FT : Saudi Arabia transfers $40bn to back wealth fund’s spending spree

Saudi Arabia transfers $40bn to back wealth fund’s spending spree
Finance minister confirms move as kingdom seeks to scoop up foreign assets at depressed prices

Saudi Arabia’s central bank has transferred $40bn to the Public Investment Fund to finance its overseas spending spree as the sovereign wealth fund seeks to take advantage of the coronavirus pandemic by hunting for assets at knockdown prices.

Mohammed al-Jadaan, finance minister, said the funds were transferred from the Saudi Arabian Monetary Authority’s foreign reserves “exceptionally” during March and April.

He told the Financial Times that the foreign currency would provide dollar liquidity to the $325bn PIF to allow it to continue investing overseas, both “tactically” and for the “long term”.

“They are obviously looking for the right time and the right market,” Mr Jadaan said in an interview. “They have finished part of their investment and they may be waiting for opportunities to come in the weeks and months to come.”

The PIF, which is chaired by Crown Prince Mohammed bin Salman, has already spent at least $8bn investing in US and European blue-chip companies, including BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney and Facebook, in the first three months of the year. It has also led an investor group that has agreed to buy Newcastle United, the English football club, for £300m.

Saudi Arabia’s central bank has transferred $40bn to the Public Investment Fund to finance its overseas spending spree as the sovereign wealth fund seeks to take advantage of the coronavirus pandemic by hunting for assets at knockdown prices.

Mohammed al-Jadaan, finance minister, said the funds were transferred from the Saudi Arabian Monetary Authority’s foreign reserves “exceptionally” during March and April.

He told the Financial Times that the foreign currency would provide dollar liquidity to the $325bn PIF to allow it to continue investing overseas, both “tactically” and for the “long term”.

“They are obviously looking for the right time and the right market,” Mr Jadaan said in an interview. “They have finished part of their investment and they may be waiting for opportunities to come in the weeks and months to come.”

The PIF, which is chaired by Crown Prince Mohammed bin Salman, has already spent at least $8bn investing in US and European blue-chip companies, including BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney and Facebook, in the first three months of the year. It has also led an investor group that has agreed to buy Newcastle United, the English football club, for £300m.

It has huge domestic commitments, including the development of three “giga-projects” and incubating new local industries.

Mr Jadaan said that despite the government’s spending cuts, the development of the giga-projects, including Neom, a $500bn futuristic city that is Prince Mohammed’s flagship scheme, would continue. “Segments of these, particularly Neom, that have been approved are on track. The only delays were caused by the lockdown,” Mr Jadaan said.

But the scale of transfers to the PIF could raise unease among Saudis at a time when they are enduring painful austerity measures.

Mr Jadaan said “people understand you cannot be expected to suspend your assets that are generating revenue”.

“We need these assets to finance your operations going forward. The returns from these assets are available to us as needed,” he said. “The rationale [is], instead of keeping reserves in fixed income and liquid assets, you invest in something that’s dropping in value and has the potential to give you a very good return while you still have significant more liquidity and reserves available.”

The PIF was transformed from a once-sleepy fund after Prince Mohammed took over as chair in 2015. It rose to international prominence after investing $3.5bn in Uber in 2016. A few months later, it agreed to become the main investor in SoftBank’s $100bn Vision Fund, committing $45bn to the biggest private fund of its kind ever created.

FT : Space economy: rocket fuel

Space economy: rocket fuel
The cost of getting into orbit are going down while the profit potential is going up

The commercialisation of human space flight has reinvigorated US plans for space exploration. First the International Space Station, then the Moon. One day, perhaps, Mars.

Planned missions have been delayed but SpaceX’s Crew Dragon capsule, launched on a Falcon 9 rocket, should become the first privately owned vehicle to take Nasa astronauts to the ISS this week. Boeing is expected to be about a year behind. 

A sustainable commercial market for space travel could fund future exploration. In the past decade the price tag for reaching low Earth orbit cost has declined by a factor of 20, according to research analysts at Nasa. NASA’s space shuttle cost about $54,500 per kg to reach low Earth orbit. SpaceX’s Falcon 9 advertises a cost of $2,720 per kg. Launch costs to reach the ISS have declined by a factor of 4.

