Thomas McLoughlin, UBS Global Wealth Management's Head Americas Fixed Income, joins The Final Round panel to discuss what a Biden/Harris ticket means for markets and why he's expecting a full recovery by 2022.
AKIKO FUJITA: President Trump tweeting a short time ago at the very latest on the stimulus debate with no real deal intact here over in Washington DC, saying, I have directed Treasury Secretary Steven Mnuchin to get ready to send direct payments-- $3,400 for a family of four-- to all Americans. Democrats are holding this up. He also goes on to talk about sending additional PPP payments, as well as extending the enhanced unemployment benefits.
I want to bring in Thomas McLoughlin. He is the UBS Global Wealth Management's head of Americas fixed income. Tom, it's great to have you on today. Let's start with some of that data that we got today because, you know, it points to a-- kind of a mixed recovery that we're seeing here. Retail sales did bounce back, not to the extent that was expected, but it does point to an upward trend. And yet there is still a lot of question about how much of that momentum can be maintained without any real stimulus deal in place, without enhanced unemployment benefits extended. I mean, how do you look at the trajectory of the recovery right now?
THOMAS MCLOUGHLIN: Well, I think, Akiko, the recovery is underway, but it's a halting recovery. And the speed with which the economy is recovering probably we saw a faster rebound two months ago than we're likely to see over the next two months. The retail sales numbers did disappoint.
There was a silver lining in there in a couple of places. We actually saw gasoline consumption increase. We saw used car sales go up. We didn't see the bounceback in leisure, entertainment, and restaurants, as we would have otherwise expected. So it was definitely a mixed bag, and I think it does suggest that the recovery that we're seeing today will, again, be halting over the course of the next three or four months. And to a large degree, it's probably going to depend on the outlook for either vaccine or effective therapeutics.
AKIKO FUJITA: Yeah, there's still questions, obviously, around the timeline of the vaccine as well. But you know, when you talk about a recovery being halted, you know, we have-- since those-- since last month, we have seen some states sort of pull back on their reopening plans. There's questions about just how much spending can be continued here, if families don't have that extra paycheck coming in. I mean, when you look at what the numbers that have been thrown out on the stimulus debate-- $300 from the Republicans versus $600 from the Democrats-- I mean, how much support do you think is actually needed to keep this recovery going?
THOMAS MCLOUGHLIN: Well, we certainly need more, and I think that was something that the Fed has been very clear on. We actually need more fiscal stimulus than we've been getting so far in order to, as you say, keep the economy recovering. You know, this is another example of the fact that we've got such partisanship in Washington. We're not likely to see, I think, any sort of resolution to this until we get to the CR, the continuing resolution to fund the government in September, because we've got the Democratic, obviously, convention next week. We've got the Republican convention there after. And McConnell has basically said that the Senate is not going to reconvene until the 8th, unless there's an-- actually a done deal.
So the prospects of that getting done are diminishing, at least until we get to September. And I think, again, the Fed is basically suggesting that we do need more fiscal stimulus. We will get it. The question is exactly how much.
Whether or not the president can actually effectuate some of the announcements that he has made over the last 24 hours is really open to question because usually, obviously, fiscal policy is the domain of Congress. So whether or not he can jump in and basically appropriate funds for some of this assistance is a debatable point.
AKIKO FUJITA: You talk about the Democrats and the Republicans going into the presidential election. You've put out a note here saying that vice presidential candidates don't really have a significant impact on financial markets. We did see Kamala Harris being tapped as the VP nominee alongside Joe Biden this week. If there's no real-- doesn't seem like we've seen a significant move on the back of that because it doesn't seem to point to any change in policy for a potential Biden administration. But what are the political risks that we should be looking for, going into November? Does it come down to a contested election? What do you see as the key risk?
THOMAS MCLOUGHLIN: Well, yeah, as far as Senator Harris's selection, I think the reason the market didn't really react to it is that A, it was expected. And B, it was-- Senator Harris pretty much comes from the same wing of the Democratic Party, if you will, as does the former vice president. So she may be a little bit more liberal than Biden, but it's not enough to really have created sort of a havoc in the market.
As we look forward, the big issue is going to be the mail-in ballots. I mean, you're seeing a lot of, obviously, coverage of that issue. It's worth noting that there are five states in the country that actually use mail-in ballots exclusively. There is scant evidence of any sort of fundamental problem or fraud associated with it. But because we're going to see such a surge in the number of individuals mailing in their ballots and the post office is probably not fully equipped, at this point, to handle it, you're likely to see delays. And that's really a risk that I think the markets will begin to focus on after Labor Day, after we get through the conventions.
MELODY HAHM: And then regardless of who the president ends up becoming come November, one of your points, when you look at your broader market outlook, is that your prediction is that we'll become less global, more digital, and, of course, more indebted. I want to focus on that first point. When you talk about less global, we've spoken to so many supply chain experts, so many think tank, you know, analysts saying, yes, that is the decoupling sort of strategy that we can anticipate. But don't you feel like it'll be decades before we can really rely on our own supply chain, whether it is for medical supplies, whether it is for vaccines? Right now, it seems like we are so deeply intertwined with other countries, regardless of some of this hot rhetoric coming out of Trump.
THOMAS MCLOUGHLIN: Yeah, Melody, you're absolutely right. This is not something that can happen overnight. We are inextricably linked with Asia generally and with China specifically. Pharmaceuticals, for example, is something that we do rely on from the PRC to import. But I think what's happening is that the effective era of real globalization, where we saw more and more a trend towards globalization, has effectively stopped, or at least slowed down dramatically. And now we're basically in a position where we're reshoring, and that's an emphasis. It's not an overnight thing at all.
But it's interesting. When you think about the fact that inflation has been subdued now for many years, right? It's really due to a combination of factors. You have demographics, you have technology advancement, and you have globalization, all three of which tended to suppress inflation.
And now we've got a different situation where one of those three important factors that had suppressed inflation for a very long time is going to be absent, where you actually will have probably more trade barriers around the world. And those trade barriers will begin to conflict, to some degree, with those other two factors-- demographics and technology-- which has suppressed inflation. That would basically kind of counteract it, to some degree.
So I'm not suggesting that we're going to see runaway inflation or anything like that, but you might see a little bit more inflationary pressure build up as a consequence of the fact that you've got, you know, whether it be tariffs or basically just friction, in terms of global trade.
AKIKO FUJITA: Yeah, certainly some important takeaways there. Thomas McLoughlin with UBS Global Wealth Management, appreciate you joining us today.