Summer weeks are usually pretty dull, but definitely not this year. We have just had an eventful week with a Fed meeting, Q2 GDP releases and President Trump’s unexpected out-of-the-box ideas. And the week ahead is going to be just as packed and intense.
The latest GDP data in the US showed an unprecedented contraction (-32.9% in annualised terms) and indicated that five years of economic growth was wiped out in 2Q20. In order to support the economy, the Fed remains on an extraordinarily accommodative stance for a long time and probably will not raise the interest rates for years. In the meantime, Chair Powell – again – suggested that more fiscal support was needed to ensure a sustained economic recovery, but the Republicans and Democrats still appear to be far apart in the negotiations over the next economic relief bill. Due to the lack of consensus between the two parties, the USD 600 weekly unemployment benefit payments expired on Friday – posing further downside risk to the American consumer’s willingness and ability to spend.
On Friday, Fitch placed US government bonds (AAA rated) on negative outlook to ‘reflect the ongoing deterioration in the US public finances and the absence of a credible fiscal consolidation plan.’ On Sunday, the White House Chief of Staff stated that Presidential elections in the US would not be postponed and will be held on 3rd November, as opposed to President Trump’s tweets, which suggested otherwise during the week.
From a political point of view investors will focus on domestic politics in the US (e.g. elections in November, the debate on the next economic relief bill) as well as rising geopolitical tensions between the US and China this week. From an economic point of view, the July jobs report in the US should provide valuable insights on the health of the world’s largest economy, whilst manufacturing PMIs globally should help gauge the state of the world economy.
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