Mnuchin Says Stimulus Talks Remain Stalled Treasury secretary suggests Pelosi may be open to resuming talks when House convenes to take up Postal Service bill
(…) Democrats have said they are willing to move to $2 trillion on the next coronavirus bill, down from the $3.5 trillion of a bill the House passed in May. The administration has set its goal for the size of the next bill at $1 trillion but has indicated willingness to go higher. (…)
But Reuters reports that
Some Democrats and Republicans have a “real desire” to reach agreement on a smaller coronavirus relief bill that could be worth around $500 billion, a senior Trump administration official said late on Tuesday. The official said the agreement could include funding for the U.S. Postal Service, additional funding for loans to small- and medium-sized businesses to keep workers on their payrolls and potentially added money for schools. (…)
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Several States Commit to Extra Federal Jobless Benefit of $300 a Week The Labor Department estimates states will take three weeks on average to deliver the enhanced unemployment payments offered by the federal government under an executive order from President Trump.
(…) To meet the new federal guidelines for distributing the extra $300 benefit, state unemployment agencies must determine whether a person lost work due to the pandemic. Some but not all unemployment-insurance recipients have already provided such information to state labor departments.
States must also determine whether an unemployment claimant meets Mr. Trump’s requirement that only recipients of at least $100 in regular weekly unemployment benefits receive the $300 federal benefit. (…)
Based on the current number of unemployment-benefit recipients, federal funding allocated for the enhanced jobless benefits could run out within a month and a half if all states participated, according to a senior Labor Department official.
That time line would put the benefits on pace to expire sooner than the December termination set in Mr. Trump’s order.
From ZeroHedge:
(…) according to an update from FEMA, only 7 states, Colorado, Missouri, Utah, Arizona, Iowa, Louisiana and New Mexico, have signed up with FEMA so far to access the additional $300 weekly stimulus for those receiving unemployment benefits under Trump’s Aug 8 Executive Order. Using initial claims data, this accounts for only 6% of Americans receiving unemployment insurance, which means that more than 90% are currently ineligible for the emergency stimulus. (…)
Meanwhile, in another major setback for Trump’s attempt to single-handedly carry the economy through to the Nov 3 finish line without Congress, a coalition of big-name business groups warned that many employers won’t participate in President Trump’s payroll tax deferral plan.
Calling it “unworkable,” they said in a letter Tuesday to Treasury Secretary Steven Mnuchin that it risks saddling their workers with large postponed tax bills they could have trouble paying back. According to the coalition, someone earning $35,000 would see their biweekly pay go up by $83 this year, the groups wrote, but would owe $751 next year. People earning $75,000 would see a $178-per-paycheck bump now, but would face a $1,609 tax bill next year. (…)
“Therefore, many of our members will likely decline to implement deferral.” (…)
The risk charted:
New U.S. Covid-19 Cases Jump The U.S. reported more than 44,000 new coronavirus cases Tuesday, up sharply from the previous day’s 35,112 but lower than recent peaks
(…) The University of Notre Dame moved in-person classes online for at least two weeks after seeing an increase in coronavirus cases. The South Bend, Ind., college reported an additional 80 positive cases of the coronavirus of 418 tested Monday, the highest number of cases the school has reported and tests completed by the school in a single day by far. (…)
Michigan State University President Samuel Stanley Jr. said the school would have all fall semester classes online, citing safety concerns for students and staff. That comes a day after University of North Carolina at Chapel Hill said it was moving undergraduate classes online starting Wednesday, after a series of Covid-19 outbreaks on and around campus since starting classes last week.
Schools in several states, including Indiana, Louisiana, Oklahoma, Tennessee and Georgia, closed to in-person learning this month after students and staffers tested positive for Covid-19, the illness caused by the new coronavirus, sending thousands into quarantine and remote learning. Several superintendents working to reopen schools also have tested positive, and at least one has died. (…)
Separately, New York Gov. Andrew Cuomo’s office said it was adding Alaska and Delaware to the state’s travel-advisory list, which now includes 34 states and Puerto Rico. Travelers from those states must quarantine for 14 days when visiting New York. (…)
South Korea reported 297 cases, its largest single-day increase since March 8, when the country reported 367 infections. The recent rise in cases is largely linked to big churches. South Korea’s prime minister said it is still too early to adopt the most stringent level of restrictions, as it would bring a “shock to the daily life of citizens.”
The 7-day averages remain on a good trend, however.
- The number of new confirmed coronavirus cases continues to decline in the vast majority of states. But the level of new cases remains very high in several states. States representing over 80% of the population have new cases over 50 per million per day. In states representing 40% of the population new cases are still over 200 per million per day. Although the nationwide downward trajectory is encouraging, state government officials may wait until case levels decline further before moving forward with additional reopening policies. (GS)
- The US has continued to experience fewer cases, with the weekly moving average down some 25% over the past month. New cases in Arizona, Florida and Texas have dropped by much more than that. Indeed, daily new confirmed cases in Spain have been higher over the past week than across the Atlantic once adjusted for differences in population. (Fathom Consulting)
- One in five workers at Brazil’s meat plants have been infected with coronavirus, according to union estimates. That would make the country home to one of the world’s worst workplace outbreaks. The estimate comes from Nelson Morelli, the president of national workers union Contac-CUT who spoke Tuesday on a webinar. The figure would mean about 100,000 infected workers in the country’s meatpacking industry, which employs half a million people. It’s not an official count and is based on surveys of the group’s local members, but an outbreak even close to that figure would be one of the biggest globally for a single industry. (Bloomberg)
U.S. Housing Starts Surge Unexpectedly in July; Building Permits Strengthen
Improved activity in the housing sector continues to lead the economy out of recession. Housing starts strengthened 22.6% during July (23.4% y/y) to 1.496 million (SAAR) from 1.220 million during June, revised from 1.186 million. Despite these gains, total starts remain 7.5% below their January peak of 1.617 million. The Action Economics Forecast Survey expected 1.230 million starts in July.
