economy Markets

The News Is Good. But The Wall Of Worry Is Steep.

Drip, drip, drip goes the incrementally positive macro data.

Too bad some of it may be rendered meaningless by new lockdowns, reinstated containment measures, and Beltway bickering.

Empire manufacturing came in better than expected for July, printing 17.2 versus an estimated 10. It’s the first positive reading since February.

Expectations fell 18 points, but firms “remained optimistic about future conditions”, the New York Fed said — just “less so than in June”.

Notably, the future employment gauge rose to 21.1, as firms expect to hire going forward. The capital expenditures index rose too, suggesting that, on net, firms plan to increase spending.

The current employment index printed 0.4, which essentially means the situation has stabilized after a dramatic slump during the crisis.

Meanwhile, industrial production rose 5.4% in June, the Fed said Wednesday, more than the expected 4.3% rise.

May’s rebound from April’s “worst in 100 years” print was tepid, so the more robust June figure is welcome news.

Factory production jumped 7.2%, beating estimates, and capacity utilization rose to 68.6%.

On balance, this is just further evidence to support the tentative recovery narrative, and it comes as New York continues along the tenuous path to re-opening, even as other states show how perilous that path can be.

For now, the vaccine story is set to bolster sentiment. To be sure, the only way to definitively extricate ourselves from the current public health quagmire is with a vaccine (or a cure). It thus makes sense that risk assets (already buoyed by trillions in central bank liquidity and fiscal stimulus) would seize on the constructive vaccine headlines as an excuse to tack on more gains.

And yet, don’t let it be lost on you that this is likely to be a protracted battle.

“COVID news – be it negative in the form of contagion/mortality statistics or positive via vaccine progress – will be a component of the conversation, but it’s entirely possible that the general situation may be relatively unchanged on election day”, BMO’s Jon Hill and Ian Lyngen wrote Wednesday, adding that come November, there could still be “localized outbreaks of varying severity in different parts of the US, and work on a vaccine will be ‘ongoing'”.

In that sense, the situation would resemble the trade war to the extent the Sino-US conflict likewise “had differing consequences for the domestic economy in different parts of the US, with progress on various phases of the trade deal ‘ongoing'”, BMO went on to say.

Unfortunately, the trade war was never resolved. Rather, it mushroomed into an “everything” war, which now includes the virus itself, as the Trump administration seeks to deflect blame for the US outbreak with recriminatory bombast aimed at Beijing.

It’s a good thing risk assets are adept at climbing “walls of worry”, because this one is pretty steep.


2 comments on “The News Is Good. But The Wall Of Worry Is Steep.

  1. Kings College in Britain just published a study that shows people lose their antibodies within three weeks and can be reinfected.

    • Guess we’ll have to start forking out a monthly subscription fee to Moderna. The alternative is to stay at home and watch Netflix for $9 a month. I sure hope Moderna will consider the pricing dynamics of substitute goods when they launch their service.

      Of course, they could take a page from Gilead’s Remdesivir playbook and look at the opportunity cost of not getting a vaccine. Let’s see…US GDP is around $20 trillion. Without a vaccine, GDP could drop, we’ll say, 5% to be conservative. That’s $1 trillion per year, but since it’s in the national interest, they’ll cut us some slack and only charge us 25% of that. $250B divided by 328 million people divided by 12 months gets us a price of $63 per American per month. What a bargain!

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