- U.S. stocks fall as labor market backslides and pandemic rescue bill stalls
- U.S. new home sales expected to show continued improvement
- July Markit U.S. PMIs expected to rise above 50.0 as business sentiment recovers
- Eurozone Markit manufacturing PMI expected to rise above 50.0
U.S. stocks fall as labor market backslides and pandemic rescue bill stalls — The U.S. stock market on Thursday sold off sharply with the S&P 500 closing down -1.23% and the Nasdaq 100 index closing down -2.67%.
Stocks were undercut by concern that the U.S. economic recovery is stalling and also by the lack of progress on a new pandemic rescue bill in Washington. Weekly initial unemployment claims on Thursday unexpectedly rose +109,000 to 1.416 million, showing a weaker labor market than market expectations for a report of unchanged. Yesterday’s increase in initial claims was the first since March and suggested that the U.S. labor market is starting to backslide due to (1) renewed business shutdowns from Covid’s second wave, and (2) new employee layoffs as PPP money expires and as businesses hunker down for a slow economic recovery.
Senate Majority Leader McConnell said late Thursday that Senate Republicans will now roll out their package on Monday. After a morning meeting on Thursday, Treasury Secretary Mnuchin, White House chief of staff Meadows, and Senate Majority Leader McConnell said they had a “fundamental agreement.” However, Senate Republicans balked at some elements of the plan, forcing Mr. McConnell to delay the release of the plan.
Senate Republicans reportedly agree on some elements of the plan, such as another round of direct payments to individuals, a second round of PPP payments to businesses, aid for schools, and funding for expanded virus testing. However, President Trump’s demand for a payroll tax was officially dropped from consideration due to opposition from some Senate Republicans. There was no word on whether Republicans have developed a plan to address the expiring $600 per week unemployment bonus.
Meanwhile, House Speaker Pelosi said she would not negotiate a piece-meal deal and she rejected the idea of a temporary extension of the unemployment bonus, which effectively expires this weekend. Democrats said they are waiting for a Republican proposal to begin negotiations.
The reality is that negotiations on a new pandemic deal will again mainly take place between Speaker Pelosi and Treasury Secretary Mnuchin. A final deal now seems impossible before the $600 unemployment bonus officially expires next Friday for potentially up to 25 million people.
If that bonus expires, Bloomberg Economics estimates there will be a $65 billion loss of monthly income from the economy, which would erase a large part of the expected improvement in Q3 personal spending. Bloomberg Economics said that if the $600 bonus is not renewed, then it will revise its 2020 GDP forecast substantially lower to -9.8% from -6.5%.
U.S. new home sales expected to show continued improvement — The consensus is for today’s June new home sales report to show an increase of +3.6% to 700,000, adding to May’s sharp +16.6% increase to 676,000.
New home sales plunged by -25% to a 2-year low of 580,000 in April from January’s pre-pandemic level. However, new homes sales then rebounded by +16.6% in May as strong demand emerged for new homes from people looking for more space to work from home or to escape from cities. New home sales are also doing well because of the tight supply of existing homes available for sale.
PulteGroup on Thursday reported much stronger than expected orders for new homes. The homebuilder reported orders for the three months through June totaled 6,522, down by -4% y/y but +34% above the market consensus of 4,880. The company said that it saw strong demand from first-time homebuyers. PulteGroup’s stock price on Thursday rallied by +4.30%, adding to Wednesday’s rally of +4.32%.
July Markit U.S. PMIs expected to rise above 50.0 as business sentiment recovers — The consensus is for today’s July U.S. Markit PMI reports to show a continued improvement in business sentiment in both the manufacturing and non-manufacturing sectors. Both PMI indexes are expected to move above the 50.0 level, indicating net business optimism. However, the reports must be taken with a grain of salt since business sentiment has improved relative only to the massive hit that the economy took in spring when non-essential businesses were shut down. The economy has a very long way to go before reaching normality.
The consensus is for today’s July Markit U.S. manufacturing PMI to show a +2.2 point increase to 52.0, adding to June’s recovery of +10.0 points to 49.8. Meanwhile, today’s July Markit U.S. services PMI is expected to show an increase of +3.1 to 51.0, adding to June’s +9.2 point increase to 46.7.
Eurozone Markit manufacturing PMI expected to rise above 50.0 — The consensus is for today’s July Markit Eurozone manufacturing PMI to show a +2.7 point increase to 50.1, edging above the boom-bust level of 50.0 and adding to June’s +8.0 point recovery to 47.4. The Eurozone PMI fell as low as 33.4 in April before rebounding higher.
If today’s Eurozone PMI report shows the expected increase to 50.1, then Europe will join the U.S. and China in having its key manufacturing sentiment index above the boom-bust level of 50.0. Last month’s June U.S. ISM index rose +9.5 to 52.6, moving well above the 49.8 point reading seen for June Markit PMI manufacturing index. China’s national manufacturing PMI fell by a total of -14.5 points in Jan-Feb to 35.7 in February, but then quickly snapped back by +16.3 points to 52.0 in March. China’s national manufacturing PMI was at 50.9 in June.
