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Futures Slide After Trump Opens A “Most Unwelcome Can Of Worms” With TikTok, WeChat Executive Order

Futures Slide After Trump Opens A "Most Unwelcome Can Of Worms" With TikTok, WeChat Executive Order



Futures Slide After Trump Opens A "Most Unwelcome Can Of Worms" With TikTok, WeChat Executive Order Tyler Durden Fri, 08/07/2020 - 07:19

World stocks ended a four day rally overnight that pushed the MSCI World index to green for the year, after U.S. President Trump cranked up simmering tensions with China after late on Thursday has signed orders to ban Americans from transactions involving China’s ByteDance (TikTok’s parent) and WeChat (owned by Tencent), taking effect in 45 days. Furthermore, Trump’s Working Group on Financial Markets recommended that Chinese companies currently listed on US exchanges should be delisted if they do not become compliant with US accounting standards.

Tencent Holdings slumped 5% in Hong Kong after plunging as much as the 10% limit earlier.

Trump's decision to take aim at WeChat, the world’s most-used messaging app, has the potential to upend the international businesses of companies from Apple Inc. to Walmart Inc.

“The executive orders leveled on TikTok and the scrutiny over WeChat has opened up a most unwelcome can of worms," said Stephen Innes, chief global markets strategist at AxiCorp. This could “be more of a signal than anything else, especially front-running the China trade talks” expected later this month, he said.

S&P futures pared some of their Thursday gains after the ES continued to print new post-COVID highs in late US trade on Thursday; the Emini hit a high of just shy of 3350, ahead of its ATH just beneath 3400.

MSCI’s index of world stocks fell 0.2% on Friday after up four consecutive days of gains. It was less than 3% away from a late February peak, and had just turned green on the year on Thursday.  European stocks opened lower, with major indexes down between 0.2% to 0.4% in early trading, although they largely brushed off Asia’s tech-led slump. The Eurostoxx 600 is little changed as gains in telecoms and media are offset by weaker autos and oil & gas names. FTSE MIB and IBEX underperform.

Chinese stocks led losers in Asia and the yuan slumped after Trump issued the executive orders, noting that his admin was stepping up efforts to purge “untrusted” Chinese apps from U.S. digital networks and called TikTok and WeChat “significant threats.” “The U.S. pressure on China’s tech sector appears likely to continue in the presidential elections, injecting volatility in the sector and opening the door to escalatory retaliation,” UBS strategists said.

In addition to the TikTok crackdown, Trump confirmed he has signed proclamation re-imposing aluminium tariffs on Canada, to which Canada has said it would retaliate. However, as NewsSquawk notes, the measures appear more symbolic/political for now than part of a broader economic concern.

Meanwhile, concerns remain that lawmakers won’t be able to resolve differences over a new U.S. relief package. The White House and congressional Democrats are up against a self-imposed Friday deadline to strike a deal. Markets will also be closely watching details from the monthly U.S. jobs report today (full preview here), which is expected to show a steep slowdown in hiring during July.

In rates, there is a modest bull-flattening bias in Treasuries, 2s unch. At 11.5bps, 10s -2bps at 52bps and 30s -3bps at 117bps; the strength was made in futures overnight amid the escalating Sino-US tensions.

In FX, the dollar strengthened, while gold retreated for the first time in six days. The subdued risk tone has seen the Dollar Index reclaim the 93 handle after the late risk rally on Thursday kept it away, seeing cyclical currencies and EMFX on the defensive. Turkey’s lira slumped to a record low against the dollar even after the central bank spent billions to to prop it up, although a late burst pushed the battered currency to unchanged.

Sterling fell after a post-BOE advance on Thursday, as traders take stock of officials distancing themselves from negative rates and an optimistic view of the U.K’s economic recovery. The Australian currency weakened after dovish remarks from the Reserve Bank and the escalation of the U.S.-China row weighed on the currency. The New Zealand dollar followed suit, seeing the biggest losses in the G-10. The Norwegian krone follow oil and gold prices lower, although a mid-week spike in the commodities helped make the currency see the biggest weekly gains among its peers against the greenback.

In commodities, crude futures have been moving slightly lower through Europe, although by no means significant, with oil demand more sheltered from the US-China tech battle. Gold and silver have faded some of their record gains, with silver dropping modestly after rising just shy of $30 late on Thursday.

Economic data include the monthly employment report for July. Dish and Brookfield Renewable Partners are due to report earnings.

