U.S. travel bans with various countries, Trump basically said it will remain in any way until the COVID-19 eliminates from the world; i.e. till vaccinations. And Trump again cried foul on Europe for ‘bad treatment’ on trade’.

On Trump’s ‘America First’ policy, especially during a pandemic and whether it will eventually damage the U.S. and benefit China more in global influence-Trump said he embraced the policy as the U.S. was losing a huge amount because of an unfair trade deal with China, Mexico, Canada, and many other countries. Trump also warned about a possible exit from WTO (like the WHO). Trump also pointed out that the U.S. pension fund will not invest in any Chinese companies, directly or indirectly related to the Chinese military/defense sector.

Overall, Trump sounds less hawkish on China and focused more on his political opponent Biden ahead of the Nov election. And thus on Tuesday, Dow jumped almost +2.13% (+557 points) as the market is now confident that despite domestic political compulsions Trump will not breach the ‘red line’ with China. Dow jumped as Trump assured about China phase-1 trade deal and sounded less hawkish on China despite cold war narrative. ). As per reports, Trump rejected the idea of abandoning HKD peg with USD.

Trade data also shows China is buying a huge quantity of U.S. Soybeans (ahead of Nov election), which indicates China may extend its backdoor support for Trump, the ‘known enemy’ rather than Biden, an unknown enemy and more human rights savvy. Boeing (F-15 orders) and Caterpillar boosted Dow along with JPM and Citi (better than expected report card). Trump reiterated about an imminent COVID-19 vaccine and therapeutics (by Oct’20)

Overall, Trump not only warned about higher tariffs on China but also on other countries. Actually, ‘tariff man’ Trump wants higher revenue to balance surging fiscal/corona deficit, and for that, the U.S. may impose a special ‘corona tariff’ on all imported goods from China as-well-as other countries. Trump knows very well that a tariff is an ideal tool for collecting revenue from U.S. importers/consumers without actually paying them more because of almost equivalent natural currency devaluation of the exporting nations (Yuan/CNY-China, EUR-EU, etc). And these special ‘corona tariffs’ may be also an weapon for other countries to reduce ‘corona deficits’.

Ahead of U.S. election in Nov, Trump & Co (Fed/Powell and U.S. Treasury) will also ensure elevated stock market as for Trump or any other President; no one will like to face an election with stock market turmoil. So, both Trump and Powell/Mnuchin will ensure sufficient stimulus (helicopter money) for both Wall Street and Main Street. This will be also positive for Dow as-well-as global stock market.

Another point is that Trump or Biden, whoever be the next U.S. President, will have to go for a big infra stimulus like $4T over the next 10-20 years to ‘Make America Great Again’ in transport infra, hospitals, public schools, and 5G/6G broadband. And even if Biden wins the Oval Office, he will continue Trump’s tax cut and other deregulation policies along with Chinese/other tariffs. Thus the market is expecting even if Trump loses the White House, the economic policy will not change drastically, despite Biden’s election campaign rhetoric. All these are also good for risk-trade (Dow).

As a recapitulation, in the 2016 election, Trump was way behind Clinton in various opinion polls till the last few weeks. But the equation suddenly changed after the then FBI director Comey unexpectedly ordered to reopen the investigation into Clinton's emails less than two weeks before the election amid Russian interference controversy involving both camps (Trump and Clinton).

Trump was under pressure on various ‘e-mail leaks’ for the alleged Russian connection. And Comey also received heavy criticism from Republicans (Trump) after it was revealed that he had begun drafting an exoneration letter for Clinton before the investigation was complete. Before that and even after the election, Trump was sounding like a ‘Russian double spy’, controlled by Putin in a ‘007 James Bond’ like a thriller, until the marathon Muller probes failed to prove the allegation conclusively for lack of ‘sufficient evidence’.

