United States: Morgan Stanley expects Congress to pass a $1.5-2.0 trillion “CARES 2” stimulus package in September.
The result will be a substantial boost to consumption (chart below) and GDP growth.
All this additional liquidity is likely to give another boost to the stock market. It will also have a positive impact on credit, commodities, and emerging markets. On the other hand, it’s a negative development for the US dollar.
China: Nonperforming loans have been climbing.
Smaller banks are significantly less well-capitalized than the Big Five.
Equities: The Nasdaq 100 implied volatility has been drifting lower even as the market sold off.
The trend suggests that some of the massive call option bets (2 charts below) are getting unwound.
Credit: With LIBOR going away, the market may need another index that measures unsecured bank borrowing costs. SOFR represents collateralized lending (repo), which is not a good measure of bank credit.
Could BYI be that index?
Global Developments: This chart shows futures positioning across different asset classes. There’s a high concentration of long bets in the Swiss franc and the euro.
Food For Thought: The increase in alcohol sales during the pandemic:
Edited by Devon Lall
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