Market Research Reports 7-29
Good morning,
I hope you enjoyed your weekend. Below is a small excerpt from
the _ABS ADVISOR MARKET INTELLIGENCE REPORT_
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KEY MARKET TRENDS
_Tip: Use this as a quick guide on the short-term direction of key
markets. I once had a client that would call me nearly every day
asking the direction of the markets. This is a quick cheat sheet to
know the trend and help understand what is happening with the markets
in the short term._
__
KEY DRIVERS FOR THE WEEK OF JULY 12, 2021
_TIP - This is a 1-minute brief bullet-point summary. It is a tool
that gives investors and financial a fast and simple list of what to
watch for and talking points for the week._
* Global growth remains solid into 2H, but likely dented by Delta
variation
* Stocks and bonds rally on dovish ECB and easing in Fed QE tapering
worries
* The congressional budget battle over raising the debt limit and
Infrastructure Bill
* FOMC expected to say “substantial further progress” yet to be
made
* Heavy earnings calendar: Tesla, Apple, Microsoft, Facebook, Pfizer,
Amazon
* U.S. data: Q2 GDP, new home sales, durables, confidence, income,
ECI
* Japan docket has PPI, retail sales, unemployment, production,
confidence
* Eurozone GDP, PMI, ESI confidence, unemployment, and HICP due
* German Ifo business sentiment, unemployment, HICP, import prices
* UK monitors Brexit agreement on Northern Ireland protocol
WEEK AHEAD: DELTA DENTS GLOBAL GROWTH
On July 26, 2021
Optimism over global growth continues to dominate forecasts and a
strong 2H is generally expected. While the accelerating spread in the
Delta covid variant has caused considerable consternation and renewed
downside risks, we suspect the virus will only dent growth.
Indeed, the increased vaccination rates, especially in the West, along
with 1H momentum amid more fully opened economies and the pull from
pent-up demand should help mitigate considerably the bearish impacts.
Additionally, supply constraints are also easing in many areas. And
most importantly, central bank accommodation will remain in place.
Though there has been increased worry over QE tapering, the risks from
Delta are likely to delay any such moves from the FOMC or ECB. In
fact, as seen in last week’s ECB stance, the bar for a tightening in
policy has been raised.
The S&P 500 continues to rocket to new levels and hasn’t touched the
200MA since last June and we think it could correct at any moment. One
of those triggers could be a government shutdown.
The current $28.5 trillion debt is the starting point as the two-year
suspension of the debt ceiling occurred in 2019 but will expire at the
end of July. Treasury Secretary Janet Yellen believes the federal
government will hit its spending limit very quickly and said default
is “unthinkable”.
Senate Minority Leader Mitch McConnel (R-KY) said REPUBLICANS WILL NOT
SUPPORT AN INCREASE TO THE U.S. DEBT LIMIT. The Senator said, “I
can’t imagine a single Republican in this environment that we’re
in now — this free-for-all for taxes and spending — to vote to
raise the debt limit.”
This makes me think there is a 50/50 CHANCE OF SHUTDOWN BECAUSE
REPUBLICANS APPEAR TO BE UNIFIED AGAINST RAISING THE DEBT
LIMIT. Inflation will be the reason why Republicans won’t
immediately support increasing the limit….. but will most likely
increase it on their terms. The limit could be increased through
reconciliation, but the government will LIKELY RUN OUT OF MONEY BEFORE
IT GETS DONE. _HENCE WHY I THINK THERE IS A GOOD CHANCE OF A
GOVERNMENT SHUTDOWN._
The markets were modestly firmer heading into today. Wall Street
benefited from the rally in European bourses after the dovish ECB’s
stance. That added to renewed beliefs that the ECB and the FOMC will
not decide to start tapering any time soon. The unexpected jump in
jobless claims caused some jitters too but added to the dovish outlook
on monetary policy. The NASDAQ was up 0.36%, with the S&P 500 0.2%
higher yesterday. Treasuries were a little richer as well, on the same
factors. Longer-dated rates were 2 bps lower at 1.278% on the 10-year
and 1.914% on the 30-year. The 2-year was marginally lower at 0.200%.
We expect the markets to meander into the weekend, assessing recent
positioning, along with monetary policy factors with the upcoming FOMC
(Wednesday) following the ECB’s meeting, as well as uncertainties
over the Delta variant and global growth. Today’s calendar is
light, with just the flash July Markit manufacturing, services, and
composite PMIs. The earnings slate slows to end the week but
features Honeywell, NextEra Energy, American Express, Equinor, Roper
Technologies, Kimberly-Clark, Schlumberger, Regions Financial.
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Sincerely,
Irving Wilkinson
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