Top 5 Things to Know in the Market on Monday, August 3rd

(C) Reuters.

By Peter Nurse — TikTok has become the latest flashpoint between the Chinese and U.S. governments as Microsoft (NASDAQ:MSFT) circles, while Wall Street is set for a quiet start as the earnings season continues. Investors will be looking at Washington for more news about another relief package as the coronavirus enters a new phase. Economic data centers around the ISM manufacturing release Monday, ahead of Friday’s key employment report. Here’s what you need to know in financial markets on Monday, August 3rd.

1. TikTok on the block

Chinese-owned video-sharing app TikTok has become the latest flashpoint in the deteriorating relationship between the globe’s two economic superpowers, the U.S. and China.

However, Microsoft could have the answer to this particular problem after the U.S. tech giant confirmed that it is holding talks with the app’s owner Bytedance over purchasing the app’s U.S. operations.

Microsoft boss Satya Nadella had a conversation with President Donald Trump about the acquisition on Sunday, the tech firm said, and Reuters reported Monday the president has now allowed Microsoft 45 days to negotiate a deal.

A successful bid by Microsoft for the popular app would immediately make it a major competitor to social media giants like Facebook (NASDAQ:FB) and Snapchat.

Trump had previously vowed to ban the app, with the U.S. administration stating that it poses a national security risk because of the personal data it handles. This follows the hard-line stance the U.S. has taken over Chinese companies that it feels contain critical technology.

Short-form video app TikTok is thought to have about half a billion active users worldwide – and about 80 million in the U.S. – with a huge proportion of these in their teens or early 20s.

Banning the app could alienate many of these young TikTok users ahead of the U.S. presidential election in November, an election which is likely to be tightly fought.

2. Coronavirus “extraordinarily widespread” in U.S. – Birx

Coronavirus cases continued to surge in parts of the U.S., with July being the worst month for new cases since the pandemic began. Additionally, White House coronavirus experts warned Sunday that the country is in a new phase of the outbreak.

“We are in a new phase,” said Dr. Deborah Birx. “What we are seeing today is different from March and April. It is extraordinarily widespread” in rural as well as urban areas.

“To everybody who lives in a rural area: You are not immune or protected from this virus,” Birx said.

The virus has already claimed over 150,000 lives in the U.S., by far the highest death toll in the world, plus more than a half-million others around the globe.

With this in mind, investors will be keeping their eyes on Washington where Congress is still deadlocked over the next round of economic relief from the pandemic.

White House Chief of Staff Mark Meadows said on Sunday he was not optimistic on reaching agreement soon on a deal for the next round of legislation.

On Friday tens of millions of Americans lost a $600 per week federal unemployment supplement.

3. Positive corporate earnings helping U.S. stock markets

U.S. stock markets are seen largely unchanged Monday, with the Nasdaq index set to outperform on the back of strong earnings from the tech giants last week. News out of Washington (see above) and the ongoing earnings season will be key factors this week, ahead of Friday’s official employment report.

By 6:30 AM (1030 GMT), the Dow futures contract was up 20 points or 0.1%, while the S&P 500 futures contract was up 0.3% and the Nasdaq 100 futures contract was 0.7% higher.

These cash indexes had a strong July. The Dow Jones Industrial Average gained 2.4%, the S&P 500 5.5%, its best July in 10 years, and the Nasdaq Composite rose 6.8%.

The week ahead brings another packed slate of earnings, with 130 members of the S&P 500 set to report. Monday sees Tyson Foods (NYSE:TSN) and Clorox (NYSE:CLX) report before the opening bell, and Virgin Galactic (NYSE:SPCE) after the close.

“To date, 63% of the companies in the S&P 500 have reported actual results for Q2 2020,” said John Butters at Factset, in a note to clients. “In terms of earnings, the percentage of companies reporting actual EPS above estimates (84%) is above the five-year average. If 84% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008.”

4. ISM manufacturing index set to show growth

The jobs report on Friday will be the key economic release this week, but ahead of that comes the Institute for Supply Management’s manufacturing index, due at 10 AM ET (14:00 GMT).

This is expected to show a small rebound to 53.6 in July, from 52.6 the previous month, suggesting this part of the economy remains in expansion territory, although the containment measures which were reintroduced in some states in the second half of the month could create a negative surprise.

Earlier Monday, manufacturing activity across the euro zone expanded for the first time since early 2019, with IHS Markit’s final Manufacturing Purchasing Managers’ Index bouncing to 51.8 in July from June’s 47.4.

The news was also positive in Asia, as China’s private Caixin manufacturing PMI increased to 52.8 from 51.2 the prior month, its highest level since January 2011.

On Friday, China’s official manufacturing purchasing managers’ index rose in July to 51.1 from 50.9 a month earlier, according to the National Bureau of Statistics.

5. Weak dollar helps gold, Treasurys higher

The U.S.dollar had a bad July, suffering its largest monthly fall in three years.

Traders have been fretting about the explosion of coronavirus cases across America, amid fears an ineffectual response could result in lasting damage to the U.S. economy that could keep interest rates and growth low for years.

“This is not the benign dollar decline we had envisaged, but instead, one seemingly being driven on a new risk premium being inserted into U.S. asset markets on the back of a resurgence in US Covid-19 cases,” said analysts at ING, in a research note.

This has resulted in a soaring price for gold, which moved up more than 9% in the month of July to all-time highs. The yellow metal is denominated in dollars and thus cheaper for investors outside of the U.S., as well as being seen as a store of value during geopolitical uncertainty.

U.S. Treasurys have also been in demand, with five-year Treasury yields falling to a record after the Federal Reserve last week delivered a dovish message of support for the coronavirus-stricken U.S. economy.

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