In this latest issue of my weekly podcast, I discuss the market "narrative" surrounding COVID-19. The market expects immediate and total recovery with no second wave, unlimited stimulus support, and for the market always to rise higher than before. Right now, we are in the eye of the storm. By June, we could be seeing the start of rolling second waves and waking up to the slow pace of economic activity even in "opened" states.
Continued stimulus? Right now, both Democrats and Republicans support big government spending. We expect more spending in the near future, but this support could sour. In 2011-2012, both parties pulled back on fiscal at the depths of the financial crisis. Will Republicans try to yank the plus on big government... especially if Joe Biden is in the White House?
Democrats challenge China. During the Obama years, Biden was regarded as the front-man on easing US-China relations. In 2017, President Trump confronted China on trade and slapped on tariffs while agreeing to sweep human rights under the rug. They would just get in the way of a "deal." Yet in a stunning move, Biden has recently started calling Trump weak on China. He has openly called Xi Jinping a "thug" and promises to re-united western allies against China's aggression. IMO, geopolitical confrontation with China is more likely under a Democratic administration than under Trump.
Economic indicators continued to be bleak. US Markit PMI flashes were released for April. Manufacturing came in at 36.9, while services came in at 27.0, and composite read at 27.4. The Kansas Fed Manufacturing Index came in at -62 for April, its lowest reading since the series began in 2001. The Dallas Manufacturing Index had a similar record low at -73.7. Better than the Eurozone, however. The flash Markit composite PMI for April came in at 13.5! Services was 11.7. Getting close to single digits!
Around the world, leaders see boosts in their approval ratings. National leaders who have pursued aggressive containment of the pandemic have been rewarded with soaring popularity. Boris Johnson, Emmanuel Macron, Guiseppe Conte, Angela Merkel, and Scott Morrison have all had double-digit increases since February. In South Korea, the leading Democratic Party was losing support in late 2019, but in recent national elections, they won by a landslide.
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