A new YouGov (UK-based) opinion poll looks at consumer attitudes in 26 countries and, it seems among other things, to underscore the problems we have at the moment because of the impact of the coronavirus when using survey evidence.
Asked what consumers would do with a windfall of a month’s pay, the most common answer was “save it.”
It could be helpful to keep in mind that in many countries people have effectively received a windfall of a month’s pay in lockdown and we could call that some kind of a forced savings situation that has been roughly the equivalent of a month’s net income. Now, people saved this money while they had to, but once freed from lockdown, they should start spending some of that money.
People say the will save because they feel that seems the right answer to give, but the lure of consumers doesn’t seem to be that strong, and based on past evidence, the money that has been saved will be spent anyway within a six months period or so, Bloomberg reports.
So far at least, equity markets don’t seem to care or are too concerned by the rising number of coronavirus cases, by example, in the United States. Florida just counted a record of more than 15,000 new cases on Sunday, while Arizona is reporting that hospitals are approaching full capacity, MarketWatch reported.
Nevertheless, the increase of virus cases has led to an increase in fear on part of the consumers, but the increase in fear is less than was the case earlier in the year.
With what we know today, another U.S. nationwide lockdown doesn’t seem on the cards and should remain a onetime thing (hopefully), but local U.S. lockdowns may be possible again. So, it’s relative safe to say that returning close to a national U.S. lockdown seems very unlikely.
Markets are for now much more inclined to look on the increasing coronavirus cases as an incentive for more stimulus.
In this context investors could do well keeping in mind that in the U.S. there are only a couple more weeks of additional unemployment benefits.
The additional unemployment benefit of $600 from the federal government officially ends on July 31, but States can only pay through the week ending on July 25 or July 26. The $600 payment, which is in addition to each states' normal unemployment benefits, was included in the CARES Act stimulus package, according to the Treasury.
The unemployment benefit boost has been large enough so that around two thirds of Americans have been better off being temporarily unemployed than when in work.
So, at the end of this month, the absence of additional financial assistance means that many of the U.S. middle class will find out what it is like to try and live on normal benefit payments, which may be an additional political incentive to come up with some further stimulus measures.
Over in Europe, European fiscal stimulus is also in focus with the European Recovery Fund. There will be an EU summit at the end of the week to discuss this, but in the meantime there is public disagreement about the sums involved and how the money has to be distributed.
The timing of this is not especially important. There was zero prospect of any money being paid any time soon, and for the months ahead, it will be the national budgets that do most of the work in supporting the economies. As an investor I would try to remain as realistic as possible.
However, financial markets would like to see a commitment on the part of the European Union to, perhaps, work together and the realization that this is quite a large economic challenge that might require a quite large economic response. We’ll have to wait and see what happens.
Besides all that, we’ll have the big U.S. banks that will start reporting earnings Tuesday. Yes, their comments on, for example, how they cope with the disruptions caused by the coronavirus could be interesting...
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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