U.S. Recovery Shows Signs of Slowing After Steep Contraction. The U.S. economy is set to officially record its sharpest quarterly contraction since World War II, and early signs of recovery appear uneven as the country grapples with a surge in coronavirus infections.
(…) Recent high-frequency data show “that the pace of the recovery looks like it has slowed since the cases began that spike in June,” Federal Reserve Chairman Jerome Powell said Wednesday, noting a drop in debit and credit-card spending, flattening hotel occupancy rates and fewer restaurant and salon visits. (…)
JPMorgan Chase & Co.’s tracker of credit and debit-card transactions, for instance, showed that spending stalled in mid-June and remained flat through last week. Data by Facteus, which tracks transactions by 15 million debit and credit-card holders, also suggest restaurant spending has largely flattened since late June.
The U.S. Census Bureau also said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago. (…)
Matt Godden, chief executive of Seattle-based Centerline Logistics, a marine-petroleum transportation operator, said he saw encouraging signs in the shipping industry.
“Looking at July’s volumes, there’s some decent signs of hope,” such as increased shipping traffic and some stabilization in energy markets, he said. “Container customers may have over-cut,” he added, saying some are now trying to increase shipping capacity. (…) (WSJ)
The key question is not whether cases will stop climbing (they have) or not but rather whether the recent “right leg on the V” is mainly the result of satisfied pent-up demand post lockdowns and that a more permanent, slower demand pattern has emerged, at least until a cure or vaccine is found and gets very widely distributed.
The key stats are employment and consumer savings.
Source: Pantheon Macroeconomics (via The Daily Shot)
(Axios)
Winter Virus Surge Down Under Shows Europe, U.S. What May Come
Deep into the Southern Hemisphere winter, Australia’s second-most populous city Melbourne is experiencing a virus resurgence that dwarfs its first outbreak back in March. The state of Victoria on Thursday reported a high of 723 new infections — nearly 200 more than its previous record set a few days earlier.
The surge epitomizes a disturbing pattern: that subsequent Covid-19 waves can be worse than the first, particularly when the conditions — like people sheltering from colder weather in enclosed spaces — are ripe for transmission. Epidemiologists, who have warned about a possible autumn resurgence in the Northern Hemisphere, are closely watching the situation in Australia. (…)
Despite the lockdown and a scaled-up testing drive, cases have soared in the hundreds for nearly a month during the Victorian mid-winter, where the average daytime temperature is 13.5 degrees Celsius (56 degrees Fahrenheit) in July.
With more than 10,000 cases, Victoria now accounts for more than 60% of Australia’s total, shooting past the more populous Sydney, where winter temperatures are warmer and which, until a few weeks ago, had the most infections in the country. (…)
Stats and charts on Australia covid-19 trends here.
JULY SALES DATA SHOWS GLOBAL GROWTH STILL FAR BELOW PRE COVID-19 LEVELS KEY COUNTRIES DRIVING GLOBAL GROWTH HAVE CONTINUED TO SUFFER FROM THE IMPACT OF COVID-19
Sales managers index. (Purchasing managers indices will be out Monday)
Three countries (China, the USA and India) have generated over 60% of global growth in recent years. All continue to suffer from the impact of Covid -19.
The July data shows that the economies of China, the USA and India in combination, far from driving growth, remain in decline. All the Global Sales Indexes registered numbers under the 50 “no growth” level in July after devastating declines in the previous two months.
Perhaps most significant of all the Sales Indexes this month, the Global Market Growth Index recorded a figure in the mid 40’s, reflecting a further sharp decline in economic activity after the large falls recorded in April and May. Although the rate of decline flattened a little in July, many of the various industrial and services markets in all three countries recorded reduced activity levels.
The key Staffing Levels Index remained far below the 50 level for the third consecutive month. This Index compares activity in July compared with the situation one year ago, and illustrates the harsh global reality of millions of lost jobs over the March-July period of 2020.
Airbus to Keep Production Rates Down Until 2022 The world’s biggest plane maker said it doesn’t expect to start increasing aircraft production again until around 2022 as the crisis hitting the aviation sector deepens.
Volkswagen Cuts Dividend Amid Coronavirus-Driven Downturn Volkswagen slashed its proposed dividend Thursday after swinging to a net loss in the second quarter, but the world’s biggest car maker by sales also said there were signs a recovery was under way in markets from Western Europe to the U.S.
