Fed’s Main Street lending inches up as balance sheet holds above $7 trillion By Reuters


© Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington

(Reuters) – The U.S. Federal Reserve facilitated another $2 million in emergency loans this week to U.S. businesses struggling to survive the coronavirus-fueled recession, while its overall asset portfolio showed modest growth for a second week to hold above $7 trillion.

Data released Thursday by the Fed showed the loan balance under its Main Street Lending Program rose to $14 million on Wednesday from $12 million a week before, when the central bank acquired the first loan originated under a facility that has taken months to roll out.

The program, designed to assist small and medium-sized companies hurt by the coronavirus crisis, has had a sluggish start, and the Fed has faced criticism from U.S. lawmakers for the weak uptake so far. The Fed recently adjusted the terms to allow nonprofit organizations to qualify.

The Fed’s total balance sheet size rose by $6.1 billion to just over $7.01 trillion as of July 22.

It was largely due to continued purchases of Treasuries and mortgage-backed securities aimed at keeping financial market conditions easy. These were nearly offset by a drop in foreign currency swaps with other central banks, which fell to their lowest since mid-March at just under $122 billion.

Meanwhile, other facilities aimed at steadying credit and other financial markets continued their recent pattern of limited demand following an initial explosion in their use in March when the Fed cut interest rates to effectively zero and launched a range of emergency credit programs. That powered a $3 trillion increase in the Fed’s total balance sheet between the beginning of March and early June.

Despite the recent lull, analysts at TD Securities said in a note they still expect the total balance sheet to hit $9.4 trillion by year end and $11 trillion by the end of next year.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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As Biden holds polling lead over Trump, here’s who could be his vice-presidential pick


The “veepstakes” are heating up.

With Joe Biden having secured enough delegates to win the Democratic presidential nomination at the party’s August convention, and with the former vice president leading President Donald Trump in national polls, the focus is increasingly on whom he’ll pick as his running mate.

Sen. Kamala Harris of California — who battled Biden for the nomination — tops the lists of prospective picks compiled by close observers such as the University of Virginia’s Center for Politics. But Harris has company. Amid protests around the country in the wake of the killing of George Floyd, Biden’s search has zeroed in on a group that includes at least three other black women, according to the Washington Post: Atlanta Mayor Keisha Lance Bottoms, Rep. Val Demings of Florida and former national-security adviser Susan Rice.

Sen. Elizabeth Warren and New Mexico Gov. Michelle Lujan Grisham have also progressed to the point of more comprehensive vetting or have the potential to do so, the Post reported.

Biden has said that he hopes to name his running mate around Aug. 1, and that his pick will be a woman.

Don’t miss:Biden’s running-mate search is getting ‘outsized attention’ and could even shake the stock market — here’s how

Here is a list of possible picks for Biden, derived from recent analyses by the University of Virginia and the Washington Post, as well as the PredictIt betting market. While not intended to be fully comprehensive, the table below reflects many of the frequently discussed candidates. As of Monday, Harris had the highest betting-market standing, followed by Rice and Demings.

Name

Age

Position

Stacey Abrams

46

Former candidate for Georgia governor

Tammy Baldwin

58

U.S. senator from Wisconsin

Keisha Lance Bottoms

50

Atlanta mayor

Val Demings

63

U.S. representative from Florida

Tammy Duckworth

52

U.S. senator from Illinois

Kamala Harris

55

U.S. senator from California

Maggie Hassan

62

U.S. senator from New Hampshire

Amy Klobuchar

60

U.S. senator from Minnesota

Michelle Lujan Grisham

60

New Mexico governor

Gina Raimondo

49

Rhode Island governor

Susan Rice

55

Former national-security adviser

Elizabeth Warren

70

U.S. senator from Massachusetts

Gretchen Whitmer

48

Michigan governor



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XLE Weekly: Last Week’s Resistance Holds As Pullback Ensued To 34.30s (NYSEARCA:XLE)


In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.

