DAILY REPORT 25-06-2020


The U.S. moves to protect the lobster industry, threatens tariffs on China U.S. President Donald Trump signed a memorandum aimed at protecting American lobster fishermen who have found export markets drying up, a White House adviser dubbed the “lobster king” said on Wednesday, adding China could face new tariffs. “If those purchase commitments are not met, the United States Trade Representative has been directed to use his discretion to impose … reciprocal tariffs on the China seafood industry,” trade adviser Peter Navarro told reporters. He was referring to $150 million in purchase commitments Beijing made under the so-called Phase 1 U.S.-China trade deal.

The Pentagon put Huawei and Hangzhou Hikvision on a list of 20 firms it says are owned or controlled by China’s military, possibly opening them up to more U.S. sanctions. The list of “Communist Chinese military companies” includes China Railway Construction, China Aerospace, and Panda Electronics. Trump touted his China record, tweeting that he “got billions out of China” and gave it to farmers.


Emmanuel Macron plans a new virus furlough program that may see the state covering a large share of lost incomes in France for as long as two years. The measure starting July 1 would aim for a compromise between blanket support and more targeted aid by getting unions and businesses to strike deals on a case-by-case basis. Separately, WHO expert Michael Ryan said Covid-19 is under control in Western Europe.

David Solomon thinks stocks are getting a little ahead of themselves. Goldman’s CEO said the equity rally that’s erased almost all of this year’s losses can’t be justified by corporate profit potential. “If I’m right about that, you’ll see a re-balancing of that over time.” Bridgewater’s Bob Prince, also participating in the Bloomberg Invest Global virtual event, said the impact of the pandemic could last 18 to 24 months, complicating monetary and fiscal policy efforts to bolster the economy.

Brokerage houses in Germany, the U.K., France, and Denmark reported a surge in mom and pop trading since March, even as institutional money stayed away. “We already had exponential account opening growth before the crisis and this development has now accelerated,” said Andreas Friedrich at the Trade Republic. That’s keeping trading volume in the Stoxx Europe 600 above the pre-outbreak average.


The European Union and the U.S. are having talks on how to restart travel halted by the pandemic, even after reports that the EU is considering whether to exclude Americans from the initial reopening due to the sharp rise in cases in the country in recent weeks. Those negotiations come at the same time as the U.S. weighs slapping more tariffs on European goods including gin and trucks. And that’s not to mention tensions with Germany over the U.S. withdrawing troops from the country, with Germany questioning a key NATO spending metric behind the U.S. decision.

U.K. International Trade Secretary Liz Truss said she’d strongly urge the U.S. not to impose further tariffs on British goods. “This tit-for-tat tariffs between the EU and the U.S. is simply harming businesses on both sides of the Atlantic.”


For some time, the question was whether the seemingly relentless rally in stocks would end. Now, it’s less a question of when it will end than a rush to predict the downfall, evidenced by the violent swing in sentiment on Wednesday as stocks slumped on fears the Covid-19 crisis is far from under control. The drop provides more fuel for crash-obsessed traders furiously hedging their bets, while there is now a disparity between growth and value stocks that brings to mind the tech bubble. Currency traders, meanwhile, are looking even further out, starting to worry that the U.S. election in November won’t produce a clear winner and lead instead to more intense uncertainty.

A federal appeals court ordered a judge to immediately dismiss the criminal case against Michael Flynn. A three-judge appellate panel denied U.S. District Judge Emmet Sullivan the authority to examine the government’s surprise motion to dismiss, saying such an inquiry would harm the executive branch’s exclusive prosecutorial power. The ruling is a win for President Trump, who has repeatedly slammed the case against Flynn as part of a conspiracy by Democrats to undermine him.

