Every Friday, Brian Jacobsen provides perspective on key events and topics of the current week and his thoughts about what the week ahead may hold. Here’s his report for the week of August 8–14, 2020.

The week that was

  • Russia became the first country to register an approved coronavirus vaccine. President Putin said his own daughter took the vaccine.
  • The Big Ten and Pac-12 conferences chose to punt fall collegiate sports to spring. There go my Saturday plans for fall.
  • China’s economic data for July was a tad on the soft side, with industrial production falling 0.4% for the month and retail sales rising only 0.85% for the month. U.S. industrial production rose 3.0% month-on-month in July with manufacturing output increasing 3.4%, beating expectations. U.S. retail sales, excluding autos, for July surprised to the upside, rising 1.9% for the month despite the rise in coronavirus cases. Economists will be waiting for and watching the August spending data to see if there are signs of weakness from the expiration of enhanced unemployment benefits.
  • Earnings season is wrapping up. With 92% of S&P 500 Index companies reporting second quarter results, on average, they’ve beaten the estimates going into the season. According to FactSet, S&P 500 companies were expected to see an aggregated 44% year-on-year decline in earnings per share. Instead, earnings are down approximately 33.5%.

 

Economics:

  • The People’s Bank of China’s head said China will fulfill its commitments under the phase-one trade deal with the U.S. One of those commitments is to open up China’s financial sector.
  • The Federal Reserve cut interest rates on its Municipal Liquidity Facility. Only one issuer has made use of the facility. There is $500 billion available under the program. For those who aren’t familiar, the Fed established the facility to help state and local governments better manage cash flow pressures, in order to continue serving households and businesses in their communities.
  • K. gross domestic product (GDP) shrank 20.4% in the second quarter. Not only was this the worst fall in its historical record, it was also a bigger drop than experienced by any other European economy. In contrast with many other countries, the U.K. has more exposure to economic activity that traditionally takes place face-to-face. In addition, the U.K. waited a little longer than other countries to shut down and waited longer to reopen. In June, GDP rose 8.7%. The Bank of England has projected it will take until the end of 2021 to fill in the hole left by the coronavirus crisis.
  • S. inflation as measured by the monthly change in the Consumer Price Index rose 0.6%, the largest increase since the 1990s. The biggest drivers of the increase were new and used car prices and apparel prices.
  • Initial claims for unemployment benefits under state programs fell below 1 million for the week ending August 8. Jobless claims fell to 963,000. Continuing claims decreased to 15.5 million for the week ending August 1. For the week ending July 25, there were a total of 28.3 million people collecting unemployment benefits under the variety of federal and state programs. The $600-per-week enhanced benefits expired at the end of July.
  • China’s economic data for July was a tad on the soft side, with industrial production falling 0.4% for the month and retail sales rising only 0.85% for the month. U.S. retail sales, excluding autos, for July surprised to the upside, rising 1.9% for the month despite the rise in coronavirus cases. Economists will be waiting for and watching the August spending data to see if there are signs of weakness from the expiration of enhanced unemployment benefits.

Politics:

  • Former Vice President Biden announced that Senator Kamala Harris from California will be his running mate for the U.S. presidential election.
  • The Senate checked out until September. With stimulus talks at a stalemate, Senate Majority Leader McConnell said they will stand by and can come back to vote with 24 hours’ notice.
  • President Trump signed two memorandums and two executive orders to up the pressure on Congress to pass a fifth round of fiscal relief. These efforts were an attempt to sidestep the stalemate over stimulus.
    • At the end of July, enhanced unemployment benefits of $600-per-week expired. President Trump issued a memorandum directing the Federal Emergency Management Agency to assist with this economic disaster by paying benefits from the Disaster Relief Fund to create enhanced benefits of $400 per week with $100 of that coming from states. The memorandum calls on states to use part of their funds from the Coronavirus Relief Fund to cover their side of the costs, but it does not compel them to provide the funds. States may have already been planning on using their Coronavirus Relief Funds for other purposes like education and healthcare, so this could put a burden on states to reallocate their spending.
    • Another memorandum dealt with payroll taxes. The memo instructs the Treasury to defer collecting the employee portion of payroll taxes until the end of the year. It is unclear whether businesses will stop withholding the tax, as the tax will still be due, just deferred.
    • President Trump issued an executive order, instructing the Secretary of the Treasury and the Secretary of Housing and Urban Development (HUD) to identify funds to provide financial assistance to renters and homeowners struggling to meet their monthly payments. The order also instructs HUD, the Treasury, and the Director of the Federal Housing Finance Agency to find ways to help prevent evictions.
    • The President issued an order extending student loan payment relief until the end of the year. This order applies to interest on student loans held by the Department of Education.
  • Canada said it will impose retaliatory tariffs against the U.S.’s re-imposition of 10% tariffs on Canadian aluminum. Canada will target products made with aluminum.
  • China imposed sanctions on 11 U.S. officials in retaliation for the U.S. Treasury sanctioning Chinese officials.
  • Israel and the United Arab Emirates announced they have agreed to work towards fully normalizing relationships. It was a deal facilitated by the U.S. Israel pledged to stop trying to annex parts of the West Bank.

 

The week to come

  • It’s kind of a light week for data releases, which may be good for those who are gearing up for school to start. Japan’s second quarter GDP will be released on Sunday. There will be a lot of purchasing manager indexes released on Friday from data provider Markit. The Markit Purchasing Managers’ Indexes for August will hopefully show a continued expansion of economic activity. Throughout the week, the U.S. will release housing data from the National Association of Home Builder’s sentiment index on Monday to existing home sales for July on Friday.

Thanks for reading, stay informed!

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Index definitions

PAR-0820-00566

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