Stocks and Dollar Up in Spite of Continuing Coronavirus Worries

February 6, 2020

Share prices today by 2.6% in Hong Kong, 2.4% in Japan, 1.7% in China, 1.5% in Taiwan, 1.0% in Singapore, 1.1% in Australia and 0.9% in South Korea and New Zealand. The German, French and Spanish stock markets are 0.7-1.0% higher. Although up just 0.3%, the U.S. market indices have set record highs.

Today’s dollar high against the euro of $1.0965 was its strongest level since October 9, 2019. Net overnight gains in the dollar amount to 0.5% against the Mexican peso, 0.4% versus sterling, 0.3% relative to the kiwi and 0.2% vis-a-vis the euro, Swiss franc, and Australian dollar. The dollar firmed 0.1% against the loonie and yen.

Ten-year sovereign debt yields are up a basis point in the United States and 2 bps in Japan but down 3 bps in the U.K. and a basis point in Germany.

Prices for WTI oil and Comex gold are up 0.6% and 0.3%.

Total coronavirus cases over 28k and confirmed deaths of more than 550 keep rising but remain far less than the tallies for this year’s flu.

China has agreed to cut by half tariffs on $75 billion of imports from the United States.

Central banks in India, the Philippines, and the Czech Republic have announced interest rate changes after their first monetary policy reviews of 2020.

As expected, the Reserve Bank of India left policy settings unchanged, including a 5.15% repo rate, which previously had been cut by a total of 135 basis points between February and October of last year. A statement from the Monetary Policy Committee revised near-term inflation up due to higher onion prices, predicts that GDP will rise 6.0% next fiscal year, and recognizes

that there is policy space available for future action. The path of inflation is, however, elevated and on a rising trajectory through Q4:2019-20. The outlook for inflation is highly uncertain at this juncture. On the other hand, economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain status quo. Accordingly, the MPC decided to keep the policy repo rate unchanged and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.

Also as had been anticipated by analysts, the Filipino reverse repo rate was cut 25 basis points to 3.75%. Such is the fourth such reduction since last May and the first change since September. Inflation has risen to 2.9%, but that is still just in the middle of the central bank’s target of 2-4%. “the Monetary Board concluded that the manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence. While recent demand indicators still point to a firm outlook for the domestic economy, the Monetary Board believes that a policy rate cut would provide additional policy support to ward off the potential spillovers associated with increased external headwinds,” according to a released statement.

The Czech rate decision, a hike of the 2-week Czech National Bank repo rate to 2.25% from 2.0%, was a surprise and reflects a razor-thin 4-3 voting margin by the Monetary Board. Due in part to higher indirect taxes, CPI inflation has risen to 3.2%, highest since late 2012, and officials don’t expect such to settle back to the 2% target until late in its policy-relevant time frame. A released statement projects a gradual but moderate acceleration in the sluggish Czech growth rate. The previous two Czech interest rate hikes had been engineered in November 2018 and May of last year. The rate is now its highest since the Great Recession.

U.S. non-farm productivity grew 1.4% last quarter at an annualized rate and by 1.8% compared to the final quarter of 2018. The gain was a tad less than forecast. Unit labor costs also went up 1.4% on quarter and by 2.4% on year. U.S. new jobless insurance claims totaled only 202k last week, their lowest total since mid-April of last year.

German industrial orders sank 2.1% in December on top of a 0.8% decline in November. This ballooned the 12-month rate of decline to 8.7% from 6.0% in November and 5.6% in October. Export orders plunged 4.5%. Demand for capital goods and consumer products each tumbled more than 3.0% on month. The 2.1% overall monthly drop of orders was the most since last February.

Construction purchasing manager indices in January for Euroland, Germany, and Italy were at 9-, 10-, and 3-month highs. Euroland and Germany had readings above the 50 level separating improvement from deterioration, but Italy’s was below 50 for a third straight month. The French PMI for construction stayed just barely above 50 at a 2-month low of 50.4.

According to JP Morgan compilations, global PMIs for services and a composite of services and manufacturing rose to 9- and 10-month highs in January of 52.7 and 52.2.

Australian retail sales volume fell 0.5% in December but produced the greatest 12-month increase (2.9%) since April. Australia’s trade surplus widened sharply to A$ 69.1 billion in 2019 from A$ 23.1 billion in 2018.

South Korea’s current account surplus increased to $59.97 billion last year from $47.47 billion in 2018.

Consumer sentiment in Indonesia fell to a 3-month low in January.

The SACCI monthly measure of South African business sentiment likewise fell in January to a 3-month low and was the third weakest level since last July.

CPI inflation in January of 1.1% in Cyprus and 1.9% in Taiwan represented 9- and 21-month highs. In contrast, Russian CPI inflation of 2.4% fell that month to a 19-month low.

But Greek unemployment in November of 16.5% was at a 103-month low.

With 96% of voter preferences counted, the Iowa caucus is proving to have been extraordinarily close between Buttigieg (26.2%) and Sanders (26.1%). Warren and Biden took third and fourth place.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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