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Morning Notes — Sentiment


July 30, 2020

Tone: Today’s risk-off tone comes a day before the fiscal cliff arrives and agreement for a relief package seems distant. The risk-off tone will likely remain until there’s a deal. If there’s no progress on a broad package by 8/7, we’d expect Congress will just handle the immediate needs like unemployment benefits and the extension of the eviction ban. At this point, a partial deal would be enough for markets.

Data: The US Q2 GDP report was better than expected, but its backward looking data and mostly ignored by markets. Today’s release of weekly jobless claims is more important with 1.434M coming in ahead of consensus for 1.4M and last week’s 1.422M. This is the second weekly plus tick after 15 straight weekly declines. The health of labor markets is critical is assessing the time to full economic recovery because weaker labor markets means weaker consumer spending and then weaker corporate profits and then more labor market weakness.

Dollar: The US Dollar Index (DXY) is lower than it was a year ago, which means currency is now tailwind for SPX earnings. It’s also the reason why China is back to buying US agricultural products. The consensus 2021 SPX EPS estimate has remained unchanged at ~$163.50 since mid-April.

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