WALL STREET WATCHES WASHINGTON
A woman wearing a mask passes a sign for Wall Street on June 30.Mark Lennihan/The Associated Press
U.S. lawmakers negotiating a fresh dose of stimulus have reached an impasse.
Trillions of dollars injected by the Federal Reserve and huge government spending increases have stemmed coronavirus-linked economic damage, fuelling a rebound in a Citigroup index that tracks economic data relative to expectations.
But with almost 30 million Americans unemployed and coronavirus still spreading, Fed policy makers have been warning the recovery could sputter unless politicians come through with further measures. The S&P 500 index is holding just off record highs. The wait is on to see if negotiations resume and bear fruit.
LET’S BREXIT AGAIN
A woman holds up the British Union and the European Union flags together during an event in Brussels on Jan. 30.Francisco Seco/The Associated Press
The twin troubles of Brexit and coronavirus ensured Britain’s second-quarter contraction of 20.4 per cent was greater than any other major economy’s. And recovery will be elusive unless a free-trade deal is reached with the European Union before the post-Brexit transition period ends on Dec. 31.
EU-Britain talks begin on Aug 17. The two sides remain far apart, but the meetings may show if they can lay aside their differences in time to reach a deal by the Oct. 2 deadline. An impasse may spell trouble for sterling and put further pressure on domestic-focused shares.
The Bank of England is not considering negative interest rates just yet, but the prospect of crashing out of the EU without a deal might leave it with no alternative.
GOLD FOR GREENBACKS
A currency exchange broker prepares a transaction at a brokerage in the capital Khartoum on Jan. 21.ASHRAF SHAZLY/AFP/Getty Images
The dollar’s 5-per-cent plunge in five weeks has got gold bugs excited. Prices for the metal vaulted to a record above US$2,000 an ounce before retreating as the greenback regained some poise.
Dollar weakness could run further – it remains strong across various trade-weighted indexes. But correlations between gold and the dollar, tenuous at best, have weakened under the impact of central bank stimulus, with 90-day correlations approaching cyclical lows.
Finally, rising inflation expectations boost hedges such as gold. Refinitiv data show U.S., British, German and Japanese 10-year real, inflation-adjusted yields in negative territory, a first for all of them simultaneously. So even if gold struggles above US$2,000, gold bugs can probably rest assured a big sell-off isn’t imminent.
DOING THE SPLITS
Tesla electric vehicles for test driving are parked in Hanam, South Korea, July 6.Kim Hong-Ji/Reuters
Apple Inc. and Tesla Inc.’s stock-split announcements rekindle memories of the dot-com bubble, when companies were actively dividing shares into multiple new ones. That trend eventually died – is it making a comeback?
Tesla is giving out five shares for each share held; Apple has a four-for-one offer.
Companies typically split shares to make them cheaper for retail investors, but these days, with platforms already offering fractional shares for as little as US$1, such splits don’t attract investors in droves.
Shares have risen since the announcements, but it remains to be seen whether gains continue until Aug. 31, when trading starts on a split-adjusted basis for both Apple and Tesla.
THE BIG AUSTRALIAN
A view of the BHP Billiton's Escondida, the world's biggest copper mine, in northern Chile.Ivan Alvarado/Reuters
The world’s biggest listed mining company and the third-largest digger of iron ore, Australia’s BHP, reports annual results on Tuesday.
With iron ore prices soaring and rival Rio Tinto beating forecasts, strong numbers are expected of BHP. But BHP is more than just a miner – steel is a bellwether for economic growth and its main ingredient, iron ore, sits at a critical juncture. Many question whether Chinese demand is enough to offset crumbling orders elsewhere.
BHP is also a gauge of China’s economic health. After July shipments to China from the world’s largest export hub, Australia’s Port Hedland, dipped 17.5 per cent from June, investors will be listening out for management’s view on the outlook.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.