There are cheaper ways to leave gravity behind. It costs about $12,000 to take a ride in a Russian MiG-29 jet and see the curvature of the Earth. Spanish company Zero 2 Infinity claims it will launch a stratosphere travel programme next year that will take tourists 32 kilometres above the Earth in a specially designed balloon for €125,000. Those who want to go further can expect to spend millions.

But shuttling people between space and Earth is not where SpaceX expects to make most of its money. Valued at $36bn, according to PitchBook data, the company’s profits are expected to come from satellites that beam wireless broadband services around the world. In the $360bn global space economy, broadband satellites is the fastest growing sector according to data from the Satellite Industry Association. What is a $2bn market today could reach $95bn within the next two decades.

FT : The woman who revolutionised home-made ice-cream (see pdf)

The woman who revolutionised home-made ice-cream
La Grotta Ice’s Kitty Travers shares her fabulous, fruity flavours and recipes

It started this time last year when, at a warm alfresco birthday dinner — of the sort that one can only dream of now — a friend produced two cardboard pots covered with waxed paper, tied with string. “This is my new obsession,” she said. “One pot is sea salt, rosemary and pine nut, and the other is strawberry salad.”

She had recently invested in a rather expensive ice-cream maker and these were two freshly churned flavours inspired by some ice cream she had tried from La Grotta Ices. She encountered this artisanal producer in London’s Bermondsey, where La Grotta’s creator Kitty Travers parks her Piaggio Ape van to sell her sumptuous ice creams in seasonal fruity flavours. As we sunk our spoons into each pot — the creamy rosemary-laced ice studded with crunchy pine-nut brittle, the strawberry salad so smooth and tangy it reminded me of Fruitella sweets — she explained that she’d bought Travers’ 2018 book, La Grotta Ices, and become hooked on making home-made ice cream.

Things happened swiftly after that. Another friend present, visiting from Paris, bought a £40 Magimix 1.1l ice-cream maker from Amazon as well as “the book”, as it soon became known. I followed suit, envious of discussions about how long prune and Earl Grey mix has to steep before you churn, or whether round or flat white peaches work best for Travers’ mouth-watering tomato-and-white-peach ice. A WhatsApp group we coined Gelato sprung up — a space to discuss flavours, technique and equipment (“Do you really need a thermometer to make sure the custard is 82C?” Answer: yes). Requests came in: “Is it OK to add Nick, he is really into making ice cream?”; “My husband would like to join!”

Over the past year, discussions have taken in everything from one member’s pilgrimage to The Museum of Ice Cream in San Francisco (disappointing) to another’s excitement at tracking down a sole bergamot in east London to make blood-orange-and-bergamot sorbet. We have brought our ice-cream makers on holiday to make figleaf ice, from leaves stolen from a neighbour’s garden in Brittany, and apricot-noyau ice, from Italian apricot kernels. We have mused on flavours to meet the national mood — marmalade, for comfort, on Brexit Day — and ice creams to suit the season; “Corsican kumquats are now in the markets!” exclaimed my Paris friend in January. As well as La Grotta Ices, we sourced second-hand copies of the original ice-cream bible, Ice Creams, Sorbets and Gelati: The Definitive Guide (2010) by Caroline and Robin Weir. My copy arrived, gratifyingly, with splats and smears on the crinkled pages of the chocolate section.

Barron's : Ride the Travel Rebound With 7 Less Risky Stocks

Ride the Travel Rebound With 7 Less Risky Stocks

Walt Disney’s announcement this past week that it plans to reopen its biggest U.S. theme parks in July—with everything as sanitized as the love affair between Donald and Daisy Duck—highlighted a remarkable turnaround for travel stocks.

In the past two weeks, the shares of hotels, cruise lines, and airlines have all risen more than 20%.

Americans have been quite literally pent up for the past two months, and travel demand is pent up, too. The travel stocks are the latest market laggards to rise, and also have the trickiest roads ahead. Most are still down more than 30% for the year.

But Barron’s has identified seven stocks—in travel and in ancillary businesses—that appear insulated from the worst of the uncertainty and could be lifted over the next year by an emerging revival in travel.

