Monday, August 10, 2020

Markets rise as investors monitor stimulus negotiations in Washington

Dow soared 357 (near session highs), advancers over decliners about 5-2 but NAZ pulled back 42 from its record close on Fri.  The MLP index added 3+ to the 135s & the REIT index was fractionally higher in the 363s (flattish for the last couple of  months).  Junk bond funds were higher & Treasuries slid lower in price.  Oil went up to 42 & gold climbed 6 to 2034 (more on both below).

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A relief program that threw a critical lifeline to small business during the coronavirus pandemic is responsible for a "majority" of the jobs created since May, according to Small Business Administration Administrator Jovita Carranza.  The $670B Paycheck Protection Program (PPP), created when Congress passed the CARES Act at the end of Mar, officially closed to new applicants on Sat.  "I would say the majority of the 9.3 million jobs that have been retained are attributable to small businesses," Carranza said.  Since the program launched at the beginning of Apr, more than 5.2M loans worth about $525B had been distributed, according to Carranza.  The program has helped to save an estimated 51 M jobs.  "This Paycheck Protection Program sustained the small business economy," Carranza added.  "It also protected the employers' and the employees' wages. The Paycheck Protection Program was essential to sustaining and mobilizing our national economy."  There's roughly $135B remaining in the fund.  As Dem leaders & White House officials struggle to negotiate the next round of emergency aid, some lawmakers are debating what to do with the leftover PPP money amid a resurgence in COVID-19 cases & a fresh round of business shutdowns that are threatening to slow -- or reverse -- the economy's gradual recovery.  Under a $1T stimulus proposal unveiled by Senate Majority Leader Mitch McConnell last week said the money would be repurposed for more targeted aid to the hardest-hit small businesses, which would be eligible to apply for a 2nd PPP loan.  Businesses that have seen their revenue decline by 50% or more in the first or 2nd qtr of this year (compared to last year) could dip into the PPP for a 2nd loan.  The aid would be limited to businesses with no more than 300 employees, down from the original 500-worker limit established in the CARES Act.  A portion of the money would be set aside for businesses with fewer than 10 workers.  The proposal, drafted by Sen Marco Rubio & Sen Susan Collins would also ease some of the restrictions on the taxpayer-funded money.  For instance, businesses would be allowed to use the loan to purchase personal protective equipment for workers, investments the senators said are needed to ensure the owners can run their businesses safely during the pandemic.  Rubio & Collins have urged Congress to act unanimously on the PPP extension as talks on a broader stimulus bill crawl along.

SBA chief reveals program that created 'majority' of jobs since May

Treasury Secretary Steve Mnuuchin said that he believes Dems are “willing to compromise” on a 4th coronavirus stimulus package, saying that if there is a “fair deal,” the Trump administration will “do it this week.”  Mnuchin said he wouldn't comment on the “specifics of logistics of negotiations" because he does “not think that’s helpful.”  “There is a deal to do if Democrats are reasonable and want to compromise,” Mnuchin added.  “And if the attitude is, we’d rather give you nothing than agree on things, then we’re not gonna get a deal.”  “But I heard [Nancy] Pelosi over the weekend,”  Mnuchin said. They’re willing to compromise, so if we can get a fair deal, we’ll do it this week, but the president needed to take action.”  He added: “He’s not gonna sit around. Meadows and I reported back to him that we’re going nowhere, and that’s why he took action.”  Mnuchin was referring to his negotiations with White House Chief of Staff Mark Meadows on Capitol Hill in recent weeks with congressional leadership, including House Speaker Pelosi & Senate Minority Leader Chuck Schumer.  The talks had reached a stalemate over the weekend, prompting Pres Trump to take exec action over the weekend to provide financial relief to Americans amid the coronavirus pandemic.  The exec actions included $400 per week in supplemental unemployment aid — a replacement of the program passed under the CARES Act earlier this year that gave unemployed people $600 a week extra until the federal program expired at the end of Jul.  The action would require states to pay for 25% of the $400 weekly benefit, while the federal gov would pick up 75%.  The $400 payment to unemployed Americans came as Reps argued that the initial unemployment insurance program disincentivized Americans to get back to work, with many collecting more money unemployed than employed.  Reps pushed for the program to be reduced to $200 per week, while Dems argued the program should be renewed at the original $600 a week.  The pres also signed executive actions that would encourage federal efforts to help renters & homeowners avoid eviction or foreclosure for failing to make their monthly payments; defer the payroll tax from Sep 1 to Dec 31, for employees making $100K or less a year & suspend federal student loan payments & set interest rates to 0% through Dec 31 — the current student loan relief program was set to expire on Sep 30.  

