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A Couple More Cents: Week of June 22, 2020

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June 26, 2020 â€“ Hey everybody! Here are a few tidbits to chew on over the weekend. Enjoy!

Highlights from the Week

Google is entering the news business as the tech giant agreed to deals with selected publishers worldwide to license news content. Putting money back in the pockets of publishers, especially local ones, is a great thing, but assigning more control over the flow of information to a company like Google is inherently dangerous. Also, while antitrust cases generally don’t climb up the ladder to the attorney general, William Barr has taken an interest in Google’s case.

Colleges around the country are starting to prepare for students to return. The process has involved spending millions of dollars on preventative measures. Reopening campuses could soften the blows higher education institutions are taking, but it’s still contingent on local health officials.

A tidal wave of bankruptcy filings is coming, with big names such as Hertz and J.C. Penny already leading the way. This year should blow away the previous record for “mega bankruptcies” – filings by companies with $1 billion or more in debt. The number of “large bankruptcies” – at least $100 million is projected to challenge the record-high levels following the 2008 economic crisis. Many smaller businesses may get lost in the slog, and the government is kicking around new ideas to process more claims.

Institutional Research Roundup

As we enter the second half of the year, we’re headed for a scary milestone. The WHO director-general says Covid-19 cases will top 10 million next week. It’s a sobering reminder that for investors, or anyone else for that matter, coronavirus will remain the world’s top priority.

The U.S. jobs report for June will be released a day early thanks to the July 4 holiday. Economists expect +2m gain in non-farm payrolls (last month produced an unexpected +2.509 increase) and a further reduction of the unemployment rate to 12.6 percent. It’s a good sign to see weekly jobless claims fall for the 12th consecutive week; however, the U.S. still lost 22m jobs in March and April. Another +2m gain still means payrolls have recovered less than a quarter of their total losses. There’s a long way to go.

With the calendar turning to July in a few days, manufacturing numbers and PMIs will be out next week. ISM manufacturing indexes will come out too for the U.S. The trend among countries with PMIs out there already is that they “generally surprised to the upside, even as many remained below the 50-mark that separates expansion from contraction.” China is a place to watch – they’re in some ways ahead on the reopening process.

No major decisions are coming from the Fed next week. The only highlight will be the release of the FOMC meeting minutes for the June meeting.

EU Chancellor Angela Merkel and French President Emmanuel Macron are meeting next week, with the EU budget and the recovery fund are on the agenda. It comes ahead of another summit of EU leaders in Brussels scheduled for mid-July. The start of July on Wednesday marks Germany’s turn in the rotating EU presidency, which they’ll hold for the next six months.

Brexit negotiations between the U.K. and EU on their future relationship will return again. It’s the first set of talks set to take place in each of the next five weeks. The two sides have had slow progress coming to an agreement so far. There are only six months left until the transition period concludes, and the EU has previously said a full legal text will need to be ready by Oct. 31 to give time to ratify the deal.

More European Politics:

  • Poland’s presidential election is Sunday, following its postponement due to the pandemic. Incumbent Andrzej Duda is seeking re-election, though if no candidate receives an absolute majority, there will be a second-round between two finalists in a few weeks.
  • Elsewhere Sunday is the second round of municipal elections in France.
  • While in Russia, voting ends next week in a referendum on constitutional amendments. The new changes could allow President Vladimir Putin to run for two more terms.
  • China’s NPC begins a three-day meeting Sunday, which is expected to confirm the final details on sweeping national legislation for Hong Kong.

Companies reporting earnings next week:

  • Micron
  • FedEx
  • Conagra Brands
  • Constellation Brands
  • Macy’s
  • General Mills

Covid-19 Impact Tracker

Covid-19 cases in earlier hotspots continue to decrease, but rising infection rates in Arizona, California, Texas and much of the South have bent the curve for the U.S. upwards. Rising mortality rates in at least one-quarter of states indicate the spike is not solely due to increased testing. The virus’ spread continues to provide significant downside risk – about 30 to 50 percent GDP to be precise – from countries that have seen worsening Covid-19 trends.

Jobless claims fell by about 500,000 to 17.9 million for the week of June 13. It’s an encouraging sign, but unemployed workers aren’t transitioning back to work at a rapid pace, and unemployment spells are getting longer.

High-frequency data has improved again. It’s about 13 standard deviations worse than average and consistent with an estimated 12% year-over-year contraction in GDP. Gauges of mobility continue to rise, with economies reopening. However, this increased mobility likely aided the spread of Covid-19 cases. That, in turn, is causing a reversal of mobility trends. Until the general public is comfortable that coronavirus is contained, a robust and sustainable recovery will likely be hindered by behavioral responses in the absence of official lockdowns.

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See you Monday!

— Justin Birnbaum

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