Many of these stocks— Spirit Airlines (ticker: SAVE), Southwest Airlines (LUV), Delta Air Lines (DAL), Extended Stay America (STAY), Lindblad Expeditions Holdings (LIND), Marathon Petroleum (MPC), and Las Vegas Sands (LVS)—operate in more-attractive niches of the industry, from budget airlines to extended-stay hotels.

The broader economy is in recession, but the travel industry is arguably going through a depression. More than half of the people employed in it have been laid off, representing 38% of the total job losses in the U.S. through April, according to the U.S. Travel Association, an industry group. For the year, U.S. travel revenue—normally a $1.1 trillion industry—is expected to fall 45%.

While the country is gradually reopening, many Americans simply are not ready to venture far from home. The latest Harris Poll shows that 53% plan to put off their next trip until 2021. The number of U.S. passengers flying is still down more than 85% from a year ago. Some tourist havens have become ghost towns.

Business travel faces a higher hurdle. It will undoubtedly return, but perhaps not in the same form or with the same frequency as before . That is a huge worry for big airlines and hotels, which depend on corporate expense accounts to keep their margins up. The latest survey of travel industry professionals from the Global Business Travel Association found that only 15% of respondents expect most employees to be willing to travel for the first six months after restrictions are lifted.

“Nobody knows when the business community is going to feel it’s safe to fly,” says Mark Stoeckle, CEO and portfolio manager at Adams Funds. “I don’t know whether that’s July or October or January. So in that kind of an environment, I’ll be happy not to be in those stocks.”

Travel—business and leisure—is likely to return in stages. Not surprisingly, the path of the recovery has a lot to do with the path of Covid-19 itself.

The rebound “will not be linear,” says Axel Hefer, CEO of the travel search site Trivago (TRVG). “Travelers will be in a different state of mind. Some will progress faster, some much slower. It will depend on age, health conditions, where you live, and to what extent you’ve experienced the first outbreak. If you’re coming from northern Italy, it is more likely you’ll return more slowly than from areas where it isn’t really as severe.”

In the oceanside town of Bar Harbor, Maine, the hotels are normally packed this time of year through Labor Day. Yet just one small inn was operating over the Memorial Day weekend—and it was admitting only state-approved guests, including scientists working at a nearby lab.

“You’ve gone from a situation where you would normally have 2,000 rooms rented, down to 15 rooms,” says Stephen Coston, who owns that property, the Inn on Mount Desert. “The people who own the restaurants and shops are realizing, ‘Oh my God, holy cow, this is really happening.’ ”

Nonetheless, there are already signs of renewal. On weekdays, U.S. roads are still mostly empty, but traffic on the weekends is about as busy as it was before the pandemic, cellphone tracking data show. On June 1, Delta will restart flights from New York to Paris, and bars in the Florida Keys will begin serving Rum Runners to tourists.

Coston says his July bookings are trending toward 40% occupancy, and he hopes that occupancy eventually exceeds 75%—a “lousy” number, but no longer a doomsday scenario.

In the longer term, Americans have not lost their wanderlust. In fact, the crisis might actually inspire them to eventually explore even farther than they used to. Once the pandemic ends, 59% of Americans plan to travel the same or more than they did before, according to a survey from the consulting firm Oliver Wyman.

The first trip that many families take will be self-directed, where they can control the environment, Trivago’s Hefer predicts. Data from his company show that people are gravitating to vacation rentals—20% of users clicked on rentals in May, up from 11% in February.

They mostly chose the beach over amenity-filled metropolises, with Myrtle Beach in South Carolina and Panama City Beach in Florida the No. 1 and No. 2 destinations nationwide.

The third most popular? Somewhat surprisingly, given many Americans’ preference for the outdoors this summer, it’s Las Vegas. Casino gambling will return on June 4, with low capacity limits and new sanitation practices meant to keep hot slots from

Adams Funds’ Stoeckle bought Las Vegas Sands stock after the crash and thinks that it still has room to run. Not only does the company have 18 months’ worth of cash on hand, but also its properties in Macau have already been up and running for weeks, he notes.