Market Snapshot

  • S&P 500 futures down 0.5% to 3,327.50
  • STOXX Europe 600 down 0.1% to 362.08
  • MXAP down 0.6% to 168.82
  • MXAPJ down 0.9% to 563.20
  • Nikkei down 0.4% to 22,329.94
  • Topix down 0.2% to 1,546.74
  • Hang Seng Index down 1.6% to 24,531.62
  • Shanghai Composite down 1% to 3,354.04
  • Sensex down 0.05% to 38,007.48
  • Australia S&P/ASX 200 down 0.6% to 6,004.84
  • Kospi up 0.4% to 2,351.67
  • German 10Y yield fell 0.6 bps to -0.537%
  • Euro down 0.4% to $1.1829
  • Brent Futures down 0.4% to $44.89/bbl
  • Italian 10Y yield fell 4.1 bps to 0.806%
  • Spanish 10Y yield fell 0.3 bps to 0.276%
  • Brent futures down 0.8% to $44.74/bbl
  • Gold spot down 0.1% to $2,060.74
  • U.S. Dollar Index up 0.3% to 93.10

Top Overnight News from Bloomberg

  • President Donald Trump signed a pair of executive orders prohibiting U.S. residents from doing business with the Chinese- owned TikTok and WeChat apps beginning 45 days from now, citing the national security risk of leaving Americans’ personal data exposed
  • The Trump administration’s move to ban U.S. residents from doing business with Tencent Holdings Ltd.’s WeChat app erased $30 billion from the Internet giant’s market value and sent the yuan to its biggest slump in two weeks
  • Hopes for a speedy economic rebound in large parts of Europe are holding ground as manufacturing starts to recover from pandemic lows. Industrial output in Germany rose at a faster-than-expected pace of 8.9% in June, and factory demand is also increasing. With France and Spain experiencing similar trends, signs are mounting that Europe’s initial bounce-back from the worst recession in living memory may be faster than anticipated
  • OPEC’s second biggest producer Iraq made its strongest commitment yet to implement deep cuts in crude production after the country’s oil minister and his Saudi counterpart held a phone call Thursday. The country failed to meet its production-cut target in May and June

Asian equity markets failed to sustain the positive handover from Wall St where all major indices notched gains as tech resumed its outperformance and Apple continued to print fresh record highs to edge closer towards the USD 2tln market cap status, while sentiment stateside was also underpinned by lower jobless claims data and with COVID-sensitive sectors such as airlines, hotels and casinos supported in late trade after the US State Department lifted advisory against all international travel and returned to its previous system of country specific levels of travel advice. Nonetheless, the momentum faded in Asia with the region cautious heading into the latest Chinese trade data which later proved to be mostly better than expected and with US-China tensions stoked after US President Trump signed executive orders to ban transactions with TikTok’s parent ByteDance, as well as Tencent-owned WeChat in 45 days. ASX 200 (-0.6%) and Nikkei 225 (-0.4%) were both negative in which Australia’s mining names gave back some of their recent gains and as Japan digested earnings, with sentiment also dampened by concerns of a weaker consumer as although Household Spending in June rose by its fastest pace since data was made available in 2000, the actual decline in household spending for the April-June quarter of 9.8% Y/Y was the steepest contraction on record. Hang Seng (-1.8%) and Shanghai Comp. (-0.9%) conformed to the downbeat tone due to the US recent actions against TikTok and WeChat which saw Tencent shares slump over 7%, while US President’s Working Group on Financial Markets earlier recommended Chinese companies currently listed on US exchanges to be compliant with US accounting standards or be delisted. Finally, 10yr JGBs were relatively flat with minimal gains seen amid the risk averse tone and the BoJ present in the market for JPY 940bln of JGBs focused on 1yr-3yr and 5yr-10yr maturities.

Top Asian News

  • Japan Looks to Scrap New Libor-Tied Lending Six Months Early
  • China Official Reserves Rise to Highest Since July 2016

European stocks are modestly softer [Euro Stoxx 50 -0.3%] as the downbeat APAC performance seeps into the region after China lodged stern opposition to the US’ executive order on China’s TikTok and WeChat, alongside the State’s drone sale to Taiwan. Broader sectors are mixed with underperformance seen in the energy sector amid losses in the complex, whilst Telecoms remain firm as Deutsche Telekom (+2.8%) holds onto gains amid stellar numbers from T-Mobile (+5.5% pre-mkt) of which Deutsche Telekom owns 43.5%. The sectoral breakdown adds little meat to the bones and provides no clear risk bias, whilst the Travel & Leisure sector remain pressured amid fears of further additions to quarantine lists prompting travel cancellations. In terms of individual movers: BP (-2.6%) trades lower as sources stated that it is poised to sell a large chunk of its oil and gas assets even if crude prices rise; oil giants usually hold assets in the longer-term even if prices fall – with a view of bringing marginal production online contingent on improving market conditions. Rolls-Royce (-3.4%) is hit on the back of source reports that activist investor ValueAct has reportedly sold its entire 10.9% stake in the group since 2017. Finally, Hikma Pharmaceuticals (+9%) extended on gains after raising its FY20 generic revenue guidance alongside its operating margin, whilst the CEO later stated that the group entered a manufacturing deal for Gilead’s remdesivir treatment, potentially providing added impetus.