The U.S. saw one of its highest-ever increases in the number of Covid-19 cases yesterday, forcing some of the hardest-hit states to take drastic measures. Texas is experiencing a ” massive outbreak ” with a surge in hospitalizations, Governor Greg Abbott said. In California, Walt Disney Co. indefinitely delayed the reopening of its theme parks. The University of Washington’s Institute for Health Metrics and Evaluation’s model now predicts 180,000 Americans will have died from the virus by October, a 10% decrease from its previous forecast.

Economists forecast that today’s initial jobless claims total will be over 1.3 million, which would make it the 14th week in a row the number has surpassed the previously unprecedented 1 million mark.


Fitch Ratings removed Canada’s AAA credit rating yesterday on account of the government’s substantial Covid-19 emergency spending. These sovereign ratings downgrades never really matter much. The yield on Canadian 10-year debt it’s trading near-record-low levels (the white line in the chart).


Oil prices remained weak on worries of oversupply and rapidly increasing coronavirus cases. Inventory data published by the US EIA showed a build of 1.4 million bbl in crude oil stocks taking the total to 540.7 million bbl, a record high. While the report showed gasoline demand to be stronger, it was not enough to comfort the markets

Reuters reported that Petrobras is set to receive binding offers for the country’s largest refinery on Thursday. The potential bidders for the refining asset are UAE’s investment fund Mubadala and Chinese state refiner Sinopec. Another contender reportedly in the fray is Indian conglomerate Essar. The refinery has a capacity of 323,000 BPD, around 14% of Brazil’s capacity, and could provide an entry into the Brazilian market which has to date remained largely under the control of Petrobras.


Demand plunge will spoil gold rally, says Metals Focus Demand for gold will weaken this year as a surge in purchases by investors will not offset a dramatic fall in consumption by jewelers, industry and central banks, an industry report said on Wednesday. Consultancy Metals Focus also predicted that gold prices would average $1,700 an ounce this year, suggesting that a rally to eight-year highs around $1,770 will stall.


U.S. senators question meatpackers over exports to China during pandemic Two prominent U.S. Senate Democrats are pressing America’s top meatpackers to disclose by month’s end how much pork, beef, and chicken they shipped to China during the coronavirus outbreak while warning of possible meat shortages at home. The request from Senators Elizabeth Warren and Cory Booker increases scrutiny of companies like Tyson Foods Inc, JBS USA, and Smithfield Foods after thousands of meatpacking workers were infected with COVID-19, the disease caused by the coronavirus.

Brazil’s sugar production up 57%; ethanol sales improve Sugar production in Brazil’s center-south region reached 10.57 million tonnes so far in the 2020-21 season that began in April, 57% more than in the previous season, industry group Unica said on Wednesday. Mills in Brazil continue to push for maximum sugar output at the expense of ethanol, with cane allocation for production of the sweetener reaching near a record 47% early in June. Sugar currently yields better financial returns for mills than ethanol.

Chicago corn futures slid for a fourth consecutive session as near-perfect weather across the U.S. Midwest lifted hopes of bumper production. ICE raw sugar hit a one week low on Wednesday as tightness in the refined white sugar market continued to ease, while concerns escalated in wider markets about a second wave of coronavirus infections. Coffee and cocoa were little changed. Malaysian palm oil futures fell for a second straight session after crude prices plunged overnight and investors awaited export data.


With the third quarter soon upon us, investors are likely to focus even more intently on the U.S. presidential election in November. Initial signs from the currency market suggest traders are bracing for protracted uncertainty. The spread between six- and three-month implied volatilities shows a steep jump around election day that persists into 2021. That contrasts with the run-up to the 2016 election when gauges of turmoil reflected only a temporary minor uptick in volatility. One fear of course is that the election produces no clear winner, and leads to recounts and court challenges. Another is the unknown impact of increased postal voting due to the coronavirus, and how that might delay results. There are the import and timing of other election results — such as who will get control of the Senate. And there may be uncertainty over any transfer of power, should one be required. All this and more will occupy trader’s minds — and pricing — as November nears.

See you all now in the team meeting!

Best regards

Leo Hermoso


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