Summary and Price Action Rundown
Global risk assets were mostly lower overnight amid rising US-China tensions and uncertainty over US fiscal stimulus negotiations, while investors await this morning’s key US labor market data. S&P 500 futures point to a 0.4% lower open after the index rose another 0.6% yesterday to extend its 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 lower overnight. Ahead of the pivotal US jobs number, the dollar is climbing above almost two-year lows while longer-dated Treasury yields are flat around their lowest levels since early March, with the 10-year yield at 0.53%. Brent crude prices are dipping below $45 per barrel.
US Labor Market in the Spotlight
After some mixed employment data earlier this week raised questions over the durability of the US jobs market recovery, investors are awaiting July nonfarm payroll figures. The Labor Department’s highly-anticipated July employment numbers are due later this morning, with consensus estimates for 1.48 million new jobs after June’s record 4.80 million. Following a spurt of hiring over recent months amid the selective reopening of the economy, economists are pondering a leveling-off in improvement. Yesterday’s new jobless claims data for the week ending August 1st showed that another 1.2 million Americans filed for unemployment benefits, the least since the pandemic started, 200k less than last week and comparing favorably to consensus expectations of 1.4 million. It was also the largest weekly drop in jobless benefits applications in almost two months, but still the 20th consecutive week of over a million claimants. Earlier this week, data showed a steep deceleration in private payrolls in July as payroll provider ADP reported that private businesses in the US hired just 167,000 workers last month, far short of market expectations of a 1.5 million rise after a revised 4.3 million increase in June. With ADP and continuing claims sending somewhat disparate signals, analysts will be particularly attuned to this morning’s nonfarm payrolls report.
US-China Tensions Ratchet Higher
In the latest move to counter China and its international companies with alleged ties to the Chinese Communist Party, President Trump banned apps TikTok and WeChat, effective in 45 days. President Trump invoked the 1977 International Emergency Economic Powers Act to justify the bans on US companies dealing with Chinese parent companies ByteDance and with Tencent specifically in connection with WeChat. The law provides a broad mechanism for the US government to impose restrictions on companies deemed to pose a threat. The TikTok order formalizes President Trump’s announcement earlier this week that app would be blocked in the US unless a US buyer completes a deal for the business within 45 days. Once the order takes effect, at the end of that period, any transactions between TikTok’s parent company, ByteDance, and US citizens will be outlawed for national security reasons. For the more than 100 million Americans who have downloaded TikTok, experts say the app may no longer be sent software updates, rendering TikTok inoperable over time. President Trump yesterday renewed calls for Microsoft to acquire the app and suggested that it should try to buy TikTok’s entire global operations. Secretary of State Pompeo signaled that the crackdown on TikTok was part of a broader campaign against Chinese tech companies with access to the data of US citizens. On Thursday, in a display of bipartisan solidarity on this issue, the Senate unanimously passed a bill to ban TikTok on government-issued devices. Trump also signed an executive order to restrict US business with China-based Tencent Holdings but narrowly in regard to its WeChat app. More than a billion people in China use WeChat, an all-in-one app used for messaging, social media and making mobile payments. Additionally, a White House working group also put forward a plan that Chinese companies with shares traded on US stock exchanges would be forced to de-list unless they comply with specific audit requirements by 2022. Chinese firms that are planning an initial public offering in the US would have to comply before they can be listed. The administration’s plan would require rule-making by the SEC, which ultimately oversees the audits of companies whose shares are traded in the US.
US Stimulus Talks on the Brink – With today seen as an unofficial deadline for a deal, the atmosphere around the negotiations has turned more contentious. Speaker Pelosi and Senate Minority Leader Schumer expressed disappointment with yesterday’s talks, saying that the two sides are far apart on key issues. This dour assessment was echoed by Treasury Secretary Mnuchin and WH Chief of Staff Meadows. President Trump continues to assert that he will enact economic relief measures through various executive orders in lieu of a deal.
Earnings Feature Pandemic Impact – As earnings season winds down this week, analysts are focused on some notable reports from companies impacted by the pandemic. Shares of Uber are down 3.5% in pre-market trading after soaring Uber Eats deliveries failed to offset the steep decline in customer rides. With 441 of S&P 500 companies having reported, 84.3% of results have featured a positive earnings-per-share (EPS) surprise and 63.9% have topped revenue estimates. However, growth of sales and earnings are down 11.2% and 9.3%, respectively, thus far year-on-year.