by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Even if the U.S. opening is looking a bit soft today, investors should be encouraged by an apparent stabilization in new U.S. coronavirus cases and the release (after considerable delay) of Senate Republicans’ proposal for a new coronavirus relief bill.  We outline both news items and all the other key developments below.

COVID-19:  Official data show confirmed cases have risen to 16,495,309 worldwide, with 654,327 deaths and 9,590,929 recoveries.  In the United States, confirmed cases rose to 4,294,270, with 148,056 deaths and 1,325,804 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology:

• Confirmed U.S. coronavirus cases rose by just 55,000 yesterday, marking the slowest daily pace since July 7 and giving investors cause for cautious optimism.  The number of new deaths continued to rise, but at a surprisingly slow pace compared with the number of new cases.  Nevertheless, the figures show particular states, mostly in the West and South, are continuing to struggle with a rising number of infections, hospitalizations and fatalities.  State governments continue to take uncoordinated, idiosyncratic approaches when deciding on what lockdown measures to lift or reimpose.
• Despite the apparent slowdown in new U.S. infections, Google parent Alphabet, Inc. (GOOG, 1,530.20) announced that virtually all of its 200,000 full-time and contract employees will work from home until at least next July, making the search-engine giant the first major U.S. corporation to formalize such an extended timetable in the face of the pandemic.  The move underscores the lengthening time frame before firms expect the situation to normalize.
• Overseas, cases continue to surge in large developing countries such as India and Brazil.  In addition, China has reported a surge of cases in the far western province of Xinjiang, raising fears of another major breakout there.

Economic Impact:

• Consultants at Accenture (ACN, 223.32) estimate that U.S. bank profits will be hit twice as hard by coronavirus loan loss provisions than their European peers, in a study that upends the traditional wisdom of European banks’ relative weakness.  The consultants foresee $427 billion in loan loss charges for 58 top U.S. banks over the next three years, equal to about 10.2% of their average 2020 loan books.  The 50 top European banks in the study are expected to take loan loss charges of $455 billion over the same period, equal to just 4.6% of their 2020 loan balances.
• Adding to the various letter-designated scenarios for the post-crisis economic recovery, some people are now talking about a “K-shaped” rebound.  The idea is to capture the way that many people with white-collar jobs and financial investments are actually doing all right, while the many who work in low-paying service jobs and don’t have stocks or bonds are struggling to survive.

U.S. Policy Response:

• Late yesterday, Senate Republicans finally released their proposal for the next coronavirus relief bill.  In comparison with the $3.5 trillion proposal passed weeks ago by Democrats in the House, the Republican proposal would cost about $1.0 trillion, setting up what is likely to be weeks of negotiations with the House and raising the risk of a deadlock or severely watered down bill that would likely drive down equity markets.  Key elements of the Republican proposal would:
  • Send another $1,200 check to the same group that received cash this spring (with payments phasing out for individuals with income above $75,000 and married couples with income above $150,000);
  • Provide an additional payment of $500 for each child, defined more broadly than last spring to include dependents over the age of 16 (meaning a bigger payment for parents of college students and people who take care of their elderly parents);
  • Extend the supplemental federal unemployment benefit, but cut it from the current $600 per week as follows:
    • Through September, the benefit would be cut to $200 per week for each recipient;
    • From October to XXX, the benefit would be set so that the sum of federal and state benefits would replace 70% of the recipient’s previous wage;
  • Provide $105 billion to schools and universities to cover the costs of operating during the pandemic, with some of the aid only available to schools that plan to physically reopen;
  • Provide no additional aid to state and local governments, but provide more flexibility in using existing federal assistance;
  • Provide $16 billion for expanded coronavirus testing;
  • Expand a worker-retention tax credit created in March, allowing larger credits per worker and letting up to $30,000 of wages and benefits qualify instead of just $10,000;
  • Temporarily give businesses a 100% tax deduction for restaurant meals, up from the current 50% deduction;
  • Adjust liability rules to make it harder to successfully sue schools, businesses and healthcare providers in coronavirus-related cases;
  • Provide for a number of other initiatives, some of which cynics might call “porkbarrel” (no surprise there!).

Foreign Policy Response:

• To help ensure Eurozone banks can absorb losses and keep lending through the crisis, the ECB has called on lenders to keep foregoing dividend payments until at least January and be “extremely moderate” when setting staff bonuses.  The Bank of England said it would carry out a review in the fourth quarter over whether British lenders could resume paying dividends in 2021.

