Daily Comment (June 26, 2020)

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

[Posted: 9:30 AM EDT]

The 13th episode of the Confluence of Ideas podcast is available; it is our first in a series of episodes on the November elections.  Additionally, there is something new!  As usual, we have a new Asset Allocation Weekly in today’s report (which we also post as standalone report), but we are adding two new features to this report: an associated podcast and an automated chartbook!  Check them out!

Good morning and happy Friday!  Equity futures are mostly marking time this morning.  Personal income and spending are out today; we detail the numbers below.  In the economics section, we look at the drop in global trade and the problem of college sports.  There was news on banking policy; we go over the details below, but, in short, “the Fed giveth and the Fed taketh away.”  China had something akin to a bank run.  We update the pandemic, including the “Duff’s map.”  We also take a look at tech.  Here are the details:

Economic news:

Policy news:

China news:

  • Chinese households, like their counterparts in Japan, Europe and the U.S., have been in search of yield for their savings. In China, trust companies have emerged to satisfy this demand.  The industry holds CNY 21.0 trillion ($3 trillion); it is estimated that around CNY 625 billion of these assets are distressed.  However, financial institutions that are sound can face liquidity problems if depositors demand liquidity simultaneously.  Small scale protests have broken out in Chengdu, Sichuan, after Sichuan Trust told investors that it would “struggle to make principal and interest payments” on about CNY 13 billion of assets.  China’s debt growth has been of concern for some time.  It has been noted that Chinese policy support from the pandemic has been modest compared to what we saw after the Financial Crisis, leading to concerns about China’s debt capacity.  This situation bears watching; if Chinese investors begin to fear the stability of the financial system, we could see purchases of bitcoin, gold and capital flight.

COVID-19:  The number of reported cases is 9,632,969 with 489,854 deaths and 4,859,744 recoveries.  In the U.S., there are 2,422,312 confirmed cases with 124,415 deaths and 663,562 recoveries.  For those who like to keep score at home, the FT has created a nifty interactive chart that allows one to compare cases across nations using similar scaling metrics.  Additionally, one way of monitoring reopening is by the number of beer taps operated relative to capacity, or as we like to call it, the “Duff’s map.”


Technology news:

Foreign news:

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