Covid-19 Survivors Should Stay Vigilant, Doctors Say With the understanding of immunity still developing, people who have recovered from the virus shouldn’t assume they can’t get sick again
(…) Some studies have shown declining or undetectable antibodies in Covid-19 patients two or three months after their illness, prompting some to question whether patients are susceptible to reinfection at that point. One study of 65 Covid-19 patients by researchers at King’s College London found that neutralizing antibodies, the kind that would prevent the virus from entering cells and replicating, declined over a 94-day period. Researchers also found that patients with milder Covid-19 had lower levels of neutralizing antibodies than those who had more-severe illness, and that those antibodies became undetectable after three months.
That doesn’t prove that people who have recovered from a mild Covid-19 infection are necessarily susceptible to reinfection because the immune system can rapidly produce more antibodies when needed, cautioned Stuart Neil, a co-author of the study and head of the infectious-diseases department at King’s College London. The study hasn’t yet been peer-reviewed. (…)
“There’s still a lot we don’t understand about this virus and the immunology,” (…)
Not to mention long-term effects to the body and the brain. Best not to get it, period.
China’s Corn-Market Pop Could Lift U.S. Farmers Prices for the grain are soaring in China—with front-month futures up 27% this year, to levels not seen since the summer of 2015—which could be good news for U.S. farmers.
(…) Back in 2016, the Chinese government ended a long-running price-guarantee program for corn farmers that had led to the accumulation of massive amounts of the grain. Withdrawing the supports caused Chinese corn prices to plunge. Low prices and the lingering oversupply led farmers to cut back production.
(…) it has taken years to significantly reduce stockpiles and allow prices to recover. But with prices now soaring, industry analysts say they expect China to step up imports of corn and other grains, such as sorghum and barley, to help meet demand. (…)
“China is going to have to buy more grains, and the trade deal with the U.S. shoehorns that demand toward the U.S.,” said Tobin Gorey, agri-strategy director at Commonwealth Bank of Australia. That is providing some support to U.S. prices, he added, though not enough to overcome the effect of the looming large new crop.
China bought 2.1 million metric tons of corn through July 16, up from 315 thousand metric tons in the same period last year, according to the U.S. Department of Agriculture. The world’s most populous nation and No. 2 economy is also the second-largest producer and consumer of corn after the U.S.
On July 10, China’s Ministry of Agriculture and Rural Affairs said it expected to import six million metric tons of corn in the 12 months ending this September. That was 50% higher than its earlier forecasts and would represent the highest total ever. (…)
Import corn prices are currently around 600 yuan ($86) a metric ton lower than domestic corn prices in China.
U.S. Pending Home Sales Strengthen in June
The recovery in home sales is continuing as mortgage rates decline and the job market improves. The National Association of Realtors (NAR) reported that pending home sales in June increased 16.6% (6.3% y/y) to the highest level since February 2006. Sales have risen by roughly two-thirds from their April low.
Pending home sales continued to rise across the country led by a 54.4% jump in the Northeast (-0.9% y/y) to the highest level since February. In the Midwest, sales strengthened 12.2% (5.1% y/y) to the highest level since February 2017. Sales improved 11.9% (10.3% y/y) in the South to a record high and they gained 11.7% (4.7% y/y) in the West to a seven-month high.
Another way to look at it:
Big Tech’s Power Comes Under Fire at Hearing The CEOs of Amazon, Facebook, Apple and Google faced relentless criticism, with Democrats and Republicans alike challenging their business practices. The session laid bare deep-rooted frustration with the companies and highlighted the threat they face from ongoing antitrust investigations.
Two editorials:
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The FT: Big Tech’s leaders squirm as documents reveal their power Congress lands precise blows on Apple, Amazon, Alphabet and Facebook
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The WSJ: Big Tech’s Antitrust Paradox The legal test for antitrust is consumer benefit, not size.
Everyone seems to hate America’s giant tech companies these days—except the hundreds of millions of people who use their products. (…) Start with the reality that all four face ferocious competition, often from each other. (…) Breaking up U.S. tech companies would be a gift to ByteDance, Alibaba, Baidu and Tencent, among others. (…)
But the market usually does the best job of countering monopolies. Too often government intervention reinforces monopolies. Antitrust law since the work of Robert Bork and Yale Brozen in the 1970s has rightly focused not on size but consumer harm. The burden is on the critics of Big Tech to prove genuine damage, and then propose solutions that don’t do more harm than good.
