Still No Deal on CARES2. Steve Pavlick of Renaissance Macro’s take, “Best case is they reach an agreement before PPP expires on August 8th but talking could drag into the second week of August.” Enhanced jobless benefits passed in March expires 7/31. If the additional UI benefit is dropped completely, Moody’s suggests an additional 1.27% drop in real GDP. Without more support, incomes crater.
Beat Week- Facebook, Amazon, Alphabet, Apple all beat on earnings this week after their CEO’s provided testimony to Congress. Journalist Jonathan Ferro put it succinctly- “Another edition of getting macro calls right (softer economic data) and market calls wrong (tech earnings smashing it). In a world where uber-cap tech companies dominate indexes and crush earnings in a shutdown, the stock market is not the economy.”
US GDP- per Bloomberg, “Gross domestic product shrank 9.5% in the second quarter from the first, a drop that equals an annualized pace of 32.9%, the Commerce Department’s initial estimate showed on Thursday. That’s the steepest annualized decline in quarterly records dating back to 1947.”
Powell reiterated the Fed’s commitment during his press conference after the Fed’s two day scheduled meeting. In summary, markets are functioning again and financial conditions have eased. Things are better, but not by much. Everything hinges on the virus so they’ll keep rates low and deploy all available tools to keep the economy afloat. Most importantly, we need fiscal as Fed tools limited to “lending problems” and unable to address “spending problems.” Full FOMC statement here.
I will close here for the week. Have a great weekend.