- Markets brace for U.S./China trade meeting
- Senate officially declares recess with no hope for pandemic bill
- July U.S. retail sales expected to surpass pre-pandemic level but consumer sentiment in August is expected to sag
- U.S. manufacturing expected to extend its recovery but remain far short of pre-pandemic level
Markets brace for U.S./China trade meeting — The markets are braced for the U.S./China trade meeting that might be held tomorrow (Saturday). The Wall Street Journal reported earlier this week that the meeting will be held tomorrow but Bloomberg is reporting that the exact date of the meeting is still not certain.
The meeting is expected to be a teleconference among USTR Lighthizer, Treasury Secretary Mnuchin, and Chinese Vice Premier Liu, who were the principals that negotiated the phase-one trade deal.
President Trump so far continues to support the phase-one trade deal and appears willing to overlook the fact that China’s buying of U.S. products is far behind schedule. White House economic advisor Kudlow on Tuesday said that the U.S./China trade deal is “fine” and that China is “substantially” increasing its purchases of U.S. products.
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 in order to stay on track with its full-year buying commitment, according to figures provided by Bloomberg.
The recent U.S./China tensions are likely to seep into the trade meeting due to reports that China plans to bring up President Trump’s move to blacklist TikTok and WeChat effective in 45 days.
The U.S. stock market has largely overlooked the sharp deterioration of U.S./Chinese relations in the past several months. However, if the U.S./China phase-one trade deal breaks down, then the U.S. stock market is likely to fall sharply since President Trump would undoubtedly launch a new round of tariffs against Chinese products, and China would retaliate with higher tariffs on U.S. products. The markets will therefore be carefully watching the tone of the trade meeting.
Senate officially declares recess with no hope for pandemic bill — Senate Majority Leader McConnell on Thursday officially declared a recess in the Senate after concluding that there was no near-term prospect for a pandemic-relief bill. Most Senators already left town last Friday, but Mr. McConnell kept the Senate session open in case there was a break-through. The House already went on recess two weeks ago.
The House and Senate could still return to session later this month if there is a breakthrough in the talks and a vote is needed. However, Speaker Pelosi and Treasury Secretary Mnuchin have traded barbs in the past two days and have indicated that neither side plans to budge from their respective positions. Speaker Pelosi on Thursday said that the pandemic-relief talks will resume only when the Republicans show a willingness to raise their offer to $2 trillion.
Democrats are sticking to a $2 trillion top-line bill, a $600 per week unemployment bonus, and more than $900 billion of state-local aid. Meanwhile, Republicans are sticking to a maximum bill size of $1 trillion, a $400 per week unemployment bonus, and a Covid liability shield for businesses, schools, and organizations.
When Congress returns from their 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.
July U.S. retail sales expected to surpass pre-pandemic level but consumer sentiment in August is expected to sag — The consensus is for today’s July retail sales report to show an increase of +2.0% m/m, adding to the surges of +18.2% in May and +7.5% in June. Excluding autos, today’s July retail sales report is expected to show a +1.3% increase, adding to June’s +7.3% increase.
Retail sales have bounced back sharply from the pandemic-induced plunge seen in March-April. An increase in today’s July retail sales report of any more than +1.0% (excluding revisions) would push retail sales above the current record high of $529.616 billion posted in January.
However, the question is whether the strength in retail sales will continue once consumers have caught up with their purchases. Indeed, spending is likely to weaken in coming weeks since there will be no second stimulus checks and since unemployment remains extremely high. Also, the $600 per week unemployment bonus expired on July 31, and there is no assurance if and when the federal government will come through with President Trump’s order for a $300 bonus from the federal government.
The consensus is for today’s preliminary-Aug University of Michigan U.S. consumer sentiment index to fall -0.6 points to 71.9, adding to July’s -5.6 point decline to 72.5. Consumer sentiment has weakened mainly because of the second Covid wave that began in mid-June, which made clear that the pandemic is going to last much longer than consumers initially thought.
U.S. manufacturing expected to extend its recovery but remain far short of pre-pandemic level — The consensus is for today’s July manufacturing production report to show a +3.0% m/m increase, adding to June’s +7.2% increase. July industrial production is expected to rise by +3.0% m/m after June’s +5.4% increase. Manufacturing production in May-June has so far recovered by only +6.9% from April’s 11-year low and would need to improve by another +12% from the current level to match February’s pre-pandemic level.