And after the unexpected win of Trump in the 2016 election, Dow plunged, but eventually recovered on Trump’s ‘spirited’ speech, where he emphasized bipartisan policy decisions and on ‘Trumponomics’; i.e. huge infra stimulus, tax cuts, deregulations coupled with ‘Made in America’ for America and the World (vocal for local and also global)-‘America First Policy’.

The market is now expecting the same policy continuity, even if Biden is able to win the U.S. Senate this time. Despite, Trump’s failure on COVID-19, the U.S. public may again choose him for the 2nd time in the White House for his appeal of political/administrative leadership and ‘Trumponomics’.

Now, for Trump, the development of an effective COVID-19 vaccine will be also a vital factor before the U.S. election to regain public confidence and economic recovery. Trump is now trying his best to develop the corona vaccine within Oct’20 or before and at least starts the vaccination process before the election.

On late Tuesday, Moderna’s first published data from an early-stage trial (Phase-1) of the m-RNA Covid-19 vaccine show that it led patients to produce neutralizing antibodies, and many experienced minor side effects. Patients who were given the vaccine — called mRNA-1273 — made more antibodies to neutralize SARS-CoV-2 than patients who have recovered from Covid-19 under standard care.

But the big questions of whether these antibodies will protect against future infection and for how long still remain. Moderna announced that it will be initiating a 30000-person Phase 3 trial later this month to continue testing its vaccine.

Meanwhile, another leading COVID-19 vaccine candidate Oxford-Astra Zeneca has reportedly shown significant progress in the initial trials. AstraZeneca's progress on the vaccine is now in the third and last phase of the testing. If it proves to be safe and effective, mass production could start in September. The Oxford-Astra JV may announce its positive phase-1 trial report officially by today (Thursday) or the next few days.

On Wednesday, Trump tweeted: Great News on Vaccines!

As per reports: There is a growing body of evidence suggesting the T-cells response is important in the defense against the novel coronavirus. Oxford's vaccine seems to be generating antibody and T-cell (killer cell) response the researchers hoped to see.

Now Chinese and Oxford vaccines are at the forefront (3rd stage trials) and may start mass production by Aug-Sep’20. And Trump may not hesitate to accept even the ‘Chinese vaccine’ to kill ‘Chinese Virus’ ahead of the Nov election. Thus, Trump will not breach any red line with his anti-China rhetoric.

On Wednesday, Dr. Fauci also reiterated the U.S. will develop the COVID-19 vaccine by Dec’20 and he is not worried about Chinese competition in this regard:

While there are no guarantees, I feel good about the projected timetable-- Moderna’s results were especially promising because the vaccine appeared to offer the type of protection seen in a natural infection. Moderna’s results were especially promising because the vaccine appeared to offer the type of protection seen in a natural infection. In vaccine development, one of the things that you hope for is that your vaccine induces a response that’s comparable to a natural infection because theoretically, the best vaccine you could possibly ever get is a natural infection.

I don’t let it bother me (about White House criticism) --- What we’re doing with vaccines, what we’re doing with therapeutics, what we’re doing with clinical trials is the real substance. I think everybody’s sort of on the same track. If they (China) do get there--- They’re not going to get it particularly sooner than we get it. That’s for sure. Ultimately, I hope multiple successful candidates prevail. I don’t worry about anybody getting there first. Even if a vaccine succeeds in provoking an immune response--- it is still not clear how long that protection will last. These are questions that don’t have answers right now because we’re only six months into the outbreak---it may take a year before that immunity question is answered.

As per recent polls, almost 30% of Americans are hesitant about taking a vaccine, voicing concern that the record pace of development could compromise safety. Fauci said he is aware of such concerns: It’s understandable but unjustified. We’re not compromising safety; we’re not compromising scientific integrity. The normal development process of waiting for a vaccine to be proven effective before manufacturing begins wastes precious time. If the vaccine doesn’t work, the only thing you’ve lost is money.

