So we continue to wait for Congress to make a deal with the unemployment benefit extension the main focus. To quantify, with 30mm people collecting benefits, that extra $600 is $18 billion per week of extra cash that people have been getting. That’s about $72 billion per month. That’s $216 billion over the past 3 months. Big money that Amazon and Apple have been big beneficiaries of since they are vendors of choice. Facebook and Google have certainly benefited from PPP money so any extension of that will be relevant too. To repeat, according to a University of Chicago study, 68% of those collecting this money has been getting more than what they made prior with the median increase of 34% above. I’ve seen a few different proposals on an extension. One, that won’t likely happen, is just reducing it to $200. Another is scaling it down in the coming months to eventually $300 by October. So, an extension will happen but the rate of change will slow.
Impressive big cap tech earnings in the US in the face of a massive decline in economic growth in Q2 didn’t help markets overseas as Asia was mostly red and Europe is only modestly bouncing after yesterday’s sharp selloff. I want to talk again about bank stocks. I’ve yelled from the mountain tops for years on the damage central banks are doing to the earnings power of the banking system and without a profitable banking system that is willing to make loans to those businesses and households that need it, how can one have a healthy economy. As seen in earnest over the past few weeks, especially this week, yield curves continue to melt lower.
The Japanese TOPIX bank stock index closed down 3.7% overnight after falling by 2% yesterday and now sits at the lowest level since mid May. The Euro STOXX bank stock index, while up 1% today, closed yesterday down 4.5% after falling by 2% Wednesday and 2% on Monday. As of this writing it’s lower by 7.3% this week. US banks have done better, in part because of their vibrant capital markets business, but are still down 1% this week and helped by the 3% rally on Thursday. We’ll see how they perform in coming weeks as yields across the US curve fall to record lows. I can’t understand why the Fed continues with its QE with yields where they are.
TOPIX bank stock index
Euro STOXX bank stock index
US 10 yr yield
China reported its July manufacturing and services PMI that is state sector weighted. The former rose to 51.1 from 50.9. The estimate was 50.8. The latter fell slightly to 54.2 from 54.4 vs the forecast of an uptick to 54.5. I guess call it stabilization but there was also a rise in business expectations for both areas of the economy. Chinese stocks, ex the H shares and the Hang Seng, did rise overnight. Regardless of what one thinks of China, they will be an ever growing vital piece of the global growth story in the decade ahead, particularly the Chinese consumer.
Christine Lagarde and her colleagues at the ECB are likely happy that the cost of living in July for the Eurozone citizenry rose more than expected in July. The headline rate rose .4% y/o/y vs the estimate of up .2% and the core rate jumped by 1.2% y/o/y vs .8% in June and vs the .8% estimate. The core rate has been remarkably stable over the past 5 years. Food, alcohol and tobacco prices rose 2% y/o/y and non energy industrial goods prices were up by 1.7% y/o/y. Services prices rose .9% y/o/y. Lower energy prices kept a lid on the headline number. Inflation expectations hasn’t just be rising in the US, today the German 10 yr breakeven is up 3 bps to a still low .81% but that is the highest since early March.
GERMAN 10 yr INFLATION BREAKEVEN
There were other economic data points of note in Japan (jobs) and Europe (Q2 GDP fell 12.1% q/o/q as expected) but for June so I won’t bombard you with more figures and which seems like such old news in the new world we live in.