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By Michael Every of Rabobank

Action, sanctions, action,…sanctions

The US Congressional stand-off between Democrats and Republicans over a new stimulus bill was temporarily resolved in controversial fashion by President Trump on Saturday via a series of executive orders which: extend unemployment benefits for two months at a level of USD300 per week, down from USD600, with an additional USD100 top up possible from states by tapping FEMA funding; extend the moratorium on rental evictions, although critics say the wording is too vague to help; extend zero rates and deferments on student loans; and defer payments of payroll taxes backdated to 1 July, with the explicit promise from Trump that if he is re-elected he will make this permanent.

Obviously this is less stimulus than was previously available, which was probably already not enough to stop the economy from slowing –regardless of the good US employment news on Thursday and Friday– and kicks the can at best. However, it is mathematically better than nothing. Markets get to see action – and, crucially, so do voters…and it’s the president taking it. (Yes, this is an election year, and all actions need to be viewed through that lens.) Of course, it is also highly controversial and, Democrats claim, of dubious constitutionality which may be challenged in court. Objectively, however, the measures don’t seem to be any more of a stretch than ones previously taken by the Democrats when in office. It does seem that the door is opening for the White House to dip into the huge Treasury balance it has on hand to keep kicking that can until 3 November.

Meanwhile, if Trump vs. Biden is the lens for most market actions, the other is still the US vs. China. Friday saw the US impose sanctions on Hong Kong CEO Carrie Lam as well as senior members of the Hong Kong government. Markets didn’t like this, presuming as usual that no such boats would be rocked. Indeed, the Hong Kong Autonomy Act (HKAA) allowed Trump far longer to make this decision, and there had been whispers, always wrong in my view, that only small-fry would be targeted rather than the head of government. For the bulls, the new “She’ll be right” mantra is that no *banks* were named and, as China has officially stated, this US action is both an egregious insult and ultimately meaningless.

Yet as the Financial Times’ Simon Rabinovitch tweeted over the weekend, quoting an unnamed executive from the Chinese unit of a major European bank:

“…the impact will begin to be felt on Monday morning. He variously described all officials on the list as “toxic” and as “pariahs” for all foreign banks, not just US banks, who deal with them…his view is that major Chinese banks, afraid of trouble with the US, would themselves comply with the sanctions.”

Indeed, as has been underlined before, the HKAA starts with individuals and then automatically moves to banks, and to the USD. So she won’t be right on this glide path.

Then today anti-Beijing Hong Kong press billionaire Jimmy Lai and his sons were arrested for “collusion with a foreign country, uttering seditious words, and conspiracy to defraud,” according to press reports of the words of an arresting officer. The HQ of Lai’s media empire, the newspaper HK Apple Daily, was also raided by dozens of police, all journalists made to show their IDs, and crates of evidence taken away.

Obviously, this does not help sell Hong Kong as an international media center any more than US sanctions on its government help to sell it as an international banking centre.

Moreover, what are the odds the US escalates sanctions in response to China’s reply to Friday’s action? Be assured if there is one thing feuding Democrats and Republicans have in common it will be anger at what China has just done.

So risk on for Trump’s actions, or risk off for China’s? What is actually happening seems to bear very little relation to what markets do nowadays.

One thing we can say, however, is that with July Chinese CPI at 2.7% y/y, only higher than consensus due to food inflation at 13.2% y/y, with core CPI at the lowest since 2010, and key PPI at -2.4% y/y, deflation is still the name of the game, not inflation; and despite the enormous USD62bn Chinese trade surplus for July, and the lack of outbound tourism, and the assumed gain in valuation in non-USD FX reserves from a weaker USD, China’s FX reserves did not move much in the month from their obligatory “none shall pass!” USD3.1x trillion level. Which means more money flowed out than in even when the USD was being talked about as a busted flush.

Meanwhile, New Zealand, which just celebrated 100 days with no local virus transmission, just saw ANZ business confidence FALL from -31.8 to -42.4 and the business outlook from -8.9 to -17. You can beat Covid-19, but if you are doing it all alone then you are still facing a very hard slog. Wait until nobody turns up for the key summer tourist season and imagine how things will look. Let’s see what the RBNZ has to say when they meet later this week.