Dow was also boosted as Trump blinks on China:

As per the report, Trump has indicated his aides he doesn’t want to further escalate tensions with Beijing, ruling out additional sanctions on top officials for now. But the stance could change later on. The decision means that no sanctions have been placed on top Hong Kong official Carrie Lam. Trump’s staff prepared a list of Chinese/HK officials who could be targeted. This follows after China took U.S. narrative seriously and summoned the U.S. Ambassador to protest ‘vain attempts’ to ‘punish’ Beijing.

The US will put visa restrictions on Chinese tech/Huawei workers. The U.S. Secretary of state Pompeo, who is now ‘leading from the front’ in the U.S. cold war with China (after a 2-day friendly meeting with Chinese officials at the wonderful Hawaii Sea beach) - denounced Huawei and other companies for allegedly helping China commit human rights abuses. Meanwhile, China rebuked the U.K. for following the U.S.’s lead on banning Huawei.

Trump is practical and cares only for U.S. interest/business/trade despite bellicose anti-China comments time-to-time for the domestic political compulsion. The same is true for Xi (China) as both are dependent on each other for prosperity and economic growth. For many U.S. MNCs, China is the 2nd largest market (after the U.S.). Thus Trump is keeping the back door talks with China in place, while publicly goes for anti-China rhetorics. And China (Xi) also understands Trump’s dilemma.

Trump is gradually sidelining his COVID-19 adviser, Dr. Fauci, for his voluntary resignation:

On Tuesday, the White House trade adviser Navarro thrashed Dr. Fauci in an op-ed: Dr. Fauci has been wrong about everything I have interacted with him on. When you ask me whether I listen to his advice, my answer is only with skepticism and caution.

But on Wednesday, the White House distanced itself from Navarro’s comments and said the article didn’t go through the normal clearance process. As per reports, Trump ‘scolded’ Navarro and said he should not have gone forward with an op-ed, targeting Dr. Fauci.

Dr. Fauci, in his part, termed the White House effort to discredit him ‘bizarre’ and urged an end to the partisan over the country's response to the coronavirus pandemic: let's stop this nonsense’:

One of the things that are part of the problem is the dynamics of the divisiveness that is going on now that it becomes difficult to engage in a dialogue of honest evaluation of what's gone right and what's gone wrong. We've got to own this, reset this and say OK, let's stop this nonsense and figure out how we can get our control over this now. You know, it is a bit bizarre I don't really fully understand it. I believe the people involved in releasing that list, which was misleading because it did not include the entirety of my statements or another context, are really taken aback by what a big mistake that was. I can't explain Peter Navarro. He's in a world by himself--- So I don't even want to go there.

As a reminder, Fauci said in an interview last week he had not seen Trump in-person and not briefed him directly in two months. On Wednesday, Fauci said his advice is passed onto Trump indirectly, via VP Pence, who heads the White House coronavirus task force.

On Wednesday, Fauci further recommended the U.S. need to hit a reset button on COVID-19 containment and acknowledge that things are not going in the right direction: The rising numbers of coronavirus infections show we've got to do better and states need to get on the same page and work on ways to control the virus. So, rather than these games, people are playing, let's focus on that.

On Wednesday, amid all this coronavirus/Fauci/Navarro chaos, Trump was asked why he wants coronavirus data going to HHS first instead of the CDC. Trump said:

---Didn’t change for me--- I — look, they’re all on the same team. We’re all on the same team, including Dr. Fauci. I have a very good relationship with Dr. Fauci. And we’re all on the same team. We want to get rid of this mess that China sent us. So everybody is working on the same line, and we’re doing very well. We’re doing well in a lot of ways, and our country is coming back very strong. When you look at those job numbers — we’ve never had job numbers as we have right now. So it’s coming back very strongly----The markets are very good. The country is doing well. Jobs are growing fast. We want schools to be open, and they will be open. And they’ll be open, I think, relatively on time. Hopefully, perfectly on time, most places.

Trump was again asked, whether Navarro is a rogue-Trump said: Well, he made a statement representing himself. He shouldn’t be doing that. No, I — I have a very good relationship with Anthony.