Financial Market Action:

• Gold prices briefly hit an intraday record of $1,974.70 per troy ounce, before paring gains to trade down 0.3% to $1,925.80.  Spot gold increased to an all-time high of $1,980.57 per troy ounce in Asia before falling back in the London session to $1,929.  Despite the ultimate pullback today, both gold and silver continue their recent uptrends, driven higher by factors such as the weakening dollar, falling real interest rates and soaring U.S. budget deficits.
• Meanwhile, the euro continues to trend upward on signs that Europe has gotten the coronavirus under control better than the U.S. and could be poised for a faster or more consistent economic recovery.

United States:  Citing concern that economist Judy Shelton isn’t committed to the Federal Reserve’s independence, Senator Susan Collins (R., Maine) said she would join with Senator Mitt Romney (R., Utah) in opposing Shelton’s nomination to the Fed board of governors.  Since the Republicans only have a 53-47 vote advantage in the Senate, Shelton can’t afford to lose more than three Republicans if all Democrats oppose her candidacy.  Separately, the Fed will begin its latest policy-setting meeting today.  The policymakers are widely expected to hold current policy steady, but their post-meeting statement tomorrow could hold some clues on how they expect policy to evolve in the future.

United States-China:  State governments and the Department of Agriculture are investigating reports that hundreds of U.S. residents have been mailed unsolicited seeds from China.  The seeds raise the specter of a deliberate effort to spread toxic, noxious or invasive plants or weeds in the U.S. (a mild form of biological warfare?), so officials have warned people not to plant them.

New Zealand-Hong Kong-China:  The New Zealand government announced that it would suspend its extradition treaty with Hong Kong, joining the U.S., the U.K., Canada and Australia in protesting Beijing’s draconian new security law for the city.  The move is more evidence that the “Five Eyes” intelligence-sharing alliance could be evolving into the leading coalition against Chinese expansionism.

Russia:  Thousands of demonstrators in the far eastern city of Khabarovsk yesterday continued to demand the release of their jailed governor, Sergei Furgal.  The protests suggest the city’s protestors haven’t been mollified by President Putin’s naming of a replacement governor from Furgal’s opposition party.

Russia-Ukraine:  Beginning yesterday, Ukrainian troops and Russian-backed rebels in eastern Ukraine implemented a new ceasefire.  However, frictions remain because of issues such as Russia’s annexation of the Crimean peninsula and Kiev’s plan to exclude rebel territory from an upcoming election.

Japan-South Korea:  The Japanese government has warned of another sharp deterioration in Japanese-South Korean relations because of recently erected statues in a South Korean park that depict a man resembling Prime Minister Shinzo Abe kneeling and bowing to a girl symbolizing South Korean “comfort women” in World War II.

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by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Happy Monday!  Baseball is back, and the NHL and NBA are close as well.  Our friends on the Texas coast had to cope with Hurricane Hanna over the weekend.  Equity markets are moving higher, the dollar is softening and the bull trend in gold is starting to accelerate.  This is one of the busiest weeks for Q2 earnings.  We lead with policy news, followed by the pandemic update.  Let’s get to it:

Policy news: 