And in the northern hemisphere, if it’s Monday it must be another bout of selling in TRY, which was below 7.30 at time of writing. As noted last week, this is a situation which is not going to resolve itself: outside involvement is likely to be needed in terms of foreign exchange. Ironically, today marks the 100th anniversary of the signing of the Treaty of Sevres, which dismantled the Ottoman Empire post-WW1, and which is likely to get far more attention in Turkey than it does in the West –where nobody seems to study history anymore– even as France jostles with Turkey over both Cyprus and Libya. Of course, it is also the date that saw the start of the French mandate in Syria and Lebanon, which coincides with French President Macron’s recent visit to ruined Beirut, a promise that France won’t walk away from it (which will be very expensive, if so), and a Lebanese petition signed by 61,000 people so far demanding the country once again “be placed under a French mandate for the next 10 years.”

Even if that is highly unrealistic, it underlines that once again the global architecture is at risk of collapse as we see realpolitik trump the ‘liberal world order’, huge explosions, warnings of war, political polarization, dubious constitutionality, warnings of election fraud, sanctions, tariffs, and now the arrest of press barons.

You know, the perfect environment for markets to keep rising.

With much of Wall Street on vacation, there is a fairly sparse calendar this week so as Deutsche Bank’s Craig Nicol writes, it is likely that markets will be taking their temperature from the state of play in Washington. So far we’ve shrugged off the disappointment around the lack of agreement on the next US fiscal package, however with each passing day the greater the risk is to consumer confidence and spending as our US economists highlighted over the weekend, especially given that the over 31 million people receiving unemployment insurance as of the week of July 18 are set to see their monthly income decline by 60%-plus in August.

Aside from fiscal developments, the only notable data releases this week in the US are July CPI on Wednesday and July retail sales on Friday. The latest weekly jobless claims print on Thursday is also worth keeping an eye on.

In Europe we’ve got Germany’s August ZEW survey on Tuesday and a second look at Q2 GDP for the Euro Area on Friday. In China the highlight is on Friday with the July activity indicators data.

Finally, earnings season starts to wind down with the best part of 90% of the S&P 500 having already reported, with the most prominent reporters this week laid out below.

What’s notable is that the early trends of outsized and broad earnings beats has only continued, with forward estimates also ticking higher.

Courtesy of Deutsche Bank, here is a day-by-day calendar of events

Monday

• Data: China July CPI and PPI; Bank of France July industrial sentiment; Euro Area Aug Sentix investor confidence; US June JOLTS job openings
• Earnings: Duke Energy, Marriott, Barrick Gold, Saudi Aramco
• Politics: Democratic presidential nominee Joe Biden is expected to announce his choice for Vice President this week

Tuesday

• Data: Japan June trade balance; UK July jobless claims change and rate, June average weekly earnings, ILO unemployment rate; Aug ZEW survey expectations for Euro area and Germany; Germany Aug ZEW survey current situation; US July NFIB small business optimism, July PPI, July PPI ex Food and Energy
• Central Banks: Fed’s Daly Speaks; Brazil central bank minutes
• Earnings: Prudential, Vestas Wind System, Sysco

Wednesday

• Data: UK June Monthly GDP and preliminary 2Q GDP, June industrial, manufacturing, and construction production and June trade balance; Japan July machine tool orders; Italy July final CPI; Euro June area industrial production; US weekly MBA mortgage applications, July CPI, July real average weekly earnings, July monthly budget statement
• Central Banks: Fed’s Rosengren, Kaplan and Daly speak
• Earnings: Orsted, Novozymes, Genmab, Cisco
• Other: OPEC releases its monthly oil market report

Thursday

• Data: Japan July PPI; France 2Q ILO Unemployment; Germany and Spain final July CPI; US July import price index, export price index, weekly initial jobless claims and continuing claims
• Central Banks: Mexican central bank rate decision
• Earnings: Zurich Insurance, Carlsberg, Deutsche Telekom, Applied Materials

Friday

• Data: China July industrial production, July retail sales, surveyed jobless rate; France final July CPI; Euro area June trade balance, preliminary 2Q employment and preliminary 2Q GDP; US July retail sales advance, preliminary 2Q nonfarm productivity and unit labour costs, July retail sales, July industrial and manufacturing production, preliminary August U. of Michigan sentiment survey.

* * *

Focusing on the US, Goldman notes, that the key economic data releases this week are the CPI report on Wednesday and the retail sales report on Friday. There are several scheduled speaking engagements from Fed officials this week.

Monday, August 10

• 10:00 AM JOLTS Job Openings, June (consensus 5,300k, last 5,397k)
• 04:00 PM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Fed President Charles Evans will participate in a webinar on workforce issues during Chicago’s recovery from the pandemic.

