‘Pivotal’

When you’re steeped in the market narrative — when your thought process is inextricably bound up with the current macro zeitgeist — it’s tempting to suggest that each new week could be “pivotal”.

Indeed, I have to make a conscious effort each Sunday to avoid using the term “pivotal” unless it’s appropriate, lest I should inadvertently lapse into unnecessary hyperbole.

Today is no different. “Pivotal” is probably hyperbolic, but we are at a crossroads on the reopening push, and that, in turn, means the macro narrative has likewise reached a fork in the road.

Last week was defined by bad news out of Texas, Florida, and other COVID-19 “hotspots”, where local officials have paused the reopening push amid rising caseloads and hospitalizations.

On Sunday, Florida reported an additional ~8,500 cases, down from more than 9,500 on Saturday, but still well above the 7-day average. Beaches in Miami will be closed for the July 4th weekend.

Florida, Arizona, Nevada, South Carolina, and Georgia all reported record high daily infection totals on Saturday. Washington State is pausing its reopening plans as cases rise. Mercifully, fatalities remain low.

Mike Pence canceled some campaign events scheduled for next week citing “an abundance of caution”. Just a day earlier, the vice president told the public the reopening process was proceeding according to plan and that the US was making remarkable progress. Maybe not so much.

In addition to the public health crisis, the Trump administration has a burgeoning political headache on its hands. Lawmakers are likely to press the White House on reports that no action was taken to deter Russia from putting bounties on US soldiers in Afghanistan. Meanwhile, the president was forced to delete a tweet featuring a video of a supporter shouting “white power” at protesters. (“He did not hear the statement”, spokesman Judd Deere said.)

All of this is set against a market that’s clearly inclined to sell off in the face of further evidence that the reopening push in the US is being rolled back. Global virus cases topped 10 million over the weekend, a dubious milestone, and US equities are coming off their second weekly decline in three.

The holiday-shortened week brings several key data points, including the June jobs report. After being blindsided by May’s blockbuster, the market is looking for the June headline to show the economy added another 3 million jobs. If it pans out, that would mean the US recouping roughly 25% of the positions lost during the lockdowns. Obviously, there’s scope for a surprise in either direction. The recent trend in jobless claims has not been encouraging, though. ISM manufacturing is on deck too.

Jerome Powell and Steve Mnuchin will chat with the House on Tuesday. As usual, market participants will be keen on any incremental information about monetary and fiscal stimulus for an economy that some worry needs more support, despite Herculean efforts from the Fed and Congress.

Stocks have suffered three meaningful selloffs in the space of two weeks, and although the breakdown shows trends in rates have been favorable for the Fed (i.e., reals moving lower, breakevens moving higher), nominal yields have nonetheless drifted back to the lowest since mid-May, optically a sign of risk-off sentiment.

If the rebalancing effect (out of stocks and into fixed income after a quarter during which equities outperformed) is going to have an impact, it will show up this week.

“Much has been made about the relative performance of domestic equities versus fixed-income and what that implies for rebalancing flows as the books close on Q2”, BMO said Friday. “This dynamic is a short-term positive for Treasurys at the expense of stocks”.

On the year, bonds and gold are obviously the winners.

Coming full circle, “pivotal” is probably not the appropriate adjective, especially considering market participants are showing signs of succumbing to the summer lull.

Then again, fireworks have a way of showing up when you least expect them. We known they’re coming next Saturday. The question is whether we’ll get a preview of the festivities during the work week.