Federal Reserve Chair Jerome H. Powell testifies before the House Financial Services Committee.
Tasos Katopodis/Getty ImagesFed days are always a fun time.
They’re a little like holidays on Wall Street. The market, of course, is open. But traders, in one respect, take the morning off, waiting until 2 p.m. EDT to pore over the Federal Reserve’s statement for clues about monetary policy and its impact on the economy. Stocks make their biggest moves on Fed days after the rate decision.
Today, don’t look for news on short-term interest rates. Those will stay at zero. Fed Chairman Jerome Powell said—cleverly, in Barron’s opinion—that his band of bankers wasn’t even “thinking about thinking about” raising interest rates in June.
With no rate cut expected, what does the market hope to see? More stimulus. There is still a lot the Fed can do to support the economy such as buying bonds, targeting long-term interest rates, and offering banks more liquidity.
The Fed has already done a lot. Combined with the Cares Act, the amount of stimulus pumped into the American economy in 2020 has been historic. That’s a big reason markets have recovered so quickly from March lows.
As the pandemic rages on in parts of the country, the market might need even more stimulus. We’ll see what other tricks the Fed has up its sleeve to support markets later today.
Have fun watching.
—Al Root
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Tech CEOs in the Congressional Hot Seat
Four tech behemoths will face questioning from the House Judiciary Antitrust Subcommittee on Wednesday. Lawmakers will grill Apple’s Tim Cook, Google parent-company Alphabet’s Sundar Pichai, Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg on their dominance of the digital landscape.
- The hearing will give investors a better sense of just how much regulatory risk each of the four American tech giants faces from Congress, Wedbush analyst Daniel Ives said in a note to clients. The subcommittee has collected about 1.3 million documents from the companies testifying as part of its investigation.
- For Alphabet and Facebook, the key issue is their lock on the online ad market, where together they capture 53% of total U.S. digital marketing revenue. Facebook’s position has arguably been helped by acquiring potential rivals, while Google has been accused of using its search engine to unfairly advantage advertisers.
- Lawmakers are likely to probe Cook over the requirements Apple sets for apps sold in the company’s App Store, which developers have little choice but to accept.
- Amazon, meanwhile, will likely be questioned over how it uses data from third-party sellers. Amazon uses that data to launch its own products, The Wall Street Journal reported in April.
What’s Next: A day after their remote hearing on Capitol Hill, each of the four companies are scheduled to report second-quarter earnings, which are likely to reinforce the huge role tech companies play in the American economy.
—Ben Walsh
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Coronavirus Relief Negotiations Begin
Bridging the $2 trillion gap between the Democratic and Republican relief packages saw signs of potential compromise even as the two sides fought over key measures like the dollar amount of enhanced unemployment benefits, the expansion of food stamp programs, and funding for state and local governments.
- Republicans want to reduce the extra federal unemployment benefits to $200 a week, while Democrats want to extend the previous $600 rate. Democrats also want additional funding for food stamps and state and local governments—items excluded from the Republican proposal.
- Senate Majority Leader Mitch McConnell said in an interview with CNBC that he wouldn’t budge on including liability protection for employers.
- House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer ripped into the Republican proposal after meeting with Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows. Schumer called the GOP’s package “piecemeal and pathetic,” while Pelosi dismissed it, saying “whatever it is, it isn’t serious.”
- Despite the rhetoric, House Majority Leader Steny Hoyer made it clear that Democrats are willing to negotiate. “Look, it’s not $600 or bust,” Rep. Hoyer said in an interview with CNN on Tuesday. “We’re prepared to discuss this.” What’s not negotiable, says Hoyer, is state and local aid.
What’s Next: Hoyer’s comments suggest a deal could be struck where Democrats agree to a smaller cut to federal unemployment payments if Republicans agree to funding for state and local governments. But while more spending might assuage Democrats, some Republican senators are upset by their party’s initial offer.
—Ben Walsh
***
Barr Defends Using Federal Agents at Protests
U.S. Attorney General William Barr defended the use of federal agents to crack down on nationwide protests for racial equality in front of the House Judiciary Committee Tuesday. Barr said the federal response to protests was necessary because “violent rioters and anarchists have hijacked legitimate protests to wreak senseless havoc and destruction.”
