Wednesday's Headlines

1. Global markets mixed as U.S. - China tensions flare

2. US taps Pfizer to mass produce vaccines

3. Microsoft and Tesla to report earnings after the close

4. Senate Banking Cmte. approves Shelton for Federal Reserve

5. The S&P 500's annualized return in 2020 is shocking

Photo: Michael Macdonald / EyeEm

Markets Today

Global markets are wobbling this morning as the U.S. and China ratchet up tensions following the Trump Administration's abrupt closure of the Chinese consulate in Houston, TX. China promised to retaliate. U.S. Treasury yields fell along with the Dollar, while gold prices, of course, are shooting higher.

European markets are losing ground, unable to keep the momentum following yesterday's approval of a new stimulus package by EU leaders. In the U.S., the Nasdaq is the only index pointing higher this morning as investors await a barrage of earnings reports from companies including Microsoft and Tesla. If Tesla reports a profit, it could be eligible to be included in the S&P 500. Shares of TSLA are up just 275% this year.

President Trump acknowledged yesterday that the virus will get worse before it gets better in this country. The stock market seems way ahead of that news, as the S&P 500 is up nearly 2% in 2020, and up 45% from its lows just four months ago. The Nasdaq has done even better.

chart courtesy YCharts

Headlines

The U.S. ordered the immediate closure of China’s consulate in Houston, a dramatic escalation in the tensions between the two countries. The news came hours after police and firefighters descended on the building in Houston following reports that papers were being burned outside in open containers, according to local media. Beijing condemned the move as outrageous and unprecedented. Washington’s demand, issued Tuesday, marked “a political provocation unilaterally launched by the U.S.,” Chinese Foreign Ministry spokesman Wang Wenbin said Wednesday at a routine briefing in Beijing. “China urges the U.S. to immediately rescind its erroneous decision, otherwise China will undertake legitimate and necessary responses.”
The United States will pay $1.95 billion for Pfizer to produce and deliver 100 million doses of its Covid-19 vaccine candidate in the U.S. if it proves safe and effective in humans, the government announced Wednesday. Under the agreement, the U.S. can acquire an additional 500 million doses. The vaccine is being jointly developed by German biotech firm BioNTech and U.S.-based Pfizer. Shares of PFE are up 5% in pre-market trading.
The Japanese government upgraded its assessment of the economy in July for a second month, saying conditions are picking up even as they remain severe amid reopening from coronavirus shutdowns. In its monthly report released Wednesday, the Cabinet Office said it saw improvement in 6 out of 14 economic categories, including consumer spending, exports, production and public investment.
Boeing’s 737 MAX isn’t likely to resume widespread passenger flights until early next year—nearly two months beyond previous expectations—due to another regulatory delay, according to U.S. government and industry officials, as reported by the WSJ.
Fiat Chrysler and Waymo have agreed on an exclusive deal to develop self-driving commercial vehicles, which could be the first widespread utilization of autonomous technology. Waymo, a unit of Alphabet, will work with the Fiat-Chrysler to integrate its autonomous driving system, which it calls the “Waymo Driver,” into the Ram ProMaster full-size van from Fiat Chrysler.
United Airlines posted a $1.62 billion net loss for the second quarter, driven by a plunge in air travel demand because of the coronavirus pandemic. Revenue fell more than 87% from a year earlier to $1.48 billion in the three months ended June 30, compared with analysts’ estimates for sales of $1.32 billion.
Snap reported lower-than-expected losses for Q2 2020, but barely. Revenue grew less during the same quarter last year, but it was still significantly more than analysts expected. Snap's all-important number of daily active users (DAU) roughly matched expectations, coming in at 238 million vs. the 239 million expected by analysts. Snap didn't provide Q3 guidance due to the pandemic and the accompanying economic disruptions.

Judy Shelton/Getty Images

The Big Story

The U.S. Senate Banking Committee on Tuesday approved Judy Shelton, an early supporter and adviser to President Trump, to a seat on the Federal Reserve board of governors. The committee also approved the nomination of Christopher Waller, head of economic research at the St. Louis Fed, to fill another vacancy on the seven-member board.

Shelton has been a controversial nominee because she has a long record of advocating for some form of a gold standard, which would tie the value of the U.S. dollar to the price of gold. The U.S. moved off of the gold standard in 1933 in the ashes of the Great Depression. No major economies use it, and haven't for decades. Shelton is not a technically trained academic economist, but she holds a doctorate in business administration from the University of Utah, and has spent most of her career at free market policy think tanks, including the Hoover Institute and the Atlas Network. She's a self-proclaimed supply-side economist, but has been harshly critical of what she calls excess and irresponsible spending by the Fed.

Some Fed watchers think Shelton would be on Trump’s shortlist to lead the Fed if the president is re-elected on Nov. 3. Fed Chairman Jerome Powell’s four-year term as chairman ends in 2022. Although he was hand-picked by President Trump, Powell has been harshly criticized by the President and is not likely to be nominated for a second term if Trump wins reelection.

If the two nominees are approved by the U.S. Senate, Trump will have selected six of the seven Fed governors. But that's a big "if", given that some Republicans in the Senate have already voiced their lack of support for Shelton.