Top European News

  • Standard Life Loses Top Spot Among U.K. Asset Managers
  • SAS Makes Last-Ditch Bid to Secure Backing for Rescue Plan
  • TP ICAP Says July Trading Activity ‘Materially Lower’ Than 2019

In FX, the Dollar continues to benefit from corrective and positional trade rather than any real fundamental shift in sentiment or direction, as consolidation and short covering persists pre-NFP and the showdown talks in Washington to resolve differences on the next relief bill. It’s debatable whether the monthly BLS report or fiscal deadline will be Friday’s headline-grabbing event, but for now the Buck has clawed back more lost ground against G10 peers and the index is holding between 93.227-92.759 parameters, above Thursday’s 92.495 new 2020 low.

  • NZD/EUR/CHF/CAD - The major victims of the Greenback’s ongoing recuperation, if not quite revival, as the Kiwi backs off from a test of resistance/offers into 0.6700 and the Euro fades into 1.1900 where 1.5 bn option expiries reside. Note also, the single currency has found ventures above the round number unsustainable and is now south of almost equally large expiry interest at 1.1850 (1.2 bn), with bids said to be underpinning around 1.1820-10 and a key Fib in close proximity (1.1823). Meanwhile, the Franc remains sub-0.9100 and straddling 1.0800 vs the Euro as SNB reserves data reveal a decline, and the Loonie has reversed further towards 1.3400 from recent 1.3250+ multi-month highs following the reintroduction of US tariffs on Canadian aluminium and impending like-for-like countermeasures. More immediately, the 2 NA nations go head-to-head on the jobs front with July data due simultaneously ahead of Canada’s Ivey PMIs.
  • AUD/GBP - Also down vs their US counterpart, but clinging to or near big figure/psychological levels at 0.7200 and 1.3100 respectively, as the Aussie draws some underlying support from encouraging or arguably upbeat Chinese trade data and the Pound retains an element of post-BoE strength even though MPC member Ramsden leaves the door open for more stimulus in November should the need arise. For the record, no major reaction down under to the RBA’s SOMP or comments from Deputy Governor Ellis largely underlining latest policy meeting assessments and guidance.
  • JPY - Still no big make or break for the Yen that is pivoting 105.50 after a late fixed related recoil yesterday and Japanese reserves showing a rise conducive with, but not conclusive, a degree of official intervention, albeit this time around 100 pips above the low 104.00 area.
  • EM - Simply no respite for the Lira that has crashed to fresh all time depths against the Dollar and Euro for that matter, even though the CBRT has started withdrawing liquidity provisions and instructing banks to use the overnight lending facility at 9.75% ahead of a 50% reduction in primary dealer OMO limits as from Monday. Usd/Try paring back a tad from 7.3650 or so.      

In commodities, WTI and Brent front month futures drift lower in a correlated move with the equity markets as news-flow for the complex remains scarce ahead of the US jobs report. An earlier Saudi-Iraq statement did the rounds but provided no fresh substance – with the two nations reaffirming their commitment to the OPEC+ pact. WTI Sept resides around USD 41.50/bbl having had briefly dipped below the figure, whilst Brent Oct lost its 45/bbl-status after oscillating on either side of the figure in early hours. Elsewhere, spot gold is relatively uneventful and remains contained around the USD 2060/oz mark, as has been the case throughout the European morning, whilst spot silver sees more pronounced losses as price consolidate from yesterday’s outperformance.  In terms of base metals, Dalian iron ore prices retreated overnight following yesterday’s warning from the Dalian exchange around investing rationally amid the recent rally, whilst Shanghai copper saw losses as US-Sino tensions continue to ratchet.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 1.48m, prior 4.8m
    • Change in Private Payrolls, est. 1.18m, prior 4.77m
    • Average Hourly Earnings MoM, est. -0.5%, prior -1.2%
    • Average Hourly Earnings YoY, est. 4.2%, prior 5.0%
    • Average Weekly Hours All Employees, est. 34.4, prior 34.5
    • Unemployment Rate, est. 10.55%, prior 11.1%
    • Labor Force Participation Rate, est. 61.8%, prior 61.5%
    • Underemployment Rate, prior 18.0%
  • 10am: Wholesale Inventories MoM, est. -2.0%, prior -2.0%; Wholesale Trade Sales MoM, prior 5.4%
  • 3pm: Consumer Credit, est. $10.0b, prior $18.3b deficit

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Fighting the Surveillance State Begins with the Individual

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…



It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole. The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.” In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system. You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in. It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will. There are people, like the creators of The Social Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used. A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market. To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.