As noted in last week’s XLE Weekly, the primary expectation for this week’s auction was for price discovery higher, provided 38.92s failed as resistance. This week’s primary expectation did not play out as last week’s late sell excess held early this week. Selling interest emerged, 38.44s/38.31s, in Tuesday’s auction as a sell-side breakdown developed through key support to 34.30s into Thursday’s auction. Sellers trapped there amidst buy excess, halting the selloff before a retracement rally developed to 36.89s ahead of Friday’s close, settling at 21.05s.

11-15 May 2020:

This week’s auction saw last week’s late sell excess, 39.25s-39s, hold as resistance as narrow balance developed, 37.92s-38.53s, into Monday’s auction. Selling interest emerged, 38.44s/38.31s, in Tuesday’s trade as price discovery lower developed into Tuesday’s close. Tuesday’s late buyers failed to hold the auction as an aggressive sell-side breakdown through key support, 36.80s, developed early in Wednesday’s trade.

The selloff continued to 35.47s where minor buy excess formed amidst buying interest, halting the selloff. Narrow balance developed, 35.47s-36.13s, as selling interest emerged into Wednesday’s close. Wednesday’s late sellers held the auction as price discovery lower continued in Thursday’s auction, achieving the weekly stopping point low, 34.30s, early in Thursday’s trade. Sellers trapped as buy excess formed, halting the selloff. A retracement rally ensued to 36.47s before selling interest emerged into Thursday’s close. Thursday’s late sellers trapped the rally continued in Friday’s trade to 36.89s near the sell-side breakdown area ahead of Friday’s close, settling at 21.05s.

XLE Weekly Auction 15May20

This week’s auction saw last week’s sell excess hold early week before a selloff ensued to 34.30s. Sellers trapped there amidst buy excess, halting the selloff. A retracement rally then ensued to test the week’s key sell-side breakdown area. Within the larger context, the market formed a structural support, 22.88s, and now a relief rally resistance, 39.25s, in the wake of the recent historic selloff. This week’s auction was a market failure at/near the second major resistance area, 39.08s, following the historic breakdown of March 2020.

Looking ahead, the focus into next week rests on response to key resistance, 36.50s-36.90s. Buy-side failure to drive price higher from this resistance will target key demand clusters below, 35s-34.30s/31.39s-30.65s, respectively. Alternatively, sell-side failure to drive price lower from this key resistance will target key supply clusters above, 38s-39.25s/42s-44s, respectively. The highest probability path for next week is sell-side, provided 36.90s holds as resistance. The larger context now shifts neutral between 39.25s and 22.88s.

Looking under the hood of XLE, we see that its performance is really a tale of two stocks, Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM). They account for approximately 24% and 21% of the entire ETF, respectively.

XLE Holdings 15May20

Further, their performance is responsible for -484bps and -941bps, respectively, of XLE’s current one-year performance. As go Chevron and Exxon, so goes the XLE. Chevron continues to drive the bulk of the relief rally returns.

XLE Performance 15May20

It is worth noting that breadth, based on the S&P Energy Sector Bullish Percent Index, declined aggressively this week after trending higher in historic fashion following February-March’s historic collapse. Stocks more broadly, as viewed via the NYSE, see a similar posture. Energy’s breadth is declining and broke down through the midpoint last week, implying continued risk-off sentiment in this sector will prevail near-term. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Currently, conditions favor a neutral posture as the market found structural support, 22.88s, near late 2003 support followed by a rapid and substantial relief rally to 39.08s. The market approaches major structural resistance as breadth is now once again in the bullish extreme zone. The support formed in March is likely a momentum low formed before a final price low.

XLE Breadth 15May20

The market structure, order flow, and breadth posture will provide the empirical evidence needed to observe where asymmetric opportunity resides.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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IWM: Russell 2000 Holds The Key To The Next Bull Market (NYSEARCA:IWM)


The investment landscape might have forever changed in the wake of the coronavirus outbreak, but there is one pre-crisis status quo that continues to hold: persistent underperformance in small caps. Indeed, even prior to the viral crisis, the Russell 2000 (IWM) had lagged behind S&P 500 (SPY) by roughly 8% in 2019.

