Markets Need Another Dose of DC Adrenaline

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FX flat
Chinese data mixed
Nikkei -0.62% Dax 1.71%
UST 10Y 0.61%
Oil $28/bbl
Gold $1735/oz
BTCUSD $9620

Asia and the EU
CNY Retail Sales -7.5%

North America Open
USD Retail Sales 8:30 AM

Its been a very quiet night of trade in both FX and equities with markets essentially moribund in both Asia and European session dealing.

There has been little fresh newsflow with only the usual drumbeat of dour data confirming that the COVID economic climate is dire. In China Industrial Production rebounded higher to 3.9% from 1.5% eyed, but Retail Sales disappointed contracting by -7.5% versus -5.9% eyed.

The Chinese numbers pose a real challenge to the rebound thesis because they show that while supply can be restarted fairly quickly in a post COVID world, demand will be much harder to revive. In retrospect, it’s totally understandable that consumers first shell shocked by the pandemic and then by the economic fallout from the lockdowns will be far more reluctant to spend. Consumer spending, after all, is highly dependent on confidence and at the moment the world is awash in uncertainty the likes of which we haven’t seen in decades.

In North America, the focus will turn to US Retail Sales projected to decline by a whopping -12% versus -8.7% the month prior. The more interesting number will be the core data which strips out the volatile energy component. There is no doubt the numbers will be horrid, but investors will try to find a silver lining in on-line shopping. If consumers substituted some of the brick and mortar purchases with internet retailers the spending numbers may prove to less bad that forecast.

In the end, the results from Main Steet are unlikely to move the markets much. The true focus of traders will be on Washington DC and the prospect of any further stimulus checks from the Federal government. President Trump hinted that he may be open to more fiscal spending and if Congress can come to terms on a new deal the market will respond positively.

At this point, the US economy like a patient in the ER only responds to adrenaline shots as it tries to stabilize. Therefore equities will need to see more action from DC before they can move meaningfully higher.

Boris Schlossberg
Managing Director

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