Market in a Minute September 8–11, 2020
by Sheila and Rich Jamison
Global equities fell for a second week. The 10-year US Treasury note yield fell to 0.67%. WTI Crude oil weakened to $37.34 on an expected boost in OPEC production. VIX, the CBOE Volatility Index, indicated volatility declined to 26.6 from 30.5 a week ago.
Economists are revising upward Q3 growth expectations. Strong consumer spending and the rebuilding of depleted inventories are the main drivers.
Goldman Sachs raised its Q3 forecast to a 35% annual rate.
Bank of America revised its view up to 27%.
Atlanta Fed Reserve Bank's GDPNow model shows 30.8% growth.
New York Fed’s Nowcast predicted a more modest 15.6% rebound.
Inflation ticked up in August, with both the headline and core consumer price indices rising 0.4%, slightly exceeding forecasts.
Initial unemployment claims came in a little worse than the prior week or forecast, but still below 1,000,000. Trump proposed disincentives for US companies who outsource jobs to China and Biden said he would call for an offshoring tax which would penalize companies for moving jobs anywhere offshore and reward companies for returning jobs to the US.
The Oxford University/AstraZeneca COVID vaccine – a leading candidate to be the first approved – paused its phase III trial when a participant came down with a rare spinal cord condition. An independent committee found the malady is unrelated to the vaccine and the trial will have resumed by the time you read this. Though still a longshot, the vaccine could be approved before the end of the year.
Speaker Pelosi and Treasury Secretary Mnuchin agreed on a "clean" continuing resolution that will extend government funding through the beginning of December but without additional stimulus. Democratic Senators blocked a "skinny" ($500 billion) coronavirus relief package from coming to a vote. Negotiations for a larger package remain stalled, with Republicans and Democrats nearly $1 trillion apart on the total price tags of their competing proposals. Further economic aid may have to wait until after the election.
Selling carried over into last week from the prior one. It took the Nasdaq 100 Index just three trading days to go from record high to correction (its fastest-ever) as the ‘usual suspects’ (the mega-caps) again paced the way down. Tesla fell 10.9%, its extra downward move following its being snubbed for a spot in the S&P 500 by the index committee. Alphabet, Amazon, Apple, Facebook and Microsoft were all down from -4.4% to -7.4%.
Energy was the worst sector, off 6.4% on weakening oil prices, but bigger sectors were the main drag on the market. Information technology, communication services and financials lost 4.4%, 3.4% and 2.4%, respectively. Materials gained 0.8%, making it a 2-week winning streak and last week’s only winning sector.
Western Europe is seeing a jump in new cases of COVID-19. The increase comes as schools and businesses attempt to reopen and at a point where governments are weighing the considerable costs of reinstating lockdowns. British Prime Minister Johnson has introduced stricter social distancing rules as case counts rise again. No more than six can now gather in groups, down from 30. The flip side is that while new case numbers have been rising, hospitalizations and deaths are trending lower, in both the US and Europe. However, cases tend to precede hospitalizations and deaths by 1-2 weeks.
The European Central Bank left policy unchanged and said it will carefully monitor exchange rate developments. President Christine Lagarde said that risks are mainly to the downside, and GDP won't return to its pre-pandemic levels until well into 2022.
The short-to-intermediate part of the UK yield curve remains in negative territory as odds of a Bank of England rate cut rise with the probability of a no-deal Brexit.
UK & Brexit
The UK economy grew 6.6% in July, slower than June's 8.7% pace. The British economy is 11.7% smaller than it was before the pandemic.
Boris Johnson’s Brexit divorce deal would leave Brussels able to claim jurisdiction over “large amounts” of UK state aid policy. A proposed British law complicates negotiations for a trade deal by the end of the year. A provision gives the UK unilateral power to remove previously agreed to Northern Ireland/Great Britain customs rules if there is no deal. It would end the requirement that Brussels be informed of policies concerning state aid for goods intended for Northern Ireland. In essence, the bill would allow for breaches of international law. Another complication, Speaker Pelosi said that Congress will not pass a US/UK trade deal if Brexit violates international law.
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