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

[Posted: 9:30 AM EDT]

Despite rising stock markets overseas, sentiment in the U.S. markets today seems finely balanced between optimism about post-virus economic reopenings and accommodative policies on the one hand and the reality of resurgent infections and renewed lockdowns in some locales on the other hand.  We review all the key news below.

COVID-19:  Official data show confirmed cases have risen to 11,856,991 worldwide, with 544,871 deaths and 6,473,170 recoveries.  In the United States, confirmed cases rose to 2,996,333, with 131,481 deaths and 936,476 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• The U.S. reported about 60,000 new infections yesterday, setting a new single-day record as cases continue to surge in the South and West.  Texas alone reported more than 10,000 new cases, setting a new record for that state.  Hospitalizations and deaths are also rising in many of the states with surging cases, even though the national death rate is falling.
• Consistent with the resurgence in cases, high-frequency economic data such as restaurant seatings and retail store visits have begun to stall or decline, especially in the hard-hit states of California, Arizona, Texas, and Florida.  Importantly, the decline in consumer activity is often happening ahead of renewed government restrictions, suggesting people are isolating again voluntarily in order to avoid catching the virus.
• The Trump administration formally notified the WHO that the U.S. would pull out of the organization next July because the administration believes the WHO is under China’s sway and has failed to respond adequately to the pandemic.  Public health officials, legal scholars and members of Congress from both parties condemned the move, arguing that it would cost lives, hinder U.S. access to the global system for sharing outbreak data and vaccine research, and give China more sway over the U.N.
• Brazilian President Jair Bolsonaro, one of the most prominent world leaders to play down the severity of the coronavirus pandemic, said he has tested positive for the virus.  He was tested after having developed a fever of 100.4 degrees and other symptoms related to the disease, though he said his temperature had since gone down. Despite his infection, he echoed his earlier calls for Brazilians to accept the virus and get back to work.

Economic Impact

• As we’ve been warning, state and local governments across the U.S. have begun to slash their payrolls and other spending to deal with the decline in tax revenues resulting from the crisis.  We continue to believe that a major risk to the economic recovery is the possibility that state and local governments will have to tighten their fiscal policy so much that they offset the looser policy at the federal level.
• Since mid-June, Chinese customs officials have suspended meat imports from at least 14 foreign processing plants, citing fears that the products could carry the coronavirus.  The affected plants are located in the U.S., Canada, Brazil, Germany and other countries.  The restrictions are already boosting Chinese food prices and raising more doubts about China’s implementation of its Phase I trade deal with the U.S.

European Union:  ECB President Lagarde said her ongoing review of the central bank’s operations will examine how they can be made “greener.” This includes potentially shifting its massive asset purchases to sell off obligations issued by carbon-intensive companies and buying more obligations issued by less carbon-intensive firms.  Separately, she also tried to tamp down expectations that the EU’s proposed €750-billion coronavirus recovery, including common debt issuance, would be approved at a summit to be held on July 18.  According to Lagarde, approval of the plan will probably come closer to the end of July.

EU-Germany:  The German central bank will reportedly accept the positive findings of a finance ministry and parliamentary review of the ECB’s massive bond-buying program. This suggests the program won’t be tripped up by the German constitutional court’s ruling in May, stating that government officials must review the economic and financial costs of the bond purchases.

United States-China:  The U.S. is imposing visa restrictions on Chinese officials involved in Tibet policy.  This is the latest rise in tension with Beijing, as the Trump administration increasingly uses immigration measures as a tool to target China.

Mexico:  The Jalisco New Generation Cartel, which dominates the trade in fentanyl and methamphetamines, has become Mexico’s most powerful criminal organization, eclipsing the more famous Sinaloa Cartel. Perhaps most worrying, the Jalisco Cartel has made it a hallmark to attack Mexican security forces and public servants directly, making it the biggest danger to the country’s, at times, fragile stability and further complicating the country’s investment environment.

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