The Cavalry Isn’t Coming… Investors Are on Their Own

October 15, 2020

U.S. Treasury Secretary Mnuchin concedes that a fiscal stimulus deal before the election isn’t going to get done, and there’s little reason to expect the dynamics to shift after November 3rd.

Central bankers, whose policies are hitting diminishing returns, have been pleading for more forceful fiscal support. The Dallas Fed President said displaced workers will need help finding different jobs, and Governor Quales expressed concern about consumer debt. Governor Lowe of the Reserve Bank of Australia projected no likely interest rate hike there for at least three years. The People’s Bank of China injected half a trillion yuan of new liquidity into the marketplace.

In the other closely watched negotiations, the U.K. and EU remain far apart on forging a post-Brexit trade arrangement. Both economies will do worse without a deal than with one. EU leaders begin their summit today in Brussels.

Coronavirus news hasn’t been good either. Over past 24 hours, new cases have soared 379k globally and 59.7k in the United States. Restrictions on social gathering have been tightened in each of Euroland’s four largest economies. Some of the promising vaccine trials have had to be suspended because participants took ill.

Fear continues to crest that a spike U.S. street violence is rising. A report is out that President Trump may have tipped off Republican leaders early (like in February) that Covid-19 posed a much greater public health and economic threat than he was conveying in public. The matter of government corruption continues to be underplayed by the Biden campaign as they try to win the presidency and retake control of the Senate. In any case, it’s too late to prevent a 6-3 conservative majority on the Supreme Court. Today’s the last day of Amy Coney Barrett’s Senate judiciary testimony.

The dollar attracted some hot money inflows overnight, rising 1.2% against the Australian dollar, 0.9% relative to the peso and kiwi, 0.6% versus sterling, 0.4% vis-a-vis the Canadian dollar, and 0.3% against the euro. But the U.S. currency has remained steady on net versus the Swiss franc and is up just 0.1% against the Japanese yen.

Pacific Rim stock markets tumbled 2.6% in India, 2.1% in Hong Kong, 1.8% in Indonesia, 1.3% in Singapore, 0.8% in South Korea, and 0.5% in Japan, New Zealand and Australia. Selling intensified in Europe where share prices so far are down 2.7% in Germany, 2.6% in Italy, 2.1% in France, 2.0% in Switzerland, 1.8% in the U.K., and 1.7% in Spain.

The rush into fixed-asset securities has seen ten-year sovereign debt yields drop 7 basis points in Australia, 5 bps in German and Great Britain and 3 bps in the United States.

West Texas Intermediate crude oil dropped 2.6% on the gloomier global economic outlook, and dollar strength depressed the price of gold by 0.4% overnight.

Australia’s jobless rate, which had fallen from 7.5% in July to 6.8% in August, climbed back to 6.9% in September as a string of three consecutive rises in the number of workers was broken by a drop of 29.5k employees last month, two-thirds of whom involved full-time workers. Labor market participation fell.

Chinese CPI and PPI inflation fell in September to respective 19- and 2-month lows of 1.7% and -2.1%.

Switzerland’s combined producer and import price index ticked up 0.1% on month but fell 3.1% in the year between September 2019 and last month. Domestic PPI was 1.9% lower than a year earlier, and import prices fell by 5.6%.

French consumer price inflation in September was revised from a preliminary estimate of +0.1% to a 52-month low of zero percent.

Japan’s tertiary index of service sector activity, which had posted successive quarterly declines of 3.1%, 1.1% and 10.1%, rose 0.8% in August but remained 8.5% below its year-earlier level.

Industrial orders surged 15.1% on month in August to 6.1% above the year-earlier level. However, industrial sales were down 3.8% from a year earlier, and social restrictions to counter a second Covid wave have just been tightened.

Greek import prices recorded an 8.1% on-year drop in August, and Danish producer prices fell 0.4% on month and 1.3% on year in September.

Wholesale turnover in South Africa ticked only 0.2% higher in August and remained 3.3% weaker than a year earlier.

And in the United States, there were about 75k more new jobless insurance claims last week than expected. The 898k total was the most since the week of August 29th and 53k greater than in the prior week, and the weekly figure was augmented by over 350k claims for pandemic assistance from workers not eligible for unemployment insurance.Continuing jobless insurance claims were again above 10 million.

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

 

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