- Weekly global market focus
- Markets continue to nervously watch pandemic infection rates
- China’s pledge to boost purchases of U.S. farm products reduces tensions
- U.S. existing home sales expected to extend April’s plunge
Weekly global market focus — The U.S. markets this week will focus on (1) the pandemic statistics and the extent of a U.S. economic recovery, (2) Fedspeak with four appearances by Fed officials this week, (3) the Treasury’s sale of $154 billion of T-notes on Tuesday through Thursday, (4) earnings reports from Oracle and H&R Block, and (5) a fairly busy U.S. economic calendar.
The European markets this week will focus on Thursday’s release of the ECB’s June monetary policy meeting account. Today’s June Eurozone consumer confidence index is expected to show a +12 point rise to -10, more than reversing May’s -6 point drop to -62. Tuesday’s June Markit Eurozone manufacturing PMI report is expected to show a +5.1 point rise to 44.5, adding to May’s +6.0 point rise to 39.4. Wednesday’s German June IFO business climate index is expected to climb +5.5 to 85.0, adding to May’s +5.3 point increased to 79.5. The markets are looking ahead to next Monday’s beginning of the intensive new round of Brexit negotiations that are scheduled to last until late July.
The Asian markets this week will focus on U.S./China trade and tech tensions, and also on the Hong Kong situation after China on Saturday released the framework of the draft Hong Kong security law. The Chinese markets are closed this Thursday and Friday for a public holiday.
Markets continue to nervously watch pandemic infection rates — The markets continue to nervously watch as WHO on Sunday reported 183,000 new Covid-19 cases, the largest single-day increase seen yet. The 5-day moving average of confirmed new daily Covid-19 cases in the U.S. has risen sharply in the past two weeks to a 2-month high of 30,610, which is only modestly below the record high of 32,150 posted in early April, according to Johns Hopkins.
The U.S. accounted for 63% of new Covid-19 cases reported by WHO on Sunday and the U.S. accounts for about half of the world’s deaths from Covid-19. There was a record number of daily cases of Covid-19 last week in Florida, Oklahoma, South Carolina, and Arizona.
Aside from the U.S., the two other main global hotspots are Brazil with a 5-day average of 25,845 new daily cases and India in third place with 14,096 cases, according to Johns Hopkins.
Despite rising Covid-19 cases in certain areas, the U.S. and the world in general continue to ease lockdowns. In the U.S. there seems to be little chance of a return to widespread lockdowns due to public opposition.
China over the weekend halted poultry imports from a Tyson plant in Springdale, Arkansas, due to an outbreak of the virus at that plant. Tyson reported on Friday that 13% of its workers tested positive for Covid-19 at its plants in northwest Arkansas, according to Bloomberg. China last week concluded that imported salmon was not to blame for a limited Covid-19 outbreak in Beijing, which has since been contained. China has stepped up testing of its imported meat and seafood, but so far China does not believe infections are coming from imported meat or seafood.
China’s pledge to boost purchases of U.S. farm products reduces tensions — U.S./China trade tensions eased a bit last week after U.S. Secretary of State Pompeo last Thursday said that top Chinese officials assured him in meetings last Wednesday that China intends to comply with its Phase One promises to buy U.S. products. Bloomberg last Friday reported that China was submitting offers to buy U.S. new-crop wheat.
The markets will carefully watch to see if China does in fact step up its purchases of U.S. farm products in coming weeks. China is way behind on its promise to buy $36.5 billion of U.S. ag products under the Phase One trade deal, up from $24 billion level in 2017. China has so far only bought $4.65 billion of U.S. farm products during Jan-April 2020, which is only 13% of its Phase One goal and is 40% below the 2017 level, according to Bloomberg.
If China doesn’t significantly step up its buying of U.S. farm products in coming weeks, then President Trump might start reviving his threats to cancel the Phase One trade deal and impose new tariffs.
U.S. existing home sales expected to extend April’s plunge — The consensus is for today’s May existing home sales report to show a decline of -5.6% to 4.09 million, adding to April’s plunge of -17.8% to 4.33 million. Home sales are expected to fall farther in May since its takes 1-2 months to close a home sale and initial home purchases were extremely low during the worst of the pandemic shutdowns in March and April.
Looking ahead, the outlook is for home sales to improve, at least temporarily. There has been a surge of people out looking for homes to buy, apparently because they either need a larger house so that they can work from home or because they want to escape from multi-family residences during the pandemic. The surge in home-buying interest is seen by the fact that the MBA mortgage purchase sub-index has surged by +77% in the past nine weeks and has hit a new 11-1/2 year high.
However, after the pent-up demand is met, home sales could fall back later this year as the economy struggles under the weight of the millions of people that will still be unemployed.