• The GOP will unveil its stimulus plan today, but internal dissention is running high. It isn’t clear the Senate could pass this bill with GOP votes alone, even though the party is in the majority.  The White House wanted a payroll tax cut, but it doesn’t look like that provision made it.  There is a debate over the $600 per week extra unemployment benefit.  There is no doubt that some workers are staying home because unemployment insurance pays about the same or better than any job available.  However, the problem with drastically reducing this benefit is that for those workers without any job available, the proposed reduction to 75% of their previous wage will lead to a drop in spending.
  • The last JOLTS report suggests that the inability to attract workers may not be as big of an impediment as the anecdotal evidence would suggest. In May, hires outpaced openings, 6.487 million to 5.397 million.  What is probably happening is that lower paid jobs in the service industries are struggling to get their workers back under current unemployment insurance provisions.  But, if you cut the insurance payments, not every laid-off worker may be able to find a job (openings were running 7.0 million prior to the pandemic).
  • The mere threat to reduce the $600 per week supplement could lead lower paid households to try to save as much as possible before the aid is restricted. If the goal of the extra cash is to support spending, this precautionary saving works against that aim.
• We suspect the financial markets are looking through the current political morass and expecting the Democrats to dictate terms, meaning we will likely see a total package of $1.5 trillion to $2.0 trillion.
• Congress isn’t the only body dealing with stimulus policy. The Fed meets this week and is trying to chart a path forward.  We don’t expect any new measures to be announced but the internal debate will be important.  Namely, the Fed will try to figure out how to explain any changes to its reaction function; in English, that’s how long will the Fed wait to react to higher price levels.  Since Volcker, the policy has been to react pre-emptively to potential inflation.  That policy was designed for a period of elevated inflation expectations.  That period is probably behind us, so allowing inflation to overshoot becomes stimulative.  Exactly how to do that remains uncertain.
  • It appears the WSJ has realized that the recent decline in the Fed’s balance sheet was not a sign that the central bank was withdrawing support. This is the topic of this week’s Asset Allocation Weekly (AAW).
• But wait…there’s more. Tech leaders are visiting Capitol Hill on Wednesday to testify before the House Antitrust Committee.  We don’t expect much more than posturing at this meeting, but if there is a threat to big tech, antitrust is perhaps the most potent.  Since the mid-1980s, the operating theory of antitrust has been that if consumers are not harmed, size or market control alone should not trigger regulatory action.  The tech firms have taken this legal theory to heart and have become behemoths, sometimes through mergers, other times through predatory behavior.  Nevertheless, it is clear that consumers have faced little harm.  So, who has paid the cost of their behavior?  Labor, from Steve Jobs’s plan to avoid “poaching” other tech workers (a clear plan to suppress wages) to tales of harsh working conditions at some tech companies.  A new antitrust era is likely coming, but it won’t necessarily be bad for shareholders (although such reports will become more common as the situation evolves).  The breakup of Standard Oil proved to be a huge benefit for shareholders as the value of the company in parts was greater than as a whole.  However, it is possible that the fear of regulation could adversely affect the tech giants and, given their dominance in the indexes, a negative impact is possible.
• Finally, although it isn’t happening here yet, the U.K. is already starting to discuss what to do with the bad debt that will come from loan programs to support companies in the pandemic. Some of the companies that have been supported will fail; how the bad debt is handled will be interesting to watch.  Will the bad debt remain on bank balance sheets?  Will a “bad bank,” such as the Resolution Trust Corporation, be created?  Will the government simply socialize the debt?  Stay tuned.

COVID-19:  The number of reported cases is 16,264,048 with 648,966 deaths and 9,407,977 recoveries.   In the U.S., there are 4,234,140 confirmed cases with 146,935 deaths and 1,297,863 recoveries.  For those who like to keep score at home, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.

Virology: 

• North Korea has instituted an aggressive lockdown at the border city of Kaesong after a COVID-19 infection was reported. This would be the country’s first confirmed case.  A former defector apparently decided to return to North Korea; Pyongyang has indicated that the person was infected, but South Korean officials, who have a strong contact tracing regime in place, indicate that he was not carrying the virus.  It isn’t clear if South Korea is wrong on the infection status, or whether North Korea, which probably does have cases, is using this as a way to reveal it has infections and thus blame Seoul for the outbreak.
• New cases are springing up in areas that had previously brought the virus under control. The rise in new cases is disappointing, suggesting that it was lockdowns, and not herd immunity, that was keeping caseloads low.
• The vaccine news is a mixed bag:
  • There are numerous areas in the U.S. where the virus is spreading rapidly. Paradoxically, that could accelerate vaccine trials, which need a large population to test and to be surrounded with infections to determine potency.  If a vaccine is tested in an area with few infections, it is more difficult to know if the vaccine is effective.
  • Given the huge number of vaccines being tested, it seems likely that one of them will prove to work. However, as we have noted earlier, one of the great unknowns is how long the immunity will last.  Sadly, that may simply be an “empirical question,” where we will need to see if those who have been vaccinated become ill six months to a year later.  The key to longer-term immunity will be the T and B cells.
  • History tells us that getting a vaccine is an important step but doesn’t fully end the crisis. Until it is widely distributed and time passes, we won’t know for sure how long the immunity lasts.  Anti-vaccine resistance is strong and will slow the development of herd immunity.  The government will need to determine the order of distribution; if they get it wrong, it could reduce the effectiveness of the campaign.  However, it is worth noting that markets tend to discount the future and will likely look past these problems, which could lead to a further disconnect between the economy and financial markets.

