FOMC to meet but rates not going higher
The Federal Open Market Committee (FOMC) meets again this week and, spoiler alert, rates aren’t going anywhere for some time. Federal Reserve Chairman Jerome Powell will likely hammer this message home in the press conference, but Fed-watchers will be picking apart his answers on their policy framework review and the prospects for yield curve control. We think policy changes by the Fed are unlikely for the time being. Bottom line: interest rates are not going higher!
Tensions with China persist
Tensions with China flared again last week in a tit-for-tat fashion, as both sides closed minor embassies and Secretary of State Pompeo stopped just short of calling for regime change in China. This fits the recent pattern: the U.S. ratchets pressure and China responds but doesn’t escalate. It’s not in either side’s interest to dramatically push this dynamic at the moment, but we’ll be watching the currency markets, and the election calendar, for signs otherwise.
What to watch next
The market will continue to keep an eye on COVID-19 case counts, hospitalizations, and mortality rates—and any subsequent or expected impact on activity levels not just in those regions where the virus is surging but across the country, due to other states taking preemptive steps to control the spread of the virus. Likewise, the market is likely to continue to respond in kind to any positive vaccine or treatment progress, especially as potential vaccines enter Phase 3 clinical trials.
This will be the biggest week of corporate earnings season with nearly 50 percent of the S&P 500 by market cap reporting, including big tech like Google (GOOGL), Facebook (FB), Amazon (AMZN) and Apple (AAPL).
High frequency data
Because it’s already proven valuable as a potential leading indicator, high-frequency data like Apple Mobility data, restaurant reservations, and new job postings will continue to be watched closely by market participants. While a stalling out of activity is expected, any surprise to the upside or downside will get the market’s attention.
On Wednesday, as part of an ongoing investigation in anti-competitive practices, a congressional antitrust hearing is scheduled with executives from Facebook, Google, Amazon and Apple. We don’t expect much will come of this, at least not yet. A full report on the investigation isn’t due until late summer or early fall.
On Thursday, initial jobless claims are expected to tick up slightly higher. The thing to watch for is any surprise in the data. If claims come in higher-than-expected, it could prompt a fear-based response from investors. And it would only strengthen the case for more stimulus now, not later.
On the heels of the consumer confidence miss two weeks ago, and with high-frequency data showing significant signs of stress, Friday’s release of the University of Michigan Confidence Sentiment Survey will take on new importance.
The U.S. consumer has been the bright spot in the recovery, with consumers seemingly back to spending like normal even if by other economic measures, things are anything but normal. Can consumers remain resilient in the face of new challenges posed by the surge in COVID cases, a rise in jobless claims, or a potential failure to pass additional stimulus? A significant drop in consumer spending would likely have a detrimental impact on markets. If that happens, it would be a catalyst to action, politically speaking.
Q2 GDP in the US and Europe
Q2 GDP for the U.S. and Europe come out Thursday and Friday, but it’s already ancient history. High-frequency data and other forward-looking data takes precedence.