The stock has risen 25% since mid-March, around when Adams Funds bought in, but it remains down 30% for the year. Las Vegas Sands suspended its dividend in April, and analysts expect it to post a loss this quarter. But positive earnings should resume in the third quarter.

Even assuming that 2021 earnings barely get back to two-thirds of their prior levels, the stock still trades at 20.5 times expected earnings, a reasonable multiple for the company in historical terms. “We have a good runway,” Stoeckle says.

The Adams Funds CEO says that he also looked at the stocks of hotels and airlines, which were beaten down similarly to Las Vegas Sands shares. But many of those companies are much more dependent on business travelers, so he held back.

Counterintuitively, business travel can feel discretionary at a time like this, Stoeckle notes.

If one of his employees got sick at work, “it’ll kill me. It’ll just tear me apart,” he says. Asking an employee to travel to meet a client—or even come into the office before it’s absolutely necessary—feels high-risk without a Covid-19 vaccine or effective treatment available.

“I don’t want my employees on a plane,” he says. “I can control that. I can’t control you taking your family to Niagara Falls for a few days. Because of that, I suspect that the individual might come back faster than the business guys.”

Barron's : BAE Systems Stock Should Be on Investors’ Radar. Here’s Why.

BAE Systems Stock Should Be on Investors’ Radar. Here’s Why.

BAE Systems is one of the few firms to come out of the first quarter unscathed by Covid-19. That makes the United Kingdom defense contractor a defensive play.

The firm, which helps make the F-35 combat aircraft and the Eurofighter Typhoon, is more likely to bounce back faster than others postpandemic because government budgets remain intact, and states could kick-start economies by channeling even more money into homegrown security stocks.

U.K.-listed BAE (BA.UK), is in a strong position because it has a healthy order book, and there is clarity on its multiyear programs, with long-term contracts with various governments internationally.

While the defense, security, and aerospace company has some exposure to the damaged commercial aviation sector, its civil avionics division contributes less than 10% of sales.

Shares have been on an upward trajectory since their low of 110 pence (134 cents) in 2003. They peaked at 671.40 pence in July 2018 and seesawed their way to 655 pence in February, sliding just 6.83% over the past month at the height of the coronavirus crisis to 500.02 pence.

But Jaime Rowbotham, an analyst at Deutsche Bank, has marked the stock a Buy, forecasting a 38.4% rise to 695 pence. In a May note, he wrote that the valuation “looks undemanding.”

While defense companies “have a greater chance than most of a quick recovery to precrisis levels of activity, a lot will depend on the state of government budgets and any reprioritization that might be required,” he wrote.

Yan Derocles, an analyst at Franco-German Oddo BHF, has a target price of 605 pence, writing in an April note, “It should be noted that BAE Systems is a haven in the current context. The stock has proved very resilient since the appearance of the virus.”

It fetches 11 times this year’s expected earnings and is valued at a 20% discount to its peers. BAE, which has a market value of 16.6 billion pounds sterling ($20.3 billion), employs 79,000 staff, and posted a pretax profitof £1.6 billion for the year ended on Dec. 31 on revenue of £18.3 billion.

CEO Charles Woodburn tells Barron’s that “the company is in a strong position with a large order backlog, mainly consisting of long-term government contracts, and a strong balance sheet, with a high-quality and diverse geographic portfolio.” At year end, the company had cash available of £2.6 billion and a further £2 billion available to draw on.

“The pandemic had no material impact on our financial performance in the first quarter of 2020,’’ Woodburn says. “We’re seeing more significant disruptions in the second quarter, and we continue to take a number of actions to enhance our resilience and limit the financial impact of disruptions to the business.”

British Aerospace was formed as a statutory corporation, fully financed by the U.K. government, in April 1977. In February 1981, the government sold 51.57% of the shares, placing the company in private ownership with the remainder of its shares sold in April 1985.

It retains a single £1 “golden share” to prevent it from falling into foreign ownership. In 1999, British Aerospace merged with Marconi Electronic Systems to form BAE Systems.

It generates 43% of its sales in the U.S. and 19% from the U.K., with most of that through its aviation business.

