Monday's Headlines

1. Global markets mostly higher behind China's PMI report

2. TikTok is in the middle of China-US tensions as Microsoft looms

3. HSBC reports a 65% drop in profits

4. Eurozone manufacturing sees first rise since Feb 2019

5. Google set to unveil new Pixel phone today

Markets Today

Global markets are roaring like a lion to kick off the month of August with most major indexes showing gains following a much better than expected purchasing managers index report from China. Gold and other metals continue to rise as investors keep their safety bets on the table while putting some chips down in hopes of a continued economic recovery that is happening outside the U.S.

It's the last full week of earnings season, and the results have been a little better than expected, so far. Technology stocks and companies that enable working and playing from home are posting strong results, while airlines, cruise operators, old-school retail and hospitality providers are suffering, and forecasting uncertain outlooks.

Tensions between the U.S. and China continue to escalate with TikTok, the popular social media app, in the cross-hairs (see below). The U.S. State Dept. is also considering banning other Chinese software programs from the U.S., which should continue to make things interesting before the U.S. presidential elections exactly three months from today.

With five months remaining in 2020, here's how major asset global indexes and asset classes have performed thus far:

Headlines

Marathon Petroleum is selling Speedway, its convenience-store and gas station chain, to Seven 1 Holdings, the Japanese owner of the 7-Eleven franchise for $21 billion in cash. The fuel maker has been under pressure from activist investor Elliott Management to split into independent companies. The arrangement includes a 15-year fuel supply agreement for approximately 7.7 billion gallons per year, and MPC expects more "incremental opportunities over time" in the relationship.
Apple has acquired Mobeewave, a startup with technology that could transform iPhones into mobile payment terminals, according to Bloomberg. The tech giant spent around $100 million on the deal, and shares in Square were 1.4% lower in pre-market trading before recovering.
HSBC, the largest bank in Europe, said H1 2020 pre-tax profit fell 65% YOY to $4.3 billion, worse than analysts predicted. Revenue was down 9% at $26.7 billion. Credit losses provisions increased by $5.7 billion to $6.9 billion from the same period last year and loan losses could reach $13 billion in 2020. Outlook for H2 depends on COVID-19, the vaccine, and geopolitical tensions in markets like Hong Kong and the U.K.
Sanofi and GSK are in advanced discussions, with the European Commission for the supply of up to 300 million doses of a COVID-19 vaccine. The doses would be manufactured in European countries including France, Belgium, Germany and Italy.
Shares in ADT are almost 76% higher after the company announced a partnership with Google. Google’s Nest hardware will be combined with ADT’s security, professional installation and monitoring service. Google will invest $450 million in ADT for a 6.6% stake, and both companies will commit $150 million for co-marketing, product development, technology and employee training.
Google's new budget-friendly Pixel 4A phone is slated to be unveiled today. Tap the bricks until the colors are in the right order to see a message (hint: the Google homepage logo). What looks like a "lorem ipsum" paragraph is also describing features in code.
The U.S. Marshals is auctioning off merchandise from the fraudulent Fyre Festival in order to raise money for the victims. The 126 souvenirs on offer include clothing, tokens and wristbands. The current bid on a blue hoodie with the Fyre logo, flag of Bahamas and date and location of the infamous event is $355 with 10 days to go.
NASA astronauts Doug Hurley and Bob Behnken have returned to Earth safely after traveling to the International Space Station on SpaceX's Crew Dragon. It's the first splashdown of an American crew spacecraft in 45 years. SpaceX is the first private company to launch humans into space, and this mission was its final test flight before certification of its crew transportation system by NASA for regular flights to and from the space station.

Images courtesy: NASA

Correction: On Friday, we said France's GDP declined 12.4% in Q2. That was actually Italy's figure. France's economy shrank by 13.8%. We regret the error.

Image courtesy: Paramount Pictures/Giphy

The Big Story

Dance Battle

After being banned in India last month, China's short video messaging app TikTok now faces a ban in the U.S. due to national security concerns. Microsoft is in advanced talks to buy the Gen Z favorite's U.S. operations, which has up to 80 million active monthly users, after Trump indicated Friday he will sign an executive order. TikTok insists that all data collected in the U.S. stays in the country, and CEO Kevin Mayer, Disney's former streaming chief, has promised greater transparency and made public the code that drives algorithms on the platform, as he fights for its survival. A "broad array" of Chinese-owned software may soon be targeted, according to U.S. Secretary of State Michael Pompeo.

TikTok is owned by ByteDance, the most valuable unicorn in the world with a valuation of $140 billion, according to CB Insights. Its investors include Sequoia Capital China, SIG Asia Investments, Sina Weibo and SoftBank Group. The company has spent $800,000 lobbying the U.S. government in the first half of 2020, up from $270,000 in the entirety of last year, as relations between the U.S. and China deteriorated.

The app and its cheesy dance routines exploded in popularity this year during the quarantine. It crossed 2 billion installs globally in April and was downloaded more than 300 million times in the first and second quarter, according to SensorTower, creating a group of minor celebrities. The only other apps to ever surpass 300 million installs in a quarter are Zoom (Q2 2020) and Pokémon GO (Q3 2016). In the U.S., it has been in the top two apps by downloads in both Q1 and Q2 2020.

Q2 2020 Apps by U.S. Downloads

Image courtesy: SensorTower

The President is opposed to Microsoft buying TikTok in the U.S., a deal supported by the Chinese app, according to The Wall Street Journal. The U.S. tech giant "is prepared to continue discussions" and has vowed to close the deal by Sept. 15, and ensure all private data of American users is transferred to and remains only in the U.S. Its proposal also includes buying the app's services in Canada, Australia, and New Zealand. TikTok has agreed to create 10,000 jobs in the U.S, with ByteDance divesting completely (no minority stake) as part of the deal. ByteDance had received a proposal from some of its investors to transfer majority ownership of TikTok to them in a deal that values it at around $50 billion, Reuters reported.

If the deals fall through, and TikTok is banned in the U.S., the public backlash will be fierce (no one wants to be the minister in Kevin Bacon's Footloose), and the potential corporate beneficiaries are pretty obvious. Popular accounts have shared tearful goodbyes and diverted followers to Facebook's Instagram and Google's YouTube for more content. Facebook is also launching its 15-second video app Reels in the U.S. this month. There are other smaller players that stand to gain, too. According to Sensor Tower, in the two weeks following the White House’s comments in early July, an American app called Byte created by Vine co-founder Dom Hofmann, hit 1.3 million downloads, a figure that’s 163 times larger than the 8,000 it saw in the two weeks prior. New York-based Dubsmash saw a boost of about 282%, climbing from 118,000 downloads to 451,000.

Image courtesy: SensorTower

The Big Number: 52.8

That was China's General Manufacturing PMI in July, according to a private survey by Caixin and IHS Markit. This is up from 51.2 in June and the highest reading since January 2011 for the sector. Output and new orders both rose at the fastest rates in nine and-a-half years, export sales fell at a softer pace and inflationary pressures picked up.

Over in the Eurozone, the manufacturing sector returned to growth in July for the first time since February 2019. The PMI was at 51.8, up from 47.4 in June and higher than expected. While output and new orders recorded gains, employment fell for the fifteenth successive month. At the country level, only two nations out of 19 – Greece and the Netherlands – registered PMI readings below 50.0. Britain's manufacturing PMI was at a 16-month high of 53.3 in July, up from 50.1 in June.

Images courtesy: Caixin/IHS Markit

Images courtesy: IHS Markit