20 Jul THE METEORIC RISE IN THE CITICORP SURPRISE INDEX
Even with Friday’s nominally disappointing economic data, the meteoric rise in the Citicorp Economic Surprise Index is not challenged. In almost every dimension, data, earnings, etc. have greatly exceeded expectations.
I must write most are operating blind. Never has the government shut down the economy and all are/were guessing the ramifications of such. As mentioned many times, the recovery is V shaped but the proverbial question is will the recovery continue or will the rise in Covid cases squelch the rebound?
The data trend suggests that fatality numbers will continue to climb. Regarding the number of cases, an argument can be made such too will rise because of increased testing. A CDC report however states the mortality rate has flat lined and is heading lower perhaps the result of better treatment and identifying those who are most at risk.
Several times I have opined society may have to just learn to live with the disease for locking down the economy/society is not a viable option.
According to Bloomberg there are “hundreds of companies” competing to develop a vaccine with a strong probability one will be available “by fall.”
When such does come to fruition, another round of problems may surface such as what country and who gets the vaccine first. Economic nationalism is surging throughout the world.
I believe the key driver of this market is stimulus and abundant liquidity defined as cash sloshing about gravitating to the largest and most liquid names. Regarding the next stimulus the question is not if one will occur but how large. The Administration is proposing around a $1.3 trillion stimulus and the House Democrats have already approved $3 trillion.
What will be the unintended consequences?
The BLS reported Friday the median weekly earnings of full-time workers jumped more than 10% in the second quarter., the largest increase in the four decades the agency has tracked this information.
The reason for the surge…employment declined more for the lower paid workers employed by the retail and restaurant sector as opposed to the higher paid sectors.
How will the $600-week additional unemployment stipend unfold? It is thought that this may be extended to January 31, 2021. As noted many times, a large minority of workers are making considerably more being unemployed than working.
Will these workers continue to collect unemployment causing a further rise in wages and perhaps create a cost push inflationary environment?
What will happen this week? The economic calendar is sparse, comprised of some housing data, the LEI and a regional manufacturing index. Earnings season also accelerates. To date profit reports have been “mixed.”
Last night the foreign markets were mixed. London was down 0.53%, Paris up 0.01% and Frankfurt up 0.52%. China was up .311%, Japan up 0.09% and Hang Sang down 0.12%.
The Dow should open flat. This week can be pivotal in determining the direction of the market and the economy given the potential vaccine news and earnings. The 10-year is up 4/32 to yield 0.62%.