Mnuchin hints at stimulus agreement, says Dems are 'willing to compromise'

After plunging in April, consumer sentiment in housing began a promising recovery.  Home sales surged & beat expectations; homebuilders reported buyer traffic was, well, through the roof, & online housing-related searches soared.  Consumer confidence in housing now appears to be weakening, but consumer curiosity is not.  Fannie Mae's monthly Home Purchase Sentiment Index fell back in Jul.  The percentage of respondents who said it was a good time to buy a home decreased from 61% to 53%.  Those who said it was a bad time to buy increased from 27% to 38%.  Some of the drop can be attributed to a rise in Covid-19 cases in Jul & growing concern over more parts of the economy shutting down again.  Home prices were also a factor.  “Supply constraints appear to be applying upward pressure to consumers’ home price expectations, which in turn has contributed to both a sharp reversal in optimism about whether it is a good time to buy a home and further improvement in home-selling sentiment,” said Fannie Mae.  Despite the decline in confidence, consumers are still much more interested in all facets of the housing market.  The pandemic has both increased & altered demand for housing & it has also helped push mortgage rates to record lows.  No surprise, Google searches for “Refinance home loan calculator” jumped nearly 4,000% last week, according to Google Trends.  This as news hit of another record low on the 30-year fixed — &, of course, searches for, “How low will mortgage rates go?” quadrupled.  There is also more evidence of a surge of interest among first-time homebuyers.  Searches for “Process of buying a house” jumped 950%, &“Minimum credit score to buy a house” was also popular.  Recent home sales numbers have showed an uptick in the share of first-time buyers in the market.  Some consumers, however, are stretching their finances to make that purchase.  Searches for “Can you use your 401(k) to buy a house?” were up 2,800% in the past 3 months.  Low supply & high demand has heated up the competition this summer, & competition was already fierce before the pandemic struck.  Just over ½ of the offers submitted to Redfin agents faced a bidding war in Jul, according to the national brokerage firm.  Competition was highest for single-family homes, followed by townhouses & then condominiums.

Consumers are less confident, but still curious, about the housing market

The US has surpassed 5M Covid-19 cases, a grisly milestone that represents roughly a quarter of all infections across the world confirmed since the coronavirus first emerged from Wuhan, China a little over 7 months ago.  It took just 6 weeks for the number of Covid-19 infections to double in the US, which logged the last 1M infections over the last 2 weeks, according to data compiled by Johns Hopkins University.  The latest grim record comes as growth in new cases in the US appears to be leveling off at an average of 54K new infections a day over the last week.  New cases peaked at 68K new cases on Jul 19, based on a 7-day average, after a resurgence of coronavirus cases ripped thru the Sun Belt states in Jun & Jul.  California & Florida have both reported more than 500K total cases since the outbreak hit the US in late Jan & Texas is closely approaching that number.  Total cases for each state now exceed New York, which was once considered the epicenter of the nation's outbreak earlier this year.  However, those states have reported far fewer deaths than the Empire State, which has lost more than 32K people to the coronavirus so far, according to Hopkins.  Doctors say they’ve been able to save more lives compared with the peak in New York in Mar & Apr because they know more about the virus & have discovered better treatments, such as remdesivir.  The recent surge in cases has also affected far more younger people, who also have higher survival rates.  US health officials fear the virus may be widely circulating in parts of the Midwest now.  White House coronavirus advisor Dr Anthony Fauci & coronavirus task force coordinator Dr Deborah Birx have voiced concern that states like Ohio, Tennessee, Kentucky & Indiana are beginning to see a tick up in their positivity rates (the percent of tests that are positive).