Tuesday, August 11

• 06:00 AM NFIB small business optimism, July (consensus 100.4, last 100.6)
• 08:30 AM PPI final demand, July (GS +0.4%, consensus +0.3%, last -0.2%); PPI ex-food and energy, July (GS +0.2%, consensus +0.1%, last -0.3%); PPI ex-food, energy, and trade, July (GS +0.2%, consensus +0.2%, last +0.3%); We estimate that headline PPI increased by 0.4% in July, largely reflecting stronger energy prices. We expect a 0.2% increase in the core measure excluding food and energy, and also a 0.2% increase in the core measure excluding food, energy, and trade.
• 11:00 AM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Thomas Barkin will participate in a webinar hosted by the Center for Regional Economic Competitiveness.
• 12:00 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will participate in a virtual discussion hosted by the Professional BusinessWomen of California.

Wednesday, August 12

• 08:30 AM CPI (mom), July (GS +0.50%, consensus +0.3%, last +0.6%); Core CPI (mom), July (GS +0.23%, consensus +0.2%, last +0.2%); CPI (yoy), July (GS +0.88%, consensus +0.7%, last +0.6%); Core CPI (yoy), July (GS +1.17%, consensus +1.1%, last +1.2%): We estimate a 0.23% rebound in July core CPI (mom sa), which would leave the year-on-year rate unchanged at +1.2% on a rounded basis. Our monthly core inflation forecast reflects further rebounds in apparel, hotel lodging, and airline prices, as well as continued firmness in car insurance inflation following steep declines in the spring. On the negative side, we expect a decline in education prices reflecting tuition cuts of as much as 5-15% for the fall semester at some universities. We also look for another month of lackluster shelter inflation (+0.1% mom sa for both rent and OER) reflecting continued rent freezes and a drag from rent forgiveness in some areas. We estimate a 0.50% increase in headline CPI (mom sa), reflecting higher energy prices.
• 10:00 AM Boston Fed President Rosengren (FOMC non-voter) speaks; Boston Fed President Eric Rosengren will participate in a virtual discussion about the U.S. economy and current financial conditions hosted by the South Shore Chamber of Commerce. Audience Q&A is expected.
• 11:00 AM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Fed President Robert Kaplan will participate in a moderated Q&A hosted by the Lubbock Chamber of Commerce.
• 03:00 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will participate in a virtual discussion hosted by the Economic Club of New York. Audience and media Q&A are expected.

Thursday, August 13

• 08:30 AM Initial jobless claims, week ended August 8 (GS 1,050k, consensus 1,100k, last 1,186k); Continuing jobless claims, week ended August 1 (consensus 15,800k, last 16,107k): We estimate initial jobless claims declined, but remain elevated, at 1,050k in the week ended August 8.
• 08:30 AM Import price index, July (consensus +0.6%, last +1.4%)
• 11:00 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will discuss equitable solutions for the future of cities in a webinar.

 
Friday, August 14

• 08:30 AM Retail sales, July (GS +1.1%, consensus +1.9%, last +7.5%); Retail sales ex-auto, July (GS +0.8%, consensus +1.3%, last +7.3%); Retail sales ex-auto & gas, July (GS +0.5%, consensus +1.0%, last +6.7%): Core retail sales, July (GS +0.1%, consensus +0.8%, last +5.6%): We estimate that core retail sales (ex-autos, gasoline, and building materials) edged up by 0.1% in July (mom sa), reflecting a pause in reopening across the country, a strong seasonal factor arising from Amazon Prime Day (which is delayed until the fall this year), and as indicated by continued gains in credit card spending and other high-frequency data. We expect relatively stronger monthly gains for restaurants, gas stations, and autos, and we estimate a 1.1% increase in the headline measure and a 0.8% increase in the ex-auto measure.
• 08:30 AM Nonfarm productivity, Q2 preliminary (GS +1.4%, consensus +1.5%, last -0.9%); Unit labor costs, Q2 preliminary (GS +9.0%, consensus +6.2%, last +5.1%): We estimate non-farm productivity growth grew by 1.4% in Q2 qoq saar (+0.3% yoy). This reflects relatively larger declines in hours worked than in business output in Q2. We expect Q2 unit labor costs—compensation per hour divided by output per hour—to increase to +9.0% qoq ar (+4.1% yoy).
• 09:15 AM Industrial production, July (GS +3.1%, consensus +3.0%, last +5.4%); Manufacturing production, July (GS +3.3%, consensus +3.0%, last +7.2%); Capacity utilization, July (GS 70.6%, consensus 70.3%, last 68.6%): We estimate industrial production rose by 3.1% in July, reflecting a continued rebound in manufacturing output. We estimate capacity utilization rose by 2.0pp to 70.6%.
• 10:00 AM University of Michigan consumer sentiment, August preliminary (GS 72.5, consensus 71.9, last 72.5): We expect the University of Michigan consumer sentiment index to remain flat at 72.5, reflecting positive stock market gains and a high but declining number of daily new coronavirus cases.
• 10:00 AM Business inventories, June (consensus -1.1%, last -2.3%)

Source: Deutsche Bank, Goldman, BofA

As major corporations burn billions of dollars on “virtue-signaling” to avoid being targeted by the ‘cancel culture’ mobs, McDonald’s is apparently trying to offset some of these costs by going after compensation it already paid out to former CEO Steve Easterbrook, who was abruptly fired over an “inappropriate” relationship with a subordinate.

