Insights

Top News:

8/24: Propelling the S&P 500 and NASDAQ to more record highs, investor sentiment was buoyed by developments in the arsenal against Covid, in spite of misgivings raised by some scientists (here and here).

 

8/25: U.S. and China restarted bilateral dialogue on thorny trade issues.  July saw brisk new home sales, due to pent-up demand from a shutdown spring season.  Nevertheless, investor bullishness was tempered as Conference Board’s Consumer Confidence Index slipped unexpectedly in August.  Separately, Eurozone’s powerhouse, Germany, saw improved business sentiment for the fourth consecutive month in August.

 

8/26: In July, U.S. manufacturing sustained a third straight month of recovery, evidenced by stronger than expected durable goods orders.

 

8/27: In a much anticipated major policy shift, the Fed revised its monetary approach by adopting an inflation target that “averages 2% over time” and by further emphasizing the importance of a “strong labor market.”  Meanwhile, both new and continuing weekly jobless claims declined modestly in the latest tally, confirming the painfully slow recovery.  Finally, July’s pending home sales were 15.5% higher annually.

 

8/28: Progress on more fiscal support for Americans impacted by Covid remains stalled.  Meanwhile, U.S. consumer spending and income increased in July, though momentum is likely to ebb as the pandemic lingers and fiscal stimulus dries up.  Across the Pacific, Japan’s PM Abe unexpectedly resigned for health reasons. 

 

Heard on the Street:

“In seeking to achieve inflation that averages 2 percent over time, we are not tying ourselves to a particular mathematical formula that defines the average. Thus, our approach could be viewed as a flexible form of average inflation targeting… In conducting monetary policy, we will remain highly focused on fostering as strong a labor market as possible for the benefit of all Americans.”

— Fed Chairman Powell in his Jackson Hole speech, announcing the Bank’s policy shift on 8/27/2020

 

“The Fed is focused like a laser beam on supporting the recovery and making sure they eventually get back to their 2% inflation target.  They won’t be tightening policy if inflation is below their target simply because the labor market is perceived as tight.  That was probably the most fundamental change that we saw.”

— Michael Darda of MKM Partners as quoted by CNBC on 8/27/2020

 

Longer Game:

Alarm raised over China’s ascendancy can partially be explained by concurrent concerns over the greenback’s fading luster as the world’s reserve currency.  Nouriel Roubini believes recent dollar weakness is “cyclical” in nature, while its inevitable demise may be “exaggerated.”

 

Bonus:

According to New York Fed’s Weekly Economic Index (WEI), based upon ten coincident indicators, the U.S. economy has rebounded. Should current conditions persist for an entire quarter, an annual GDP decline of 5.7% is expected, a marked improvement from a contraction of 11.5% at the end of April.