Foreign news:

• Brexit concerns continue, although we still do see an arrangement coming. And, the Johnson government has admitted that its plan to get a quick trade deal with the U.S., ostensibly to pressure the EU to make an agreement, is not going to happen.
• Widespread protests continue in eastern Russia. Ukraine and Russia have confirmed a ceasefire in the Donbass region.

Market and Economy news:

• Economic recovery in Europe is starting to outpace the U.S. This may be due, in part, to the fact that most European nations have gotten a better handle on the pandemic.  We are seeing broad dollar weakness, and stronger growth abroad will add to that factor.
• Gold prices have been strong recently. The combination of low nominal interest rates, general unrest and now a weaker dollar is all conspiring to send gold prices to new highs.

China news:

• Shandong Gold Mining (CNY 43.98) is making a bid to purchase TMAC Resources, (CAD 1.48), a Canadian gold mining corporation in the Arctic. The Chinese company is one of the largest in China and is considered a state-owned enterprise (SOE).  The Canadian government is considering blocking the merger.
• Apple (APPL, 370.46) is building the iPhone 11 in India.

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by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Happy Friday!  This Friday is starting with a risk-off tone.  Worries about the economy after the rise in claims yesterday and rising tensions with China are affecting sentiment.  But the overarching worry is that Congress will fail to deliver another stimulus package.  We cover China and policy below, along with the pandemic news.  The new Asset Allocation Weekly is available in its usual place along with the companion podcast and chart book.  Let’s get to it:

Policy news: 

• Yesterday, we reported the GOP was preparing to release its new stimulus package. They failed to do so.  Disagreements within the congressional GOP caucus and the White House suggest a party in disarray.  What are the sticking points?
  • The White House wants a payroll tax cut or holiday. This isn’t necessarily a bad idea because the tax tends to fall most heavily on lower income workers.  However, in this crisis it may not be all that effective because it doesn’t help people who are not working.  Since layoffs have most adversely affected lower paid workers, the holiday would give money to those less affected by the pandemic.
  • There is disagreement over unemployment insurance. The $600 per week boost is having a distortive effect on the labor markets.  It overpays laid off workers outside major urban areas.  In these regions, the $31K per year that the payment represents, over and above what normal state insurance pays, is likely more than they would get by working.  Thus, it becomes a disincentive to return to work.  However, in higher paid urban areas, the additional benefit probably has less of this effect.  At the same time, it is hard to determine if reducing the benefit makes sense if there is no job to be had.  What remains a mystery is that these issues are nothing new.  Lawmakers have had about three months to think about the second round.  Over that time frame, it seems there would have been an effort to craft a policy that avoids the disincentive to return to work but supports those who can’t find a job.  The reaction yesterday suggests that if work was done, it didn’t get finished.
  • Here is the problem—financial markets have been assuming there would be an agreement. It would include some degree of additional unemployment insurance supplement and another stimulus check.  Aid to state and local governments should be part of the agreement as well.  Once there is evidence that another round of stimulus will be delayed or less than expected, financial markets will discount that outcome.  Even delays pose a problem because the reaction of households to uncertainty will be to save resources and reduce spending.
• One silver lining, though, is that once a deal is struck (and the odds that nothing happens in an election year are near zero), the government should be able to move stimulus checks faster this time around.

China news:

• In retaliation for closing the Houston consulate, China is forcing the U.S. to close a similar facility in Chengdu. Tensions between the U.S. and China continue to escalate; we will offer some insights on this issue in an upcoming WGR.
• The U.S. has arrested three Chinese nationals on accusations of visa fraud. They apparently failed to declare their affiliation with the People’s Liberation Army.
• The U.S. has sanctioned additional Chinese companies for alleged human rights violations in Xinjiang.
• As we expected, China is taking steps to bolster Hong Kong’s status as a financial center. China needs the financial expertise contained in the city; other Chinese financial markets, such as Shanghai and Dalian, are simply not sophisticated enough to provide the services available already in Hong Kong (an aside: it seems that Xi may have been hasty in moving on the national security law—it would have made more sense to do so if other financial centers in China could replace Hong Kong).  This decision by China means that financial institutions and their workers will likely get a “light touch” from authorities, at least for a while.  It also opens a point of vulnerability for the West.  The U.S. could force international financial institutions to either quit Hong Kong or lose access to U.S. dollar markets.  Whether this step is taken remains to be seen.
• Historic flooding continues to pressure the Three Gorges Dam. Officials have admitted parts of the dam have buckled under the pressure building behind the dam.  If the dam were to fail, the impact would be catastrophic to downstream cities, most notably Wuhan.