Overall, Trump admin may be trying to gradually sideline Fauci for his ‘hawkish view’ on COVID-19 and Fauci may soon tender his resignation ahead of Nov election, stirring another controversy over Trump’s handling of the coronavirus, which is the main reason that he is lagging behind Biden in almost all the opinion polls conducted by ‘fake media’.

On early Thursday, Dow Future tumbled almost -200 points on increasing Biden lead over Trump, escalated U.S.-China cold war tensions as the White House may impose a travel/visa ban on key Chinese Communist Party (CCP) officials, their families and tech/Huawei employees. There was another report suggesting that the U.S. may cut off Chinese banks' access to USD. Chinese banks seen as complicit in China’s ‘clampdown’ on Hong Kong face being cut off from much of the global financial system. Also, the Twitter hack of influential persons and escalating corona infections also dragged the risk-trade sentiment

China’s twitter proxy, the influential GT editor Hu Xijin warned a bigger issue of world peace and tweeted: The plan under consideration is so crazy and vicious, reflecting the Trump administration has lost rationality. The US ruling team is committing a crime ruining the foundation for world peace. The US democratic system is unable to curb the destruction. It's a shame for it.

Chinese stock market tumbled despite better than expected GDP growth data as retail sales slumped. There was also some concern about policy tightening; FPIs also sold. But the Chinese government-backed media GT also tweeted: To shore up economic expansion, China's central bank is likely to cut RRR by 25 basis points, but leaves interest rates intact. China's equity market is expected to trend upwards, backed up by a relatively loose market liquidity level.

On Thursday, China reported mixed economic data:

 

 

Overall, the Chinese economy may grow around +2.2% (y/y) in 2020, mainly on domestic consumption and limited exports. China is the only major economy in G20, which is able to largely contain COVID-19 in the country and an all-out national lockdown, whereas the U.S. will suffer more because it was not able to contain within NY, America’s ‘Wuhan’, resulting in lingering national lockdown and now local lockdowns.

 

 

Bottom line:

From Dr. Fauci’s comments about ‘natural infection’, it seems that Trump admin may have planned for at least partial herd immunity by allowing controlled corona infection in the initial stage and then go for the lockdown to avoid bigger casualties. But so far this strategy (allowing infection-> lockdown-> unlock->local lockdown) has failed. The U.S. should have taken the strategy of China, South Korea, and also Japan to contain the COVID-19 from the initial stage by application of surveillance tech along with big-data analytics (algo/AI) for tracing and blocking inter districts/cities/states transportation completely.

Technical Outlook: SPX-500, DJ-30, and NQ-100 (Futs):

Technically, whatever may be the narrative, SPX-500 now has to sustain over 3195 for a further rally to 3215/3235*-3255/3285 and 3325/3355*-3385/3400* and 3435-3480 in the near term (under bullish case scenario).

On the flip side, sustaining below 3185, SPX-500 may fall to 3155/3130*-3095/3045 and 3030*/3000-2975*/2950 and 2920*/2900-2855/2800 in the near term (under bear case scenario).

Technically, whatever may be the narrative, DJ-30 now has to sustain over 26350 for a further rally to 26450/26700*-27050/27350 and 27600/27850-28100*/28350 in the near term (under bullish case scenario).

On the flip side, sustaining below 26300-26000*, DJ-30 may fall to 25650/25250*-25000/24700* and 24400*/24000 and 23750/23300*-23000/22700 in the near term (under bear case scenario).

Technically, whatever may be the narrative, NQ-100 now has to sustain above 10900 for a further rally to 11000/11120-11200/11255 and 11375*/11475-11630*/11830 in the near term (under bullish case scenario).

On the flip side, sustaining below 10875, NQ-100 may fall to 10625/10520*-10440/10290 and 10220*/10100-9945*/9775 in the near term (under bear case scenario).

 

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