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Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next

A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.



Updated at 11:52 am EDT U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007. Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire. Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack. Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite. Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets. The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases. In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week. Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict. Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel. Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month. A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet  (GOOGL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, retail and cloud computing giant Amazon  (AMZN) - Get Free Report and Facebook owner Meta Platforms  (META) - Get Free Report. "It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley. "How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings." Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%. The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%. In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a  slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
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Forget Ron DeSantis: Walt Disney has a much bigger problem

The company’s political woes are a sideshow to the one key issue Bob Iger has to solve.



Walt Disney has a massive, but solvable, problem.

The company's current skirmishes with Florida Gov. DeSantis get a lot of headlines, but they're not having a major impact on the company's bottom line.

Related: What the Bud Light boycott means for Disney, Target, and Starbucks

DeSantis has made Walt Disney (DIS) - Get Free Report a target in what he calls his war on woke, an effort to win right-wing support as he tries to secure the Republican Party nomination for president. 

That effort has generated plenty of press and multiple lawsuits tied to the governor's takeover of the former Reedy Creek Improvement District, Disney's legislated self-governance operation. But it has not hurt revenue at the company's massive Florida theme-park complex.  

Disney Chief Executive Bob Iger addressed the matter during the company's third-quarter-earnings call, without directly mentioning DeSantis.

"Walt Disney World is still performing well above precovid levels: 21% higher in revenue and 29% higher in operating income compared to fiscal 2019," he said. 

And "following a number of recent changes we've implemented, we continue to see positive guest-experience ratings in our theme parks, including Walt Disney World, and positive indicators for guests looking to book future visits."

The theme parks are not Disney's problem. The death of the movie business is, however, a hurdle that Iger has yet to show that the company has a plan to clear.

Boba Fett starred in a show on Disney+.

Image source: Walt Disney

Disney needs a plan to monetize content 

In 2019 Walt Disney drew in more $11 billion in global box office, or $13 billion when you add in the former Fox properties it also owns. In that year seven Mouse House films crossed the billion-dollar threshold in theaters, according to data from Box Office Mojo.

This year, the company will struggle to reach half that and it has no billion-dollar films, with "Guardians of the Galaxy Vol. 3" closing its theatrical run at $845 million globally. 

(That's actually good for third place this year, as only "Barbie" and "The Super Mario Bros. Movie" have broken the billion-dollar mark and they may be the only two films to do that this year.)

In the precovid world Disney could release two Pixar movies, three Marvel films, a live-action remake of an animated classic, and maybe one other film that each would be nearly guaranteed to earn $1 billion at the box office.

That's simply not how the movie business works anymore. While theaters may remain part of Disney's plan to monetize its content, the past isn't coming back. Theaters may remain a piece of the movie-release puzzle, but 2023 isn't an anomaly or a bad release schedule.

Consumers have big TVs at home and they're more than happy to watch most films on them.

Disney owns the IP but charges too little

People aren't less interested in Marvel and Star Wars; they're just getting their fix from Disney+ at an absurdly low price. 

Over the past couple of months through the next few weeks, I will have watched about seven hours of premium Star Wars content and five hours of top-tier Marvel content with "Ahsoka" and "Loki" respectively. 

Before the covid pandemic, I gladly would have paid theater prices for each movie in those respective universes. Now, I have consumed about six movies worth of premium content for less than the price of two movie tickets.

By making its premium content television shows available on a service that people can buy for $7.99 a month Disney has devalued its most valuable asset, its intellectual property. 

Consumers have shown that they will pay the $10 to $15 cost of a movie ticket to see what happens next in the Marvel Cinematic Universe or the Star Wars galaxy. But the company has offered top-tier content from those franchises at a lower price.

Iger needs to find a way to replace billions of dollars in lost box office, but charging less for the company's content makes no sense. 

Now, some fans likely won't pay triple the price for Disney+. But if it were to bundle a direct-to-consumer ESPN along with content that currently gets released to movie theaters, Disney might create a package that it can price in a way that reflects the value of its IP.

Consumers want Disney's content and they will likely pay more for it. Iger simply has to find a way to make that happen.

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