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

[Posted: 9:30 AM EDT] | PDF

Despite the mixed performance for equities so far today, reports are showing a moderation in new U.S. coronavirus infections, as well as hints of progress in the negotiations for a new virus relief bill in Congress.  As always, we review all the key news items below.

COVID-19:  Official data show confirmed cases have risen to 18,317,520 worldwide, with 694,715 deaths and 10,935,280 recoveries.  In the United States, confirmed cases rose to 4,718,249, with 155,478 deaths and 1,513,446 recoveries.  Here is the interactive chart from the Financial Times that allows you to compare cases and deaths among countries, scaled by population.

Virology

• Several large states in the South and West that had recently seen a surge of new infections continued to report moderating caseloads, though part of the decline in recent days may reflect the shutdown of some testing sites in Florida ahead of Tropical Storm Isaias.  Unfortunately, public health officials also continue to report signs of rebounding caseloads in the Midwest and some areas of the Northeast.
• Despite the improving overall trend in the U.S., researchers in the U.K. and France warned that without adequate procedures to test and trace positive cases, there will likely be a large, new outbreak of the disease this autumn.
• Scientists are noticing that as many as 10% of those who become sick with COVID-19, including young adults, suffer from a long, drawn-out form of the disease that some refer to as “long-haul COVID,” “LONGCOVID,” or “post-COVID syndrome.”  The condition is evidently similar to chronic fatigue syndrome, or myalgic encephalomyelitis.  The news is a reminder that even if the statistics show large numbers of people recovering from the disease, some of them may actually be saddled with lingering symptoms that could weigh on their ability to work.
• As the horserace among several leading vaccine candidates continues into Phase III tests, investors remain optimistic that a shot will be ready by the end of the year.  However, investors are also starting to pay more attention to the already high valuations for some of the vaccine companies’ stocks.

U.S. Policy Response

• After an hours-long negotiating session yesterday, Democratic leaders and White House officials sounded cautiously optimistic that they were making progress on the next coronavirus relief bill.
  • Nevertheless, the two sides remain at odds over whether to cut the supplemental federal unemployment benefit of $600 per week, whether to provide more assistance to financially strapped state and local governments, and other issues.
  • One complicating factor is that the competing Democratic and Republican proposals are riddled with pork barrel spending unrelated to the virus crisis.
  • To raise pressure on the Democrats, reports say the White House may attempt to implement some relief measures by executive order (a kind of decree), including a cut in the payroll tax and a further moratorium on evictions.
  • According to officials, the negotiations will resume on Tuesday.
• Of course, the Federal Reserve also continues to provide extremely loose monetary policy in support of the U.S. and global economies.  For a useful review of its actions as global lender of last resort, see this WSJ article.
  • The article highlights how the Fed’s agile and powerful action to support the dollar financial system around the world has helped burnish the greenback’s status as the world’s key reserve currency.
  • However, the article also highlights how the resulting status of the dollar as the predominant safe currency has raised concerns that it is too dominant.  That sentiment is a key reason why we place so much importance on the EU’s new coronavirus relief program, which will include the issuance of common EU debt on a scale that should make the euro a more viable reserve currency and a more viable competitor for the dollar.

Financial Market Response

• Double-digit stock gains boosted public pension systems’ median return to 11.1% for the second quarter, marking their best quarterly performance since 1998.  However, even with their rebound from the first quarter, median annual returns for the public pensions, whose fiscal years ended June 30, were just 3.2%, far short of the funds’ long-term target of around 7%.
• As investors begin to note the current upward momentum for precious metals and the positive impetus they’re getting from factors like safe-haven buying, the falling dollar, and the rising federal budget deficit (all of which we’ve described repeatedly), gold and silver continue to rise.  Here is a handy WSJ article on the mechanics of the gold market.

World Trade Organization:  In interviews with the Financial Times, the two main candidates to become the next leader of the WTO said the U.S. has valid concerns over judicial overreach by the organization’s dispute settlement system.  Kenya’s Amina Mohamed and Nigeria’s Ngozi Okonjo-Iweala both said they would support reining in the system, though it’s not clear when or if that would convince the Trump administration to lift its freeze on naming new judges to the WTO’s appellate body, which has prevented it from operating.

United States-China:  President Trump said he is ready to approve the purchase of the U.S. operations of the Chinese video-sharing app TikTok by Microsoft (MSFT, 216.54), but only if the government receives “a lot of money” in exchange.  The move has drawn bipartisan pushback, especially as it would appear to constitute a kind of arbitrary, one-off tax on a private corporate transaction.  Just as important, the demand also exacerbated tensions with Chinese officials, who are chafing at Trump’s earlier threat to ban TikTok from the U.S. over concerns that the company could share sensitive user data with the Chinese government.

United States-Poland:  A week after announcing the pullout of 12,000 troops from Germany and only partially redeploying them elsewhere in Europe, the Trump administration said it will send 1,000 additional soldiers to Poland.  The increased U.S. presence there will include intelligence, surveillance and reconnaissance capabilities, as well as infrastructure to support an armored brigade combat team and combat aviation brigade.  However, the small move in Poland is seen as insufficient to offset the loss of forward defense capabilities associated with the large troop drawdown in Germany.

Argentina:  The Argentine government reached a deal with its biggest creditors on restructuring $65 billion of its foreign bonds after it agreed to make some debt payments earlier than it wanted.  If the country’s bondholders approve the deal, the country will avoid years of exclusion from the global credit markets and a potentially acrimonious, drawn-out legal battle like the one that followed its 2001 default.

View PDF