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Top 5 Things to Know in the Market on Monday, August 31

EconomyAug 31, 2020 11:27
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By Geoffrey Smith -- China gums up President Trump's efforts to make TikTok American. New data show both the Chinese and Japanese economy doing better than expected as Warren Buffett makes a $6 billion bet on Japan's big commodity trading houses. And FDA head Steve Hahn defends his agency's approach to authorizing treatments for Covid-19. Here's what you need to know in financial markets on Monday, August 31st.

1. China throws a wrench into the TikTok deal 

The sale of TikTok’s U.S. operations has been complicated by new Chinese regulations restricting the export of artificial intelligence technology.

The regulations appear to give Beijing an effective veto on the deal and turn the tables on the U.S., which has clamped down on Chinese investment in the country in recent years citing the risks of sensitive technology transfers.

Various reports had suggested that a deal would be agreed at the weekend to sell the operations to a U.S. buyer. Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and even Walmart (NYSE:WMT) had been linked with the deal.

2. China's domestic economy strengthens, but bank results point to problems

The yuan strengthened against the dollar to its highest in 15 months after an official business survey came in surprisingly strong.

The official purchasing managers index for August rose to 54.5 from 54.1 in July, thanks largely to agriculture and services – the more domestically-focused pillar of the Chinese economy. The survey suggests that domestic demand is starting to catch up with the recovery in industrial production since March.

However, the pandemic has still left its scars on the Chinese economy: the country’s largest banks reported their biggest quarterly drop in profits in a decade, thanks to a rise in bad loans and tighter lending spreads.

3. Stocks set to open higher; Clarida, Bostic speeches eyed.

U.S. stock markets are set to open higher as the ongoing ‘melt-up’ refuses to lose momentum, having been seemingly underwritten by Federal Reserve Chairman Jerome Powell’s speech last Thursday.

By 6:25 AM ET (1025 GMT), the Dow futures contract was up 42 points or 0.2%, while S&P 500 Futures were up 0.2% and the Nasdaq 100 futures contract was up 0.4%.

On a generally light day for data, participants are likely to pay heed to Fed vice-chairman Richard Clarida, whose speech at 9 AM ET (1300 GMT) will flesh out the finer points of the Fed’s shift to ‘average inflation targeting’. The shift has been broadly interpreted as locking in near-zero interest rates for as much as five years.

Atlanta Fed president Raphael Bostic is also due to speak at 10:30 AM ET.  The Dallas Fed’s monthly business survey is due out at the same time.

4. Buffett bets on Japanese trading houses

Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) placed a $6 billion bet on a handful of the big commodity trading houses in Japan, in the latest surprising instalment of a hunt for yield worldwide.

Berkshire said at the weekend it had taken stakes of around 5% in Itochu. (T:8001), Marubeni (T:8002), Sumitomo (T:8053), Mitsui. (T:8031) and Mitsubishi (T:8058)  companies that have dominated the process of feeding Japan’s manufacturing sector with raw materials for decades.

The move comes after a net outflow of foreign money from Japanese equities that has run to $132 billion over the last two and a half years, suggesting that Buffett is calling time on that particular trend.

Overnight, official data showed Japanese data showed industrial production rose 8.0% in July, well ahead of expectations. The Ministry of Trade and Industry expects the rebound to flatten out over the next two months, however.

5. FDA head Hahn walks the tightrope

Food and Drug Administration head Steve Hahn said he’s open to fast-tracking authorization for drugs treating Covid-19 but only if the benefits to public health outweigh the risks.

Hahn’s comments, made in an interview with the Financial Times, come a week after President Donald Trump accused the FDA of delaying drug authorizations in order to hurt his chances of re-election in November.

“It is up to the sponsor [vaccine developer] to apply for authorization or approval, and we make an adjudication of their application,” Hahn told the FT. “If they do that before the end of Phase Three, we may find that appropriate. We may find that inappropriate, we will make a determination.”

He pledged that any decision taken by the FDA would be “a science, medicine, data decision. This is not going to be a political decision.”

Top 5 Things to Know in the Market on Monday, August 31

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