EARNINGS WATCH
We are 40% into earnings season with 204 reports in, an 80% beat rate and a +13.2% surprise factor. The 204 companies having reported show a 36.3% decline in earnings on revenues down 7.6%.
Q2 earnings are now seen down 39.1%, somewhat better than the -43.0% expected on July 1.
Q3 estimates are now -23.4% vs -25.0% on July 1 and Q4 is -12.7% vs -13.2%.
Trailing EPS are now $141.17. Full year 2020: +124.79e. Forward 12ms: $144.25e. Full year 2021: $163.32e.
PANDEMONIUM
China’s Xi Sets His Sights on Taiwan After Subduing Hong Kong
(…) The quest to capture lost territory prompted Mao’s army to subdue Tibet, where cadres co-opted Buddhist monasteries and eventually built a railway that ensured well-supplied garrisons of troops across the Himalayan plateau. He also reclaimed Xinjiang in the far west, a Muslim desert region the size of Iran where Silk Road traders once crossed paths with Uighurs—who have now been reduced to about 30% of the population of their own homeland after millions of China’s dominant Han ethnicity moved in. After Mao’s death, Deng Xiaoping further helped restore China’s glory following the so-called century of humiliation when he negotiated the return of two cities lost to colonial powers. The U.K. handed over Hong Kong in 1997, and Portugal followed two years later with Macao.
Xi Jinping has consolidated control in all of these places since taking power in 2012 and bolstered Beijing’s hold on disputed reefs in the South China Sea. Most notably, he set up a vast police state in Xinjiang that sent Muslims en masse to reeducation camps, and just in July he imposed a sweeping national security law in Hong Kong aimed at stamping out dissent in a city that many in the West once hoped would spur China to embrace democracy. (…)
Joseph Wu, the foreign minister of the island’s democratic government, warned on July 22 that China “may look for excuses to start a war or conflict” after it suddenly stepped up incursions into Taiwan’s air defense identification zone, raising the risk of a collision that could escalate. “What China is doing now is continuing to ramp up preparedness to solve the Taiwan issue,” Wu said. “We are very concerned that China will target Taiwan now that the Hong Kong security law’s been passed.”
(…) a Republican Party lawmaker even planned to propose a bill authorizing the president to respond with military force if China attacks Taiwan. (…)
In a speech in Beijing last year about the party’s policy toward Taiwan, Xi said, “We make no promise to renounce the use of force and reserve the option of taking all necessary means.” He declared that “China must and will be united, which is an inevitable requirement for the historical rejuvenation of the Chinese nation in the new era.” (…)
Any military action would be catastrophic for the global economy in one crucial regard: Taiwan has more than 20% of the world’s microchip production, including Taiwan Semiconductor Manufacturing Corp., which briefly became the 10th most valuable company in the world on July 24 following reports speculating that Intel Corp., the largest U.S. chipmaker, might outsource its production to the company. TSMC is based in Hsinchu, less than 100 miles from China’s coast. A sudden disruption of the supply chain would resound everywhere, including the People’s Republic. (…)
At an annual legislative meeting in May, China’s premier, Li Keqiang, called Taiwan’s people “brothers and sisters” and said leaders would “do our very utmost to promote peaceful reunification of China.” And in July, a spokesman for China’s defense ministry put the blame on the U.S. for the increased tensions, saying its leaders frequently play the “Taiwan card” and want to undermine China’s sovereignty by “salami slicing.” (…)
China recently surprised India with the deadliest border clash in decades around the same time that it clamped down on Hong Kong. (…)
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Xi Jinping Could Make the Same Mistakes as Kaiser Wilhelm II U.S.-China tensions look eerily like the rivalry between Britain and Germany before World War I. Let’s hope it doesn’t end the same way.
Qualcomm Inks Deal With Huawei Despite U.S., China Tensions U.S. mobile phone chip giant Qualcomm said it resolved a licensing dispute with Huawei Technologies and inked a long-term deal with the smartphone maker despite heightened tensions between the U.S. and China.
Treasury to Make TikTok Recommendations to Trump This Week Treasury Secretary Steven Mnuchin said a review led by his department into whether the popular Chinese video-sharing app poses national-security threats would present its recommendations to President Trump.
Postal Service Reaches Agreement on $10 Billion Coronavirus-Relief Loan The U.S. Postal Service, struggling with fallout from the coronavirus pandemic, reached an agreement for a $10 billion loan from the Treasury Department.
The check is in the mail…