Week In Review: The Good, the Bad, and the Ugly. 30 July 2021
Week In Review: The Good, the Bad, and the Ugly
US equity indexes were lower on the week: DJIA -0.4%, S&P 500 -0.4%, NASDAQ -1.1%. However, all three indexes finished higher on the month. This week, market participants were focused on the spread of the Delta variant, the FOMC meeting, and a regulatory-induced sell-off in Chinese equities.
China: Equity Flows. Early this week there was a lot of focus on China’s tech and education sector crackdown. Our twitter poll shows elevated long-term concern about China’s policy recent policy steps. The Exante Data team took a look at flows: Our tracking of high frequency flows do not point to particularly meaningful foreign equity sales. Dedicated China equity funds saw about $1.4bn in inflows in the week to July 28th, down slightly from the $1.9bn the week before but roughly in-line with the $1bn per week trend since late-April.
Chart: Fund Flows into China
Turning to the US, On Wednesday, the Senate voted to advance a bipartisan infrastructure (“BIF”) plan. On Friday, CNN reported that Senators voted on a “motion to proceed – a vote that will open up the legislative package to potential changes through the amendment process.”
Wouter Jongbloed, Head of Political Risk Analysis notes, “This is inline with our expectations and strengthens our conviction that the bill will emerge from the Senate for subsequent consideration in the House, where it is likely to ultimately be adopted after some (loud) huffing and puffing by progressives. Tentative timing of a House vote on the Bipartisan Infrastructure Deal is for mid-to-late August — when Speaker Pelosi is expected to call the House back in Session.”
“Previously, Democratic Leadership indicated that any BIF bill coming out of the Senate will only be considered in the House in parallel with or in close proximity to a Senate Budget Resolution (expected at $3.5 trillion). Speaker Pelosi has hinted that she might cut the House’s Summer Recess short and bring the House back into Session in order to consider both the BIF and a Budget Resolution, as soon as both clear the Senate. This means that a regular recess by the House (to start next week) does not preclude a vote on the BIF and the Budget Resolution later in August.”
USD was weaker on the week. The USD fell significantly after the FOMC and into month-end. Both events contributed to the USD’s move but month-end moves are typically less persistent than more meaningful changes to global growth or USD rate expectations. USD’s underperformance is not explained by equities as these were weak and should have lifted USD – see chart below (yellow triangle is latest read). The DXY Index ranged 92.95-91.78, weakening throughout the week. Its largest component, EURUSD, ranged 1.1763-1.1906, with the high on Friday. For G10 FX and select pairs’ performance this week, see heatmap here. AUD was the weakest vs. USD, remaining on its backfoot due to the Covid outbreak and the resulting Sydney lockdown.
At Wednesday’s FOMC the Fed downplayed risks to the US economic outlook from the delta variant relative to what many had expected. We have generally shared the view that risk from delta, while clearly to the downside, are largely manageable. But given this risk, it remains important to keep a close eye on how this wave of the pandemic is evolving in the US. Senior Strategist Alex Etra takes stock of how the delta wave is progressing the US and makes the following observations:
The good: Vaccination rates for those over 65 are approaching 85-90%, overall case growth, hospital admissions and current hospitalizations remain at levels well below their peaks in the winter wave. There are some tentative signs that case growth in some of the problematic states could be slowing, while vaccine administration is picking up.
The bad: The number of states seeing positive case growth has steadily increased in July and hospital admissions have been accelerating in-line with cases particularly in problematic states.
The ugly: Florida has seen a sharp increase in cases and hospital admissions across almost all age groups and current hospitalizations are approaching prior peak. The concern is that if hospital pressure can reach such levels in Florida, which has a vaccination rate in the middle of the pack, and which is the among the economically important of the current hotspot states, could this level of hospital pressure be felt by a broader set of states as well?
Alex further notes, “So far the economic impact from the delta wave appears limited: There is no sign of a decrease in mobility in the most impacted states and indeed our alternative data suggests that actual card spending remains robust (and well above what would be predicted by mobility alone).”
Links to charts: Founder Jens Nordvig – “this wave is moving faster now.” See chart here. Focusing on the US states, this chart compares the latest momentum in new cases with trend daily cases relative to peak levels. Washington has the worst momentum in the group today. Florida, Hawaii and Louisiana have daily cases as % of previous peaks approaching or higher than 100%.
Chart: US Share of Age Cohort Fully Vaccinated. There is roughly a 10-20pp gap in vaccination rates between those over 65 and those between 40-65.
Exante Data Happenings & Media
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For clients, we have re-introduced the Covid-19 daily publication due to increasing interest and questions about the spread of the Delta variant. Each day, we will look at global case and vaccination trends, and will add thematic commentary sometimes.
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