POWELL, THE HOUSE, TRADE DATA, THE DEBATE, STIMULUS AND THE HOUSE AGAIN…YESTERDAY COULD BE TRANSFORMATIONAL

In my view, FRB Chair Powell offered no new insight into the economy.  Powell warned of a weak recovery without sufficient government aid and providing to much stimulus would not be a problem.  He further stated “the recovery would be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

Powell reiterated prior comments that the rise is virus cases is posing a renewed threat to the economy but is “surprised” that consumption held up well through August after the expiration of expanded unemployment insurance benefits.

There was little reaction to his statements.

Radically changing topics, the House is moving forward with antitrust legislation against the largest technology firms.  The minority party is attempting to block such action.  As widely accepted, Silicon Valley is far left and is major contributors to the majority party of the House. 

Wow!  Life is indeed stranger than fiction where a case can be made the House majority party is biting the proverbial hand that is feeding it.  How will this unfold?  Possible Congressional action is a potential reason why the NASDAQ initially declined about 1%. 

Speaking of life is stranger than fiction, the NASDAQ is yielding more than the “risk free” 10-year Treasury.  The potential implications are huge especially if there is a reversal in rates.  As noted yesterday the yield curve is now the steepest since June.  What happens if this steepening continues?  Maybe this was the correct reason for the early day weakness in the NASDAQ.

Commenting on the trade data, the trade deficit widened in August to the largest since 2006 as the country imported a record amount of consumer goods.   Imports are now only about 3% below pre-pandemic level but exports remain a massive 18% lower than they were in February.  Can we suggest the axiom that “The US is the locomotive of the world” is still correct?  I think yes.

Commenting further upon the data, the difference largely reflects what we already know from retail sales and industrial production that the recovery in domestic production is badly lagging behind the rebound in consumption, the result of the shutdowns.

In real terms, exports look to have rebounded by about 80% and imports rising about 90% in the third quarter, meaning that net trade would subtract about 3.5% from 3Q GDP.  With this said, a lot of the strength of imports reflects the restocking of inventories which should cancel out that drag.

Finally, there is today’s VP debate.  About six weeks ago I commented about the significance of the Vice Presidency given the advanced age of the Presidential nominees.  Today this significance is front and center given recent health events.

Like all, I hope that it will be civil, the issues discussed, the moderator comparing and contrasting their views. 

Regarding yesterday’s market activity, after opening lower equities were moving higher on potential stimulus, hopes that were dashed as the President stated he is stopping talks until after the election.  The President essentially adopted the Senate’s view towards potential stimulus. 

The markets ended lower around 1.50%.            

After the close, a House Panel did announce a series of sweeping antitrust reforms to the curb the power of US technology giants.  This proposal is regarded as the most dramatic proposal to overhaul competition law in decades and could lead to the breakup of tech companies if approved by Congress. 

The proposal targets Amazon, Apple, Facebook and Google and the House Panel states

Companies that once were scrappy, underdog start ups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.  These firms have too much power, and that power must be reigned in and subject to appropriate oversight and enforcement.  Our economy and democracy are at stake.

Waxing philosophically, it is all about power.  Will there be a divorce between big government and big business, a nepotic relationship I believe grew exponentially from 2008-16 and is major reason for the galactical change that is today occurring?  In my view the House’s action could be  more significant than the election. 

As noted last week, an argument can be made as Apple goes so does the indices.

What will happen today?  The Minutes of the recent Fed meeting are released.  Will there be any reaction to the notes?

Last night the foreign markets were mixed.   London was up 0.08%  Paris down 0.21% and Frankfurt down 0.39%.  China was closed for a holiday, Japan down 0.05%  and Hang Sang up 1.09%.

The Dow should open moderately higher as the President partially reversed his views about more immediate stimulus suggesting aid to small businesses, airlines and another round of checks to some citizens.   The 10-year is off 11/32 to yield 0.775% ahead of a $35 billion 10-year auction.

 

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