Markets Unsure of Implications of Reopening Economies

May 12, 2020

Markets seems to have entered an indecisive phase as politicians weigh pros and cons of reopening business activities.

The dollar lost modest ground overnight, falling 0.2% against the yuan, yen, euro and sterling and by 0.1% relative to the Swiss franc. The dollar fell more significantly against the kiwi (0.6%) and Australian dollar (0.4%) but rose 0.3% relative to the loonie and 0.1% versus the peso. The Reserve Bank of India bought rupees against the dollar to support its currency.

Stock markets traded mixed. Declines were experienced of 1.5% in Hong Kong, 1.2% in Taiwan, 1.1% in Australia and Indonesia, 0.9% in Singapore, 0.7% in South Korea, 0.6% in India and so far 0.4% in France. But stocks are barely changed in Germany and Japan and up 0.7% in Spain and Italy as well as 0.6% in Great Britain.

Ten-year U.S. Treasury and British gilt yields remain unchanged. The 10-year German bund yield is two basis points higher, but its Japanese counterpart slid a basis point.

Among commodities, the price of WTI oil recovered 3.8% on news of a further 1 million barrel per day cut in Saudi production, but the price of gold climbed 0.7%.

Worldwide coronavirus cases now exceed 4-1/4 million, and the death count stands at 287,616, 28.4% of which have occurred in the United States. Medical exports will be testifying today about the risks of restarting economic activities and how best to proceed. Some other countries that have loosened restrictions are seeing an uptick in the outbreak.

Chinese CPI inflation decelerated a full percentage point in April to a 7-month low of 3.3%. Producer price deflation of -3.1% was the most in four years.

Dutch CPI inflation of 1.2% last month constituted a 2-year low and was down from 2.7% in December 2019.

Japan’s index of leading economic indicators slumped 8.6 index points in March to a 129-month low. The index of coincident economic indicators printed at a 105-month low, earning a trend designation of “worsening” for an eighth straight month.

Japanese foreign exchange reserves increased $2.39 billion in April and $44.8 billion since end-2019 to $1.3686 trillion. Japan’s customs trade deficit of JPY 752 billion in the first 20 days of April was 55% wider than a year earlier.

Norwegian real GDP dropped 1.5% on quarter in 1Q, its first quarterly decrease in 9 quarters. This depressed on-year growth to 1.1% from 1.8% in the final quarter of 2019 and 2.3% in the first quarter of last year.

U,S. small business sentiment according to the NFIB index dropped to an 85-month low of 90.9 last month from 96.4 in March and 104.5 in February.

Australian business confidence rebounded from March’s all-time low but at -46 was a huge 42 index points weaker than February’s level. Moreover, business conditions according to the NAB measure continued to deteriorate, sliding to a reading of -34 from -21 in the prior month and zero in February.

A 4.5% on-year drop of Indonesian retail sales in March was the most in 102 months, and a 4.9% decline in Malaysian industrial production that month was only the first decrease since end 2015 and the largest decline since September 2009.

Atlanta Fed President Bostic expressed strong reservations against negative interest rates as a monetary policy tool, and Chicago Fed President Evans sees a reasonable likelihood of positive growth being restored. Other Fed officials are scheduled to speak publicly later today such as Harker, Quarles, and Mester. The National Bank of Romania,  is reviewing its policy stance today.

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

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