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  • Weekly global market focus
  • Alarming U.S. pandemic statistics raise doubts about quick U.S. economic recovery
  • US/Chinese tensions likely to continue this week


Weekly global market focus 
— The U.S. markets this week will focus on (1) the extent of the U.S. economic recovery as the pandemic in the U.S. reaches new record highs, (2) Mexican President Andres Manuel Lopez Obrador’s visit to Washington on Wednesday to mark the July 1 beginning of the USMCA deal and whether Canadian Prime Minister Trudeau will join the meeting as well, (3) three appearances by Fed officials this week, (4) the Treasury’s sale of 3-year, 10-year, and 30-year securities this week, (5) anticipation of the Q2 earnings season that begins next week (SPX earnings growth expected -43% y/y), and (6) today’s June ISM U.S. non-manufacturing index (expected +4.6 to 50.0).

In Europe, the focus will be on the intensive round of Brexit negotiations that continues this week.  The markets are looking ahead to next Thursday’s ECB meeting where ECB President Lagarde will continue to try to justify the ECB’s heavy buying of Italian government bonds.

In Asia, the focus will be on US/China tensions as the U.S. could announce new sanctions on China.  China’s June CPI report on Wednesday night is expected to edge higher to +2.5% y/y from May’s +2.4%.  China’s June aggregate financing on Thursday night is expected to be strong at +3.1 trillion yuan, close to May’s level.

Alarming U.S. pandemic statistics raise doubts about quick U.S. economic recovery — There was good news for the U.S. labor market last Friday as June payrolls rose +4.800 million, substantially stronger than market expectations of +3.1 million.  Also, the U.S. unemployment rate fell by -2.2 points to 11.1%, which showed a stronger labor market than expectations for a -0.8 point decline to 12.5%.

However, there are doubts about whether a strong labor market recovery will continue since many states are slowing their reopenings or are even rolling back their reopenings due to the pandemic’s resurgence.  Also, many companies will soon reach the end of their 60-day PPP loans for keeping employees on the payroll, potentially leading to new layoffs.

President Trump over the weekend signed the PPP-extension law passed by Congress last week, which extends the deadline to apply for a PPP loan until August 8.  There is $130 billion of unused PPP loan capacity.  However, it remains unclear whether that extension will be much help since most businesses that wanted to apply for a PPP loan probably already did so before the previous deadline of June 30.

There is also concern about U.S. consumer spending since consumers are likely to remain cautious as the pandemic surges.  Also, consumer spending may be dampened by doubts about whether there will be another round of stimulus checks for Americans and whether Congress will extend the $600 per month bonus unemployment benefits that expire at the end of July.

The U.S. pandemic statistics last week were alarming, with new cases now growing as fast as they did in the first wave.  New daily Covid cases in the U.S. reached a new record high of 52,580 over the weekend, far exceeding the peak of 32,151 seen in April, according to Johns Hopkins.  States with the worst per-capita outbreaks at present are Florida, Arizona, Louisiana, Alabama, Tennessee, South Carolina, Georgia, and Idaho, according to Johns Hopkins.

The only good news is that many states in the U.S. have been able to bend their new-case curves downward, which means that economic growth can improve more rapidly in those states.  Even in the hard-hit states, governors are generally imposing requirements to wear masks and are closing bars, but are not going back to a full shut-down of all non-essential businesses.  That suggests that the U.S. economy will be able to improve on an uneven basis in coming months, but still with the collateral damage of a large number of new Covid infections and deaths, and heavy stress on health care workers and the health care system.

Globally, most countries have been able to bend the curve downward on new Covid cases.  However, a surge in cases in the Americas and India is pushing the overall global pandemic cases to new record highs.  As of Saturday, the U.S. was the global Covid leader with a 5-day average of 50,616 daily cases, followed by Brazil with 42,750 and India with 22,841, according to Johns Hopkins.

US/Chinese tensions likely to continue this week — Bloomberg reported over the weekend that President Trump is considering two or three actions against China that could be taken with a matter of days, not weeks.  One such action is that President Trump could announce sanctions against Chinese officials that the U.S. believes are responsible for the repression of minorities in Xinjiang.  President Trump signed the bill last week that calls for those sanctions.

President Trump could also announce whether he will sign the bill passed by Congress last week that calls for sanctions against Chinese and Hong Kong officials who are deemed responsible for Hong Kong’s new security law.  The Trump administration might also announce new measures to withdraw Hong Kong’s favorable trade status.

On the brighter side, the US-China phase-one trade deal so far remains on track.  White House advisor Kudlow last Thursday said that the trade deal “is proceeding.” Yet the markets will continue watch to see whether China steps up its purchases of U.S. products in the coming weeks to meet the targets set by the phase-one trade deal.

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