Arresting Developments

“She’ll make her initial appearance in court later today”, US officials told reporters Friday, after authorities arrested Tang Juan, a researcher at the University of California, Davis, accused of visa fraud for hiding her connections to the Chinese military.

Tang’s 15 minutes of fame started earlier this week when, following the closure of the Chinese consulate in Houston, the media remembered that the FBI recently suggested the San Francisco mission was harboring a “fugitive”.

Along with three of her compatriots, Tang was charged on Thursday. Hours later, Beijing ordered the US consulate in Chengdu closed.

Read more: ‘Let’s Renovate It Into A Hotpot Restaurant!’ Chengdu Over And Out

According to the Justice department, Tang was detained on Thursday night. She does not have diplomatic immunity given that she wasn’t declared a diplomat.

This is a problem. The US has now arrested four Chinese nationals on charges that, in essence, amount to espionage. “We urge the US to stop using any excuse to limit, harass and crackdown on Chinese scholars and Chinese students”, a Foreign ministry spokesman in Beijing said Friday.

The drama weighed on sentiment on the last trading day of a week defined by a virtually uninterrupted stream of headlines documenting the rapid deterioration in Sino-US relations. Mike Pompeo’s aggressive speech on Thursday was perhaps the most searing indictment of Xi Jinping made in public by a US official to date.

Although it’s difficult to disentangle fraught stimulus talks in D.C. from worsening geopolitical tensions when it comes to isolating the proximate cause of market consternation, one probably doesn’t need to. Because it’s both — both the delay in the GOP virus relief proposal and the escalating feud between the world’s two superpowers have served to undercut the market, and right in the middle of earnings season, no less.

“It’s difficult for us to envision a meaningful rally in equities ahead of the weekend given the heightened headline risk associated with the pandemic and the progression toward another fiscal stimulus package”, BMO’s Ian Lyngen and Jon Hill said. “The building US COVID-19 case count has kept investors focused on the potential for further aid from Washington; particularly in the wake of the increase in initial jobless claims which has occurred at a higher outright level than many had anticipated”, they added.

Preliminary PMIs for July appeared to underscore the message from the claims numbers and also the rather dour tone from University of Michigan sentiment — namely that the US recovery is stalling.

Apparently, a wave of evictions may be in the cards if the next federal relief package proves insufficient to rescue millions of Americans from precarity.

“Recently, the number of new coronavirus cases has surged, and reopening plans have been paused or rolled back throughout the country, making clear that effects of the pandemic are far from behind us”, a report from Apartment List reads.

“This continued economic hardship is having serious implications for housing security”, the site went on to say, in a research piece dated July 8. “For the fourth straight month, a historically high number of renters and homeowners were unable to pay their full housing bill”.

Specifically, the percentage of Americans unable to make a full, on-time housing payment stood at 32% in the first week of July, according to the site.

Meanwhile, advisory firm Stout Risius Ross says almost 11 million renters may be evicted between now and Thanksgiving.

Clearly, federal assistance would help ameliorate the situation, but with the GOP’s proposal delayed until next week, Americans who are counting on their elected representatives to rescue them from the economic abyss, are in for a stressful weekend.

According to Goldman’s Jan Hatzius, Congress will ultimately come to a compromise that will result in extra federal unemployment benefits (currently at $600/week) being reduced to $300/week.

You might recall that several months back, Goldman suggested that much of the hit to worker incomes would be mitigated by the extra benefits. In fact, the bank came away with the conclusion that total disposable personal income would actually rise in 2020. The figure (below) is a visual summary based on the relevant note from late April.

Hatzius also expects $200 billion in new support for cities and states.

“You’re still going to see some negative impacts, because the unemployment insurance is less generous than it was before”, he told Bloomberg, in an interview.

Indeed. As discussed in these pages on too many occasions to count, you can expect the hit to retail sales and consumption more generally to be commensurate with the reduction in benefits considering the fact that the CARES Act essentially allowed the consumer to persist in a “simulated” state.

All in all, the combination of worsening geopolitical tensions (I know, it’s a familiar refrain, but now the arrests and consular battles have begun) and an imminent reduction in the benefits directly responsible for keeping the economy afloat, is set to collide with illiquid August markets and a challenging seasonal.

I suppose if it all comes apart, there’s always Jerome Powell. “[The] Fed has made bulls in every asset class a winner”, BofA’s Michael Hartnett said Thursday, referencing the cross-asset price action since the March collapse. “Gold, bonds, credit, stocks, and real estate [are] all up big since the March lows”, he added, noting that a portfolio of 25/25/25/25 in stocks, bonds, cash, and gold is up 18% in the past 90 days.

That is an “astounding [and] abnormal gain given the 7% historic annual average”, Hartnett went on to say.


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One thought on “Arresting Developments

  1. Using a photo to arrest a person, good job. What about the human rights of these people? Now, if you got anything
    suspicious, you’re dead. Woo Woo Woooooo…..

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