- Weekly global market focusÂ
- U.S./China trade meeting is indefinitely postponed
- House returns to Washington for Post Office vote but no pandemic negotiations are scheduled
- Q2 earnings season is winding up with growth at -33.6%Â
Weekly global market focus — The U.S. markets this week will focus on (1) any indications that negotiations in Washington might resume on the pandemic relief bill, (2) any developments on U.S./China tensions after Saturday’s review of the phase-one trade deal was indefinitely postponed, (3) Washington politics as the Democrats hold their nominating convention this week with former VP Biden delivering his acceptance speech on Thursday, (4) the U.S. pandemic statistics, which have improved a bit in the past two weeks, (5) Fed policy with the release of the July 28-29 FOMC minutes on Wednesday, (6) the tail-end of Q2 earnings season with reports this week from some major retailers, (7) the Treasury’s sale of 20-year bonds on Wednesday and 30-year TIPS on Thursday, and (8) key U.S. economic reports including several housing market reports and Thursday’s LEI report.
In Europe, the markets will focus on the July 15-16 ECB meeting results on Thursday and on Friday’s Aug Markit Eurozone manufacturing PMI (expected +0.9 to 52.7) and services PMI (expected +0.2 to 55.1). The sixth round of UK-EU Brexit talks begins on Tuesday and runs through the end of the week. The two sides are hoping for an agreement by this fall to avert a hard-Brexit at year’s end when the transition period ends.
In Asia, the focus will be mainly on U.S./China tensions as the markets wait to see what happens with the review of the phase-one trade deal. The Trump administration could announce new measures against China this week relating to Taiwan, Hong Kong, software apps, tech companies, trade, or Chinese stocks trading on U.S. exchanges. There are no major Chinese economic reports this week.
U.S./China trade meeting is indefinitely postponed — The 6-month review of the U.S./China phase-one trade deal, which was tentatively scheduled for this past Saturday, was indefinitely postponed. The reason given for the delay was scheduling conflicts. However, there could be a back-story for the delay after last week’s reports that China at the meeting wanted to discuss U.S./Chinese tensions more generally, such as the U.S. order to close TikTok and WeChat. The markets will now have to wait for any further media reports on why the meeting was postponed, or a new date for the meeting.
White House economic advisor Kudlow last week went out of his way on several occasions to insist that the phase-one trade deal remains intact despite the other tensions swirling around U.S./Chinese relations.
The Trump administration continues to overlook the fact that China has satisfied less than half of its promises through mid-year for purchasing U.S. goods. China in the first half of 2020 bought only $33.1 billion of U.S. goods, little changed from the comparable year-earlier level and less than half of the target of $71 billion that China needed to hit by mid-year to stay on track with its full-year buying commitment, according to figures provided by Bloomberg.
House returns to Washington for Post Office vote but no pandemic bill negotiations are scheduled — Speaker Pelosi on Sunday night announced that the House will be called back from their recess to vote on a Post Office bill. However, the Senate remains on recess. The chances for any new talks about the pandemic bill in August seem extremely unlikely given the barbs that Speaker Pelosi and Treasury Secretary Mnuchin traded last week and their refusal to budge from their respective positions.
When Congress fully returns from its August recess after Labor Day, there will be only a few weeks left to produce a spending bill for fiscal 2021, or there will be another federal government shutdown on October 1, 2020. The negotiations over new spending authorization may get tangled up with a new push for pandemic aid.
The markets this week will watch to see whether the federal unemployment bonus of $300 per week, ordered by President Trump, comes through. South Dakota, over the weekend, became the latest state to say that it won’t comply with President Trump’s request for states to provide an additional $100 per week unemployment bonus.
Q2 earnings season is winding up with growth at -33.6% — Q2 earnings season is nearly over with only 18 of the S&P 500 companies scheduled to report this week. Notable reports this week include Walmart, Home Depot, and Kohl’s on Tuesday; Lowe’s, Target, TJX and L Brands on Wednesday; Ross Stores on Thursday; and Deere on Friday.
Earnings expectations in Q2 were better-than-expected but only because expectations were so low during the pandemic-ravaged economy in Q2. Of the 457 companies in the S&P 500 that have reported earnings, 81.4% beat expectations, which was much better than the long-term average of 64.9% and the 4-quarter average of 71.1%, according to Refinitiv.
The consensus is for a plunge of -33.6% y/y in S&P 500 Q2 earnings, according to Refinitiv. Looking ahead, the consensus is for earnings to fall by -22.9% y/y in Q3 and -13.2% in Q4, then recovering sharply in early 2021. On a calendar year basis, the consensus is for SPX earnings to fall -20.3% in 2020 and then recover by +28.3% in 2021.
Sector earnings in Q2 have been highly variable depending on how hard a particular sector was hit by the pandemic. The earnings consensus by sector, according to Refinitive, is ranked as follows: Energy -168.5%, Industrials -84.3%, Consumer Discretionary -76.2%, Financials -54.0%, Materials -28.6%, Communication Services -16.7%, Real Estate -15.1%, Consumer Staples -7.8%, Technology +2.9%, Health Care +5.5%, Info, and Utilities +6.4%.