Back in November of last year, McDonald’s fired Easterbrook then released a statement claiming the CEO “violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee.” He had allegedly been caught “sexting” with the other employee. We speculated at the time that McDonald’s press release, which verged on shaming Easterbrook over what was admittedly a consensual relationship, had been crafted by Easterbrook’s boardroom enemies to make an example of the CEO, whose initiatives to change up the menu by adding all-day breakfast boosted sales, but clearly ruffled some feathers. Easterbrook was also removed from the board.

But according to a new securities filing and a lawsuit filed with the Delaware court of chancery, new whistleblowers from inside the company have apparently come forward over the past few months to accuse Easterbrook of having consensual relationships with 3 McDonald’s employees in the year before his ouster.

These whistleblowers also alleged that the CEO, who walked away with more than $40 million, awarded a huge grant of shares to one of these employees during their relationship.

The lawsuit filed by McDonald’s accuses Easterbrook of fraud by concealing evidence of these affairs from the board and the company on his way out the door. They argue that this information would have impacted negotiations over his exit.

McDonald’s filed a lawsuit against Mr. Easterbrook, accusing him of lying, concealing evidence and fraud.

The lawsuit, filed in state court in Delaware, alleges that Mr. Easterbrook carried on sexual relationships with three McDonald’s employees in the year before his ouster and that he awarded a lucrative batch of shares to one of those employees. McDonald’s said it was seeking to recoup stock options and other compensation that the company last fall allowed Mr. Easterbrook to keep — a package worth more than $40 million, according to Equilar, a compensation consulting firm.

The lurid allegations are reportedly backed up by “photographic evidence”. Easterbrook was fired without cause, but the suit seeks to claw back some of the money paid out to him by changing the nature of his firing to “with cause”.

Easterbrook’s successor, current MCD CEO Chris Kempczinski, has called for a new corporate emphasis on integrity, inclusion and supporting local communities as part of McDonald’s “core mission”.

“McDonald’s does not tolerate behavior from any employee that does not reflect our values,” Kempczinski wrote in an internal memo reportedly shared with the NYT. “As we recommit to our values, now, more than ever, is the time to lean in to what we stand for and act as a positive force for change.”

With the lawsuit, McDonald’s joins a handful of companies that have aggressively sought to deny compensation to CEOs over #MeToo-related indiscretions. Perhaps the most similar case is that of former CBS Chairman and CEO Les Moonves, who was denied his $120 million retirement package over allegations he interfered in an internal company probe. That dispute is now in arbitration, according to the most recent media reports.

During the internal probe, Easterbrook assured investigators that he had never engaged in a sexual relationship with an employee, and alleged that the “sexts” with the still-unnamed fellow employee constituted harmless flirting. However, the notion that “photographic evidence” has been brought to bear against Easterbrook would suggest that he has been caught in a different affair.

However, as the NYT reports, a clause in Easterbrook’s contract says that if it can be proved that he should have been fired “for cause”, that the company would have the right to recoup Easterbrook’s lucrative stock options awarded as part of his retirement package, which the company admitted he was eligible to receive.

But sources inside the company said their internal probe was “insufficient”, and that new information, including information taken from Easterbrook’s former corporate email account, proves he carried on a physical affair with at least two other employees, and even awarded one of them a block of hundreds of thousands of shares during the affair.

From the NYT:

But McDonald’s severance plan, which the company said applied to Mr. Easterbrook, contained an important clause: If, in the future, McDonald’s determined that an employee was dishonest and actually deserved to be fired for cause, the company had the right to recoup the severance payouts.

Last month, after McDonald’s received the anonymous tip alleging that Mr. Easterbrook had had a sexual relationship with another employee, the company opened a new investigation.

In its review last fall, McDonald’s did not thoroughly search through Mr. Easterbrook’s email account; the company’s outside lawyers had only looked at messages that were on his company-issued mobile phone. And Mr. Easterbrook, according to McDonald’s lawsuit, had deleted certain emails from his phone.

