Weekly global market focus
U.S. Covid infections have fallen to a 2-month low but remain high
Pelosi rejects White House offer for $1.3 trillion pandemic-relief bill
China non-mfg PMI shows a solid increaseWeekly global market focus — The U.S. markets this week will focus on (1) any developments on the deadlocked talks over the pandemic-relief bill, (2) the U.S. Covid pandemic statistics, which have improved in the past several weeks but remain high with new infections running at above 40,000 per day, (3) expectations that Friday’s Aug unemployment report will show a further improvement in the U.S. labor market (payrolls expected +1.4 million, and the unemployment rate expected -0.4 to 9.8%), (4) business confidence with the U.S. ISM manufacturing index on Tuesday and the ISM services index on Thursday, (5) any additional details on the Fed’s new average-inflation targeting policy with five appearances by various Fed officials this week, and (6) oil and natural gas prices as the markets return to normal after Hurricane Laura caused substantial disruptions late last week as it made landfall.
In Europe, the focus will be on this week’s key economic reports, which include Tuesday’s Eurozone July unemployment rate (expected +0.2 to 8.0%) and Aug CPI (expected +0.2% y/y vs July’s +0.4%), and Thursday’s July Eurozone retail sales report (expected +1.4% m/m after June’s 5.7% m/m).
In Asia, the markets will be digesting Sunday night’s Chinese national PMI reports, which were net positive. This week’s Caixin Chinese PMI reports are expected to show small declines with Monday night’s (ET) Aug China manufacturing PMI down -0.3 at 52.5, and Wednesday night’s China services PMI down -0.5 at 53.8.
The markets are closely watching the leadership race in Japan to see who the new Prime Minister will be after Prime Minister Abe last week said he is stepping down for health reasons. His LDP party is expected to hold a vote on September 15 to choose a successor.
U.S. Covid infections have fallen to a 2-month low but remain high — The 5-day average of new U.S. Covid infections dropped to a 2-month low of 40,000 per day last week and is currently at about 45,000. That is down from July’s peak of about 70,000, but remains high. The current level of U.S. restrictions seems sufficient to keep the pandemic on a downward trend, although the pandemic continues to hobble major sectors of the U.S. economy.
Globally, the U.S. is in third place for new infections behind Brazil and India. The 5-day average of new infections in Brazil has been bouncing around in the 35,000-55,000 range. Meanwhile, new infections in India are in a runaway mode and have now reached about 80,000 per day.
Pelosi rejects White House offer for $1.3 trillion pandemic-relief bill — This will be a quiet week in Washington as members of Congress enjoy their last full week of recess. The Senate is due to return to Washington next Tuesday, and House committee members will also be returning to Washington. The full House is scheduled to reconvene on Sep 14.
The markets will be watching for any signs of progress on a pandemic-relief bill after the White House last Friday raised its offer to $1.3 trillion for the pandemic-relief bill, which was up from the recent $1.1 trillion bill offered by Senate Republicans.
However, Speaker Pelosi rejected the White House offer and said that talks would not begin until Republicans meet Democrats at what she calls half-way at $2.2 trillion.
White House chief of staff Mr. Meadows last week expressed pessimism about the chance for any near-term talks. He said he thinks Ms. Pelosi will “hold out until the end of September” and then wrap a pandemic relief bill with the stop-gap spending bill for fiscal-2021 that must be passed to prevent another government shutdown on October 1.
The main areas of contention on the pandemic bill are (1) the amount of federal aid to state and local governments, (2) the size of an unemployment bonus with the Democrats at $600 per week and the Republicans at $300 or $400, (3) whether there will be a second stimulus payment to individuals, (4) the size of Post Office aid, and (5) Senate McConnell’s demand for a Covid liability shield.
The good news for the markets is there is at least some movement in the negotiation, with the White House on Friday raising their offer to $1.3 trillion. The markets are hoping for a new stimulus bill since previous stimulus measures have expired and since some large companies are engaging in new layoffs. Consumers spent their stimulus checks a long time ago, and PPP money also ran out a long time ago. President Trump recently ordered the reinstatement of a $300 per week unemployment bonus, but that bonus has yet to show up in unemployment checks in most states.
Also, the IRS last Friday released its guidance on President Trump’s payroll tax deferral, and that deferral will put little fresh cash into consumers’ pockets. Few companies are likely to defer the payroll tax because the IRS said that companies will be responsible for collecting and paying the tax next year when the deferral expires since the tax is not being forgiven. That will likely cause most companies to simply ignore the option of deferring payroll taxes since it will only cause problems for them later.
China non-mfg PMI shows a solid increase — China’s Aug national non-manufacturing PMI showed a solid increase of +1.0 point to 55.2, which was substantially stronger than the consensus of unchanged at 54.2. However, the Aug manufacturing PMI fell by -0.1 point to 51.0, which was slightly weaker than the consensus of +0.1 to 51.2. China’s PMIs are both above 50, indicating that business confidence remains positive due to the dampened pandemic in China.