COVID-19:  The number of reported cases is 15,526,057 with 633,656 deaths and 8,873,385 recoveries.  In the U.S., there are 4,038,864 confirmed cases with 144,305 deaths and 1,233,269 recoveries.  For those who like to keep score at home, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  There are 12 states, including Texas, with R₀ numbers below 1, meaning the spread of the virus is weakening.

Virology: 

• A growing shortage of test kits and an overwhelmed testing industry is leading health officials to restrict access to testing for COVID-19. The impact of this change is unclear.  For those who have come in contact with someone infected, their options are to either (a) ignore that fact and run the risk of spreading the disease, or (b) perhaps needlessly self-quarantine.  These new restrictions are an unwelcome development but likely unavoidable if the industry lacks the capacity to meet testing demand.
  • At the same time, there may be another option. German researchers have trained dogs to sniff out those with COVID-19 with a 94% success rate.  So, if your dog starts acting strangely around you, perhaps he is telling you something.
• China claims it will have a vaccine ready before year’s end. Recent national deal-making on securing vaccines reveals a lack of global coordination.
• Bolivia is delaying its presidential elections again due to the pandemic.

Foreign news:

• Brexit talks appear to be stalled and probably won’t be finished by the end of July. However, we do expect negotiations to continue and note that financial markets seem to be taking these comments in stride.
• Russia appears to have tested an anti-satellite weapon.

Market and Economy news:

• One of the most difficult factors to analyze in markets is their anticipatory nature. When economics is taught, it is one of the areas that isn’t given as much emphasis as it should be.  Here is a case in point: Hershey (HSY, 146.33) is expecting a quiet Halloween and is planning to produce less themed product this year.  Since Halloween is a mask-wearing holiday, it would seem that trick-or-treating might not be affected.  And so, it might make sense to purchase Halloween goods early, just in case…besides, it’s good to have around.
• The senior loan officer survey has suggested concerns about loan loss problems. New surveys suggest banks are closing credit cards and reducing credit lines on fears that households may not be able to service additional debt.  Bank lending tends to be pro-cyclical; it rises and falls with the business cycle, exacerbating the amplitude of the cycle.  These actions by banks will tend to reduce consumer demand.

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by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

U.S. equity markets continue to tick higher, buoyed by expectations of continued stimulus.  The stronger EUR is lifting European stocks, while Chinese equities fell on U.S./China tensions.  Relations with China continue to deteriorate; that’s our lead-off story this morning.  We update the latest policy news as a plethora of programs are due to end by July 31.  We update the pandemic news, recap other foreign developments and wrap up with economic and market news.  The new Weekly Energy Update is available.  Off to the details:

China news:

• Yesterday, the U.S. announced it was forcing the closure of a Chinese consulate office in Houston. The Houston fire department was on the scene of what appeared to be a massive burning of documents by consulate personnel.  There have been accusations by the U.S. of Chinese espionage, especially related to medical information.  The closure of the consulate is part of that issue and the burning of documents lends credence to that accusation.
• There are reports that the Chinese consulate in San Francisco may be harboring a Chinese military researcher wanted for questioning by the FBI.
• It is becoming obvious that tensions between Beijing and Washington are escalating.  The reasons for the increase in tensions will be a topic of an upcoming WGR, but there is speculation that the upcoming elections may be a factor.  China hawks within the administration may believe that they need to set the tone of the future relationship regardless of who occupies the White House.  Since we tend to view history through the viewpoint that trends matter more than personalities, we expect relations with China will be fraught regardless of who is president.  The problems are structural, not personal.
• On that note, the Senate is working on legislation that would give policymakers additional tools to prevent the confiscation of intellectual property, which would be a lasting change.
• Rules requiring supply chains to certify that imported goods are free of unpaid labor are raising worries among U.S. firms.
• Railroad infrastructure firms are pressing the U.S. for sanctioning tools against Chinese firms who are said to have ties to the Chinese military.
• China is arranging for charter flights to allow its citizens who have expiring visas to exit the U.S.
• The PBOC, seemingly concerned about China’s huge debt levels, indicated it is pausing its stimulus.
• We continue to monitor heavy flooding in southern China.

