Equities, Sovereign Debt Yields, and Gold Down

May 21, 2020

The see-sawing pattern of stock markets from day to day continued on Thursday. After Wednesday’s advances, share prices are presently down today by 1.3% in Germany, 0.9% in France, 0.6% in the U.K., and 0.5% in Italy. Markets closed down 0.6% in China and New Zealand, 0.5% in Hong Kong and 0.2% in Japan, and U.S. futures also have fallen.

Ten-year British gilt and U.S. Treasury yields have dropped 3 and 1 basis points, respectively. The price of gold is 0.9% lower.

One item that’s not falling is the price of oil, which hit bottom exactly one month ago at negative $37.63 but has extended its recovery today by 2.1% to +$34.20 per barrel.

And the dollar has firmed marginally, with advances of 0.3% against the Australian dollar, 0.2% relative to the yen and kiwi, and 0.1% vis-a-vis the Swiss franc, yuan and sterling. The dollar is unchanged from Wednesday closing levels against the loonie and peso and has slipped 0.1% relative to the euro.

Many elements to the Covid-19 pandemic are being monitored: mounting tensions between China and the United States, worldwide plans to reopen businesses gradually and unevenly, authoritarian grabs of political power by a number of world leaders, and the race to develop an effective vaccine which some scientists claim has never been done in the case of a coronavirus.

Economic news released Thursday attests to further devastation but with a silver lining that conditions in some cases deteriorated less swiftly this month than in April or March.

The preliminary composite purchasing managers index for Euroland rose from April’s record low of 13.6 to a three-month high of 30.5. Nonetheless, the data still suggest that GDP this quarter is likely to plunged around 10%, an unprecedented quarterly drop. The service sector PMI of 28.7 and manufacturing PMI reading of 39.5 represent 3- and 2-month highs, and very weak aggregate demand is generating disinflationary forces.

Within Euroland, the German composite PMI score of 31.4 fell marginally short of expectations but represented a 14-point rebound to a 2-month high. France’s composite PMI of 30.5 after 11.1 in the prior month was also somewhat below analyst expectations yet at a 3-month high. A long-term concern is the continuing wave of job lay-offs.

Great Britain’s composite PMI of 28.9 in May beat expectations and is 15.1 points above April’s reading. It represents a 2-month high, and includes a manufacturing PMI that’s back marginally above the 40 level. But May was still the second weakest month in the 22 years that this data has been compiled.

Japan’s composite PMI only climbed 1.6 points to a 2-month high of 27.4, as the manufacturing component fell further to a 131-month low of 31.7, and the reading on services of 25.3 stayed quite depressed and far from the 50 level that connotes neutrality.

The CBA-compiled Australian PMI rose to a 2-month high of 26.4 in May.

The monthly CBI survey of British industrial orders printed at another record low, this time of -62 for April versus -56 in May, -22 last December and -13 last July.

Polish industrial production dived 25.5% in April, depressing its 12-month rate of change to minus 24.6% (a record decline) from -2.3% in March and +4.8% in February.

Japan’s seasonally adjusted customs trade deficit swelled 2.6-fold in April, thanks to a 10.4% monthly plunge in exports. The unadjusted JPY 930 billion deficit embodied on-year declines of 21.9% in exports and 7.2% in imports.

CPI inflation in Hong Kong slowed to 1.9% in April from 2.3% in March and 3.5% last August.

Producer prices in Poland fell 0.6% on month and 1.3% on year (most in 49 months) in April.

The Central Bank of Turkey‘s one-week repo rate was cut 50 basis points further to 8.25% today in a move that had been expected and that brings the total decline so far this year to 375 basis points. The new rate level of 8.25% compares to an end-2019 level of 12.0%. Officials released a statement that points to a bottoming out process in Turkey’s pandemic-caused recession. Inflation may rise in the near term but is expected to settle back. Inflation will have a major impact on future policy moves as the Monetary Policy Committee proceeds with caution.

Monetary policy is also getting reviewed today in South Africa.

Minutes from the Federal Reserve’s late-April meeting published late yesterday did not elicit major market reaction. Chairman Powell has spoken several times publicly since then to give even more timely guidance. Today sees a bunch of U.S. data reports.

The rate of decline in new U.S. jobless insurance claims flattened last week, falling 9.3% to 2.428 million and lifting the total of first-time claims to slightly over 39 million workers in just the last ten weeks. In additions, the total of continuing jobless claims swelled further to 25.073 million workers.

The Philly Fed monthly manufacturing index stayed deep in the red this month but not quite so much as in April. Such rose to -43.1 from -56.6 in April and -12.1 in March. February’s +36.7 reading had been a 33-month high.

U.S. data still to come: existing home sales, IHS-compiled PMI, and index of leading economic indicators from the Conference Board.

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



Comments are closed.