U.S. tops 5 million coronavirus cases as outbreak threatens America’s Midwest

Gold futures settled higher, resuming a strong uptrend for the precious metal after snapping a 5-session win streak on Fri, as China imposed fresh sanctions against US officials in apparent retaliation for similar measures against Hong Kong & mainland officials last week.  China said it would impose sanctions on 11 U.S. citizens, including Rep Sens Ted Cruz & Marco Rubio.  Dec gold added $11 to settle at $2039 an ounce after the metal lost 2% on Fri, cutting into its weekly gain of 2.1%.  The commodity has climbed for 9 consecutive weeks, marking its longest such streak since the period ended in 2006.  China's move comes as tensions between the US & China, partly centered on Beijing's perceived handling of the COVID-19 pandemic & national-security laws being imposed in Hong Kong, have been escalating on a number of fronts, including the decision by the superpowers to force the closures of respective consulates in Houston & the southwestern Chinese city of Chengdu.  Gold's weakness to end trade last week was largely pinned to a rebound in the $, which the metal is priced in, & a tilt higher in gov bond yields, which can undercut appetite for haven metals.  Bullish gold investors think the precious metal is on a long-term uptrend due to measures by govs & central banks to help stabilize economies hurt by COVID-19.  Investors also were watching developments around additional funding from the gov to help Americans who have lost jobs due to the deadly pandemic, after Congressional negotiations failed to reach an agreement on aid last week & Trump on Sat signed exec orders that aim to pause the collection of payroll taxes, provide help on rent, assist with student-loan payments & extend a portion of additional unemployment benefits that had lapsed at the end of last month.

Gold ends higher as China-U.S. tensions seen escalating

Oil futures ended higher, getting a lift from optimistic remarks about demand from the chief exec of the world's largest oil company & positive data out of China.  West Texas Intermediate crude for Sep rose 72¢ (1.8%) to close at $41.94 a barrel while the global benchmark Oct Brent crude rose 59¢ (1.3%) to finish at $44.99 a barrel.  Saudi Aramco CEO Amin Nasser over the weekend said there had been a “partial recovery” in demand, & lauded a strong rebound in crude appetite in major markets, including what he described as a return to nearly pre-COVID-19 levels of demand for gasoline & diesel fuel in China, the world;s biggest energy consumer.  The majority state-owned company’s net income plunged 50% in H1.

Oil ends higher, lifted by Saudi Aramco’s demand optimism, China data

This was an up day for stocks although tech stocks dragged down NAZ on growing trade tensions with China.  That does not look like they will be settled soon.  As expected, the US economy has had big recovery numbers off depression low levels.  Going forward the recovery will probably come in smaller steps with all the damage that has been.  Healing will take time.  Demand for gold & silver is substantial as a safe haven hedge.  The news on coronavirus seems to be getting better.  Graphs for NY show what the flattening curve should look like with the daily number of deaths for the last 2 months largely in single digits.  Data from the southern belt is looking better.  The number of new cases & deaths are improving but that is coming in small steps & continues to be choppy.  Hopefully those numbers will decline in the coming weeks.  And the work on new virus vaccines is very promising.  That is what's keeping investors buying stocks during these trying times.

Dow Jones Industrials








Markets rise while Congress battles over a stimulus bill

Dow jumped up 226, advancers over decliners 5-2 & NAZ fell 87 from Fri's record.  The MLP added 1+ to the 133s. index & the REIT index crawled up 1 to the 364s.  Junk bond funds gained & Treasuries were little changed.  Oil rose to about 42 & gold surged 21 to 2049.

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stock chart

CL=FCrude Oil42.13
  +0.91+2.2%

GC=FGold  2 ,058.90
+30.90+1.5%

 





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The Trump administration is open to resuming coronavirus aid talks with Dem leaders & would offer more aid money to try to reach a compromise, Treasury Secretary Steve Mnuchin said.  “The president is determined to spend what we need to spend. ... We’re prepared to put more money on the table,” he added.  Mnuchin declined to say when he & White House chief of staff Mark Meadows would restart discussions with House Speaker Nancy Pelosi & Senate Minority Leader Chuck Schumer after negotiations ground to a halt on Fri.  He said the Dem leaders seemed “willing to compromise” as the sides stand Ts of $s apart in what they want to spend to combat the pandemic’s damage to Americans’ health & wallets.  “Again, if we can get a fair deal we’re willing to do it this week,” Mnuchin added.  The Treasury secretary spoke after Pres Ttump tried to offer coronavirus aid through executive order over the weekend.  Officials do not see the his actions as a permanent fix, as they are limited in scope & constitutionally questionable.  Only legislation from Congress, which controls federal spending, would unquestionably enshrine lifelines designed to boost the US health-care system & economy.  Trump's orders would extend extra federal unemployment insurance, which expired at the end of Jul, at a reduced level of $400 per week.  The federal gov would cover 75% of the payment with disaster relief funds, while states would cover the rest.  Mnuchin argued states would have enough money to cover their share of the cost, even though many face budget crunches due to the pandemic.

