- Weekly market focus
- Expanding pandemic implies slower economic recovery
Weekly market focus — The U.S. markets this week will focus on (1) the questionable pace of the economic recovery as states are being forced to slow or even roll back reopenings as the pandemic surges in some areas, (2) testimony by Fed Chair Powell and Treasury Secretary Mnuchin on Tuesday before the House Financial Services Committee, which is expected to focus on what additional measures may be needed to support the economy, (3) a busy Fedspeak week with appearances by five Fed officials other than Mr. Powell, (4) the release of the June 9-10 FOMC minutes on Wednesday, and (5) a busy economic calendar capped by Thursday’s June unemployment report, which is expected to show some improvement in the labor market (payrolls expected +3.0 mln, unemployment rate expected -0.9 to 12.4%).
The markets will carefully watch social media and tech stocks this week as an advertiser boycott against Facebook gains momentum. The latest companies to announce at least a temporary ad boycott include Starbucks, Levi Strauss, Pepsico, and Diageo. Facebook’s stock fell -8.2% last Friday after consumer-product giant Unilever said it would halt advertising on Facebook websites this year. Facebook and other social media companies are coming under heavy pressure to more aggressively screen out hate speech, advocacy of violence, and disinformation campaigns.
In Europe, the focus will be on Brexit as the EU-UK Brexit talks formally resume today and are expected to last through the end of July, with another session possible in August. A trade deal needs to be reached by October’s EU summit to leave enough time for ratification by each EU country’s parliament. If there is no trade deal or transition extension, then the UK will exit the EU single-market on December 31, 2020, with the reversion of tariffs to WTO default levels.
US-China tensions will remain in the news this week as China’s top legislative body is expected to vote in favor of the new Hong Kong security law sometime during its session that lasts through Wednesday. U.S. Secretary of State Pompeo last Friday said the U.S. is imposing visa restrictions on Chinese Communist Party officials involved with tightening restrictions on Hong Kong, although he did not name those officials or provide further details.
The markets this week will carefully watch Japan’s Tankan report on Tuesday night (ET time) and China’s PMI reports. On Monday night, China’s national June manufacturing PMI is expected to show a slight -0.1 point drop to 50.5 (after May’s -0.2 to 50.6) and the non-manufacturing PMI is expected to rise slightly by +0.1 to 53.7 (after May’s +0.4 to 53.6). China’s June Caixin manufacturing PMI report on Tuesday night is expected to show a -0.1 point drop to 50.6, falling back after May’s +1.3 point increase to 50.7.
Expanding pandemic implies slower economic recovery — The world has yet to flatten the overall curve against the coronavirus pandemic due to a surge in new cases in the U.S., Brazil, India, and other countries. The U.S. and Brazil are vying for the world’s worst locations for new infections with the U.S. at a 5-day moving average of 42,608 new daily cases and Brazil at 41,679 daily cases, according to Johns Hopkins. India is a distant third with 18,585 new daily cases. The U.S. leads the world by far in the number of confirmed Covid deaths, with 125,539 deaths, compared with Brazil in second with 57,070 and the UK in third with 43,598.
In the U.S., the states seeing the largest daily increases in Covid infections (per capita) are Florida, Arizona, Mississippi, Texas, Georgia, South Carolina, Nevada, and Idaho, according to Johns Hopkins. Florida and Texas last Friday were forced to close their bars due to the surge in covid cases. Houston has filled its hospital beds due to incoming Covid patients and is now relying on surge capacity.
The number of Covid cases across the U.S. is highly variable depending on a variety of factors, including the extent to which states have opened back up. While some state officials have sworn they will not reimpose full lockdowns, the fact remains that states, such as Texas and Florida that have seen surging pandemic figures, were forced to at least close down their bars. However, as long as retail and manufacturing businesses can remain open, then the U.S. economy should be able to at least hobble through the pandemic crisis until an effective vaccine becomes widely available, perhaps next year.
The U.S. stock market last week fell by a net -2.86% on concern about the pandemic’s resurgence. Market hopes for a quick economic recovery from the pandemic are being dashed and the market is bracing for a longer period of high unemployment and subpar economic growth.
The markets are also worried since stimulus measures will soon start expiring, which would cause reduced consumer spending and weaker economic growth. Small businesses that received Paycheck Protection Program (PPP) money are already seeing the 2-month payroll period run out, putting pressure on those businesses for new layoffs if they haven’t seen a full recovery of their revenue. In addition, the $600 per week unemployment benefit bonus expires at the end of July, which leaves Congress will little time to decide whether they will extend all or part of those benefits.
The markets continue to wait on negotiations in Washington about whether there will be another stimulus bill, likely focused on a jobs program and infrastructure spending. However, there have been only sporadic talks between House Democrats and Treasury Secretary Mnuchin, and Senate Republicans are showing little interest in another stimulus bill.