What has happened
US fiscal stimulus has rapidly risen to one of the largest near-term risks for markets with President Trump taking the highly unorthodox, and possibly unconstitutional, act of issuing executive orders to provide substantial stimulus. With data relatively light this week we would expect Congress’s impasse, US/China tensions and European viral cases to set the tone for sentiment.
Executive orders issued
President Trump’s four executive orders included a temporary payroll tax deferral and an expansion of unemployment benefits. There are still just over 10% of the US workforce listed as unemployed and those filing for benefits saw a cliff edge reduction in their federal benefits supplement over a week ago. The executive measures include provisions for $400 a week to go to unemployed Americans with 75% funded by the federal government and the remainder being delivered at a state level. There are some question marks over whether the states can afford such measures given the pandemic (and their more restricted access to funding) but also whether these executive orders are legal given that funding decisions are traditionally the realm of Congress. These orders, if quashed by the courts, could create an even tougher backdrop for Democrat/White House talks but in the interim markets have welcomed the short-term support for US consumer confidence.
European viral cases watched closely
Whilst US viral new case growth continued to slow over the weekend, European data is picking up again. There have been some targeted measures to reduce the spread of the virus including mandatory face coverings in some busy sections of Paris however the continent is currently slowing easing measures rather than reversing them. Weekend data tends to be skewed by reporting irregularities but Germany, Spain, France, Italy and the UK have all seen an increase in the pace of viral growth compared to two weeks ago.
What does Brooks Macdonald think
This week we have US CPI and Retail Sales but otherwise is fairly quiet as is tradition for the post payrolls week, similarly earnings season is coming to an end after companies fairly consistently beat low expectations. Given the recent tit-for-tat sanctions and individual action between the US and China we expect this to be the tail risk to markets during the quieter weeks of August.