The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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Corporate bond issuance off to a bang in September


Corporate borrowing is off to the races.


Getty Images

Companies wasted no time going back to the borrowing trough after the long Labor Day weekend.

U.S. investment-grade companies already borrowed $46.7 billion in the bond market this month through Wednesday, a single day that accounted for $21.3 billion of the total, according to BofA Global Research.

Notable among the week’s deluge was a debut $1 billion green bond issued by JP Morgan Chase & Co.
JPM,
-1.03%
,
putting it alongside other major corporations from Google parent Alphabet
GOOG,
-1.60%

GOOGL,
-1.36%

to Visa Inc.
V,
-1.23%
,
which in recent weeks have raced to borrow with do-good purposes.

September often can be a busy month for corporate borrowing, as companies focus on the remaining weeks left in the year to lock in optimal financing — meaning before Thanksgiving, when the typical year-end lull begins to take hold.

Here’s a look at how September bond issuance stacked up over the past five years:

The pandemic has made this year anything but typical, including with a record $1.5 trillion already borrowed by investment-grade companies so far in 2020 to help fund their operations through the year’s end.

Many highly rated businesses borrowed fresh mounds of debt at lower rates than ever before, even though they are now carrying record levels of leverage.

Read: U.S. corporate debt soars to record $10.5 trillion

However, with the Federal Reserve’s unprecedented pandemic support, there’s little reason to think big businesses have had enough of today’s ultra-low borrowing rates.

“It’s a very busy September,” said Wendy Wyatt, a portfolio manager at DuPont Capital, of investment-grade bond supply. While she doesn’t expect to see the same eye-popping borrowing boom as in March, April and May, when companies were panic-borrowing, Wyatt has been encouraged by the recent trend where bond issuance has been used by more companies to kick their debts down the road or to repay near-term maturities.

“It’s not hideous. It’s a smart business decision,” she said of the debt replacement or reduction strategy, even through she’s also keeping an eye on companies that look to take on more debt to fund mergers and acquisitions.

“M&A has picked up and you’ve got to be cautious about that,” she said.

Related: Coronavirus slashes deal-making globally: What to expect next

To be sure, some of the big winners of the pandemic debt boom have been investment banks hired to arrange the funding.

Revenue at investment banks jumped 32% to $101.6 billion in the year’s first half from a year prior, its highest level since the first half of 2012, according to Coalition, a global analytics company.

What’s more, Coalition expects the year’s swift uptick in investment banking business, particularly in fixed-income, currencies and commodities, to combine with further head-count reductions at banks and produce an 12% return on equity for institutions it tracks in its index.

That would mark a significant reversal of a trend where ROE for banks in the index have declined each year since 2016, when it hit 9.5%.



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Oil prices post a loss as EIA reports first weekly U.S. crude-stock climb in 7 weeks


Oil prices posted a loss on Thursday after U.S. government data revealed a weekly climb in U.S. crude inventories, on the heels of six consecutive weeks of declines, raising expectations of an oversupplied market as uncertainty continues to surround the outlook for demand.

The Energy Information Administration reported Thursday that U.S. crude inventories rose by 2 million barrels for the week ended Sept. 4—the first weekly rise in seven weeks. Total U.S. crude inventories, excluding those in the Strategic Petroleum Reserve stood at 500.4 million barrels, about 14% above the five-year average for this time of year.

That compared with an average forecast by analysts polled by S&P Global Platts for a fall of 500,000 barrels. The American Petroleum Institute on Wednesday reported a climb of 3 million barrels, according to sources. The supply reports were each delayed by a day due to Monday’s U.S. Labor Day holiday.

U.S. refiners took an even bigger hit than expected from Hurricane Laura, which made landfall in late August on the U.S. Gulf Coast, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. The EIA reported a big drop of 1.1 million barrels per day in crude refinery runs for last week, leading to the first domestic crude-stock build in weeks, he said.

On Thursday, West Texas Intermediate crude for October delivery
CL.1,
-2.52%

CLV20,
-2.52%

 on the New York Mercantile Exchange fell 75 cents, or 2%, to settle at $37.30 a barrel. November Brent crude
BRN.1,
-0.39%

 
BRNX20,
-0.39%
,
the global benchmark, lost 73 cents, or 1.8%, to reach $40.06 a barrel after a 2.5% gain in the previous session.

Read:Volatility in oil and gold may offer more opportunity than risk

Oil futures finished higher Wednesday, with U.S. prices reclaiming less than half of the more than 7% drop suffered in the previous session though worries over the demand outlook, driven by the pandemic, continued to limit crude’s upside potential.

Thursday’s EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by about 1.9 million barrels for the week, while total domestic oil production climbed by 300,000 barrels to 10 million barrels per day.

Gasoline supply, meanwhile, fell by 3 million barrels, while distillate stockpiles declined by 1.7 million barrels. The S&P Global Platts survey had shown expectations for a supply decline of 2.5 million barrels for gasoline, but distillates were expected to rise by 300,000 barrels.

On Nymex, October gasoline
RBV20,
-2.40%

 shed 1.9% to $1.0977 a gallon, while October heating oil
HOV20,
-2.48%

 settled at $1.0824 a gallon, down 2.1%.

The market is in the “midst of refinery maintenance season, which inherently causes a drop in refinery runs and ultimately finished products supplied,” a proxy for demand, said Tyler Richey, a co-editor at Sevens Report Research.

