Morning Markets Brief 8-10-2020

Summary and Price Action Rundown

Global risk assets were mostly higher overnight as President Trump attempts to circumvent Congress to deliver pandemic relief through executive action, while US-China tensions continue to percolate but stop short of significant escalation. S&P 500 futures indicate a slightly higher open after last week’s gains extended the index’s year-to-date gain to 3.7%, registering a new high for the pandemic and coming within nearly 1% of February’s all-time high. Equities in the EU and Asia were mostly higher overnight. The dollar is continuing to claw higher from nearly two-year lows though longer-dated Treasury yields are settling back toward recent lows, with the 10-year yield at 0.55%. Brent crude prices are re-approaching $45.

White House Resorts to Executive Action Stimulus Stopgaps

After the administration failed to reach an agreement last week with Congressional Democrats over the magnitude and priorities of the next round of US pandemic relief spending, President Trump took executive actions over the weekend that have raised questions of enforceability and administration. President Trump issued an executive order and a series of memorandums targeted at coronavirus stimulus on Saturday, moves which some analysts characterize as bypassing Congressional authority over the purse, as stimulus talks remained at an impasse following another contentious week of negotiations. There is no apparent schedule for talks to restart today. The four orders signed provide an additional $400/week in unemployment benefits, suspend some student loan payments through the end of the year, extend a moratorium on evictions for renters, and instruct employers to defer certain payroll taxes through the end of the year for Americans earning less than $100,000. Unemployment benefits are to be mostly covered by the federal government ($300/week) with state governments providing the remaining $100/week, though some governors are expressing doubt that their threadbare budgets can bear such an obligation. The duration of these payments is also unclear, as is the timeline for disbursement of funds to eligible recipients. Meanwhile, the Trump administration has sent mixed messages on the details of the payroll tax holiday, raising confusion over its application. The breakdown in negotiations leaves several other issues, from stimulus checks to PPP funding, on hold until an agreement can be reached.

US-China Tensions Remain Elevated

In retaliation for the latest US moves to counter China, including sanctions on eleven high-ranking officials involved in oppression in Hong Kong and the impending bans on Chinese-owned apps TikTok and WeChat, Beijing announced that it would sanction eleven US officials. Senators Rubio and Cruz are two high-profile names on the list, but with China matching the US figure of eleven targeted individuals and no Trump administration officials on the list, there is a sense of proportionality and de-escalatory intent suggested in this move. For context, last week featured high-profile moves by the Trump administration targeting China and Chinese companies with alleged deep government ties. Friday morning, the US announced that it was imposing sanctions on eleven Chinese officials including Hong Kong’s Chief Executive Carrie Lam over their role in “implementing Beijing’s policies of suppression of freedom and democratic processes” according to the Treasury Department. This move followed recent executive orders from the administration that will impose a ban on Chinese-based apps TikTok and WeChat in the US amid privacy and national security concerns. Relatedly, the scramble by US companies to arrange potential bids for TikTok’s US business continues to heat up, with Twitter now in the mix along with Microsoft and other companies. Equities in Hong Kong underperformed overnight, though mainland Chinese equities rallied and both the onshore and offshore renminbi remained stable against the dollar near their strongest levels since March.

Additional Themes

Kodak Deal on Hold – The $765 million 25-year loan from the International Development Finance Corporation to expedite domestic production of drugs for several medical conditions, authorized by the Defense Production Act, has been delayed amid allegations that Eastman Kodak board members engaged in improper stock purchases ahead of the disclosure. Upon the announcement of the loan late last month, shares of the former photo giant soared over 300% and continued to rise over the ensuing days, gaining roughly 1000% over the course of that week.

Pivotal Global Economic Data This Week – This week, US retail sales figures for July offer the greatest potential for moving markets, as analysts will be attuned for signs that the resurgence of Covid-19 last month dented consumer sentiment. Meanwhile, initial jobless claims and consumer price inflation will also be in focus. Overseas data includes key Chinese growth readings for July, as well as second quarter EU and UK GDP.