Mnuchin is open to restarting virus relief talks: ‘We’re prepared to put more money on the table’

China said it would apply sanctions against 11 US citizens including officials in response to DC's move on Fri to impose sanctions on 11 King kong & Chinese officials whom it accused of curtailing political freedoms in the city.  Among those targeted were Senators Ted Cruz, Marco Rubio, Tom Cotton, Josh Hawley & Pat Toomey & Representative Chris Smith, as well as individuals at non-profits & rights groups.  "In response to those wrong U.S. behaviors, China has decided to impose sanctions on individuals who have behaved egregiously on Hong Kong-related issues," Chinese foreign ministry spokesman Zhao Lijian told a regular press briefing.  Relations between the 2 countries have deteriorated over issues ranging from trade to Hong Kong & China's handling of COVID-19.  DC on Fri imposed sanctions on Hong Kong Chief Exec Carrie Lam as well as the city's current & former police chiefs, under an exec order signed by Pres Trump.  Those sanctions freeze any US assets owned by the officials & generally bar Americans from doing business with them.  The US lawmakers targeted by Beijing have been vocal critics of a new national security law that expands Beijing's authority in Hong Kong.

China slaps US citizens, including pols, with penalties for behaving 'egregiously'

Small businesses are feeling somewhat more optimistic, adapting operations to the new economic & public health normal as coronavirus cases continue to rise around the county.  But even in the face of progress, the worst is far from over for Main Street, which is facing an unprecedented & rocky recovery.  Small business confidence ticked up in Q3, to 53 from a record low of 49 in Q2, according to the CNBC|SurveyMonkey Small Business Survey.  Even with the rebound, the confidence reading is the 2nd-lowest score in the survey's history & 8 points off where confidence stood to start the year.  “This is not the V-shaped recovery we were hoping for. Things are certainly better than they were last quarter, but far off their marks from what we had seen earlier this year and last year,” said Laura Wronski, research scientist at SurveyMonkey.  “These small businesses are going to have long-lasting effects from this pandemic.”  The operating environment on Main Street has been bleak, even with gov loan assistance like the Paycheck Protection Program meant to offer a lifeline to struggling businesses.  The House Small Business Committee last month reported 110K small businesses had closed permanently & another 7.5M across the country were facing the same fate.  Enhanced unemployment benefits that gave consumers more spending power in recent months also expired at the end of Jul, which stands to impact businesses of all sizes.  Just 36% of businesses say that current operating conditions are “good” in this qtr's survey, which is a major improvement from last qtr's 18%.  But nearly ¼ say conditions are bad — 3 times the number who said conditions were poor to kick off the year.  The survey was conducted from Jul 20-27 among more than 2K small business owners nationwide.  “I think that small business owners see that economics are opening and we are not going to be moving backwards,” said Karen Kerrigan, pres of the Small Business & Entrepreneurship Council, a Main Street advocacy group.  “They see a light at the end of the tunnel.”

Small business confidence rebounds from all-time low, but Main Street still has a long way to go

With a stalled stimulus bills, there is plenty for traders to assess.  Meanwhile deteriorating relations between the US & China are a damper on tech stocks which dominate the NAZ.   And the Dow has its eyes on 28K & is less than 2K from setting a new record with all the tumult in DC & on China relations.

Dow Jones Industrials







Friday, August 7, 2020

Mixed markets as investors wait for a stimulus package

Dow was up 46 (session high) with buying into the close, advancers over decliners 3-2 & NAZ fell 97.  The MLP index was fractionally lower in the 132s & the REIT index added 4+ to the 362s.  Junk bond funds were mixed & Treasuries continued weak.  Oil drifted lower in the 41s (more below) & gold dropped 23 to 2045 on profit raking after its run in the last couple of weeks.