The company is set to benefit from two acquisitions, one of Raytheon Technologies (RTX), which closed on May 4, and the other of Raytheon subsidiary Collins Aerospace, which is on track.

Investors should have BAE on their radar.

Barron's : Airline Stocks Still Have Far to Go. Here Are 3 That Can Benefit From

Airline Stocks Still Have Far to Go. Here Are 3 That Can Benefit From a Pickup in Domestic Travel.

Airline stocks have rallied on hopes that summer travel won’t be a total wipeout and its revival might signal a broader recovery in air traffic.

Airlines have bolstered their balance sheets (thanks in part to $25 billion in government bailouts), and they are luring nervous fliers by deep-cleaning planes and increasing distance between strangers. They are limiting ticket sales per flight and letting passengers rebook if the dreaded middle seat is all that’s left.

It seem to be working. More than 1.5 million travelers passed through security checkpoints from May 21 through May 25, among the highest levels since air travel nearly ground to a standstill in March. Cowen analyst Helane Becker expects passenger traffic to hit 400,000 a day by August—up from more than 260,000 now—and one million by December.

The airline stocks aren’t the deep-value plays they were a few weeks ago. But the sector is still off 55% from its 52-week high and there is probably more upside if we don’t get another wave of infections.

Carriers focusing on domestic leisure travel are likely to be some of the biggest initial revenue winners. Many large companies aren’t yet approving business trips. And consumers are more likely to take a short-haul domestic flight than to book a trip to Europe. “The industry may still be able to salvage some of the summer season,” Becker says.

Southwest Airlines (ticker: LUV) looks like the safest bet in the sector. The low-fare pioneer built one of the strongest balance sheets heading into the crisis, holding virtually no net debt. Southwest has since raised cash and liquidity, and reduced expected capital spending—partly by delaying delivery of Boeing 737-MAX aircraft (which still need to be certified by safety regulators). Southwest’s biggest markets include Florida, Texas, and Georgia—states that were early in lifting lockdown rules—and 80% of its customers are leisure travelers.

Southwest’s sales are expected to fall more than 50%, to $10.8 billion, this year, compared with 2019’s total. But revenue is likely to start rising sequentially in the third quarter, and analysts see the airline turning profitable in 2021, earning $1.68 a share. That puts the stock at a steep 19 times earnings, but Becker recently reiterated her Outperform rating on the shares, based on Southwest’s financial strength and leisure focus.

UBS analyst Myles Walton raised his rating to a Buy, arguing that Southwest offers the “best risk/reward” for a recovery.

Spirit Airlines (SAVE) also targets the leisure market, pitching ultralow fares to budget-conscious travelers. The stock lost more than 80% of its value on concerns about Spirit’s solvency and worries that full-service carriers would match its prices, neutralizing its advantage.

But Spirit has raised enough cash to last 18 months at its current burn rate of $4 million a day, easing solvency worries. Airfares have stabilized and started picking up in the past four weeks, according to Deutsche Bank analyst Michael Linenberg. Spirit’s core markets, including Orlando, Fla., and Las Vegas, are likely to see more tourism this summer, as theme parks and casinos gradually reopen.

Even with the stock rallying more than 80% off its lows, Spirit’s market value remains just $1.1 billion (6% of Southwest’s). But Linenberg views the equity as a cheap way to bet on a rebound in earnings, which he sees reaching $2.25 a share in 2022. He has a $24 price target, which would value the stock at 10.7 times earnings. “You’re essentially getting a call option on whether the company will be successful in navigating the Covid backdrop,” he says.

Delta Air Lines (DAL) is more of a play on a rebound in international and business markets. That won’t happen overnight. But Delta has one of the strongest balance sheets and cost structures of the legacy carriers. Its management is considered top-notch, and the carrier has aggressively cut costs and raised cash to make it through more lean months. Its shares trade at a modest 10 times estimated 2021 earnings, “As Europe reopens, there will be pent-up demand for international travel,” says Becker, who rates the stock Outperform, with a $33 price target, implying 28% upside from its recent price.