- Committee Chairman Rep. Jerrold Nadler (D., Ny.), said that Barr, the country’s top law-enforcement official, was using his position to do the bidding of President Donald Trump’s re-election campaign. “Understandably, Americans are very suspicious of your motives here,” Nadler said.
- Nadler also accused Barr of undermining the Justice Department’s lawyers by intervening on behalf of Roger Stone and Michael Flynn in their criminal cases.
- The top Republican on the committee, Rep. Jim Jordan (R., Ohio), played a video that used TV news footage to show violence at protests, such as a police precinct building in Minneapolis being set on fire and stores being looted, and thanked Barr for “defending law enforcement.”
What’s Next: The hearing didn’t yield significant new details about Barr’s stewardship of the Justice Department. Instead, Barr’s testimony made it clear that he will continue using federal agents to combat what he called “violent mobs” on American streets.
—Ben Walsh
***
Remote Workers Skip McGriddles and Frappuccinos
McDonald’s and Starbucks gave investors a look at how the pandemic impacted second-quarter sales Tuesday. The morning commute behemoths are struggling to attract a breakfast crowd, a huge chunk of sales.
- McDonald’s said global same-store-sales fell 23.9% year over year. U.S. same-store sales declined 8.7% but improved from down 19.2% in April to a 2.3% decline by June. CFO Kevin Ozan said in the earnings call that breakfast was the biggest drag on comparable sales amid a declining breakfast market, which continued into July.
- Same-store sales at Starbucks fell 40% in the U.S. and 37% in its international segment. China’s same-store sales were down 19%. The company raised its full-year outlook.
- Both companies reported a rise in the average check total, but a decline in guest counts. That makes sense, given the risk of Covid-19 will likely lead consumers to plan trips outside more carefully for the near future.
What’s Next: Google and other companies announced that they’ll allow employees to work remotely for the foreseeable future, which could continue to affect breakfast sales for McDonald’s and Starbucks. The sooner people get back to work, the sooner early morning sales can bounce back. Absent economic data, there are worse proxies for the recovery.
—Connor Smith
***
Losses Pile Up for European Banks Amid Pandemic
The economic costs of the pandemic in Europe were in the spotlight as some of big bank names reported on Wednesday, with Banco Santander and Barclays shares among the hardest hit.
- Shares of Santander fell 3% after posting a $13 billion loss due to a $14.76 billion impairment. While Spain’s economy is expected to take a bigger hit in Europe due to the pandemic, $7 billion of those losses were linked to its U.K. unit.
- Barclays shares slid 4% after the lender’s profit more than halved from a year ago. It booked a credit impairment charge of $4.8 billion and warned of a challenging second half, but its corporate and investment bank generated a 31% income rise.
- Slightly better was Deutsche Bank, whose shares fell 2% after the German lender reporting a small profit. It set aside $892 million to cover potential losses on loans. Revenue from investment banking rose 46%, beating expectations.
- The Euro Stoxx banks index has tumbled 34% this year, nearly three times the loss of the broader Stoxx 600 index, but is up 5% in the latest three months.
What’s Next: Outside of the pandemic, a ban on banks paying dividends and buying back their own stock hasn’t helped the sector. The ECB on Tuesday extended the earlier year ban to the end of the year. UBS says that a delay in approving payouts may pale in comparison to enduring uncertainty and what that could do to shares.
—Barbara Kollmeyer
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Dear Moneyist,
My dad recently died due to coronavirus. He was also an employee of the hospital where he died.
Can we file for any death benefits or claim funeral expenses from the hospital where he worked? We cannot cover the funeral costs for him. My dad was a low-income employee.
Please help me. I need advice on what we could do to get any financial assistance from his company, and if the state provides any funeral assistance.
We do not know where to go or what to do.
-M. in Tampa, Fla.
Read The Moneyist’s response.
—Quentin Fottrell
***
—Newsletter edited by Stacy Ozol, Anita Hamilton, Matt Bemer
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