You’re Under Arrest. (Welcome To The Third Quarter)

Law enforcement in Hong Kong was quick to exercise powers under the new national security protocols enshrined in the city’s laws by Beijing this week.

City police on Wednesday arrested a man in a shopping area apparently for being in possession of a Hong Kong independence flag. The “suspect” was also spotted in a “FREE HONG KONG” T-shirt. He now has the dubious honor of being the first guinea pig for the new laws, which can result in life sentences for offenders found to be engaged in subversive activities or collusion with foreign elements.

“The law is a ‘sword of Damocles’ hanging above extremely few criminals who are severely endangering national security”, Zhang Xiaoming, the deputy director of the Hong Kong and Macau Affairs Office, told reporters in Beijing.

On that happy note, the third quarter (and second half) of 2020 is underway.

Volumes were subdued in Europe following a technical glitch and US futures moved lower after closing the second quarter with a flourish on Tuesday.

The macro data was less than inspiring. Tankan missed in Japan and German unemployment pushed near 3 million, a level unseen in nearly a decade. South Korea’s exports fell a fourth month (and an 18th in 19th). The decline, at 10.9%, was less pronounced than the previous two months, though, and perhaps that offers a ray of hope for the bellwether, which suffered mightily during the trade war, only to be beset by the collapse in global demand that accompanied the pandemic.

Still, the headline print was boosted by more working days this year versus last. Average daily shipments fell 19% in June, worse than the 18% drop in the comparable figure for May. Imports fell 11%. Shipments to China rose 9.5%, and semiconductor exports were unchanged.

German retail sales were one upside surprise, if you’re looking for silver linings.

In a sign of the times, gold futures are perched near $1,800, as negative real rates and massive monetary and fiscal stimulus ostensibly make the case for bullion, as long as the dollar doesn’t mount some manner of charge during any risk-off episode.

Some have breadth concerns about the Nasdaq, which is trading well in excess of its 50- and 200-day moving averages, even as the percentage of constituents which can say the same has fallen from recent peaks.

Sweden topped up QE on Wednesday, promising to buy another SEK200 billion. The program was extended through June of next year. SEK10 billion will go towards corporate bond purchases.

“Despite robust economic policy stimulus, the negative consequences of the pandemic are substantial all around the world”, the Riksbank remarked. “The crisis has clear effects on the Swedish economy, too, not least in the form of rapidly rising unemployment. Inflation has fallen tangibly”.

Sweden exited negative rates late last year to much fanfare, and one imagines they won’t be excited about going back.

“All in all, the message from the Riksbank is a bit mixed but on the dovish side”, Nordea wrote. “On the one hand, it was somewhat softer than expected as some policy rates were lowered. On the other hand, a cut of the repo rate is increasingly unlikely”, the bank added, noting that “the extension of the QE program was in line with our forecast, but we had expected it to be announced later this year”.

“While the timing is a little unexpected, the fact that the Riksbank has expanded QE is not that surprising and mirrors the recent decisions at the ECB”, ING said. “While lockdown restrictions have been much less onerous in Sweden relative to elsewhere, the country is encountering many of the same issues others are facing as the world moves to the next phase of the crisis”.

“There are a lot of ‘look ahead’ pieces in the press and on the newswires this morning, and almost none of them are pushing the idea of a stronger-than-expected, V-shaped economic recovery”, SocGen’s Kit Juckes wrote Wednesday. “As we see local flare-ups and lockdowns in various countries, it is clear enough that school, sport, shopping and work will all be very different from ‘normal’ for longer and we should expect economic activity to bounce back part-way very quickly, but then to drag its heels and only get back to where we were slowly”.

That outcome, Juckes said, “is largely priced in” across assets.


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