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Treasury Secretary Steve Mnuchin rejected an offer from Dem leaders for a roughly $2T coronavirus relief package amid growing concerns that negotiations between the 2 parties are on the brink of collapsing.  "That's a non-starter," Mnuchin said.  House Speaker Nancy Pelosi proposed the $2T price tag during a closed-door meeting yesterday, an attempt to reconcile the 2 party's drastically different aid proposals.  Dems offered to reduce their $3.4T aid package by $1T if Reps would agree to raise their estimated $1T proposal by the same amount.  That would result in legislation that costs somewhere between $2T & $2.4T.  “Yesterday I offered to them, we’ll take down a trillion if you add a trillion in,” Pelosi said.  “They said absolutely not.”  The clock is ticking for both parties to meet their self-imposed a Fri deadline to cut a deal on the next round of emergency aid for American families & businesses.  If they miss it, White House Chief of Staff Mark Meadows has suggested there's "no sense" in continuing discussion.  The top negotiators, Meadows, Mnuchin, Pelosi & Senate Minority Leader Chuck Schumer, are meeting currently.  The impasse in negotiations puts at risk potentially Ts of $s in aid for families, businesses & the economy, including a fresh round of $1200 stimulus checks, extra unemployment aid for out-of-work Americans, $100B to help reopen schools & relief for cash-strapped state & local govs.  Whether to extend the supplemental $600 a week in jobless aid has proven to be a key sticking point in negotiations. Demts have maintained the sweetened benefits need to be extended through the end of the year, while Reps have argued that it disincentivizes Americans from returning to jobs that pay less.  GOP lawmakers have proposed a $200-a-week replacement instead until states could adopt a more complicated system that would cap aid at 70% of a worker's former salary.  But after nearly 2 weeks of talks that have yielded no substantial progress, Pres Trump has threatened to act unilaterally & issue exec orders to continue expanded unemployment benefits, reinstate an eviction moratorium, cut payroll taxes and continue a suspension of student loan repayments.

Mnuchin rejects $2T coronavirus stimulus offer from Democrats

Canada  will slap retaliatory tariffs on $2.7B worth of US goods, the latest development in a new trade feud sparked by Pres Trump's decision to reimpose aluminum duties on the US ally.  “Canada will respond swiftly and strongly,” Canadian Deputy Prime Minister Chrystia Freeland said.  “We will impose dollar-for-dollar countermeasures in a balanced and perfectly reciprocal retaliation,” she added. “We will not escalate and we will not back down.”  Freeland said Prime Minister Justin Trudeau will spend the next 30 days consulting with Canadian citizens & businesses on a broad list of aluminum-containing products.  Canada's new duties on US imports will total $3.6B Canadian $s ($2.7B).  Trump, yesterday announced that he had signed a proclamation reimposing 10% tariffs on aluminum imports from Canada that had been lifted more than a year earlier.  The pres complained that Canada was putting American workers in the aluminum industry at a disadvantage.  “The aluminum business was being decimated by Canada,” he said.  Trudeau vowed to enact countermeasures against the US just hours after Trump's announcement.

Canada to impose tariffs on $2.7 billion in U.S. goods after Trump reignites trade feud

In Jul, China posted a trade surplus of $62.3B, beating the $42B forecast.  China's trade surplus was $46.4B in Jun.  Despite the coronavirus pandemic hitting global demand, exports from China have held up as exports in medical supplies jumped in H1.  Senior officials from both countries are reportedly planning to review the implementation of their “phase one” trade deal next week.

China’s exports rose 7.2% on-year in July due to demand for medical supplies

Oil futures lost ground, but remained on track for weekly gains, with pressure tied to rising tensions between the US &China after Pres Trump imposed a sweeping but unspecified ban on dealings with the Chinese owners of consumer apps TikTok & WeChat.  West Texas Intermediate crude for Sep was down 71¢ (1.7%) at $41.24 a barrel, while Oct Brent crude fell 70¢ (1.6%) to $44.39 a barrel.   WTI had for a 2.5% weekly rise, while Brent is up 2.1%.  The pair of exec orders banning transactions with Chinese social-media companies signed by Trump yesterday take effect in 45 days.  Investors have remained fairly upbeat in the face of a reduction in production curbs by major producers that took effect on Aug 1.  Saudi Arabia yesterday lowered its official selling price (OSP) for crude into Asia & Europe by 30¢.  Analysts said the move came as a relief to traders who had feared a steeper cut in a bid to take market share from rivals.  A further decline in the number of US oil rigs did little to move prices in the PM.  Oil-field services firm Baker Hughes said the number of rigs fell by four this week to 176.  A lack of progress in talks between congressional Dems & the White House over additional coronavirus aid was also a potential weight on crude prices.

Oil lower as U.S.-China tensions mount, dollar rises

Traders & investors are waiting to hear about the stimulus package.  As expected, it will come out after the deadline (assuming those guys in DC come out with something).  Trade tensions with China hurt tech stocks in the NAZ today, although they have had an excellent year already.  Speaking of excellent years, gold is still flying high even after today's retreat.  The Dow was flat this week while the NAZ was up 2%, setting a new record over 11K.  As mentioned previously, Aug is shaping up as an exciting time for stocks.

Dow Jones Industrials