Bassanese Bites: Eerie calm – August 24 2020

Global markets

U.S. stocks edged ever higher last week, despite a lack of progress on extending fiscal stimulus and the Fed’s reluctance to consider further monetary measures despite its ongoing concerns for the economy. The Fed’s failure to hint at new stimulus also helped stem the slide in the $US last week, and associated rise in the $A – though bond yields generally edged back after the previous week’s surge.

The Fed’s minutes, however, did express concern that the pace of labour market improvement could be slowing, which was in evidence again last week with weekly jobless claims ticking back over the one million mark. But other data was generally solid – with strength in housing indicators and stronger than expected rebounds in the manufacturing and non-manufacturing PMI indices for August. Major retailers such as Walmart also rounded out a surprisingly resilient Q2 earnings reporting season.

Maybe the Fed is too worried? Wall Street seems to think so. Indeed, the fact Wall Street is holding up so well has probably lessened the sense of urgency in Washington to strike a deal. Note also the U.S. daily COVID case count – though still reasonably high – at least appears to be falling again, and the death rate (so far at least) has remained notably lower than during the first outbreak in March and April. To an extent, America may be learning to live with the virus, with the risk of renewed lockdowns due to second or third waves receding somewhat. News on the vaccine front also remains encouraging. Of course, there’s also the risk of complacency – a hasty tapering of fiscal stimulus and easing in social distancing restrictions could threaten the recovery just as Washington gets set to close down ahead of a heated U.S. Presidential election.

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