LONDON (Reuters) - 1/ THE SECOND HALF
After finishing the first half of 2020 on a high, bulls have charged into the remaining six months on promising news of a vaccine and data showing 4.8 million U.S. jobs created in June, after 2.7 million in May.
European and Chinese data also suggest a recovery is under way, and investors hope third quarter economic data will reinforce that. The upcoming results season may offer proof of earnings bottoming out.
Several hurdles loom. The months leading up to the U.S. presidential election in November will be choppy, especially if Democrat Joe Biden extends his poll lead. The EU needs to agree on a $750 billion recovery fund proposal. And will the U.S. Congress extend a scheme supplementing jobless benefits beyond July 31?
Investors also worry about authorities getting cold feet as debt levels mount. No sign of that yet, but their track record of premature policy tightening post-2008 makes investors nervous. Any sign of policymakers tapping on the stimulus brakes too soon will spell trouble.
Graphic: Improving data - https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwwldlvw/Pasted%20image%201593707305533.png
2/ CHINA'S SECOND WAVE
A wave of foreign money has hit mainland China's markets as the second half of 2020 kicks in. Turnover on the Shanghai and Shenzhen exchanges exceeded 1 trillion yuan ($142 billion) for the first time in four months on Thursday and Friday. Stock indexes are at multi-month highs and margin borrowing by leveraged investors has soared, signs that this wave of buying has legs.
Sell-side analysts have been expecting this rally for weeks on hopes Beijing will recover faster than other economies given a mix of state-directed infrastructure spending, lending and pent-up domestic demand. The IMF too expects China to be the only major economy to grow this year.
Shanghai stocks (SSEC) may now easily push into the 20%-plus bull market territory. Buyers beware? Some blue chips are trading at between 30-35 times their forward earnings, perhaps bordering on irrational exuberance. Milestones and markers flash bullish signals for Chinese stocks- China's services sector grows at fastest pace in over a decade in June - Caixin PMI
Graphic: China stocks surge - https://fingfx.thomsonreuters.com/gfx/mkt/bdwvkalgbvm/Pasted%20image%201593752727405.png
3/ CROWNING A NEW KING
The title of "Top U.S. Chipmaker" may soon change hands, as a blistering rally in technology stocks brings Nvidia's (O:NVDA) market capitalization within striking distance of Intel (O:INTC), which led the U.S. chip industry over five decades.
U.S. chipmakers have mostly outperformed since the S&P 500 (SPX) hit a low on March 23, but Intel has enjoyed much less of that rebound than Nvidia. Intel's stock has lost about 1% in 2020, Nvidia's has surged 64%. Investors are betting the shift to remote working will fuel Nvidia's data centre business.
Intel, meanwhile, has faced setbacks in its sprawling supply chain due to the pandemic, and higher costs related to the development of upcoming "Tiger Lake" 10-nanonmeter processors.
Graphic: Nvidia's market value on the verge of eclipsing Intel - https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzwnodvw/Pasted%20image%201593712463496.png
4/ IN THE HOT SEAT
There's no time to waste for Germany, which has just assumed the six-month rotating presidency of the European Union. Europe faces its deepest recession since WW2, must agree on a multi-year budget of over 1 trillion euros ($1.1 trillion), launch a recovery fund for economies hit hardest by COVID-19 and clarify its future relationship with post-Brexit Britain.
A meeting of euro area finance ministers next week could be telling before a looming July 17-18 summit - crucial to securing agreement on a recovery fund.
Germany wants to use its time in the EU presidency to make Europe strong again; a recovery fund agreement would certainly help. Markets are hopeful that solidarity will prevail - the euro is up over 5% since March but optimism could fade if bickering sets in. Indeed, the next six months in the EU hotseat will not be easy for Berlin.
Graphic: European markets during the coronavirus crisis - https://fingfx.thomsonreuters.com/gfx/mkt/xegpbmlbxvq/theme0307.PNG
5/ DARLING NO MORE?
Ukraine is on the hunt for a new central bank chief as the shock resignation of Yakiv Smoliy casts a pall over what was one of the better performing emerging markets following the coronavirus crisis.
Rising foreign exchange reserves, an IMF programme and a reform-minded president in the form of Volodymyr Zelenskiy had made Ukraine a favourite among emerging market investors.
But Smoliy's exit on Wednesday, in which he complained of "systematic political pressure," led to the scrapping of a $1.75 billion Eurobond sale and threatens to undo the goodwill.
Who replaces him, the extent of guarantees about central bank independence and the broader reform agenda, will determine whether Ukraine can resume its position as EM darling.
Graphic: Ukraine 2032 Eurobond year to date - https://tmsnrt.rs/31CBIDP