A recent newsletter for Delphi Digital customers addressed the economic impact of the coronavirus pandemic and how the Fed’s current stimulus package could support equity markets and everyone the economy.
According to the company, Government spending on COVID-19 surpassed the $ 1.1 trillion mark, raising the monthly budget deficit to $ 864 billion in June, the worst in US history. This has brought the country’s deficit to $ 2.7 trillion in the first half of 2020.
As the Fed continues to print money to boost the economy, important key programs like the payment protection program (PPP), They are struggling to achieve the expected results as more than 65,000 U.S. companies have closed their doors in the past 5 months.
Also, Goldman Sachs found that 88% of PPP loan recipients are expected to consume their loans in the first week of August. The IMF also warned of the number of small and medium-sized companies filing for bankruptcy will triple soon.
Unemployment claims in the United States. Source: Bloomberg
Along with the large crowd small and medium-sized businesses that close their doors Turnover among those still active has decreased by around 20%. This is not surprising as the alarming number of unemployment claims reported is due to long closings ordered by the government.
Also like in the Top chart, unemployment claims have slowed, but the recovery is starting to stagnate.
Bitcoin and its correlation with the stock market pose a threat to Bitcoin
With Bitcoin trading sideways last month and volume declines in both the spot and derivatives markets; Many are concerned that another A collapse in the US economy could lower the price of Bitcoin, as was the case on March 12.
Analysts are now proposing that investor sentiment will soon become bearish if another government stimulus package is not approved. If the stock market falls, Bitcoin should continue to exist due to the increasing correlation between the two.
According to the data from Skew, The volatility between Bitcoin and the SP 500 continues to set new records and is currently at 38.9%.
A breakdown in the stock market could also shock the price of Bitcoin. and maybe trigger a liquidation cascade similar to those that took place March 12th.
1-year correlation between BTC and the SP 500. Source: Skew.com
Wall Street focuses on more incentives
TOCOVID-19 infection rates are currently reaching new record levels in the United States And this happens when PPP loan recipients are expected to exhaust their funds.
The fact is even more daunting At the end of July, the federal unemployment benefit will be terminated by the CARES law.
These should be interpreted as bearish signals. Dadaist the high unemployment rate and the sharp reduction in consumer spending, but the Recent Bloomberg reports suggest Wall Street remains optimistic about stocks.
This is mainly due to the fact that investors expect the Fed to launch a new round of incentives at some point to help the equity and bond markets. Analysts of Delphi Digital, think so too that a new state aid law is passed and in the bulletin the group stated:
“There has been much debate in Washington about the appropriate next steps, but ultimately it seems that lawmakers on both sides of the aisle understand the need to act. As President Trump’s re-election opportunities slip out of his hands, Republican leaders would skyrocket if they had to delay or block additional tax support proposals. “