- Weekly global market focus
- House passes Post Office bill but no negotiations are scheduled for a larger stimulus billÂ
- Markets wait for news of 6-month phase-one trade deal review
- Q2 earnings season is winding up with growth at -30.5%
Weekly global market focus — The U.S. markets this week will focus on (1) any developments on the deadlocked negotiations over the pandemic stimulus bill, (2) Fed Chair Powell’s speech on Thursday before the Fed’s Jackson Hole virtual conference in which he is expected to outline the results of the Fed’s long-term monetary policy framework review, (3) the U.S. Covid pandemic statistics, which have improved in the past several weeks, (4) U.S./Chinese tensions as the markets wait for any new moves by the Trump administration against China and any news on the date of the 6-month review of the phase-one trade deal, (5) Washington politics as the Republicans hold their convention this week, and (6) oil and natural gas prices as two hurricanes slam the Gulf of Mexico (Marco on Sun/Mon and Laura on Tue/Wed).
This week’s U.S. economic calendar is busy with a raft of economic reports, the Fed’s Jackson Hole virtual policy conference on Thursday and Friday, and the Treasury’s sale of $170 billion of T-notes on Tuesday through Thursday.
The 5-day average of new U.S. Covid infections has stabilized in the 42,000-46,000 area in the past several days, which is much lower than July’s peak near 70,000, although still the second-highest infection rate in the world. New infections in Brazil have also stabilized, although India’s infection rate continues to steadily climb with no signs of a peak.
The Asian markets this week will focus on U.S./China tensions, Wednesday night’s Chinese industrial profits report, and this coming Sunday night’s Chinese PMI reports.
House passes Post Office bill but no negotiations are scheduled for a larger stimulus bill — The House on Saturday passed a $25 billion funding bill for the Post Office that also contained protections against reported slow-downs in mail deliveries. However, the bill is expected to die in the House since Senate Majority Leader McConnell said the Senate will not take up the bill, and the White House has threatened a veto in any case.
The markets continue to watch for any break-throughs in the deadlocked talks on a new pandemic stimulus bill. White House Chief of Staff Mark Meadows on Saturday showed up unannounced at Speaker Pelosi’s office seeking some talks, but was reportedly shot down with the response that Ms. Pelosi was in a meeting.
Speaker Pelosi continues to insist that the stimulus bill be treated as a package, and she refuses to consider issues on an individual basis such as the unemployment bonus or a second round of PPP funding. There has been no movement by either side since negotiations broke down on Aug 7 with Democrats demanding a $2 trillion package and Republicans willing to go no higher than $1 trillion. The question now is whether either side will feel enough political pressure to move towards a compromise.
Attention in Washington this week will mainly be on the Republican national convention. There will then be a quiet week in Washington in the first week of September before Congress returns to Washington after Labor Day. At that point, the main job for Congressional leaders will be to produce a spending bill for the new fiscal year that prevents a federal government shutdown on October 1.
Markets wait for news of 6-month phase-one trade deal review — The markets are waiting for news about whether there may soon be a rescheduling of the 6-month review of the phase-one trade deal for Aug 15 that was canceled by President Trump. China’s Commerce Ministry spokesman Gao Feng said last Thursday that the 6-month review of the phase-one trade deal will take place soon, although he did not specify a date.
Mr. Trump still seems to support the phase-one trade deal since he has said on several occasions a week ago that China is buying a lot of U.S. goods. White House advisor Kudlow last Thursday reiterated the Trump administration’s support for the phase-one trade deal by saying that China is doing “basically what they should be doing,” and that USTR Lighthizer believes that China is following the script of the trade deal.
Q2 earnings season is winding up with growth at -30.5% — Q2 earnings season is nearly over with only 16 of the S&P 500 companies scheduled to report this week. Notable reports this week include Salesforce.com and Intuit on Tuesday; Tiffany and Netapp on Wednesday; and HP and Gap on Thursday.
Earnings in Q2 were better than expected, but only because expectations were so low for the pandemic-ravaged economy. Of the 475 companies in the S&P 500 that have reported earnings, 81.7% 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 -30.5% y/y in S&P 500 Q2 earnings, according to Refinitiv. Looking ahead, the consensus is for earnings to fall by -22.5% y/y in Q3 and -13.6% in Q4, then recovering sharply in early 2021. On a calendar year basis, the consensus is for SPX earnings to fall -20.1% in 2020 and then recover by +28.1% 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 -82.7%, Consumer Discretionary -67.6%, Financials -42.8%, Materials -28.6%, Communication Services -16.7%, Real Estate -15.1%, Consumer Staples -6.2%, Info Technology +3.3%, Health Care +5.7%, and Utilities +6.4%.
