Stimulus bill negotiations stall on Capitol Hill

Prior week summary

The major U.S. equity indices moved higher for the week with the S&P 500 notching a second consecutive weekly gain amid stimulus bill negotiations on Capitol Hill, rising tensions between the U.S. and China, and a deluge of economic data releases. Stimulus bill talks continued on Capitol Hill this week as White House officials and Congress worked to negotiate the details of another COVID-19 relief bill. After the Senate passed a $1T bill last week that rivaled the $3.4T billed passed by the House of Representatives in May, stimulus talks began in earnest with enhanced employment insurance, liability protections for schools and business, and financial support for state and local governments being central points of disagreement. Although negotiators failed to agree to the terms of a deal by the weekend, President Trump signed several executive orders on Saturday, extending the enhanced unemployment insurance and eviction moratorium for renters, deferring student loan payments through year end, and introducing a payroll tax cut for individuals earning less than $100,000 per year. The executive orders did not include direct payments to individuals and the enhanced unemployment insurance was reduced from $600 per week to $400 per week, and negotiations between White House officials and Congress are expected to continue in order to address other areas in need of relief.

Relations between the U.S. and China continued to deteriorate last week after the U.S. sanctioned several high-level Hong Kong officials, including chief executive Carrie Lam, for enforcing the national security law enacted by Beijing that rolled back the autonomy of Hong Kong’s government. Hong Kong Secretary for Commerce and Economic Development Edward Yau lashed out against the sanctions saying, “I do not find any valid reason for this blatant interference of Hong Kong affairs by a foreign country. I do not think this is necessary.” Separately, President Trump signed an executive order on Thursday that bans individuals in the U.S. or individuals subject to U.S. jurisdiction from transacting with Chinese companies ByteDance and Tencent Holdings, owners of TikTok and WeChat, respectively, beginning in 45 days. In the executive order detailing the decision, the national security risk the two companies pose was cited as a major factor in the decision with the order reading, “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.”

A bevy of economic data updates were released over the week largely pointing to a recovering U.S. economy. On the manufacturing front, the ISM Manufacturing Index posted a level of 54.2 in July, far surpassing the 52.6 level seen in June and well within expansionary territory. Factory orders also fared well, increasing 6.2% in June, and topping consensus estimates calling for a 4.6% increase. Although the ADP employment figure fell far below expectations, the July non-farm payroll report topped expectations with the U.S. economy adding 1.76 million jobs in July, above analyst calls for a 1.68 million gain, but far lower than the 4.79 million jobs added in June. The unemployment rate also dropped from 11.1% to 10.2% in July. After rising week over week for two consecutive weeks, initial jobless claims fell this week with 1.19 million individuals filing for unemployment. While jobless claims have restarted their trend downward, the absolute level of weekly claims remains far above pre-pandemic records.

The look forward

Market participants are gearing up for another busy week of economic data releases with updated figures on the Consumer Price Index, Producer Price Index, industrial production, jobless claims, and retail sales dotting the economic calendar.

Rates Snapshot

Market implied policy path (Overnight indexed swap rates)