Weak Data, More Coronavirus Cases, and Concern Over Trump’s Wish to Delay November’s Election

July 31, 2020

In spite of overnight dollar gains of 0.5% against the Swiss franc, Mexican peso, and New Zealand dollar and a rise of 0.2% relative to the yen and Australian dollar, the U.S. currency suffered through July and seems likely to post its biggest trade-weighted loss in almost ten years. Compared to Thursday’s close, the dollar also lost 0.5% against the Chinese yuan and 0.4% relative to sterling, and it is unchanged versus the euro and loonie.

The dollar’s troubles in July fueled demand for gold, which for the first time ever climbed above the psychological $2000 per ounce threshold overnight to touch $2,005.4. Gold is currently up 1.3%, and West Texas Intermediate crude oil shows a price gain of 0.8%.

Ten-year sovereign debt yields fell two basis points overnight in Germany and Great Britain, and the comparable U.S. Treasury yield slipped a basis point.

But share prices have been mixed. There have been overnight losses of 2.8% in Japan, 2.0% in Australia, 0.8% in South Korea, 0.5% in Hong Kong and 0.4% so far in Spain. In contrast, the Shanghai composite rose 0.7%, and markets in Europe show gains of 1.2% in Italy, 0.7% in Germany, and 0.6% in Switzerland.

It should come as little surprise that President Trump formally floated the suggestion that November’s election ought to be delayed. He’s trailing in the polls and was prepared to call the 2016 election fraudulent had he lost. His claim that mail-in voting is inevitably corruptible lacks proof, and he’s likely to face legal troubles once he returns to private life. Make no mistake, yesterday’s suggestion to postpone the election was only the opening salvo in what will likely be a drumbeat of similar calls over the coming three months. If he loses in November, the retention of democracy in America may hinge on whether the military has the backbone not to follow his commands after he declares the vote invalid.

U.S. coronavirus cases and deaths over the past 24 hours total about 67k and almost 1500. The global number of cases in the pandemic now exceeds 17.5 million people.

Euroland’s advance GDP report for last quarter heads a busy day from a data release standpoint. Real GDP contracted 12.1% (non annualized) on quarter in the euro area compared to a 9.5% drop in the United States. Following no growth in the final quarter of 2019 and a slide of 3.6% in the first quarter, that resulted in a negative 15.0% on-year growth rate, which is a tad greater than had been forecast.

The quarterly GDP plunges in selected Euroland economies were 18.5% in Spain, 14.1% in Portugal, 13.8% in France, 12.4% in Italy, 12.2% in Belgium, 10.7% in Austria and 10.1% in Germany.

Euroland CPI inflation unexpectedly ticked a percentage point higher in July to 0.4%, still well below February’s 1.2% level. Energy and service-sector consumer prices posted monthly advances of 0.6% and 0.7%, and core inflation climbed to a 4-month high of 1.2%.

A 1.6% monthly drop in German retail sales in June following a 12.7% rise in May was smaller than predicted and left sales 5.9% above their mid-2019 level.

Swiss retail sales contracted 3.8% in June, trimming the 12-month rate of increase back to 1.1%.

After rebounding 37.4% in May, French household consumption rose by a greater than forecast 9.0% last month. Nonetheless, consumer spending in the second quarter was still 7.1% lower than in the prior quarter.

The British Nationwide house price index jumped 1.7% on month in July, its biggest move up since the summer of 2009, but its 12-month increase was only 1.5%.

The Chinese government-authorized manufacturing and non-manufacturing purchasing managers indices in July, respectively 51.1 and 54.2, were each above the 50 level for a fifth consecutive time. A score of 50 divides positive activity growth from deterioration. Manufacturing rose to a 4-month high, while non-manufacturing dipped merely 0.2 index points to a 2-month low.

Several Japanese economic indicators were reported:

  • Industrial production rebounded by a greater-than-forecast 2.7% in June but recorded a still-large on-year decline of 17.7%.
  • The jobless rate in June slid 0.1 percentage point below a 5-year high of 2.9% in May, and the closely watched job offers-to-seekers ratio of labor market tightness continued to trend lower, falling 0.09 points to 1.11, its softest level in 68 months. Jobs were 1.1% below their year-earlier level.
  • Housing starts and construction orders in June were 12.8% and 13.4% fewer than a year earlier.
  • Japan’s monthly index of consumer confidence rose only 0.9 points, and at 29.5 remained very depressed in July. Although at a 4-month high, such compares unfavorably to January’s 39.1 reading.

South Korean retail sales rose 3.4% on month and 6.3% on year in June, but industrial production and construction output posted on-year declines of 0.5% and 2.7% that month.

On-year growth in Taiwan of -0.7% last quarter turned negative for the first time in 43 quarters. Real GDP, in comparison, had risen 2.7% in calendar 2019.

Australian producer prices plunged 1.2% on quarter and 0.4% on year in the second quarters. Those were the first declines in 17 and 41 quarters, respectively.

More evidence emerged that despite squeezing some supply lines, the pandemic on balance is exerting a fairly significant disinflationary impact. On-year CPI inflation in July was 3.1% in Poland, -0.3% in Italy, +0.2% in Portugal,  and +0.8% in France. Belgian producer prices in June were 6.8% lower than a year earlier.

Canadian GDP had plunged 18.3% between February and April, only to recover 4.5% in May. That left real GDP 13.8% below the May 2019 level, including a 19.3% drop in industrial production. Canadian producer prices, meanwhile were 3.1% below their year-earlier level in June.

U.S. personal income dropped 1.1% in June (twice the forecast amount) on top of a 4.4% decline in May, underscoring the need for a forceful supplementary fiscal package. Personal spending went up 5.6%, about as expected. The total PCE price deflators for June showed an acceleration of inflation to 0.8%, while core PCE inflation edged down to 0.9%. Those results remain far below February’s readings of 1.8% and 1.7%. The employment cost index last quarter was 2.7% above a year earlier.

Still to come: U.S. U. Michigan measure of consumer sentiment and the Chicago regional purchasing managers survey.

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

 

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