| U.S. GDP shrank the most on record in the second quarter. China ramps up computer chip purchases before Hong Kong trade gets tougher. And Apple's second-quarter revenue crushes Wall Street estimates. Here are some of the things people in markets are talking about today. U.S. gross domestic product shrank the most on record in the second quarter, while 17 million Americans claimed state unemployment benefits in mid-July. That GDP drop — an astounding 32.9% when annualized — was widely anticipated, but the jobless claims figure was not. An increase of almost 900,000 in the number of people claiming continued benefits is the latest evidence that a nascent economic recovery is being undermined by the resurgence of the coronavirus, and could ultimately be short-lived. And the outlook may get even worse. Crucial lifelines in the pandemic, like the extra $600 in weekly unemployment benefits, are expiring, and lawmakers have made little progress on agreeing to another stimulus package. "You've got this triple whammy coming through," said James Knightley, chief international economist at ING Financial Markets. "One is the fear factor from Covid-19 on the rise and how that changes people's behavior. Secondly, you've got unemployment rising because states are reversing course on their reopenings. And then, third, you've got the income squeeze" with expiring benefits. Chinese importers of computing chips are ramping up their purchases of equipment through Hong Kong, in the expectation that U.S. sanctions on the territory will soon make the trade much harder. The Hong Kong trade represents more than 38% of China's total chip imports on average. Re-exports of semiconductors through Hong Kong to the mainland jumped by 11% in the first half of the year from the same period in 2019, almost double the increase in total chip purchases, according to Bloomberg calculations. In the wake of Beijing's imposition of a national security law on the Asian financial hub, the U.S. government has revoked the special trading status that eased commerce in sensitive goods including some computer chips. For buyers like Huawei Technologies Co., Xiaomi Corp. or Lenovo Group, a worst-case scenario would entail severe supply bottlenecks. Asian stocks looked set for a muted start to the final trading day of the month, while earnings from technology giants boosted U.S. equity futures. Treasuries rose and the dollar slipped. Futures dipped in Japan and Australia, and were flat in Hong Kong. Apple, Amazon.com, Alphabet and Facebook jumped in after-hours trading as results beat Wall Street estimates, lifting futures on the S&P 500 and Nasdaq 100. Earlier Thursday, American equities closed lower as data showed the U.S. economy had its sharpest contraction on record and the number of Americans filing for unemployment benefits rose. Elsewhere, oil retreated after the weak U.S. economic data. Apple reported quarterly revenue that crushed Wall Street forecasts, causing the stock to jump about 5% in extended trading. The world's largest technology company also announced a four-for-one stock split after its shares surged more than 80% in the past year. Fiscal third-quarter revenue came in at $59.7 billion, a record for the June period. That was up 11% from a year earlier and smashed analysts' estimates of $52.3 billion, according to data compiled by Bloomberg. The pandemic is keeping people at home, which has spurred demand for Apple devices to help millions of consumers use the internet to keep in touch with friends, family and co-workers. The pandemic likely boosted iPad and Mac sales due to lockdown rules and an increase in remote learning, while Apple store closures are weighing on iPhone sales, Apple Chief Executive Officer Tim Cook said. Apple's cheaper iPhone SE, released in April, was also well timed for leaner economic conditions. The company plans to launch new Mac computers with its own processors, a cheaper HomePod, and a slew of new iPhones later this year. Hong Kong authorities drew new red lines on the limits of dissent, barring a dozen activists including Joshua Wong from seeking office and arresting four others over social media posts. The back-to-back actions came within a span of about 24 hours Thursday — a sweeping gesture showing how much a national security law enacted last month had strengthened Beijing's hand. Both the Chinese and Hong Kong governments issued statements praising the disqualification of 12 opposition candidates, showing that mere opposition to the law drafted by Beijing was enough to prevent them from taking office. Meanwhile, fears are growing that Xi wants to conquer Taiwan, too. What We've Been Reading This is what's caught our eye over the past 24 hours: And finally, here's what Tracy's interested in this morning How do investors price in the prospect of a disputed election? Very carefully (ha ha). On Thursday, Trump tweeted about the possibility of delaying the November elections, suggesting they be put off "until people can properly, securely and safely vote" and intimating that any attempt to replace in-person polling stations with mail-in voting would lead to fraud. The dollar index dipped along with U.S. equity futures, though it's hard to disaggregate those moves from the U.S. GDP report released just a few minutes before Trump's tweet. If you really want to see the potential impact, however, take a look at the VIX. As Ben Emons at Medley Global Advisors notes, there's a "consistency in the VIX compared to interest rate, currency and commodity volatility," and it jumped by 4.19 points to 28.29.  Looking at the VIX futures curve — which shows expectations of volatility across upcoming futures contracts — is even more informative. Here you can see an elevation right before the November election, indicating investors are expecting more volatility around that time. Analysis from Tallbacken Capital Advisors shows a premium between the October VIX futures contract (which expires after the Nov. 3 election) and the average of the September and November contracts that's been moving roughly in line with Joe Biden's lead over Trump. The argument here is that as Biden's chances of taking the White House go up, so does the possibility of a Democratic sweep that could result in dramatic and uncertain policy change. As of Thursday, however, investors need to price in a whole different risk: "the notion that Trump may challenge the election results in the event of an apparent Biden victory or succeed in delaying the election." Watch the curve carefully for clues as to how seriously they are taking that risk. | 
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