Jul 22, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🚨 Situational awareness: The State Department ordered China to close its consulate in Houston, prompting vows of countermeasures from Beijing. (CNBC)

🎙"Don't tell me what you believe in. I'll observe how you behave and I will make my own determination." - See who said it and why it matters at the bottom.

1 big thing: The recovery is reversing and more spending may not help
Data: New York Fed; Chart: Axios Visuals

The New York Fed's Weekly Economic Index (WEI) is reversing course, showing real-time, high-frequency economic data is again turning negative after climbing back from April and May's coronavirus-driven swoon.

Why it matters: The index is one of many that show the economy is getting worse in a trend that could be picking up steam.

What it means: The WEI represents the common component of 10 different daily and weekly series covering consumer behavior, the labor market and production.

  • It is scaled to the four-quarter GDP growth rate and if it continues on its current trajectory would mean U.S. GDP is poised to sink by 7% in Q3 and decline year over year for the third straight quarter.

What's happening: In addition to the New York Fed's index, real-time data trackers from Goldman Sachs, Jefferies and Oxford Economics have all turned from stalling to falling.

  • The St. Louis Fed's coincident employment index has turned lower, showing jobs growth has reversed.
  • The number of employees returning to work at small- and medium-sized businesses declined by at least 5% from early June to mid-July, according to Homebase.
  • TSA data showed the first weekly decline in people passing through checkpoints since April.

What's next: "Economic data over the next few weeks will likely underscore the depth of the recession and provide a warning that a full recovery is still far from being achieved," David Kelly, chief global strategist at JPMorgan Asset Management, says in a note to clients.

Where it stands: While many investors are counting on stimulus from Congress as well as a renewed balance sheet expansion from the Fed if economic data continue to deteriorate, Kelly says this is akin to "pumping air into a leaky tire."

  • "Government spending will also likely drag on the economy as many state and local governments will be forced to cut payrolls to balance budgets in reaction to the deep recession and lack of sufficient federal government aid."
  • He anticipates real GDP will fall 7.5% year over year in the third quarter, with much slower future progress without the widespread distribution of a vaccine.

The bottom line: "To state the obvious, economic uncertainty is extraordinarily high right now, even eclipsing levels at the worst of the financial crisis," Kelly says.

  • "It is the pandemic, rather than any lack of stimulus, that is holding the economy back."
  • "[I]n a pandemic economy, stimulus alone cannot trigger a full recovery."
2. Catch up quick

The $600 per week supplemental unemployment benefits are set to expire at the end of this week in most states and congressional Republicans have said there will not be a new spending package until at least August. (NPR)

A meeting of Treasury Secretary Steven Mnuchin, White House Chief of Staff Mark Meadows and Senate Republicans descended into chaos, several GOP lawmakers said, revealing how far apart the two groups are on key priorities for the next economic package. (Axios)

The Senate Banking Committee voted in favor of President Trump's nominees, Judy Shelton and Christopher Waller, for the Fed's Board of Governors, sending them to a vote before the Senate for approval. (WSJ)

Mark Zuckerberg, Tim Cook, Jeff Bezos, and Sundar Pichai will be forced to answer questions about their businesses from U.S. lawmakers in the most high-profile antitrust hearing since the feds went after Bill Gates and Microsoft in the 1990s. (Axios)

3. Silver surges into 2020 top asset race
Expand chart
Data: FactSet; Chart: Axios Visuals

Silver prices jumped to the highest in almost seven years and gold moved closer to a record high on Tuesday as silver rose by nearly 6%.

Between the lines: The two precious metals are running just behind the Nasdaq in terms of performance over the past year and year to date.

  • Nasdaq's climb since March 23 has made it one of the best performing assets in the world this year, according to FactSet data curated by the Wall Street Journal.
  • The Nasdaq 100, which tracks the 100 largest companies on the tech-heavy index, now trails only orange juice for 2020 performance among major, highly followed assets.

Watch this space: Bloomberg noted that holdings of gold and silver exchange-traded funds (ETFs) are at an all-time high.

4. The second wave of essential workers

Illustration: Eniola Odetunde/Axios

Axios' Erica Pandey writes: The pool of American workers on the front lines of the coronavirus pandemic is getting a lot bigger.

The big picture: Just as grocery and delivery workers found themselves fighting a crisis they didn't sign up for back in March, teachers, hairstylists and temperature checkers are part of a new wave of workers who are now in harm's way as the pandemic rages on.

By the numbers: There are already around 55 million Americans working front-line jobsdefined as jobs that require exposure to a large number of people who could potentially carry the virus.

  • Now add to that millions of teachers, retail sales reps, nail techs and other professionals who have returned or will return to work in the coming weeks as their workplaces reopen.

What they're saying: "With most of the country reopening — whether it's safe or not — workers in so many occupations are put in the untenable position of having to choose between being able to sustain their families or putting their health at risk," says Sharon Block, executive director of the labor and work-life program at Harvard Law School.

Teachers are under tremendous pressure as some cities and states push forward on reopening schools.

  • One in four teachers — nearly 1.5 million people — are at a heightened risk of serious illness if infected by the coronavirus, per a report from the Kaiser Family Foundation.
  • Some educators are fighting back. "The largest teachers union in Florida sued Gov. Ron DeSantis on Monday over his administration's push to fully reopen all public schools next month — even as the number of coronavirus cases in the state is spiking," NBC reports.

Read more

5. Housing strengthens while mortgage forbearance continues decline

The number of mortgages in forbearance programs fell for the sixth week in a row to its lowest level in two months as of July 12, according to the Mortgage Bankers Association.

  • MBA’s estimates show 3.9 million homeowners now in forbearance plans.
  • Demand also has risen significantly as mortgage application volume jumped 4.1% last week with applications to purchase a home 19% higher than a year ago — the ninth straight week of annual gains.

Why it matters: The numbers show the continued strength of the housing market, as mortgages have jumped and applications for the government's payment suspension program have tailed off since May.

  • It also highlights a growing divide between the wealthy and other Americans.

What they're saying: “Almost half of borrowers remaining in forbearance are now in an extension of the original term, while the remainder are in their initial forbearance plan," said Mike Fratantoni, MBA’s chief economist.

  • "The pace of new forbearance requests remains quite low compared to earlier in the crisis, but we are watching carefully for any increases due to either the pick-up in COVID-19 cases or the cessation of enhanced unemployment insurance benefits at the end of this month.”

Of note: MBA’s latest Forbearance and Call Volume Survey covers the period from July 6 through July 12 and represents 75% of the first-mortgage servicing market (37.3 million loans).

Dion Rabouin

Thanks for reading!

Quote: "Don't tell me what you believe in. I'll observe how you behave and I will make my own determination."

Why it matters: On July 22, 1940, "Jeopardy!" host Alex Trebek was born. Trebek has hosted the show since its revival in 1984.

  • He was diagnosed with stage 4 pancreatic cancer in 2019, and has been absent from filming the show for much of this year. However, the longtime host recently said that he is looking forward to returning to filming in the studio.