A week of fatigue as the prospects for the economy, a vaccine and the petulant political landscape came to a convergence. It won’t last forever but it sure feels like that at times. Remarkably, the stock and bond markets have held up and are riding the wave of liquidity provided by central banks and governments around the world. For the United States, Congress has been sparring over the next stimulus package which they both want so they can move onto getting re-elected. The President contracting coronavirus may be that last straw of uncertainty that pushes Congress to pass a deal and move onto the election in November.
The economy continues to recover and it does seem that a vaccine may be near so there is light at the end of the pandemic tunnel. Some of the changes will be permanent as economies around the world will benefit from the efficiencies of cloud computing and a workforce that knows few borders. We were heading in that direction anyway but the pandemic is accelerating the efficiency around labor utilization in service economies. However, there will be pandemic hangovers such as with commercial real estate as office space will need to be re-priced for companies that continue to use a virtual workspace.
This week in the chart of the S&P 500, we did get a breakout from the falling wedge in the chart below. If we can continue higher next week, that goes a long way towards tilting the odds of new all-time highs in October. You can try and read the tea-leaves of what that means for the election but you could also flip a coin and save yourself some time at this point. For now, the equity markets look to be stabilizing and looking towards the post-coronavirus world.
Chart of the Week!
Economic & Central Banking Snippets
- Strong consumer spending helped propel the economy in the third quarter that ended Wednesday. Economists estimate U.S. gross domestic product grew at an annual rate of 30% or more in July through September. But the economy is still digging out of a big hole and few economists expect the third quarter’s robust growth to persist, in part because Americans’ ability and willingness to spend may not hold up at high levels. (WSJ)
- The September jobs report came in at +661,000 jobs which was lower than expectations. On a brighter note, the unemployment rate fell to 7.9% from 8.1%, as fewer people filed for claims. Around 51% of the jobs lost since March have been added back, but there are still at least 10.7 million people officially unemployed, according to the U.S. Bureau of Labor Statistics. (Investopedia)
- The U.S. Federal Reserve will still require that banks stop share buybacks for institutions with over $100bn in assets for the fourth quarter. Dividend payments will also be capped and tied to a formula based on recent income.The central bank cited “continued economic uncertainty from the coronavirus response.” (Investopedia)
- U.S. manufacturing activity continues to rebound. A pair of new manufacturing surveys released Thursday show firms saw solid demand domestically and from abroad in September, leading to backlogs of new orders. Despite the gains, there are signs factories continue to shrink their workforces. The picture is similar in Europe and Asia, where manufacturers are cutting jobs even though they have recovered much of the ground lost during the coronavirus-induced lockdowns earlier this year, David Harrison and Paul Hannon report. (WSJ)
- August pending home sales rose 8.8% m/o/m, well more than the estimate of up 3.1%. Versus last year they are up 20.5%. The NAR said simply, “Tremendously low mortgage rates, below 3%, have again helped pending home sales climb in August.” (Boock Report)
- A drop in household income and persistently high layoffs are threatening to further slow the U.S. economic recovery. Personal income—what households received from salaries, investments and government aid—fell 2.7% in August as enhanced unemployment checks shrank, the Commerce Department said. Meanwhile, another 837,000 workers filed for unemployment compensation last week, showing that layoffs remain persistent in some industries, Josh Mitchell reports. (WSJ)
- The September ISM manufacturing index unexpectedly slipped to 55.4 from 56 and that was 1.1 pst below expectations. The ISM said “Manufacturing performed well in the month with demand, consumption and inputs registering growth indicative of a normal expansion cycle. While certain industry sectors are experiencing difficulties that will continue in the near term, the manufacturing community as a whole has learned to conduct business effectively and deal with the variables imposed by the Covid-19 pandemic.” (WSJ)
- Car seats save a few lives and cost a lot of births. Car safety seat “laws significantly raise the cost of having a third child, as many regular-sized cars cannot fit three child seats in the back. … We estimate that these laws prevented only 57 car crash fatalities of children nationwide in 2017. Simultaneously, they led to a permanent reduction of approximately 8,000 births in the same year, and 145,000 fewer births since 1980, with 90% of this decline being since 2000,” MIT’s Jordan Nickerson and Boston College’s David Solomon. (WSJ)
- U.S. new car sales are recovering in the U.S. with General Motors and Fiat Chrysler reporting a 10% drop in Q3 year over year but an improvement from Q2’s decline.
- Disney is laying off 28,000 employees in its parks, experiences, and products division due to theme park closures and limited attendance at ones open. The firm’s Adventure Park and Disneyland in California have both been closed since March. Around 67% of the 28,000 laid off workers are part-time employees. (Investopedia)
- The Federal Reserve extended its prohibition of stock buybacks by large banks with assets of $100 billion or more through the fourth quarter. The Fed also continued its limits on dividend payments by those banks in an effort to ensure that banks maintain a high level of capital resilience due to increasing economic uncertainty. (Investopedia)
- Venezuela’s food chain is breaking, and millions are going hungry. A widespread scarcity of gasoline is the latest blow to domestic food production in Venezuela, preventing goods from getting to market and farmers from filling up their tractors. Food production in this oil-rich nation had already been hobbled by shortages of seeds and agrochemicals, price controls that made raising crops unprofitable, and the seizures of farms and food-processing plants by the socialist government. A recent U.N.-sponsored report described Venezuela as having the fourth-worst food crisis in the world, behind only war-ravaged Yemen, Afghanistan and the Democratic Republic of Congo, John Otis reports.
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President – Kisco Capital