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Geopolitics

Today’s Waves – 14th August

Geopolitics

Political concerns abound with US/Chinese tensions still running high, the internal squabbles in America just starting as the election campaigns gather pace, and instability in Belarus, so yesterday it was good to see some pleasant geopolitical news as Israel and the UAE signed a historic diplomatic treaty brokered by President Trump.

The rally that doesn’t just have teeth… it has FAANGS!

Equity markets this week continued to claw back Covid-19 losses, although gains were pared today as worries of a second wave increased as the UK introduced more travel restrictions alongside a record drop in Eurozone GDP and poorer than expected sales data from China and the USA. CAC40 and FTSE100 are relative laggards having retraced around 50% of their pandemic related losses, whilst the DAX now trades within 10% of pre coronavirus levels. The star performer however has been the USA. The S&P500 (still trading at the time of writing) is within touching distance of all time highs after flirting with the peak yesterday.

However, the rally is not quite as broad based as it seems (the Dow and Russell indices are still trailing) but rather it has been fuelled by the FAANG stocks – Facebook, Apple, Amazon, Netflix and Google. Since the beginning of the year, Facebook has increased over 25%, Netflix close to 50%, Apple more than 50%, Amazon over 70% whilst Google parent Alphabet has returned a rather anaemic looking 13.5% this year (although they are around 50% up from pandemic lows).
This tech rally has also pushed the Nasdaq100 to smash its previous all time highs.

Can it last? Like anything with teeth…this rally could bite. We appear to be in danger of a setback that could be triggered by nothing more than words without the interference of geopolitics (think back to Alan Greenspan’s comments on ‘irrational exuberance’ in 1996). The wise investor should be looking for an insurance policy by researching the options market or the VIX index.

More bang for your buck?

The slide in the Greenback has stalled with the DXY looking to end the week near unchanged from last Friday’s close of 93.39 after a 6 week losing streak, but no real hopes of a meaningful rally as the Senate continues to hold up a fresh stimulus package. The good news that unemployment claims in the USA had dipped below 1mln for the first time since the Covid-19 outbreak is overshadowed by the grim reality that more than 30 million Americans are still out of work.

Quote of the day: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

Warren Buffett

Biggest Bull

Mesoblast (MESO): are a biotech company who had trading halted yesterday as they awaited an announcement that saw the FDA’s Oncologic Drugs Advisory Committee vote overwhelmingly that data supported MESO’s claims for a drug for paediatric patients. The stock has reacted accordingly today posting an impressive 50% plus gain after tanking a few days ago.

Biggest Bear

BIDU: Today’s bear performer is Baidu (BIDU) who have lost over 6%as they announced Q3 revenue will be around 6% down to between $3.7bln and $4.1bln. Sentiment was not helped when the company’s streaming service iQiyi (IQ – also down over 15%) announced an SEC investigation yesterday.

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