- Negotiations get more serious on pandemic bill
- Markets are nervous ahead of U.S./China review of trade deal on Aug 15
- U.S. ADP jobs expected to show continued improvemen
- U.S. ISM non-manufacturing index expected to lose some ground
- U.S. trade deficit expected to narrow
Negotiations get more serious on pandemic bill — Negotiators on Tuesday finally started to get more serious about reaching a compromise on a pandemic bill. The two sides are saying they are still far apart on some issues, but they are at least exchanging detailed offers on the key issues. There will be another Mnuchin-Meadows-Pelosi-Schumer meeting today.
Treasury Secretary Mnuchin said Tuesday afternoon, “We’re not at the point of being close to a deal but we did try to agree to set a timeline that we’re going to try to reach an overall agreement, if we can get one, by the end of this week, so that the legislation could pass next week.”
The Senate, in that case, would have to delay its plan to leave this Friday for its August recess. The House is already on recess but will be called back into session when there is a compromise bill to approve.
Republicans are now willing to accept an extension of a moratorium on evictions, and they made an offer on unemployment benefits. President Trump appears to be out ahead of Senate Republicans on the unemployment issue since he said, when he was asked if he supports an extension of the $600 per week bonus, “Yeah. I want to get them – I want to get them a lot.”
Due to progress in the negotiations, the White House has backed off for the time being on its threat to use executive authority to try to extend the eviction moratorium, extend the bonus unemployment payment, and cut the payroll tax. Politico reported that the White House is looking at whether appropriated, but unused, funds from the CARES Act could be redirected to pay extra unemployment benefits.
Markets are nervous ahead of U.S./China review of trade deal on Aug 15 — USTR Lighthizer and Chinese Vice Premier Liu will meet on August 15 to conduct the pre-scheduled 6-month review of the U.S./China phase one trade deal, according to the Wall Street Journal. That reporting was later backed up by Bloomberg.
The good news is that USTR Lighthizer recently made some favorable comments on the trade deal, saying that China has done “a pretty good job” on structural changes and has made “significant purchases over the course of the last many weeks.” USTR Lighthizer is the clear leader of the Trump administration’s trade policy, although he often has China-hawk Navarro nipping at his heels.
The phase-one trade deal is one of the few areas of U.S./Chinese relations that hasn’t yet collapsed. However, the Daily Beast on Tuesday ran a story entitled, “Trump Is Under Increasing Pressure to Blow Up His China Deal Before Election Day.” The story said that President Trump’s China-hawk advisors are telling him to deep-six the trade deal in a “bold move” to change his election chances.
The article also said, however, that Mr. Trump’s more moderate advisors (e.g., Treasury Secretary Mnuchin) are encouraging the President to keep the trade deal intact in order to keep the stock market strong going into the November election.
In addition to supporting the stock market, Mr. Trump may want to keep the trade deal intact because his political capital could drop sharply in rural America if he deep-sixes the trade deal and ends up with very little in return for the trade war that has hit the ag sector hard.
Yet Mr. Trump may still move to deep-six the deal if Democratic challenger Biden begins more strident attacks on the President for not forcing China to live up to its promises to purchase U.S. products. China is way behind on its purchases, partially due to the pandemic, and is not likely to catch up by year-end.
If Mr. Biden starts attacking President Trump as being weak on China, and those attacks gain traction with the voters, Mr. Trump may feel compelled to respond by deep-sixing the trade deal and launching a big round of new tariffs on Chinese imports. That would quickly be followed by more Chinese retaliatory tariffs on U.S. exports. The stock market would obviously be very disappointed if a big new round of tariffs arrives in the coming weeks to add to the misery caused by the pandemic.
U.S. ADP jobs expected to show continued improvement — The consensus is for today’s July ADP employment report to show an increase of +1.200 million, slowing from the increases of +3.1 million in May and +2.4 million in June. Today’s expected report of +1.2 million would leave the ADP series 13 million jobs below Feb’s record high. The unemployment claims data has recently shown some backsliding in the labor market due to renewed shutdowns of some businesses, the expiration of PPP benefits, and layoffs at businesses that are preparing for a long road back to profitability.
U.S. ISM non-manufacturing index expected to lose some ground — The consensus is for today’s July ISM non-manufacturing index to show a -2.1 point decline to 55.0, giving back part of June’s sharp +11.7 point increase to 57.1. The increase in the index to the relatively high level of 57.1 indicates a major improvement in business confidence in the non-manufacturing sectors of the U.S. economy.
U.S. trade deficit expected to narrow — The consensus is for today’s June U.S. trade deficit to narrow to -$50.2 billion from May’s -$54.6 billion. Trade flows continue to be roiled by the pandemic and by the continued U.S./Chinese tariffs. So far, U.S. exports have plunged by -31% from the pre-pandemic level in February and imports have plunged by -21%, thus causing the U.S. trade deficit to widen substantially.
