- Weekly global market focus
- U.S./Chinese tensions run very high
- U.S. new Covid cases fall back but remain high
- New pandemic bill is in doubt after President Trump issues executive orders
- Q2 earnings season trickles to a closeÂ
Weekly global market focus — The U.S. markets this week will focus on (1) the fate of the $1+ trillion pandemic bill after President Trump issued executive orders on Saturday, (2) U.S./Chinese relations and whether China retaliates this week, (3) the pandemic statistics, which have improved a bit in the U.S. in the past week, (4) Washington politics as Democratic presidential nominee Joe Biden is expected to announced his VP running mate this week, (5) Fedspeak with six appearances by Fed officials this week, (6) the tail-end of Q2 earnings season with reports from only 12 of the S&P 500 companies, (7) the Treasury’s sale of $112 billion of 3-year, 10-year, and 30-year securities, and (8) key U.S. economic reports including Wednesday’s CPI report and Friday’s retail sales and industrial production reports.
U.S./Chinese tensions run very high — The markets will focus on U.S./Chinese tensions as they wait to see if the Trump administration announces any new measures against China and whether China will retaliate for last week’s measures. The Trump administration late last week announced sanctions on eleven Hong Kong officials including Hong Kong Chief Executive Carrie Lam, and also banned Tik Tok and WeChat with 45 days notice.
China will also be infuriated as U.S. Secretary of Health and Human Services Alex Azar on Sunday began a visit to Taiwan, which is the highest-level visit by a U.S. official to Taiwan in more than four decades.
The markets will remain on guard for any damage to the phase-one trade deal. If that deal falls apart, then President Trump is likely to launch a new round of tariffs on Chinese imports, and China will likely retaliate with higher tariffs on U.S. products including farm and energy products.
The markets will also be watching U.S./Canada trade relations after the Trump administration last week slapped tariffs on Canadian aluminum, and Canada responded by announcing tariffs on $2.7 billion of U.S. goods. Some Canadian officials believe that the Trump administration may be preparing to impose new tariffs on Canadian steel.
U.S. new Covid cases fall back but remain high — The 5-day average of new U.S. Covid cases has fallen back to about 57,000 from the record high of 69,451 cases posted in mid-July, according to Johns Hopkins. The decline in new cases is a positive sign that recent restrictions have helped, although infection levels still remain at high and dangerous levels.
Globally, India’s new-infection level continues to steadily climb, and India has now taken over first place from the U.S. for the largest number of new cases. Brazil’s new-case level also remains very high and is just below the levels seen in the U.S. and India.
New pandemic bill is in doubt after President Trump issues executive orders — The markets will be watching to see if Republican-Democratic negotiations on a new pandemic bill will continue after President Trump on Saturday issued executive orders on key issues.
Specifically, Mr. Trump issued orders that seek to (1) reinstate the unemployment bonus at $400 per week, (2) reinstate some renter eviction protections, (3) provide student-loan relief, and (4) allow a temporary payroll tax deferral. President Trump’s authority to issue those executive orders is in dispute, and the markets will have to wait to see if the White House is able to implement those orders as planned.
There are doubts about whether the White House has the authority to reinstate the unemployment bonus because there is currently no specific federal law authorizing those payments. The White House plans to redirect some money from other pandemic legislation to pay $300 per week of the bonus and the White House is telling states to provide the other $100 per week. It is not clear when the new unemployment bonus will start being paid. Also, there may be only enough money under this technique to provide benefits into September.
Mr. Trump on Saturday said he is willing to continue negotiations with Democrats on the broad pandemic bill that was under discussion last week. However, if the executive orders issued on Saturday become effective, then Republicans will have already received some of what they wanted and will have limited impetus to continue negotiations.
For the markets, President Trump’s action was better than no pandemic relief at all, but not nearly as supportive as a new $1+ trillion stimulus bill. The extension of the unemployment bonus at $400 per week will be helpful for consumer income is it comes through. Also, the payroll tax deferral might put some extra money into consumers’ pockets although most businesses are not expected to pass it through to their employees.
However, if there is no full-scale pandemic bill, then there will be no new $1200 stimulus payments to individuals, no second round of PPP payments, no new aid for schools, no aid for state/local governments, and no new money for virus testing.
Q2 earnings season trickles to a close — Q2 earnings season is nearly over with only 12 of the S&P 500 companies reporting this week. The consensus is for a plunge of -31.7% y/y in S&P 500 Q2 earnings (according to Refinitiv) due to the widespread economic shutdowns seen across the United States and the world. Looking ahead, the consensus is for earnings to fall by -22.5% 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 -20.4% in 2020 and then recover by +28.4% in 2021.