Policy news: 

• The GOP Senate leadership says it has an agreement with the White House and will announce the details later today. We will be watching to see the size of the next direct payment to households.  We do note there is growing opposition to additional spending among GOP budget hawks; although we doubt their opposition will be enough to derail the bill, it could mean the GOP leadership will more closely track Democratic proposals to ensure passage.
• The Fed is deliberating additional stimulus before its July 28-29 meeting. In the background, the Fed continues to debate structural policy changes that would adjust how the central bank reacts to inflation.  In the aftermath of Paul Volcker, the Fed has tended to try to preempt inflation.  The trauma of the high interest rate years led a generation of officials to try at all costs to prevent rising inflation expectations.  The policy worked so well that they now find themselves in the position of feeling the need to signal that they will not act preemptively to prevent a rise in price levels.  To some extent, future policy decisions will depend on this structural policy change.
  • In related news, it does appear that Chris Waller and Judy Shelton will be confirmed by the Senate for the last two open positions on the FOMC. Waller will be a traditional dove, but Shelton appears to be more sensitive to politics.  It may turn out that she doesn’t act as she has been portrayed, but, for now, we are assuming she will be dovish with a GOP president and hawkish with a Democratic president.  However, if we are correct in our assessment, the impact of her dissents will likely be small.

COVID-19:  The number of reported cases is 15,255,093 with 606,206 deaths and 8,670,684 recoveries.  In the U.S., there are 3,971,343 confirmed cases with 143,193 deaths and 1,210,849 recoveries.  For those who like to keep score at home, the FT has created a an interactive chart that allows one to compare cases across nations using similar scaling metrics.  Axios has updated its state infection map; the pace of infections appears to have leveled off.

Virology: 

• Pfizer (38.56, +1.87) and the privately held German firm CureVac have received a $2.0 billion contract from the U.S. government for 100 million doses of their vaccine for December.
• U.S. testing firms warn they will struggle to meet the demand for COVID-19 testing along with their other testing demands.
• One interesting development to watch is the pace of influenza in the southern hemisphere. It’s winter there in the midst of flu season, but, so far, influenza infections are lower than normal.  It appears that prophylactic measures to prevent the spread of COVID-19 have also worked to reduce the spread of the flu.  There have been worries that the combination of COVID-19 and the usual influenza season this fall and winter would overburden U.S. hospitals.  That may not be the case.
• In the news surrounding vaccine testing, the focus tends to be on antibody production. That is the first reaction the human body has to the introduction of the virus or a vaccine.  Reports have indicated that antibodies have dwindled rather quickly, raising worries that a vaccine may only offer limited benefits to COVID-19.  However, there are other elements of disease resistance that tend to be more durable but take longer to emerge.  Specifically, the body creates T cells and B cells that also counteract diseases, but these often don’t emerge for several months after infection.  Unfortunately, we won’t be able to determine whether the proposed vaccines generate these secondary effects, but lasting immunity could develop if they do.
  • If this is the case, what about reports of people getting infected a second time? Researchers are finding evidence that these apparent reinfections were much more likely to be the first infection that was long-lasting.  In other words, a person was sick, seemingly got better, but wasn’t fully recovered and thus suffered a relapse.  If this is true, it increases the likelihood that lasting immunity does occur.

Foreign news:

• EU negotiators are warning the U.K. that time is dwindling to make a trade deal. We still expect the two sides will come to an agreement but would not be surprised if the agreement isn’t complete until the last minute.
• Meanwhile, the U.K. is also trying to secure a trade agreement with the U.S. American negotiators are warning Westminster that the British digital tax puts the talks at risk.  The U.S. is taking a strong anti-digital tax position, viewing it as a tactic to raise revenue and shift the incidence of the tax to foreign firms.
• European trade negotiators are working on creating legislation that will give them power to levy trade sanctions similar to America’s Section 301.

Market and Economy news:

• The WSJ does a recap of the new Eurobond and its potential to boost European economic growth.
  • Related to the European fiscal package, the dollar has been weakening on expectations that the EUR will now be a more powerful alternative for reserve purposes. Dollar weakness and falling interest rates have given a boost to precious metals.
• As the stimulus pipeline begins to dry up, small businesses are worried that decreased spending will force them to reduce workers or completely close.  The next round of stimulus or the Fed could offset these concerns.

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