Starts of single-family homes rose 8.2% last month (7.4% y/y) to 940,000 after surging 19.4% in June to 869,000, revised from 831,000. Multi-family starts strengthened 58.4% (65.0% y/y) to 556,000 in July from 351,000 in June, revised from 355,000.
Building permits improved 18.8% in July (9.4% y/y) to 1.495 million from 1.258 million during June, revised from 1.241 million. Permits to build single-family homes increased 17.0% (15.5% y/y) to 983,000 after improving 12.6% in June. Permits to build multi-family homes increased 22.5% (-0.6% y/y) to the highest level since January.
Fundamentally Speaking: Earnings Don’t Support Bullish Thesis
Lance Roberts yesterday posted a good analysis. Some excerpts:
(…) Below is the evolution of estimates from Standard & Poors from the beginning of this year.
Let me point out some critical points:
- In January and February, investors were bidding up stocks to all-time highs based on REPORTED earnings of $171/share by the end of 2021.
- Today investors are paying the same price for 2021 earnings that are $20/share lower.
- While earnings revisions did tick HIGHER at the beginning of August, estimates through the end of 2020 hit a new low just 2-weeks later.
The message here is simple.
- In January of 2020, investors were told to buy stocks because valuations were cheap based on 2021 estimates.
- In August of 2020, investors are being told the same, but they are paying more for less.
(…) The reality is that while markets are sitting at all-time highs (as they were in February), both 2020 and 2021 estimates are lower.
(…) During the last TWO years, reported earnings for the S&P 500 have plunged. While analysts are currently hoping for a “V-shaped” economic recovery to provide for the “hockey stick” recovery, risks are high such will not occur.
As noted, investors are currently “paying up” for 2021 earnings, which are $27 lower than 2020 earnings in April 2019. (…)
Eventually, investors might need to factor this in: estimated S&P 500 Earnings Impact Based on Biden’s Proposals.
(BofA US Equity & Quant Strategy)
Goldman Sachs’ estimates suggest a 11.8% hit overall:
Based on know trailing EPS at today’s 3390 pre-opening:
Conventional P/E charts:
PANDEMONIUM
Trump Cancels China Talks, Raising Questions About Trade Deal
(…) “I canceled talks with China,” Trump said Tuesday in Yuma, Arizona. “I don’t want to talk to China right now.” (…) Addressing whether the U.S. would pull out of the phase-one deal, Trump said: “We’ll see what happens.” Terminating the deal would require a written notification and take effect 60 days later, unless both parties agree on a different date. (…)
“What China did to the world was unthinkable,” Trump said Tuesday.
U.S. puts stranglehold on chip sales to Huawei
The U.S. announced new rules that would completely cut off the supply of computer chips to Huawei Technologies Co. Ltd., in what some say could be a killing blow to the Chinese company.
Under the rules published Monday by the Department of Commerce, companies worldwide will need a license to sell the Chinese company products in which U.S. technology is used in the production process, including any components.
“This amendment further restricts Huawei from obtaining foreign-made chips developed or produced from U.S. software or technology to the same degree as comparable U.S. chips,” the department said. The latest rules build on previous regulations announced in May that targeted products specifically designed by Huawei. But the new rules also target third-party chips, which the company was expected to rely on after its stockpile of custom-built chips ran out.
Geopolitical Futures adds:
The United States is going for the jugular against Huawei. The U.S. Commerce Department announced on Monday new restrictions on exports to the Chinese telecom giant that aim to starve the company of commercially available microchips and to block sales by any firm, anywhere in the world, of any microchips containing U.S. intellectual property or manufactured using machinery with U.S. IP. Given U.S. dominance in the semiconductor sector, this covers just about the entirety of Huawei’s supply of foreign chips. Chinese chipmakers are not believed to be anywhere close to capable of allowing Huawei to stave off a crisis once its chip reserves are exhausted (likely within the next year or so). Naturally, assuming the United States can force heavyweights like Taiwan Semiconductor Manufacturing Co. and Samsung to comply with the order, this would likely force Huawei to dramatically scale back its ambitions in both 5G infrastructure and sales of smartphones, at least in the short term. (…)
The United States is scrambling to address rapidly evolving technological challenges through pivotal policy decisions based on best guesses and worst fears about how the world might look more than a decade from now. So it’s taking advantage of one of its few clear sources of leverage – its semiconductor dominance – and letting the chips fall where they may.
U.S. Warns Colleges to Divest China Stocks on Delisting Risk
(…) “Boards of U.S. university endowments would be prudent to divest from People’s Republic of China firms’ stocks in the likely outcome that enhanced listing standards lead to a wholesale de-listing of PRC firms from U.S. exchanges by the end of next year,” Keith Krach, undersecretary for economic growth, energy and the environment, wrote in the letter addressed to the board of directors of American universities and colleges, and viewed by Bloomberg.
“Holding these stocks also runs the high risks associated with PRC companies having to restate financials,” he said.
The warning to endowments opens a new front in the Trump administration’s multipronged campaign against China’s government, businesses and individuals. The college and university funds represent billions of investment in Chinese companies, according to a 2019 investigation by Bloomberg, driven by the prospect of better returns. (…)
The State Department letter also warns universities of China’s growing influence on campuses and said the U.S. is accelerating investigations of what it called “illicit PRC funding of research, intellectual property theft and the recruitment of talent.”