Source: WingCapital Investments

In hindsight, the negative divergence proved to be an omen, as broader markets crashed over 30% from their peak soon after, while IWM once again was decimated even more with a 40%+ collapse. The IWM/SPY ratio, a measure of relative performance between small and large caps, dropped like a rock as nearly two decades of relative strength was erased in the past two years:

Source: WingCapital Investments

There are no short of fundamental reasons behind the carnage in small caps, including weak economic growth, dismal profitability, riskier balance sheet, all of which are magnified in an economy grinding to a halt with up to 10 million already unemployed. The struggles in small caps resonate with the gloomy sentiment among small business owners, half of which said “they can survive for no more than two months.” according to CNBC. While there are high hopes that the government’s $350 billion lending program will come to the rescue, banks are not so optimistic.

Turnaround in Small Caps Is Essential To New Bull Market

Although the ever-rising dominance and superior return in large-cap companies may have led to the increasing irrelevance of small caps, the Russell 2000 remains an important gauge of the market breadth in our opinion. Indeed, we notice that relative strength in IWM was the precursor to the end of the past two bear markets:

Source: WingCapital Investments

The above chart illustrates that the weekly RSI indicator in IWM has gradually rebounded from deeply oversold conditions (under 30) in 2003 and 2009, even as Russell 2000 continued declining to lower lows. Numerically, the below table highlights the instances during which:

  • IWM’s weekly RSI 20 weeks ago was under 30
  • Today’s weekly RSI is higher than 20 weeks ago
  • IWM’s price declined in the past 12 weeks

Date IWM Weekly RSI RSI 20-Wks Ago IWM 12-Wk Chg IWM Forward Chg 4-Week 8-Week 12-Week SPY SPY Forward Chg 4-Week 8-Week 12-Week
2003-01-27 37.12 40.1 27.60 -8.13% -3.00% -1.00% 4.05% 86.06 -1.35% 0.76% 4.85%
2003-02-03 35.66 35.3 26.57 -9.90% -1.22% 4.50% 13.99% 83.42 -0.12% 5.75% 11.74%
2003-02-10 35.65 35.3 24.04 -7.46% -0.63% 3.56% 15.62% 84.15 -0.02% 3.57% 11.38%
2003-02-17 36.16 38.3 23.52 -6.11% 3.39% 5.57% 14.86% 85.18 5.27% 5.14% 11.38%
2009-02-16 41.14 33.8 25.95 -15.52% -2.82% 16.07% 16.09% 77.42 -0.92% 12.48% 14.58%
2009-02-23 39.15 31.9 25.77 -17.67% 9.55% 21.63% 22.07% 73.93 10.39% 17.22% 20.41%
2009-03-02 35.20 28.6 22.48 -29.91% 29.63% 38.69% 42.53% 68.92 22.26% 27.52% 34.26%
2009-03-23 42.89 42.2 28.31 -3.38% 11.03% 11.42% 19.63% 81.61 6.19% 9.08% 12.78%
2011-12-26 73.75 50.6 28.98 -3.00% 8.09% 12.05% 12.11% 125.50 5.04% 9.11% 11.27%
Average 6.00% 12.50% 17.89% Average 5.19% 10.07% 14.74%
Median 3.39% 11.42% 15.62% Median 5.04% 9.08% 11.74%
% Positive 55.56% 88.89% 100.00% % Positive 55.56% 100.00% 100.00%

Fast forward to today, although the weekly RSI indicator reached extremely oversold area under 20 before rebounding slightly, IWM remains in a free-fall mode until it exhibits signs of strength and triggers a positive divergence signal.

