Mixed markets after Congress is scheduled to return this week

Dow fell 35, advancers were modestly ahead of decliners & NAZ rose 86.  The MLP index slid back to the 134s & the REIT index added 1+ to 356.  Junk bond funds fluctuated & Treasuries were in demand.  Oil climbed in the 42s & gold shot up 43 to 1993,

AMJ (Alerian MLP index tracking fund)
 

CL=F Crude Oil 42.56   +0.55 +1.3% 

GC=F Gold    1,989.70 +39.90 +2.0%

 

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Reaching an agreement on the next coronavirus stimulus package “should be easy” & “could be done within a day,” White House trade adviser Peter Navarro said.  Last week, House Speaker Nancy Pelosi said that Dem leaders & White House officials remain far apart regarding any deal to provide more emergency aid to American families & workers still reeling from the coronavirus pandemic.  Negotiators are trying to bridge the divide between a $1T aid package put forward by Senate Reps at the end of Jul & the $3T legislation passed by House Dems in May.  The Trump administration rejected an offer by Pelosi earlier this month to meet in the middle on a $2T price tag.  Navarro outlined how he thinks an agreement can be reached amid stalled negotiations between Reps & Dems, calling the “way to a deal … very, very simple.”  “Start with a number, whatever it is, the Dems want 3T, [Senate Majority Leader Sen Mitch] McConnall  the Senate wants a trillion, somewhere there’s a number that we can work with,” Navarro said.  “Once you get that number, you decide what you both can agree on and after that, you basically trade off across the table because this is a divided government right now.”  Navarro stressed that "you can't have either side cross the others' red lines."

Peter Navarro on stalled coronavirus relief plan: Reaching a deal 'should be easy'

 

Japan was hit by its biggest economic contraction on record in Q2 as the coronavirus pandemic crushed consumption & exports, keeping policymakers under pressure for bolder action to prevent a deeper recession.  The 3rd straight qtr of declines knocked the size of real GDP to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe's “Abenomics” stimulus policies deployed in late 2012.  While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current qtr to be modest as a renewed rise in infections keep consumers' purse-strings tight.  The world's 3rd-largest economy shrank an annualized 27.8% in Q2, marking the biggest decline since comparable data became available in 1980 & slightly bigger than a median market forecast for a 27.2% drop.  While the contraction was smaller than a 32.9# decrease in the US, it was much bigger than a 17.8% fall Japan suffered in Q1-2009, when the collapse of Lehman Brothers jolted global financial markets.  The size of Japan's real GDP shrank to ¥485T, the lowest since 2011, when Japan was still suffering from 2 decades of deflation & economic stagnation.  The main culprit behind the dismal reading was private consumption, which plunged a record 8.2% as lock-down measures to prevent the spread of the virus kept consumers at home.  External demand - or exports minus imports - shaved a record 3.0 percentage point off GDP, as overseas shipments plunged 18.5%, with auto exports hit particularly hard.  Economy Minister Yasutoshi Nishimura conceded the GDP readings were “pretty severe,” but pointed to some bright spots such as a recent pickup in consumption.  “We hope to do our utmost to push Japan’s economy, which likely bottomed out in April and May, back to a recovery path driven by domestic demand,” he said.  Japan has deployed massive fiscal & monetary stimulus to cushion the blow from the pandemic, which hit an economy already reeling from last year's sales tax hike & the US-China trade war.

Japan's economy shrinks at record pace as pandemic wipes out gains

Potential buyers flooded into model homes across the nation & that has builders feeling better about their business than at any time over the past 20 years.  But rising lumber prices could sap the market's momentum this fall.  Builder confidence in the newly built, single-family home market jumped 6 points to 78 in Aug on the National Association of Home Builders/Wells Fargo Housing Market Index (anything above 50 is considered positive sentiment).  The index is now at the highest level in the 35-year history of the monthly series & matches the record set in 1998.  Builder sentiment plunged to 30 in Apr, when the coronavirus pandemic shut down the US economy, but it recovered quickly as consumers suddenly sought more space in less urban areas.  "The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs as measured on the HMI," said NAHB Chair Chuck Fowke.  "However, the V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low interest rates."  The cost of lumber is soaring not only because of increased demand but because mills shut down in Apr & May & did not expect to see the kind of strong demand they're seeing now.  There have also been issues with transportation & labor.  Of the 3 components, current sales conditions rose 6 points to 84. sales expectations in the next 6 months increased 3 points to 78, & buyer traffic jumped 8 points to 65, its highest level in the history of the survey.  Builders are clearly benefiting from the severe shortage of existing homes for sale.  There were too few homes to meet demand even before the pandemic struck, & now fewer homeowners are willing to list their homes for sale.  Mortgage rates dropped to a record low to start Aug but pushed higher last week, as Treasury yields rose & mortgage giants Fannie Mae & Freddie Mac increased fees to lenders.  Unless rates really break much higher, which is unlikely, the latest increase is unlikely to throw much cold water on the strong demand for housing.

Homebuilder sentiment jumps to record high, but soaring lumber prices could ‘dampen momentum’

Generally this starts a relatively quiet time for the stock market until Labor Day.  Not this year.  The 2 conventions will be center stage & Congress will try to work out a stimulus package.  The economy is rebounding, but the recovery is choppy & uneven.  Attention by traders will be on the goings on at the conventions & DC which should make for a volatile time for stocks.

Dow Jones Industrials

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