The Market Today
Policy Response to New COVID-19 Wave Not Yet Limiting of Economic Activity
by Craig Dismuke, Dudley Carter
New Cases Continue to Rise; Policy Responses Have Not Yet Been Limiting of Economic Activity: New COVID-19 cases continue to accelerate in the U.S. with all 50 states reporting higher 7-day growth rates than their previous weeks’ rates. Louisiana is now at its highest daily growth rate of the pandemic while Hawaii and Florida are closing in on their peaks. The largest private U.S. employer, Walmart, mandated vaccines on Friday for all staff working in its headquarters as well as regional and divisional employees. They also mandated masks for all front-line retail workers and doubled the cash incentive to $150 for employees to get vaccinated. Thus far, the restrictions implemented to contain the Delta variant have not risen to the level of impeding economic activity.
Manufacturing PMIs and Construction Spending to Start Busy Week: This week’s economic calendar is packed, culminating with the July jobs report on Friday. Later this morning, the July manufacturing PMIs from both Markit and the ISM are scheduled for release (8:45 a.m. and 9:00 a.m. CT, respectively). The June construction spending data is also scheduled for 9:00 a.m. and is expected to rebound 0.5% from June’s drop.
Infrastructure Watch: Also this week, the Senate continues to move forward with the bipartisan infrastructure package and it is now poised for passage this week.
Renter Eviction Moratorium Expires: Over the weekend, Congress failed to pass emergency legislation to extend the national renter eviction moratorium. The moratorium ended Saturday. According to a Census Bureau Pulse Survey taken between June 23 and July 5, 7.4 million renters (15%) are behind on their rent payments. Of those delinquent, 51% have seen a loss of income.
Brainard in Consideration for Fed Chair?: From Bloomberg: “Federal Reserve Governor Lael Brainard staked out different ground from the Jerome Powell-led monetary authority on some regulatory issues ahead of Biden’s decision on Fed leadership. Brainard, considered a leading candidate in a succession decision expected no sooner than September, said she’s much more inclined to use regulatory tools to head off financial excesses like asset bubbles. In remarks late Friday to the Aspen Economic Strategy Group, she also exhibited a greater willingness to adopt a central bank digital currency, and more inclination to make a decision than Powell. Nonetheless, she was aligned with Powell on monetary policy, saying a further notable improvement in the jobs market is needed for the Fed to start scaling back massive bond purchases.”
ICYMI – July 30 Weekly Market Recap – Fed Continues to Pivot as Economy Moves into Expansion Phase: The U.S. economic calendar was loaded with data including the 2Q GDP report and a Fed policy decision. The economy officially moved from recovery to expansion, growing 6.5% in 2Q with output surpassing the pre-pandemic peak. The consumer and business investment in equipment led the way. Discouraging were larger-than-expected declines in housing and business investment in structures. External trade remained a drag as the global economy has been slower to regain its footing than the U.S., and inventories dragged again as the global supply chain remains too impaired to keep up with blistering U.S. demand. The Fed pivoted further toward tapering asset purchases, noting, “the economy has made progress toward these [substantial further progress] goals.” Chair Powell confirmed that this meeting was the first deep-dive into the timing, pace, and composition of tapering but also pushed the timing into the future saying that the labor market still has some ground to recover. The Senate agreed to move forward with a $1t infrastructure package that appears can be passed with bipartisan support. The bill increases spending above current projections by $579 billion. U.S. stocks hit new record-highs on Monday. However, new regulations in China on the tech and education sectors turned the tide abruptly lower. U.S. equities regained their footing but held just below those record-highs for the remainder of the week. COVID-19 cases in the U.S. continued to grow at an alarming rate, but the decline in U.K. cases became more convincing. Even more encouraging, the case fatality rate remained well below the previous waves’ correlation giving the impression that either the Delta variant is less fatal or vaccinations are helping reduce the health, and eventually economic, impact. The 10-year Treasury yield continued to grind lower for a fifth consecutive week, down 5.2 bps to 1.224%.