Aug 5, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙 "We used to have a lot of fun. We never had any problems. We always ate. The fact that we didn't have steak? Who had steak?" - See who said it and why it matters at the bottom.

1 big thing: Auto sales may have turned a corner

Illustration: Aïda Amer/Axios

U.S. auto sales have bounced back in recent months despite the coronavirus pandemic, with some brands even seeing their sales increase over 2019's numbers at this point in the year.

Why it matters: Cars and trucks were seen as one of the sectors that would be hardest hit as Americans were called to stay home from work and entertainment destinations were shuttered.

Driving the news: U.S. factory orders rose 6.2% in June, more than expected and boosted by a surge in demand for motor vehicles, after gaining 7.7% in May, the Commerce Department reported Tuesday.

  • Orders for motor vehicles and parts jumped 86.2%, with overall transportation equipment orders up 20.2% after a 78.8% climb the prior month.

Winners: Sales of Volvo, Mazda and Hyundai have all risen from 2019's levels this year, with Volvo charting a 10.3% increase over July 2019, its best July in 14 years.

  • Mazda sales are up 3.4%.
  • Hyundai reported a year-on-year gain of 0.6% in U.S. sales for July.
  • Kia's reported overall sales were down, but just 1.7% lower than last year's July tally.
  • Toyota sales last month fell 19% year over year, but the company notched its best month since February, before the pandemic shuttered North American production and led to closed showrooms across the country, Reuters reported.

Don't sleep: Detroit's three carmakers posted better-than-expected earnings for the second quarter, despite two-month factory shutdowns, Axios' Joann Muller noted Friday, with each of the companies outperforming Wall Street expectations.

Yes, but: Factory orders overall remain well below their February level, and June's reading was 10.1% below June 2019's level.

  • Autos are expected to see a year-over-year volume decline of 25%-30%, according to IHS Markit principal automotive analyst Stephanie Brinley.
  • Additionally, economists warn that the rebound in auto sales could be threatened by recent increases of COVID-19 in southern and western states.

Yes, but, but: Investors are betting that the uncertainty will push more consumers to buy online from vendors like CarMax, Carvana and Vroom, which have spent billions building online platforms, digital networks and inventory for just this moment.

  • Vroom's stock is up nearly 25% since it debuted on the Nasdaq in early June.
  • During that time Carvana's stock is up more than 45% (and up over 80% year to date and 155% over the past year).
  • CarMax's stock has gained a little under 5% since early June — it's the largest used car dealer in the U.S. but has a significant brick-and-mortar presence, making investors concerned about pandemic-related disruptions.
2. Catch up quick

The U.S. and China have agreed to hold high-level talks on Aug. 15 to assess compliance by China on the "phase one" trade agreement signed earlier this year. (WSJ)

The White House and Democrats are looking to reach a deal on the latest coronavirus relief package by week's end, with both sides citing progress in Tuesday talks. (Washington Post)

3. U.S. real-time data reverses again
Data: New York Fed; Chart: Axios Visuals

The New York Fed's Weekly Economic Index turned lower for the week ending Aug. 1, showing real-time, high-frequency economic data again weakening in the last week of July.

Why it matters: The index turned negative again after an upwardly revised previous week. It supports other recent real-time economic data that show U.S. growth reversing.

What they're saying: "The recent evolution in our coincident employment index suggests that the recent recovery in employment has halted and that the increase in Covid-19 may be the main cause for this," economists at the St. Louis Fed wrote in a blog Tuesday.

  • "Thus, a strong economic recovery may need a healthy recovery from the pandemic."

Where it stands: The weak employment growth, especially in states hard hit by recent virus outbreaks, noted by the St. Louis Fed, pairs with consumer spending data from JPMorgan Chase.

  • Their data show the economic recovery has been stuck in neutral since mid-June, as evidenced by spending patterns from Chase debit and credit cardholders.

Be smart: JPMorgan analysts also pointed to a gap between spending by millennials and Gen Z consumers, which fell 4.1% compared to 2019, and spending by baby boomers, which dropped more than 18%.