Small Caps As A Leading Indicator of the Economy

According to Goldman Sachs, the U.S. economy is headed for a worse recession than previously expected, with unemployment spiking to 15% and GDP falling at annualized rate of 34 percent. Per The Hill:

“Our estimates imply that a bit more than half of the near-term output decline is made up by yearend and that real GDP falls 6.2% in 2020 on an annual-average basis (vs. 3.7% in our previous forecast),” the forecast said.

Historically, we notice that the up and downswings in the IWM/SPY ratio have tended to move closely with the quarterly GDP growth, and the dire -6% forecast is certainly in agreement with the epic plunge in IWM’s relative performance to SPY:

Source: U.S. Bureau of Economic Analysis, WingCapital Investments

During the 2008 Great Financial Crisis, a crucial observation is that IWM/SPY ratio would actually turn the corner ahead of the rock-bottom in broader economy. As such, until IWM can get back on a solid footing on both a relative and absolute basis, more rough waters most likely remain ahead for the broader economy and stock markets.

To sum up, as the coronavirus pandemic continues rippling through the U.S. economy, the small-cap index Russell 2000 has and will likely continue to underperform the broader market. Just as IWM’s negative divergence vs. SPY turned out to be a precursor to the bear market, we anticipate IWM to likewise be a leading indicator of the next bull market, which may still be months away if past recessions were any precedent.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We may have intraday options, futures or other derivative positions in the above tickers mentioned.





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Elliott presses SoftBank to identify $10 billion of investments it holds: sources By Reuters



By Clara Denina

LONDON (Reuters) – Elliott Management Corp is pressing SoftBank Group Corp (T:) for details of nearly-$10 billion of investment securities on its balance sheet, as part of its campaign to improve the value of the Japanese conglomerate in which it holds a stake, sources said.

The $40 billion hedge fund, one of the most powerful activist investors, has a $3 billion stake in the company and is trying to push for changes after SoftBank’s bet on start-ups such as space-sharing firm WeWork soured.

SoftBank’s stock trades at a deep discount to the value of its holdings, and analysts say there is a lack of clarity on its internal valuation calculations for private holdings in its flagship Vision Fund. Elliott has asked for improved disclosure on the valuation of assets and tax rates in the fund, the sources said.

Elliott is also pressing for details on $8.33 billion of investment securities sitting on SoftBank’s balance sheet that appear outside of the Vision Fund with no detail as to what they are.

While items listed as investment securities on a balance sheet usually refer to tradable financial assets such as listed equities, analysts think SoftBank includes unlisted companies.

Elliott is asking for information on this, the sources said.

Elliott declined to comment.

A spokesman for SoftBank referred to filings showing that investments outside its fund include the ride-hailing portfolio like Uber (K:), DiDi and Grab that had been warehoused by the group. SoftBank invested around $7.7 billion for a 15% stake in Uber in January 2018 and later sold it to the Vision Fund for the same price.

Elliott’s demand for clarity adds to its calls for improved governance of the group – the activist has asked for greater independence and diversity on its board.

SoftBank’s leadership has come under closer scrutiny this week after a report in the Wall Street Journal said Rajeev Misra, CEO of SoftBank Investment Advisers which oversees the Vision Fund, tried to smear other executives and prevent them from getting top jobs at the fund.

Misra denies the allegations and says they contain a series of falsehoods. SoftBank said they have investigated a campaign of “falsehoods” against the company for several years and that they would review the inferences made by the WSJ.

SoftBank’s founder Masayoshi Son welcomed Elliott as a major investor during the company’s results on February 12, and has said the two have held friendly discussions and are aligned on improving shareholder value and governance.

As well as asking for SoftBank’s all-male board to have more diversity, Elliott wants a new subcommittee at main board level, to oversee and aid the investment process of the Vision Fund, the sources said. Both should have at least one female member, they said.

SoftBank already has an investment committee that carries out due diligence on investments.

The $100 billion Vision Fund’s mixed track record has weighed on SoftBank’s effort to raise a second fund of similar size.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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