Daily Commentary BY THE CURVE TEAM –

Second Wave Beginning to Bite

July 29, 2020

The economic impact of a second wave of Covid-19 cases is beginning to become apparent.

Weekly consumer confidence fell 1.9% yesterday. It comes as no surprise as Covid-19 case numbers remained high yesterday.

Interestingly, the fall was predominantly from a more pessimistic outlook for the economy and less so a change in outlook for personal finances. This supports the idea that the second wave of Covid-19 will be detrimental to the economy but it is peculiar that this would not translate to an impact on personal finances.

Payroll data released yesterday makes the contrast for the outlook for the economy and personal finances seem even more contradictory. Payrolls jobs fell 1.1% for the month to mid-July, which measures the amount of jobs in the economy rather than whether an individual is simply employed.

Estimates suggest the fall in payroll jobs will translate to a ninety thousand fall in employment, which would reverse a large portion of the over two hundred thousand rise in employment in June. It is surprising that a deterioration in the employment environment did not correspond with larger falls in the outlook for personal finances. Whether this seeming contradiction can be sustained will be of interest, especially as the JobSeeker and JobKeeper programmes are tapered back as of October.

The ability for the government to support the economy with such measures as JobSeeker and JobKeeper continues to be re-affirmed following a 30-year bond issue yesterday. $15 billion more debt was raised at a rate of 1.94%, which follows the $30 billion already raised this month. The ability to raise the amount at such a long tenor will instil confidence in investors and the government that they are able to fund stimulus measures.

CPI data for the second quarter will be released today, with headline inflation expected to fall 2% for the quarter and the trimmed mean expected to rise a meagre 0.1%.

Josh Stewart

Client Relationship Manager