  • The data suggest older, wealthier consumers with ample cash are paring back and adding to savings while less wealthy consumers continue to spend at similar levels, thanks largely to government assistance programs.
4. TikTok users are rising but time spent on the app is falling
Reproduced from CivicScience; Note: ±3.0% margin of error; Chart: Axios Visuals

TikTok has been all over the news in recent days, as President Trump has put the app squarely in his sights, most recently saying that the U.S. Treasury would need to get a portion of the sale of TikTok to an American company as a condition of regulatory approval.

  • And Axios' Dan Primack reported yesterday that there are multiple suitors interested in taking the company off of Chinese owner ByteDance's hands.

What's the big deal? New CivicScience data provided first to Axios show continued growth in TikTok’s user base since the beginning of the year, with 14% of those surveyed saying they use the app.

  • That's up from 10% at the beginning of the year, based on a survey of more than 21,000 Americans over age 13 since January.

Details: While use among those 13-24 has declined, use by every other age group, including those over 55, has increased.

  • TikTok usage has risen the most among 25-34-year olds — up from 11% in Q1 to 16% in Q2 — reaching 19% in August.

Yes, but: Data also show users are cutting back. That may be because TikTokers are almost two times as likely as nonusers to be working reduced hours and getting paid less right now, with 21% of users choosing that as their current employment status compared to 12% of nonusers.

  • Nonusers were more likely to be working as usual or working from home.
5. Gold passes $2,000 and BofA sees $3,000 on the horizon
Expand chart
Data: FactSet; Chart: Axios Visuals

Gold prices closed at a record high, above $2,000 an ounce, on Tuesday and investors are getting even more bullish.

What happened: Bank of America released the summary of a call between its chief investment strategist and heads of its commodities, rates and technical strategy teams Tuesday that concluded gold was very well supported and could rise as high as $3,000 per ounce in the next 18 months.

Highlights: Globally, central banks and governments have announced $20 trillion of monetary and fiscal stimulus — $8 trillion of monetary and $12 trillion of fiscal, a number that represents around 20% of global GDP, they note.

  • "It's just astonishing and breathtaking and you have to sort of pinch yourself sometimes to sort of realize that it's actually happening," Michael Hartnett, BofA's chief investment strategist, said.
  • Central banks also are likely to continue to buy gold, helping underpin the price going forward, said metals strategist Michael Widmer.

The intrigue: The path for gold is also likely intertwined with the value of the dollar and U.S. real interest rates.

  • For gold to reach $2,500 an ounce Widmer predicts the dollar index would need to fall to near its 2018 low with real rates at -2% (nominal rates minus the rate of inflation).
  • But he could also see a scenario in which the dollar falls to its lowest since 2014 with real rates at -1.5%.

Between the lines: Escalating geopolitical tensions around the globe are also boosting safe-haven appetite for gold.

  • Two large explosions that rocked Beirut, killing dozens and leaving thousands wounded, “probably (added) to the shine of Gold above $2020,” strategists at Mizuho Bank said a note.

The bottom line: "The global pandemic is providing a sustained boost to gold due to increased savings, growing inequality, vast capital destruction, declining productivity, rising public debt levels, and, most importantly, falling equilibrium real interest rates," BofA analysts concluded.

  • "In addition, we believe that a clouded geopolitical chessboard further supports the case for our $3,000/oz forecast over the next 18 months."
6. Nikola earnings inspire snark
Screenshot of a tweet from Charlie Bilello, founder and CEO of Compound Capital Advisors.

Nikola's $36,000 in revenue and $87 million net loss during the second quarter were unimpressive to some. Read the full unaudited earnings report here.

Dion Rabouin

Thanks for reading!

Quote: "We used to have a lot of fun. We never had any problems. We always ate. The fact that we didn't have steak? Who had steak?"

Why it matters: On Aug. 5, 1936, legendary American sprinter Jesse Owens won his third gold medal at the Berlin Olympics, running the 200 meters in record time.

  • Owens won four gold medals that year and was the most successful athlete at the Games. Not only did his performance bolster American pride, but he was credited with "single-handedly crushing Hitler's myth of Aryan supremacy," ESPN's Larry Schwartz wrote in 2000.
  • Despite his achievements, Owens was not invited to the White House to shake hands with the president.