>>> US Close Dow -0.07% S&P +0.48%. Nasdaq +1.29% Russell -0.47%

Closing Stock Market Summary

The S&P 500 increased 0.5% on Friday, wrapping up a positive week, and month, on a high note following President Trump's press conference on China. The Nasdaq Composite gained 1.3%, while the Dow Jones Industrial Average (-0.1%) and the Russell 2000 (-0.5%) closed slightly lower.  

The market drifted mostly lower all session amid the uncertainty tied to the president's press conference. The event, which started 50 minutes late, lasted only a few minutes, and involved no questions, mattered more in what was not said rather than what was said.

President Trump didn't mention additional tariffs or a withdrawal from the Phase One trade deal. Instead, he said what was speculated beforehand: the U.S. will eliminate special treatment for Hong Kong, will study practices of Chinese companies on U.S. exchanges, and will terminate its relationship with the World Health Organization. 

The reaction was described as a sigh of relief. The S&P 500 declined as much as 1.0% as the speech began but rallied into positive territory shortly after it ended. The information technology sector (+1.2%) did the heavy lifting on the back of its mega-cap components and semiconductor stocks. The Philadelphia Semiconductor Index rose 2.7%. 

The financials (-1.2%), industrials (-0.6%), and real estate (-0.8%) sectors underperformed. 

Economic data showed personal income climb 10.5% in April (Briefing.com consensus -6.5%) thanks to the stimulus payments authorized by Congress, but personal spending dropped 13.6% (Briefing.com consensus -15.0%). Strikingly, the personal savings rate surged to a record 33.0%. 

What is done with those savings will be key to the economic recovery trajectory. Fed Chair Powell, meanwhile, reiterated the central bank will do whatever it takes for as long as necessary to support a recovery. Mr. Powell added that the Fed was not close to hitting the limits of its balance sheet.

Separately, some earnings standouts from today included VMware (VMW 156.27, +13.83, +9.7%), Dell (DELL 49.64, +4.06, +8.9%), Marvell (MVL 32.62, +2.65, +8.8%), Williams-Sonoma (WSM 83.21, +10.18, +13.9%), and ZScaler (ZS 98.09, +22.29, +29.4%).  

U.S. Treasuries saw increased buying interest today, pushing yields lower across the curve. The 2-yr yield declined two basis points to 0.15%, and the 10-yr yield declined six basis points to 0.65%. The U.S. Dollar Index declined 0.1% to 98.31. WTI crude rose 4.9%, or $1.65, to $35.33/bbl.  

Reviewing Friday's economic data:

  • Personal income in April surged 10.5% (consensus -6.5%) with a huge assist from the receipt of economic recovery payments authorized by Congress. Personal spending, however, plummeted 13.6% (consensus -15.0%) with real PCE declining 13.2%. The PCE Price Index fell 0.5% (consensus -0.6%) while the core PCE Price Index, which excludes food and energy, dropped 0.4% (consensus -0.3%). That left the yr/yr changes at 0.5% and 1.0%, respectively, versus 1.3% and 1.7% for March.
    • The key takeaway we think is that the personal savings rate, as a percentage of disposable income, skyrocketed to 33.0%! That's a lot of pent-up spending potential. Then again, it might also reflect an increased propensity to save money in preparation for a long recovery and extended period of high unemployment. What is done with those savings will be key to the recovery trajectory.
  • The University of Michigan's Index of Consumer Sentiment slipped to 72.3 with the final reading for May (consensus 73.7) versus the the preliminary reading of 73.7. The final reading for April was 71.8.
    • The key takeaway from the report is that attitudes about current conditions improved from April while sentiment surrounding the outlook continued to deteriorate, with income growth concerns weighing. The latter is apt to be a headwind for a pickup in consumer spending.
  • The Chicago PMI for May declined to 32.3 (consensus 41.0) from 35.4 in April.
  • The advance goods trade deficit totaled $69.7 bln in April after a $64.98 deficit in March. Advance retail inventories declined 1.1% in April after decreasing 1.0% in March. Advance wholesale inventories increased 0.4% in April after decreasing 0.8% in March.

Looking ahead, investors will receive the ISM Manufacturing Index for May and Construction Spending for April on Monday.

