Market Briefing: Nasdaq and Microsoft hit fresh record highs on TikTok’s acquisition

Posted on August 4, 2020August 11, 2020 by Vrasidas Neofytou

The Nasdaq Composite jumped 1.5% on Monday, hitting a fresh record high, lifted by a surge in technology names such as Microsoft and Apple coupled with signs that the rate of new COVID-19 infection cases has started slowing in the US.

Coronavirus Update:

Global cases: More than 18.1 million
Global deaths: At least 691,738

Top five countries: United States (over 4.7 million), Brazil (more than 2.7 million), India (over 1.8 million), Russia (at least 854,641), South Africa (at least 516,862).

Market Reaction:

Dow Jones index gained 0.9% on Monday while the S&P 500 index added 0.72%, climbing to its highest level since Feb. 21, recovering almost all the pandemic-led losses.

However, it was the Nasdaq Composite that rallied the most by 1.5%, starting August with another record high near 11.000 points. The Technology sector has been by far the best-performing sector rising more than 23% since the start of 2020. The Tech sector grows faster than other sectors of the economy as it became less dependent on overall economic developments such as the pandemic outbreak and financial crisis.

Microsoft-TikTok:

The price of Microsoft hit an all-time high at $216.54 per share, rising 5.6% yesterday, boosted by reports that it’s considering a potential acquisition of TikTok’s operations in certain markets such as US, Canada, Australia and New Zealand, in a move that would expand its consumer-facing business operations.

Fig.02: Microsoft stock price, Monthly chart

Conflict between US-China:

TikTok, is a popular video-sharing app owned by Chinese tech company ByteDance, and it’s one of the Chinese software companies that Trump’s administration has threatened to ban its US operations, accusing them of collecting data on American users and sending it to the Chinese government.

President Donald Trump said that buying only part of the app will be “complicated”— but he still gave Microsoft CEO Satya Nadella the go-ahead. Trump added that some “key money” would have to be paid to the U.S. Treasury Department for making the deal possible.

However, the recent developments with TikTok have angered the Chinese authorities calling the move as an “open robbery”, labeling the US as a “rogue country” and Microsoft as a “theft”, threatening retaliation.

Economic Calendar for August 04, 2020 (GMT+ 3:00):

Baltic dry index trades near its highs on robust China’s iron ore demand

Posted on August 3, 2020August 3, 2020 by Vrasidas Neofytou

The Baltic dry index tracks freight rates for the world’s largest dry bulk cargo ships such as Capesize, Panamax, and Supramax which measure the shipping costs for a wide range of bulk commodities such as iron ore, grains, and coal.

The sea freight index climbed to 2.000 points in early July, hitting its highest levels since October 2019 on robust demand for iron ore from China. However, the price retreated down to the current levels of 1.350, near one-month lows, amid the resurgence of COVID-19 cases around the world which threatens to disrupt the global supply chain once again.

Fig.01: Baltic Dry Index, History Period 12 months

Coronavirus slump:

The Baltic Exchange’s main sea freight index, which is a bellwether of the global shipping market, dropped near 400 in mid-May 2020, which was its lowest point in four years, as the spread of the pandemic weighted on the global trade and commerce, reducing the demand for shipping services in the first half of 2020. It was the first time after 2016 that the index dove below 500 points, which was the toughest year for shipping since the start of the millennium.

The sharp fall in the demand for shipping services was caused by the decline of orders for major dry bulk commodities in response to the global economic disruption and the limited Chinese manufacturing output. The drop in the prices of major industrial metals to multi-year lows during the pandemic had also added pressure to sea freight rates.

Massive recovery:

The Baltic dry index gained almost 400% since it bottomed in mid-May, recovering not only pre-pandemic losses but also damages from the trade war between China-US in 2019. The index climbed up to 2.000 points in early July, gaining support from the sharp increase of Chinese steel mill demand for iron ore with the increased production and exports out of Brazil, and Australia.

Fig.02: Baltic Dry Index, History Period 6 months

China is the world’s biggest consumer of iron ore and other dry bulk commodities. The massive fiscal and monetary stimulus packages from the Chinese government, has helped local industrial output to recover in pre-pandemic levels faster-than-expected, rising the demand for dry bulk commodities and helping the freight index to bounce off from its 4-year lows in May.

Market Briefing: WTI crude oil fell below $40 on oversupply concerns

Posted on August 3, 2020August 11, 2020 by Vrasidas Neofytou

WTI and Brent Crude oil prices fell 2% on Monday morning after OPEC and its allies led by Russia increased their output in August coupled with oil demand worries over the global surge of new COVID-19 cases.

Concerns for oversupply conditions:

Energy investors are concerned about oversupply conditions in the oil market after the producing countries of the OPEC group together with their allies led by Russia, we’re set to raise production from 1st of August, adding about 1.5 million bpd to global markets until the end of December. OPEC+ producers agreed to cut 9.7 million bpd, or 10 percent of global output, which took effect on May 1st, in the wake of the pandemic.

Furthermore, investors are worried about the risk for renewed lockdown measures which could damage the recovery of fuel demand after the first pandemic wave. Traders turned their attention back to the number of new infections, as the global number of new COVID-19 cases reached 300.000 per day during the weekend, raising fears of slower recovery in oil demand.

Price Reaction:

WTI crude prices broke below the $40 per barrel key support level while Brent crude struggles to hold the $43 level. Both contracts trade almost 5% lower from their 4-month highs of $42.50 and $45 per barrel respectively.

Monthly Gains:

Oil contracts surged 1% on Friday, finishing the week and month higher after the release of the EIA’s monthly report, indicating that the US crude oil production dropped by a record of 2 million barrels per day in May to 10 million per day.

WTI contract posted its third month of gains in the row while Brent its fourth month, after both contracts hit their multi-year lows at the mid of April during the pandemic-led lockdown measures.

Both contracts recorded more than 300% in gains since the historic lows of April, gaining support from the massive output cuts from OPEC and its allies, the recovery of global oil demand after the gradual easing of pandemic-led restrictions, the support from the huge fiscal and monetary stimulus and the weakness in the US dollar.

Economic Calendar for August 03, 2020 (GMT+ 3:00):