European markets are slightly in the red this morning as they take a breather from yesterday’s rally. The UK’s FTSE 100 has also been hit by a swathe of ex-dividends from some big blue chip names such as AstraZeneca (AZN), BP (BP) and Royal Dutch Shell (RDS-A). 

Despite increased strain on US-China relations ahead of their crucial meeting at the weekend, investors in Asia are resting on the fact that this will not adversely affect trade which led Japan to 6-month highs overnight.

Yesterday’s rally across the board came as Democratic presidential nominee Joe Biden announced senator Kamala Harris as his running mate. Investors were relieved, as Harris is viewed as a less extreme option in terms of potential financial regulation than other options such as Elizabeth Warren. The New York Times dubbed Harris as “a V.P. pick that big business can back”, while The Wall Street Journal said that, despite her tough-on-banks record, “much of Wall Street cheered anyway.”

Wells Fargo (WFC) head of public affairs Bill Daley described Harris as “a reasonable, rational person who has worked in the system” and noted that while she is progressive she is not “someone who wants to burn the building down.” After enjoying a rollback of some regulations under President Trump and a lower corporate tax rate, a Democrat in the White House would likely lead to a change in direction.

 Tesla surges 13% on stock split news

All three of the major US stock indices jumped yesterday, led by the Nasdaq Composite, which closed the day out 2.1% higher with its year-to-date gain now at 22.7%. The Dow Jones Industrial Average added 1.1%, while the S&P 500 was up 1.4%. Tesla (TSLA) stock helped take the Nasdaq higher, as the near $300bn market cap firm added 13.1% on the back of a stock split announcement – which investors are betting will increase demand for the stock from lower value investors. Chipmakers AMD (AMD), Qualcomm (QCOM) and Nvidia (NVDA) all surged too, as China unveiled new policies that will offer tax breaks to firms making advanced chips in the country. AMD finished the day 7.5% higher, Qualcomm 6.4%, and Nvidia 5.4%. In the Dow, Apple (AAPL) led the way with a 3.3% gain, followed by fellow trillion dollar giant Microsoft (MSFT), which added 2.9%.

In earnings news, Lyft (LYFT) reported that its revenue was 61% lower in Q2 2020 versus the same period last year, but noted that ride-hailing demand increased 78% in July versus April’s level. Co-founder John Zimmer added that the company may be forced to suspend operations in California later this month unless a court ruling related to how it classifies its drivers is overturned.

S&P 500: +1.4% Wednesday, +4.6% YTD (SPY, SPX)

Dow Jones Industrial Average: +1.1% Wednesday, -2% YTD (DIA)

Nasdaq Composite: +2.1% Wednesday, +22.7% YTD (COMP) 

Utility names lead FTSE 100 higher

Despite the official news that the UK entered the worst recession on record in Q2, London-listed stocks soared yesterday, with the FTSE 100 adding 2%. That gain took the index to a three week high. Utilities stocks were among the biggest winners of the day, with Severn Trent (SVTRF), Pennon Group (PEGRF) and United Utilities (UUGWF) adding 5%, 4.9% and 4.7% respectively, while National Grid (NGGTF) jumped 4.1%. Admiral Group (AMIGF) posted the best day of all FTSE 100 stocks, closing 7.3% higher after reporting that it will now pay a special dividend it had deferred during the depths of the pandemic, following a jump in its pre-tax profit. Only five FTSE 100 stocks lost more than 1% on Wednesday, with International Consolidated Airlines Group (IAG) tempering some of its recent gains, at a 2.5% loss.

FTSE 100: +2% Wednesday, -16.7% YTD

FTSE 250: +0.5% Wednesday, -17.3% YTD

What to watch

Applied Materials: California-based Applied Materials (AMAT) makes equipment and services for use in semiconductor chips; it counts Intel, Taiwan Semiconductor and Samsung among its clients. The firm’s share price is up 8.9% year-to-date and 29.2% over the past three months, amid a broader rally for the chip sector. Applied Materials reports its latest set of quarterly earnings today, where key points to watch will be how the company expects to benefit from the rollout of 5G technology, and how it might be benefiting from the mass shift to work-from-home, which has increased demand for some of the products it makes chips for. Wall Street analysts overwhelmingly favour a buy rating on the stock.

Netease: Nasdaq-listed Netease (NTES) is a Chinese internet firm with a portfolio that includes mobile gaming, music streaming and e-commerce, it has seen its US listed shares surge more than 50% year-to-date. The company reports Q2 earnings today, days after striking a deal to license songs from Universal Music Group, an arena in which it competes with Chinese tech giant Tencent (TCEHY). Analysts will likely probe how the firm’s gaming portfolio is holding up given how far China is into its reopening, as the pandemic has been a boon for the unit. Most Wall Street analysts who cover the stock favour a buy rating . 

Brookfield: Alternatives asset manager Brookfield (BAMGF), which focuses on infrastructure, private equity and real estate investing, is down 12.1% year-to-date. The $50bn market cap company reports its latest set of quarterly earnings today, where one topic of conversation is likely to be how it plans to capitalise on the near zero-interest rate environment, which is pushing many wealth managers to seek out alternative replacements for traditional fixed income allocations.

Crypto corner: Venezuela to begin using crypto in its tax system

Venezuela is set to begin using its own national cryptoasset, the petro, in its tax system according to Decrypt.

The country, which suffers from serious hyperinflation of its fiat currency, the bolivar, created the petro as a means to circumvent the traditional global financial system. The US dollar has otherwise become the de facto currency of day-to-day business in the country as Venezuelans avoid using the highly unstable local currency.

But the petro, created as a totally alternative system by the government, is now set to be used to calculate citizens’ tax bills. This is because the unstable bolivar led the government to receive much lower income than initially set, thanks to quickly devaluing currency.

The petro can be used as a more stable unit of account, which means the government doesn’t lose any of its incoming tax. There is no suggestion, however, that Venezuelans will be able to pay their taxes in petros, for now.

All data, figures & charts are valid as of 13/08/2020