  • Nasdaq Composite +5.8% YTD
  • S&P 500 -5.8% YTD
  • Dow Jones Industrial Average -11.1% YTD
  • Russell 2000 -16.5% YTD

>>> Weekly Update

Weekly Market Update: War of words over Hong Kong doesn’t dampen optimism about reopening economies

Coming out of the holiday break, equity markets roared. US indices reached levels not seen since early March and late February while the S&P pushed up through its 200-day moving average. Positive developments on the coronavirus treatment front combined with incremental headlines surrounding the pullback of various lockdown measures aided risk appetite broadly. Japan raised expected bond issuance to fund a second budget to provide stimulus, while EU officials unveiled details of an ambitious €750B recovery fund that favors grants over loans and would be funded by joint debt. US stock markets experienced a notable rotation away from the perceived pandemic winners into banks and other beaten-down groups including small caps in general, which affirmed a welcomed sense of widening breadth in the stock market’s rebound.

Late in Thursday’s session concerns about the rising tensions over China’s move to crimp Hong Kong’s autonomy seemed to finally put a cap on risk exuberance. After a week of increasingly harsh rhetoric from the White House, on Friday President Trump announced some visa restrictions and a ‘working group’ to examine the differing financial practices of Chinese firms listed in the US. Separately, Trump also signed an executive order aimed at social media companies after one of his tweets criticizing mail-in ballots was ‘fact checked’ by Twitter. The dollar continued to lose ground this week with the very notable exception against the Yuan; The Chinese currency fell to its weakest level against the dollar since early 2008. Meanwhile, crude futures continued to rebound, ending the month of May with a record 80% gain. For the week, the S&P gained 3%, the DJIA rose 3.9%, and the Nasdaq added 1.8% to come within just a few percent of all time highs.

In corporate news this week, Boeing shares rose after it said it would resume 737 MAX production at its Renton, WA facility, and forecast output to gradually ramp up this year. Disney announced plans to start a phased reopening for its Magic Kingdom and Animal Kingdom parks on July 11th, while Six Flags is set to reopen its first park in Oklahoma on June 5th. UPS said it would add a peak surcharge and an oversize package surcharge for ground shipments beginning May 31st amid an influx of e-commerce orders. Tesla reduced prices on certain vehicles by as much as $5,000 in North American markets as well as imported Model S and X vehicles in China. Costco saw a sales bounce early in Q3 on a burst of coronavirus-related spending, but the numbers did not sustain as shopping frequency decreased over the quarter. Toll Brothers Q2 earnings beat street estimates, and while the CEO said net signed contracts in the first four weeks of May were down 37% year-over-year, they remain ‘very encouraged’ by recent deposit activity.


MON 5/25
*(DE) GERMANY Q1 FINAL GDP Q/Q: -2.2% V -2.2%E; Y/Y: -2.3% V -2.3%E (confirms technical recession)
*(DE) GERMANY MAY IFO BUSINESS CLIMATE SURVEY: 79.5 V 78.5E; CURRENT ASSESSMENT SURVEY: 78.9 V 80.0E
REGN Sanofi to sell majority of its 20.6% stake; Regeneron announces $5B stock repurchase (8% of market cap); drug collaborations will not be impacted
NVAX Initiates Phase 1/2 clinical trial of COVID-19 vaccine NVX-CoV2373; result is expected in early July

TUES 5/26
*(DE) GERMANY JUN GFK CONSUMER CONFIDENCE: -18.9 V -18.0E
(DE) German govt said to be prepared to lift travel warnings on almost three dozen countries and replaced by more detailed travel advice - financial press
(UK) EU said to be prepared to drop maximalist approach to fisheries in next round of Brexit negotiations - financial press
(EU) ECB said to be working on a contingency plan if Bundesbank is forced to quit PSPP bond buying scheme - financial press
*(US) APR NEW HOME SALES: 623K V 480KE
*(US) MAY CONSUMER CONFIDENCE: 86.6 V 87.0E
*(US) MAY DALLAS FED MANUFACTURING ACTIVITY INDEX: -49.2 V -62.0E
MRK Merck CEO Frazier casts doubt over 12 to 18 month timeframe for development of a Covid-19 vaccine - FT
TWTR Twitter now includes a 'fact check' of Pres Trump tweets about mail-in ballots on his Twitter page
(US) White House econ adviser Kudlow: Trump is so 'miffed' with China on coronavirus and other matters that the trade deal is not as important to him as it once was; China trade deal is on for now - Fox interview

