Morning Notes — What’s Important

Troubling coronavirus headlines are the main driver on rising US case counts (still South and West) and the reimposition of lockdown orders for a German state due to a localized outbreak.  US-EU trade also in focus after an EC official said the EU will continue to push for a regional digital tax even if the US successfully thwarts its efforts for a global deal. Reports suggest the US is considering tariffs on $3.1 B of EU goods in response. The combined coronavirus/trade issues are mixed with concerns over stretched equity valuations, still weak US labor trends and a looming (8/1) financial cliff.

Viral: Higher case counts in FL, TX and AZ have led to an increased focus on the potential economic fallout from the reimposition of lockdown restrictions. Rising case counts are troubling, but the focus should be on hospitalizations as local/regional decision making should be driven by the potential burden on the Health Care system. At its peak, NY had 19,000 hospitalizations. Of the three states, Texas currently has the most hospitalizations at 3,800, but has 40% more hospital beds and 2x the number of ICU beds than NY. FL case growth is accelerating faster but hospitalizations have been lower due to a younger average age among cases. And the initial outbreak experience has resulted in hospitals with improved intake and treatment protocols as well as increased supplies of ventilators, etc. Nonetheless, both governors sound like they’ll err on the side of caution and markets will closely follow case counts there and elsewhere for the foreseeable future. And governors from the tri-state area are working on a required quarantine for visitors from Covid hotspots. Thus far, Apple is the only major US company to reclose any stores and companies with physical retail as their core business will be reluctant to take that step without being forced. In the near term, markets will also watch for any changes to Disney’s Florida reopening plans (scheduled later in July) and any plans to restrict elective procedures in FL and TX.

Data: As discussed yesterday, labor markets are the most important input in gauging the duration of this recovery. Again, the typical recovery from recession takes less than 12 months. To stay ‘on pace’, the next two weeks of jobless claims probably need to descend from the ~1.5MM-1.6MM level. Also, the monthly Jobs Report for June will be released next Thursday (7/2) with consensus looking for net job adds of +1.95MM vs +2.509M in May.

Fiscal stimulus: Senate Republicans sound like they want to wait as long as possible (mid-July to see more data) before negotiating a fifth coronavirus relief package. House Democrats passed a ~$3.5T bill a few weeks ago. At the time McConnell said he wanted the final price tag to be closer to ~$1T, although recent polling data will make it more difficult to oppose deficit spending and the number is likely to be drifting toward ~$2-2.5T.

Chartist: Technical support for the SPX is still in the 2990-3000 zone.