- Taliban fighters have taken over the Afghanistan after a stunning blitz across the country that saw them seize most of the country in just over a week. Afghan President Ashraf Ghani has also fled abroad, leaving the government in collapse, while demoralized Afghan security forces offered no resistance. The lightning sweep comes after the U.S. spent nearly 2,500 American lives (and some 150,000 Afghan lives) trying to ensure the territory would not become a terrorist haven while attempting to refashion the nation into a pro-Western democracy.
- Backdrop: Towards the end of his presidency, former President Donald Trump announced that U.S. troops would leave Afghanistan by 2021 provided the Taliban met the terms of a peace accord signed the previous year. President Biden went along with the plan, announcing in April that all U.S. forces would leave Afghanistan by Sept. 11, but the news prompted the Taliban to launch an offensive to regain much of the country. That month, the group took control of 73 districts of 421 nationwide, and by August, insurgents controlled 222 and conquered the largest cities and strongholds over the past week.
- Quote: "We've seen that force [Afghan military] has been unable to defend the country, and that has happened more quickly than we anticipated," Secretary of State Antony Blinken told CNN's State of the Union. "This is manifestly not Saigon," he added. "We went to Afghanistan 20 years ago with one mission, and that mission was to deal with the folks who attacked us on 9/11. And we succeeded in that mission."
- What the markets are feeling: Military conflict or attacks generally don't have much impact on stocks, and even if they do, the sentiment is usually short-lived. That's especially the case here, where the war lasted two decades and the pullout was highly publicized. If anything, some are looking at the economic impacts of the long-running conflict, which has cost the U.S. taxpayer an estimated $2.26T.
- What to watch next: The U.S. has begun moving personnel from its embassy compound in Afghanistan to the airport in Kabul, where the American "core diplomatic presence" will now be headquartered. Ahead of the departure, the State Department instructed staff at the embassy to eliminate sensitive material, with officials racing to destroy military equipment and hard drives containing classified information. United Airlines (NASDAQ:UAL) has also started rerouting its India flights to avoid Afghanistan airspace, while Emirates has suspended Kabul flights. While many are weighing in over whether America's longest war was worth it - as well as the pace of the withdrawal or future threats - that debate will continue for some time and maybe one for the history books.
What worries us is macroeconomic data has already begun to slow amid unprecedented fiscal and monetary stimuli in history, and all those tailwinds could soon become headwinds.
For instance, retail sales plunged again in July, and the employment and industrial production data are becoming disappointing considering the level of stimuli.
One month after the BEA shocked Wall Street with its first estimate of Q2 GDP, which was a significant miss to expectations of 8.5%, printing at just 6.5%, last week far fewer fireworks when the BEA released its first estimate of Q2 GDP, which came in at 6.6% which was also a miss to forecasts of 6.7%.
As the economy slows, Goldman Sachs slashed its Q3 GDP estimate of 8.5% earlier this month and now sees just 5.5% growth in Q3. We noted that "a sudden negative change" occurred in the economy because consumer spending is collapsing.
And while most banks have been quick to attribute the sudden slump in retail sales to Delta fears, Morgan Stanley's chief equity strategist Michael Wilson told clients, "disappointing retail sales and consumer sentiment suggest the US consumer is fading," and while he shares our view that most blame Delta he, like us, thinks this is more about a payback in demand.
Broadly speaking, US economic surprise data, which measures the degree to which the economic data is either beating or missing economists' forecasts, turned negative in late July and continues to plunge.
For a real-time glimpse of the economy (courtesy of Bloomberg), otherwise known as high-frequency data, there are signs that airlines, hotels, and restaurants are experiencing a slowdown in activity as mainstream media fearmongers the Delta variant.
The number of travelers moving through airport checkpoints has started to drop again.
On Tuesday, 1.47 million travelers took flights, the fewest in more than three months, according to Transportation Security Administration data. The seven-day average has declined to around 1.76 million passengers a day in late August from around 2.05 million a month earlier.
While this partly reflects the end of the summer vacation season, airlines have also cited the delta variant. There's been a "deceleration in leisure booking and an increase in cancellations," said Helane Becker, senior reseach analyst with Cowen Inc. As companies have delayed a return to offices, the return of business air travel is also likely delayed, she said.
Seated dining at US restaurants has been running at about 10-11% below 2019 levels in recent weeks, after narrowing the gap to just 5-6% below in late July, according to OpenTable, which processes reservations online. Concern about delta and city mandates are playing a role, according to the company.
"We see a pronounced decline in late July and August," said Debby Soo, chief executive officer at OpenTable. "While several factors could be at play here, we believe the primary driver of the downturn is diners' concerns about the rise in Covid cases."
While leisure travel helped to boost some popular destinations over the summer, hotel occupancy has now declined for four consecutive weeks, according to STR, a lodging data tracker. Average room rates have declined for three weeks.
Among 25 large US markets, none saw increased occupancy in the week ended Aug. 21 compared with the same week of 2019, STR found. Occupancy dropped by more than 40% in San Francisco, most of any market.
"Demand looks like it is running slightly worse than the typical seasonal decline," said Bill Crow, Raymond James Financial analyst. There's "a chill on travel caused by the delta variant case increases" with business-travel markets doing poorly.
Bloomberg's economist Eliza Winger wrote, "the delta variant has shown some signs of restraining vigor in consumer spending on in-person services. The softer-than-expected July retail sales report, combined with moderating demand for dining out and air travel, and delayed back-to-office plans, flag downside risks to consumer momentum in the second half."
A slowing economy for the Biden administration is a big dilemma and could be used as talking points by Republicans in next November's midterm elections.