Insights: Fiscal Stimulus

Top News:

10/05: U.S. service sector exhibited strengthening recovery for a fourth straight month in September.  In Eurozone business activity, by contrast, weakness in the service sector contributed to a meek increase.  Averting a looming deadline, Brexit negotiators agreed to an additional month of talks.

 

10/06: Fed Chair Powell again advocated for aggressive fiscal and monetary stimulus.  Nevertheless, any additional congressional stimulus plan appears dead, for now. Elsewhere, antitrust reform of U.S. tech behemoths also garnered attention.  Finally, a leading joint U.S.-European vaccine candidate will undergo an expedited “rolling review” by the European authorities.

 

10/07: After numerous false starts, investors pinned their hopes on piecemeal fiscal relief bills.  Eli Lilly has applied for emergency authorization of its Covid treatment.

 

10/08: Weekly jobless claims dipped to a post-pandemic low, albeit still quadruple the pre-crisis average.  An Administration official suggested vaccine trial data may be ready for government review by Thanksgiving.  Regeneron has also requested FDA approval of its Covid treatment in emergency use.

 

10/09: Conflicting signals aside, hopes for a more comprehensive fiscal recovery bill were rekindled.  Gilead’s Covid treatment shortened recovery time, according to final results published in the New England Journal of Medicine.  U.K.’s tepid August GDP growth proved worrisome, given it has subsequently tightened Covid-related restrictions.

 

Heard on the Street:

“One of the theories around the current context for markets is that a lot of it is quite dependent on ever-lower real interest rates… .  One of the big concerns I would have is that investors have allowed … their portfolios … to get sucked into an ever smaller vortex of recent winners … in the assumption that the future looks a bit like the recent past… .  However, history is littered with examples of changes.”

— Will Hobbs, Barclays’ CIO, as quoted by CNBC on 10/7/2020

 

“I don’t see really significant, anomalous valuations in the market, and that takes me to this idea of staying invested, being diversified, but not being too tactically adventurous.”

— Joseph Little, chief strategist at HSBC Global Asset Management, as quoted by MarketWatch on 10/9/2020

 

Longer Game:

While still anticipating 3Q U.S. GDP growth to “reverse much of the 31% annualized decline from the second quarter,” a survey of 52 business economists shows lower annual forecasts of -4.3% and +3.6% for 2020 and 2021, respectively.

 

Examining the disconnect between Wall Street and Main Street, economist Kenneth Rogoff expects higher corporate tax rates and other populist pushback on the horizon, unless there’s a “broad-based recovery in both health and economic outcomes.”

 

Bonus:

How do U.S. elections look from abroad?  According to a polling of 30 Asia-based market analysts, 11 are expecting a contested election, prompting a clear majority to increase cash levels and other safe-haven assets, including gold.

Top News:

9/28: The U.S. has reportedly tightened restrictions on exports of key semiconductor supplies to China, thwarting the latter’s ambition in achieving technological autonomy.

 

9/29: Snapping a two-month downward streak, consumer confidence bounced back sharply to a post-pandemic high in September.  House Democrats are slated to discuss its newly-unveiled $2.2T relief bill with the White House.  In Europe, negotiations have resumed in a last-ditch effort to avoid a no-deal Brexit.

 

9/30: A trio of upbeat economic releases (here, here and here) helped assuage investors’ indelibly bitter aftertaste from the “incongruously small and unbefitting” presidential debate.  Recovery in China’s overall economy  continued to pick up steam in September.  In a move similar to the Fed, the ECB is undertaking a “strategy review,” in light of heightened concerns over deflation.

 

10/01: Rumors swirled around the fate of the follow-up economic stimulus bill mired in last-gasp negotiations. While the weekly jobless claims report painted a recovering labor market, strains remained evident as at least 26.5 million Americans received benefits through various schemes.  U.S. consumer spending rose 1% in August, even as income fell 2.7% due to the expiration of unemployment supplement in July. U.S. manufacturing grew for the fifth consecutive month in September, albeit at a slightly slower clip.

 

10/02: September’s hiring pace moderated as unemployment rate stood at 7.9%, while revelation of the U.S. president’s Covid diagnosis compounded market uncertainty. The House passed a $2.2T economic relief bill, notwithstanding stalled bipartisan talks. 

 

Heard on the Street:

“I’m a monetary theorist. This is what I teach and study. This is unprecedented in 75 years, since World War II.  I think there’s a lot of repressed liquidity in the market that once the vaccine and the pandemic fears fade in 2021, we’re going to see a big boost in activity.”

— Prof. Jeremy Siegel, University of Pennsylvania, as quoted by CNBC on 9/28/2020

 

“Perhaps the only point worth mentioning is that the debate may have increased expectations for a contested election result. International investors have been prepared to entertain some extreme views on this topic (just as they entertained extreme views on the future of the euro area in the past). Given the importance of international investors to U.S. markets, this may add volatility around the election.”

— Paul Donovan, chief economist at UBS Global Wealth Management, as quoted by MarketWatch on 9/30/2020

 

Longer Game:

Nouriel Roubini, nicknamed “Dr. Doom” by the media, dispelled the long-held myth Republicans are better than Democrats at economic stewardship and explained his choice in the upcoming election.

 

Bonus:

Medical researchers continue to make encouraging, incremental progress on both treatment (here) and vaccine fronts (here) against Covid-19.  However, for one frontrunning vaccine candidate in late trials, distribution to the general public is not expected until spring 2021.