Let's take as given that in the US, workers need to get back to work to pay the rent and feed their children, regardless of the extra danger from Covid-19. The government doesn't have a remedy for the flood of evictions and foreclosures that is coming in July and August, and that is catastrophic for some 30% of the population. We will be in full-blown crisis by September regardless of continuation of Wave 1 or a new Wave 2.

That doesn't mean the economic data will be dominated by this outcome; as we are seeing, overall consumption is recovering well and pending homes sales just flew over the moon (down only 5% y/y). In other words, the economy can look okay, sort of—the bottom is in—if you are willing to overlook the lowest demographic segment. Even if the government does expand recovery relief—that additional $1200 check and another payroll protection subsidy (the existing one now due to expire)—it won't be enough.

But while the US heads into recession, data can keep appearing that is less-bad. We are going to get a double dose of it on Thursday with the usual weekly jobless claims and the monthly employment reports. If those are indeed less-bad, the domestic US economy can be considered on the path to recovery. This should be stock market favorable and dollar-negative. The rest of the world freaks out and seeks the safe-haven dollar when US conditions are scary, regardless of what's happening elsewhere.

And what's happening elsewhere can be seen as somewhat favorable, even more favorable than in the US, if we include squashing pandemic outbreaks far better than in the US. Even Boris' infrastructure promises are favorable to sterling, if not yet real and tangible and possibly not big enough to overcome the hard Brexit that looms. Let's say the Boris plan is real and Boris also gets a trade deal with the EU—improbable but not impossible. Sterling should rally like mad.

The eurozone is another matter. Growth is strangled for all the reasons it has been strangled in the absence of a pandemic. The list of woes is long--over-regulation, rigid labor markets, over taxation and tax avoidance, political disarray that prevents activism (like the giant recovery fund), and so on. Moreover, European countries are less self-reliant for food and other basics, and more reliant on trade, where supply chains are broken or damaged. The relative self-reliance of the US means less inflationary pressure and also less constraints on growth. Offsetting that robustness in the US is the ridiculous, perverse, really bad health care system that charges one guy $100 for a Covid-19 test and the guy right next to him $5000 for the same test, depending on insurance.

We are all in recession and deflation. Who is going to climb out of it faster and better? To the extent that the fate of a currency is linked to growth, we have to vote for the US. That doesn't necessarily mean the US stock market, already overpriced. It also doesn't mean the dollar, which should retreat if the US economy overcomes these outbreak spikes and proves the bottom is in.

We can't count on this scenario, not with nerves stretched to the breaking point and any crisis or shock capable of setting off alarm bells that tank the US stock market. The list of potential shocks includes labor market data worsening instead of coming in less-bad, those bankruptcies hitting harder and wider, the flood of evictions and foreclosures, and so on. Still, the US tends to climb higher first, and that means the euro has a shot at more recovery, not because Europe is so great but because the US is.

Tidbit: Trump keeps using music from bands that do not endorse him—and doesn't pay for it, either. The Rolling Stones were annoyed in 2016 and blasted they don't support him. Trump used a Stones song in Tulsa and this time the say they will sue. Meanwhile, Reddit dumped "The Donald" for being hateful. Social change that manifests itself in social media has yet to be judged. The FT reports the World Federation of Advertisers finds a third of the world's biggest brands will suspend spending on social media for as long as 6 months, in addition to a one-month boycott of Facebook instigated by the social justice group #StopHateForProfit. "An additional 41 per cent of respondents were still undecided about whether to pause digital campaigns because of divisive content and hate speech on the platforms." The WFA chief ececutive says "it feels like a turning point." And he ought to know.



This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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