Hopefully, So Far, For Now

The economic recovery is set to continue “for now”, SocGen wrote Sunday evening, in a short preview of the week ahead.

“For now” about sums it up. Not so long ago, the reopening push in the US was going along just fine. The data had inflected for the better, investors were more than willing to accept PMIs at face value, and COVID-19 cases appeared reasonably stable. Equities staged the most dramatic 50-day surge in history and the Nasdaq touched new record highs.

And then, cases began to mount anew. Hospitalizations rose dramatically in some states. Before long, Texas and Florida begrudgingly paused the reopening push. Over the weekend, five states reported a record number of daily cases. Suddenly, the future doesn’t look as bright.

Read more: ‘Pivotal’

SocGen is correct to say that “confidence, jobs, and manufacturing evidence in the week ahead should provide additional signs of economic gains in June”.

But the bank also notes that “while economic activity gained, so too did the spread of the virus”. “So far, we have seen limited economic backlash”, the note reads.

“So far”. “For now”. Etc.

I wanted to draw readers’ attention to the figure below, which shows OpenTable restaurant booking data trends for a handful of states where cases are on the rise.

The visual speaks for itself, but just in case, I added the red arrow. Things are moving (back) in the wrong direction.

A quick look at Apple mobility data suggests Americans are still on the road, even in states where caseloads have jumped. It is, after all, summer driving season and the country is still trying to shake off the cabin fever that gripped the US during the initial, nationwide lockdowns. We’ll see how things look a week from now in the Sun Belt, where the flare-ups are concentrated.

“There was no need to set the alarm clock on Monday as investors spent a restless night tossing and turning after another gnarly COVID weekend news cycle”, AxiCorp’s Stephen Innes wrote, as trading got underway in Asia. “Investors are getting accustomed to pricing in weekend headline risk, which offers them a bit of breathing room at the Monday open to cautiously digest what is typically a [rough] weekend news cycle these days”.

He was referring to Friday’s rout and the possibility that market participants are once again reluctant to hold risk into the weekend.

“Friday’s selloff left the equity market at the critical juncture of its 3,000 support level and just below its 200-day moving average”, JonesTrading’s Mike O’Rourke said Sunday evening stateside, adding that price action will likely continue to depend on the evolution of infection rates across states.

Rebalancing flows could pressure equities this week, and you’re also reminded that tensions between Washington and Beijing have heated back up.

That said, positioning still isn’t stretched, which means it’s the same old story in terms of there being room for key investor cohorts to re-leverage, as long as volatility stays well-behaved and another macro shock doesn’t come calling.

(Goldman)

I’ve talked quite a bit over the past month about the importance of lawmakers not slamming the brakes on fiscal stimulus too soon. The June jobs report is crucial in that regard.

Some Republicans are looking for an excuse not to extend the $600 in additional unemployment assistance included in March’s virus relief package. If June payrolls come in strong, the GOP will probably refuse to support Democrats’ demands that the expiration date on the extra payments be pushed further into the future. If those benefits expire in July, it could derail the recovery.

“Compensation of employees, a measure which includes wage and salary disbursements as well as employer benefits, fell 8.3% in the three months through May”, Bloomberg’s Matthew Boesler wrote Friday. “But compensation of employees, plus government unemployment-insurance benefits, rose 2.3% over the same period, thanks to a surge in payouts last month”. The title of Boesler’s piece: “Yes, That Extra $600 Really Is Making Up for Lost US Income”.

You can read much more on this in “Just Send The Checks“.

As far as the new virus outbreaks go, JonesTrading’s O’Rourke offered this on Sunday: “Hopefully [Americans] recognize the wakeup call and an uptick in responsible behavior will put the country back on the right path without forcing more shutdowns”.

“Hopefully”. “So far”. “For now”.