WED 5/27
(CN) China Foreign Ministry spokesperson Zhao Lijan: Will take countermeasures if others harm China
(EU) ECB chief Lagarde: Will not have a new Euro area debt crisis following the pandemic; not overly concerned about the high level of debt- online event
(EU) EU Commissions recovery fund proposal said to be comprised of €500B in grants and €250B in loans - German press
(EU) EU Commission President Von der Leyen: Dealing with pandemic is Europe's moment; total EU recovery effort stands at €2.4T
*(US) MAY RICHMOND FED MANUFACTURING INDEX: -27 V -40E
(US) Dallas Fed May Texas Service Sector Outlook Survey: General Business Activity: -41.7 v -83.9 prior
(US) Sec of State Pompeo: announces that US can no longer certify Hong Kong autonomy from China; says no reasonable person can assert today that Hong Kong maintains high degree of autonomy from China given facts on the ground
BA Resumes 737 MAX production at its Renton, WA facility; production to gradually ramp up this year - press
MU Raises Q3 $0.75-0.80 v $0.56e (prior $0.40-0.70), Rev $5.2-5.4B v $4.91Be (prior $4.6-5.2B), Gross margin 33-34% (prior 31.5% +/-1.5%) - filing

THRS 5/28
*(EU) EURO ZONE MAY ECONOMIC CONFIDENCE: 67.5 V 70.6E
*(DE) GERMANY MAY PRELIMINARY CPI M/M: -0.1% V -0.1%E; Y/Y: 0.6% V 0.6%E
*(US) APR PRELIMINARY DURABLE GOODS ORDERS: -17.2% V -19.0%E; DURABLES (EX-TRANSPORTATION): -7.4% V -15.0%E
*(US) INITIAL JOBLESS CLAIMS: 2.123M V 2.10ME; CONTINUING CLAIMS: 21.05M V 25.68ME
*(US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: -5.0% V -4.8%E; PERSONAL CONSUMPTION: -6.8% V -7.5%E
*(US) Q1 PRELIMINARY GDP PRICE INDEX: 1.4% V 1.3%E; CORE PCE Q/Q: 1.6% V 1.8%E
*(US) DOE CRUDE: +7.9M V -1.5ME; GASOLINE: -0.7M V -0.5ME; DISTILLATE: +5.5M V +2ME
(US) Atlanta Fed raises Q2 GDP growth to -40.4% from -41.9%
UPS To add peak surcharge for ground packages, to add oversize package surcharge beginning May 31st amid jump in e-commerce shipments - press
(US) Pres Trump: will sign executive order to 'uphold free speech'; social media companies will lose their liability shield; they are tantamount to a monopoly
COST Reports Q3 $1.89 v $1.91e, Rev $36.5B v $37.7Be

FRI 5/29
*(EU) EURO ZONE MAY ADVANCE CPI ESTIMATE Y/Y: 0.1% V 0.1%E; CPI CORE Y/Y: 0.9% V 0.8%E
(US) Nevada reports April casino gaming Rev $3.7M, -99.6% y/y; Las Vegas strip Rev $3.4M, -99.3% y/y
(US) Fed Chairman Powell: want to reiterate Fed is strongly committed to using all our tools to get to a robust recovery; acknowledging a lot of pain being felt out there - Princeton webcast
(US) New York Fed Nowcast: cuts Q2 forecast to -35.5% from -30.5%
(US) Atlanta Fed cuts Q2 GDP growth to -51.2% from -40.4%
(US) President Trump reportedly will NOT leave the phase one US/China trade deal over recent tensions - press
(US) Pres Trump: to launch working group to study differing practices of Chinese companies listed on US stock markets; will revoke Hong Kong's preferential treatment; Will take steps to sanction Hong Kong officials involved in eroding Hong Kong's autonomy - remarks at Rose Garden