This time, McDonald’s said, its investigators conducted a more detailed search, and in Mr. Easterbrook’s email account they found evidence of him carrying on sexual relationships with three employees in the year before his firing.

“That evidence consisted of dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these company employees, that Easterbrook had sent as attachments to messages from his company email account to his personal email account,” McDonald’s said in the lawsuit. The company said the emails were sent in late 2018 and early 2019.

This doesn’t look good. And whether the company succeeds in clawing back Easterbrook’s money could have important ramifications for how companies deal with C-Suite “misconduct.”

To sum up: For a company that invented the slogan “you deserve a break today,” it clearly doesn’t feel inclined to cut any slack to the CEO who revitalized its lagging stock with fresh ideas and all-day breakfast.

The National Hurricane Center (NHC) in Miami, Florida, is tracking a tropical wave over the Atlantic that could form into a tropical cyclone this week. 

“NHC is monitoring a tropical wave over the open Atlantic for possible development over the next few days. No impacts to South Florida are expected at this time. This is a reminder that we are in hurricane season. Make sure your hurricane plan is in order,” NHC said. 

The disturbance, dubbed Invest 95L, is located a couple of hundred miles south-southwest of the Cabo Verde Islands. With a 40%-60% chance of forming into a tropical depression over the next few days. The directional heading of the wave is westward across the tropical Atlantic Ocean.

A tropical wave located a few hundred miles south-southwest of the Cabo Verde Islands could become a tropical depression during the next few days while it moves westward across the tropical Atlantic Ocean. Visit https://t.co/tW4KeGdBFb for the latest on this system. pic.twitter.com/vY1sigB4sG

— National Hurricane Center (@NHC_Atlantic) August 9, 2020

Spaghetti models are showing Invest 95L could track west-northwestward into the Caribbean. 

So far, 2020 has been an extremely active hurricane season, which goes through November 30. Last week, the East Coast of the US was walloped by Hurricane Isaias.

Low pressure area in eastern Atlantic is now given 50% chance of tropical cyclone development in next five days by the National #Hurricane Center. If it gets named, it would be Josephine. Current record for earliest ‘J’ storm in the Atlantic is Jose on August 22, 2005. pic.twitter.com/kHKcwG1jkF

— Philip Klotzbach (@philklotzbach) August 9, 2020

Josephine will be the next named storm in the Atlantic.

Hundreds of ‘mostly peaceful protesters’ swept through the Magnificent Mile and other parts of downtown Chicago early Monday, smashing windows, looting stores, confronting police and at one point exchanging gunfire with officers, authorities said.

Local fake “news” calls this a peaceful protest. @WPTV @CBS12 @WPBF25News RT @MrAndyNgo: Gunfire rings out on the streets of Chicago during the #BlackLivesMatter riot overnight. Looters scatter the street. #ChicagoRiots pic.twitter.com/LyNpSAJ4Uz

— Keegs (@BostonKeegs) August 10, 2020

As The Chicago Tribune reports, officers had stopped several people on Lake Street near Michigan Avenue when shots were fired from a passing car around 4:30 a.m., nearly five hours into the widespread vandalism, according to police spokesman Tom Ahern.

There’s a caravan of dozens of cars filled with #Looters hitting Chicago’s luxury store fronts. pic.twitter.com/uIqucbEIU9

— Askdoctorindia (@askdoctorindia) August 10, 2020

No officers were shot but a squad car was hit, he said. It was not known if anyone in the gunman’s car was shot.

Police made “a lot of arrests” and recovered at least one gun, officials said.

SCENE IN CHICAGO LAST NUGHTpic.twitter.com/HE3KKc4twK

— The_Real_Fly (@The_Real_Fly) August 10, 2020

And that escalation, as Summit News’ Paul Joseph Watson details, prompted Chicago authorities took the decision to raise all major bridges in an effort to prevent looters reaching the downtown area after a night of chaos.

Luxury department stores were ransacked as hundreds of looters caused mayhem in response to the police shooting of an armed suspect in Englewood.

Police sent to respond to the looting were physically attacked, prompting authorities to raise major bridges in order to keep more people out of the area.

“All bridges are being raised along the river throughout The Loop,” reports CBS Chicago. “Chicago’s Office of Emergency Management announced street closures throughout areas in the Magnificent Mile, Gold Coast and South Loop.”

Numerous bus and train services have also been suspended, while large areas of downtown Chicago are also closed.

Bridges were previously raised last month in an effort to keep Black Lives Matter protesters away from the business district, but the call to do so this time around appears to have come too late.