“If we don’t see those demand metrics recover to where they were prior to Hurricane Laura’s landfall, then it will be very difficult for oil to revisit the recent highs in the low-mid $40s, especially given the global supply side uncertainties regarding OPEC+’s next policy moves,” he told MarketWatch.

On Sept. 17, the Organization of the Petroleum Exporting Countries and its allies, which form a group known as OPEC+, will hold a market-monitoring meeting. The group in August trimmed supply cuts from earlier this year on hope of improved demand amid the pandemic.

OPEC+ oil production climbed by 1.71 million barrels a day to 34.63 million barrels a day in August from a month earlier, according to an S&P Global Platts survey released Wednesday.

Also Wednesday, in a monthly report, the EIA lowered its 2021 growth forecast for global consumption of petroleum and liquid fuels by 500,000 barrels per day from its August forecast, to about 99.6 million barrels a day, even as it raised its 2020 forecasts for WTI and Brent crude-oil prices, natural-gas prices, and U.S. crude production.

Read:How a big decline in China’s oil imports may ‘test the resiliency of the market’

Rounding out action on Nymex, prices for the October natural gas contract
NGV20,
-3.78%

 settled at $2.323 per million British thermal units, down 8 cents, or nearly 3.5%.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet for the week ended Sept. 4. That was a bit higher than the increase of 64 billion cubic feet forecast by analysts polled by S&P Global Platts.



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Gold prices gain as euro strength pressures the dollar


Gold futures climbed on Thursday, poised to score a third straight session gain, as strength in the euro in the wake of the European Central Bank’s decision to leave its policy unchanged pressured the U.S. dollar.

The European Central Bank left its policy unchanged at minus 0.5% and its refinancing rate at 0%, while reaffirming it plans to leave rates at present or lower levels until inflation rises to converge with its target at 2%.

In a news conference, ECB President Christine Lagarde said the Governing Council “extensively” discussed the recent strength of the shared currency, but reiterated that the bank doesn’t target the exchange rate. A Bloomberg report, meanwhile, said that members of the council had agreed to not overreact to euro strength.

“The ECB has confirmed that there is no further need for additional help,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update. “For traders, the ECB’s confidence in the Eurozone’s economy is a good thing and this is the reason that we have seen the EUR/USD moving higher.”

In Thursday trading, the euro
EURUSD,
+0.80%

 traded at up 0.8% at $1.19, but that helped pull the ICE U.S. Dollar Index
DXY,
-0.45%

 down by 0.5% to 92.802. A weaker dollar can provide support for assets priced in greenback, making them less expensive to overseas buyers.

December gold
GCZ20,
+0.87%

GC00,
+0.87%

was up $18.60, or 1%, at $1,973.50 an ounce, following gains in each of the last two sessions.

December silver
SIZ20,
+1.98%

SI00,
+1.98%

traded 54 cents, or 2%, higher at $27.62 an ounce after climbing 0.3% in the previous session.

In U.S. economic news Thursday, the number of American who applied for unemployment benefits through state and federal programs in the week ended Sept. 5 was unchanged at a seasonally adjusted 884,000, the Labor Department said. Still, continuing jobless claims, the number of people already receiving benefits rose by 93,000 to a seasonally adjusted 13.39 million in the seven days ended Aug. 29.

“The mixed bag of economic data confirms that there is gradual recovery for the U.S. economy,” said Aslam. “However, things are not improving and this is the reason that we are seeing improvement in the gold price. It is likely that the bottom is in for the gold price and it is likely to continue to move higher.”

Other metals traded on Comex also moved higher Thursday. December copper
HGZ20,
+0.04%

traded at $3.0545 a pound, up 0.1%. October platinum
PLV20,
+1.89%

 added 2% to $943.50 an ounce and December palladium
PAZ20,
+1.19%

 climbed 1% to $2,342 an ounce.



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After U.S. tech gains, European stocks pause as ECB decision awaits


(FILES) This file photo taken on March 12, 2020 shows flags of the European Union fluttering in front of the headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany.


daniel roland/Agence France-Presse/Getty Images

European stocks were steady on Thursday, ahead of a European Central Bank decision and press conference in which expectations are for the central bank to raise concerns about the rise of the euro.

Up 1.6% on Wednesday, the Stoxx Europe 600
SXXP,
+0.16%

was little moved at 369.70.

U.S. stocks, particularly in the tech sector, broke a losing run on Wednesday, as the Nasdaq Composite
COMP,
+2.70%

rallied 2.7%. U.S. stock futures
ES00,
+0.05%

were modestly higher Thursday.

The ECB decision is due at 1:45 p.m. Central European time (7:45 a.m. Eastern), though analysts are focusing on the press conference with President Christine Lagarde at 2:30 p.m.

Attention also is in London, where an emergency meeting is being called on the U.K. decision to unilaterally amend its withdrawal agreement. Bloomberg News reported the European Union was considering a lawsuit.

Wm Morrison Supermarkets
MRW,
-3.51%

slumped 3.7% after reporting a 25% slump in first-half adjusted pretax profits, with the company flagging higher costs and reduced consumer demand for fuel. “Some traders will be wondering if Morrisons can’t post a rise in profit when a pandemic has driven up demand, when will they register a rise in earnings,” said David Madden, market analyst at CMC Markets UK.

Chemicals group Akzo Nobel
AKZA,
+3.47%

rose 4% as the company said revenue for the third quarter will be close to last year’s levels. It reported strong decorative paint demand in Europe and South America.

Games Workshop
GAW,
+13.92%
,
which makes miniature wartime figures, jumped 13% after saying its performance for the quarter ending Aug. 30 was ahead of its expectation



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