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Weekly Market Digest
July 27 to July 31, 2020

Don Curren July 31, 2020

The last week of July 2020 was a turbulent one, marked by news of the worst economic quarter in the history of the US, another dour policy statement from the Federal Reserve and musings from President Donald Trump about the possibility of delaying the election that’s scheduled to fall on November 3.

The US Bureau of Economic Analysis reported Thursday that real Gross Domestic Product in the US declined by 32.9% on an annualized basis in the second quarter. That was better than the approximately 40% slump expected by economists, but nonetheless something of a visceral shock to economy watchers. The quarterly growth report revealed that a severe 34.6% drop in personal consumption expenditures was the key driver of the contraction as mandatory shelter in place orders prompted non-essential business closures in all 50 states and severely curbed economic activity.

Also on Thursday, President Donald Trump floated the idea of delaying the presidential election because of the pandemic via Twitter. Democrats and Republicans alike objected to the idea, and many were quick to point out that the power to reschedule elections resides exclusively in the hands of Congress.

Earlier in the week, the Conference Board’s Consumer Confidence for July came in at 92.6, down from 98.1 in June. The Expectations Index – consumers’ short-term outlook for income, business and labor market conditions – decreased from 106.1 to 91.5, suggesting the climbing totals for both COVID-19 cases and deaths in many parts of the US are weighing on consumer sentiment.

On Wednesday, the Fed kept interest rates at ultra-low levels and reiterated its pledge to maintain its asset-purchase programs at current levels, at a minimum, to support the economy through its recovery from the pandemic. “The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed’s statemen said.

The data on the pandemic itself remained highly discouraging. According to Johns Hopkins University’s COVID-19 dashboard, total confirmed cases and deaths globally were at 17,328,238 and 673,936 respectively, while the US has had 4,495,612 cases and 152,082 deaths, as of Friday morning.

There was a bright spot in North American economic data Friday, when Statistics Canada reported that real Gross Domestic Product surged by 4.5% in May as lockdowns eased. Even after that stronger-than-expected result, Canada’s GDP remains 15% lower than pre-COVID-19 levels in February.

In foreign exchange markets, the US dollar continued its broad decline, losing about 1.3% over the course of the week, according to the trade-weighted DXY index.

Next week, July jobs reports for the US and Canada are scheduled for release on Friday, and those are likely to be the most important events on the economic calendar. Trade data for both nations will be released on Wednesday, providing some insight into how trading relationships in North America and around the globe are faring as the world continues to struggle with the novel coronavirus.


 

Suggested Reading   |   Cambridge Market Analysis

■ Canada’s GDP Rebounded Robustly As Economy Reopened in May  read article
■ COVID-19 Hits US Economy and Labor Market Hard, Prompts Record Slump in Q2  read article
■ Fed Says Virus Threatens Economy, But Leaves Policy Settings Unchanged  read article
■ US Consumer Less Upbeat as COVID-19 Cases Spike in Major Hubs  read article
■ Durable Goods Orders Climb 7.3% in June  read article


 

Suggested Reading   |   Counterparties

■ MarketWatch: Consumer confidence wanes in July and points to rockier economic recovery  read article
■ MIT Technology Review: Lockdown was the longest period of quiet in recorded human history  read article
■ US Department of Justice: Florida Man who Used COVID-Relief Funds to Purchase Lamborghini Sports Car Charged in Miami Federal Court  read article
■ US Federal Reserve: Monetary Policy Announcement  read article
■ Financial Times: Rise in coastal flooding poses threat to global economy  read article
■ Washington Post: A warning from Wisconsin  read article
■ NYT: These Businesses Lasted Decades. The Virus Closed Them for Good.  read article
■ Financial Post: One in seven Canadian small businesses now at risk of closing for good  read article
■ WSJ: Face Masks Really Do Matter. The Scientific Evidence Is Growing.  read article
■ Project Syndicate: Will COVID-19 Kill Cash?  read article
■ BEA: Gross Domestic Product, 2nd Quarter 2020 (Advance Estimate) and Annual Update  read article


Calendar for the Week Ahead

Monday, August 3
■ USD – ISM Manufacturing PMI
■ CAD – Civic Holiday

Tuesday, August 4
■ AUD – RBA Interest Rate Decision
Wednesday, August 5
■ CAD – Merchandise Trade Balance
■ USD – Trade Balance
■ USD – ISM Services PMI

Thursday, August 6
■ USD – Jobless Claims
■ GBP – BOE Interest Rate Decision
Friday, August 7
■ MXN – Inflation Rate
■ USD – Nonfarm Payrolls
■ CAD – Labor Force Survey


Don Curren
Market Strategist and Content Editor
dcurren@cambridgefx.com
@dbcurren