Focus on Washington and US Economic Data

The stock market may get some lift from Trump's executive orders reinstating a lowered supplemental unemployment benefit and other measures aimed at mitigating the fall-out from the virus.  It also might be helped by reports that he is considering a cut in the capital gains tax at some point.  But, the legality of his orders may very well be challenged.  And, this risk could limit a positive market reaction.  This week, the market also will deal with Biden's expected announcement of a running mate.  It would likely be a negative for stocks if the person chosen is viewed to be anti-business.  In the background, US economic data are expected to post good-sized gains although not as large as in June.   

Biden's choice of running mate is of particular importance, given his age.  Whoever is chosen has to be viewed more intently than usual as a potential President.  A choice whose views are close to moderate would be a market positive, while a more leftist candidate a negative.

The most important US economic data this week should be Unemployment Claims.  If they confirm last week's declines, it would be a market positive by suggesting the drag from renewed shutdowns in some states is indeed temporary.  In contrast, a rebound in Claims would reignite concern that the economy's bounce-back has slowed sharply.

Other data should confirm a strong rebound in Q320 Real GDP.  Consensus looks for a +1.7% m/m increase in July Retail Sales.  Although this is substantially slower than the +7.5% in June, it is still consistent with a sharp q/q increase in Q320 Consumer Spending.  Similarly for Industrial Production, consensus sees +3.3% m/m in July versus +5.4% in June.  July's inflation data -- PPI and CPI -- are seen recovering from virus-impacted price cuts, with the Core PPI up 0.1% m/m Core CPI up 0.2%.

The Atlanta Fed model's latest projection is +20.5% (q/q, saar), having moved up substantially from its initial 11.9% forecast.  Moreover, the risk is for it to climb toward 30% if not higher as more data come in.  For example, the model now puts Consumption at 21.9%, but the June level already is an annualized 26.8% above the Q220 average.  Also, the risk is for a large rebound in Inventory Investment after it fell an extraordinary $235 Bn in Q220 (although there should be some offset from a corresponding bounce in imports).  The Atlanta Fed model currently expects Inventory Investment to fall even more in Q320.