Brexit Concerns Back in Spotlight while Holidays Close Other Markets

September 7, 2020

Investors perceive the odds of no post-Brexit trade deal between the U.K. and EU to be climbing. British Prime Minister Johnson reportedly will abandon trade talks after October 15 if no agreement is reached by then. The Eurogroup holds a monthly meeting at the end of this week.

Markets are shut today in the United States and Canada for Labor Day and in Brazil for Independence Day. These closures will deprive world financial markets of some leadership. The coronavirus outbreak takes no days off, however. The U.S. death count is poised to break above the 200k threshold within a week, and global deaths soon will exceed 900k.

In market developments today,

  • Equity markets have rebounded over 1.0% in the U.K., Germany, France, Spain, Italy and Switzerland. In contrast, Asia markets picked up the selling mood that was prevalent prior to the weekend, with losses of 1.9% in China, 0.5% in Japan, 0.4% in Hong Kong and 0.3% in Taiwan. The United States continues to provide trade pressure against China.
  • The dollar traded unchanged against the yen and down 0.1% versus the yuan but is modestly higher against other key currencies.
  • West Texas Intermediate crude oil fell 1.5% and, more importantly, under the $40 per barrel threshold in response to Saudi price reductions. Gold has steadied in the $1930s and some 6.5% below its early August peak.
  • Major sovereign debt yields show scant net change.

U.S.-Sino trade frictions didn’t prevent Chinese export growth from swelling to a 17-month high of 9.5% on year. The trade surplus of $58.93 billion in August surpassed expectations as well and was 70% bigger than the year-earlier surplus. Chinese forex reserves climbed $11 billion to a 44-month high of $3.165 trillion.

German industrial production grew just 1.2% in July, down from rebounds of 7.4% in May and 9.3% in June. July’s increase was only a fourth as large as forecast and left the level 10.7% lower than February’s pre-pandemic high. Output was also 10% below its year-earlier level.

Denmark, Norway, Ireland, and the Czech Republic also released July industrial output figures. Production fell 5.7% on month and 14.6% on year in Denmark. In Norway, by contrast, production climbed 2.5% on month and 7.4% on year, and Ireland also experienced increases of 8.3% from June and 12.9% from July 2019. Czech output went up 5.7% on month but down 5.0% compared to a year earlier.

Japan’s indices of leading and coincident economic indicators rose in July to 5- and 3-month highs, respectively. However, the index of lagging economic indicators fell to an 87-month low, and officials retained their “worsening” trend characterization of the index of coincident economic indicators.

The Sentix gauge of investor sentiment toward the euro area stayed below zero for a seventh straight time in September but with a reading of -8.0 after -13.4 in August was the least negative outcome in that streak.

Consumer confidence in Spain suffered an August setback, dropping 3.2 points to a 4-month low of 49.9, which compares poorly set against a 2020 high of 87.2 seen in January.

Irish GDP contracted 6.1% last quarter, its deepest slide since the summer of 2009 and resulting a year-on-year drop of 3.0% after the first quarter’s 5.7% on-year advance. But the Irish current account swung to a surplus of EUR 11.7 billion from a first quarter deficit of EUR 14.6 billion and a deficit of EUR 32.6 billion in the second quarter of 2019.

Sweden registered a SEK 63.2 billion current account surplus last quarter, up from SEK 34.7 billion a year earlier.

The British Halifax house price index went up 1.6% in August, lifting the 12-month rate of increase by 1.4 percentage points to a near four-year high of 5.2%.

Austrian wholesale price deflation (-4.0%) was its least negative in August since February.

The National Bank of Kazakhstan’s policy interest rate has been kept at 9.0%. This decision after a 50 basis point cut in July had been anticipated. The rate was also slashed 250 basis points in early April, reversing a 275-basis point hike just a month earlier.

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

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