Fiscally fueled fear

Posted by: Paul Donovan

03 Aug 2020

Daily update

  • Members of the US Congress resume talks on the fiscal package. Additional unemployment benefits in the US ended last week. This: 1) hurts those who are unemployed; 2) increases the fear of the consequences of unemployment for those with jobs; and 3) may impact attitudes to welfare payments in the long term.
  • Personally, the drop in income will hurt those who are unemployed the most. Economically, it is the fear of the consequences of unemployment that is most damaging. If people are afraid of the loss of income from unemployment, they are more likely to hold on to the savings acquired in lockdown. Those savings have been powering the economic bounce-back.
  • The Chinese video app TikTok is continuing talks with Microsoft about a possible sale. Economists are not natural TikTok users – limiting an economist to a one minute video would be cruel (instead visit www.ubs.com/pauldonovan for my economic videos). The economic issue is that this is part of the ongoing tensions between the US and China. US Secretary of State Pompeo was threatening even more action. The market focus is still whether the trade deal holds intact (though this is less relevant with declining trade).
  • Assorted manufacturing business sentiment opinion polls are due. Pay them no attention.

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