Dollar Down, Equities Up, as American Street Protests Intensify

June 2, 2020

President Trump ramped up the confrontational rhetoric against store looting, promising to dominate urban streets with military force if need be. This threat of an American Tiananmen only riled up protesters further overnight, with cops injured in Las Vegas and St. Louis and the Macy’s NYC flagship store vandalized. If nothing else, the standoff has distracted attention away from the ever-rising Covid-19 toll and the poor way such has been handled in the United States. Global cases now top 6.4 million, with 378,067 of which 106,929 or 28.3% of the total have occurred in the United States.

The dollar fell overnight by 0.9% against the Australian dollar, 0.7% relative to the Mexican peso, 0.4% versus the euro, loonie, kiwi and sterling, and 0.3% vis-a-vis the Chinese yuan.

The price of WTI crude oil leaped 2.6%, while that of gold stayed unchanged.

Equities experienced another fine day in the Pacific Rim with markets gaining 2.4% in Singapore, 2.0% in Indonesia, 1.2% in Japan and Malaysia, 1.4% in New Zealand, 1.6% in India and 1.1% in Hong Kong and South Korea. In Europe, stocks have so far risen 3.8% in Germany, 2.5% in Spain, 2.3% in Italy, 2.1% in France, and 1.1% in Great Britain. Amid uncertainty, investors are thinking positive and staying away from the incredibly low fixed income investment yields.

Sovereign debt yields have been comparatively stable, by contrast.

As was expected, Australia’s central bank board left its official cash rate unchanged at 0.25% and reiterated that “it is likely this monetary support will be required for some time.” In assessing the future, Governor Lowe opined, ” the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy. In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.” The OCR had been cut twice in March by 25 basis points each time to its current level. On a brighter note, the statement revealed a lessening recent need for quantitative stimulus: the Bank has purchased government bonds on only one occasion since the previous Board meeting, with total purchases to date of around $50 billion. The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The target will remain in place until progress is being made towards the goals for full employment and inflation.”

Among May manufacturing purchasing manager surveys reported today, the Dutch and Irish indices printed at 40.5 (a 132-month low) and 39.2 (a 2-month high). The Swiss PMI was only 0.4 points above April’s 131-month low of 40.7, and Indonesia’s PMI punched in a 28.6, the second lowest level ever after bottoming at 27.5 the month before. Better news arrived in Norway’s survey (a 2.9-point improvement to a 3-month high of 45.9). And the biggest upside surprise was in Denmark, where the manufacturing PMI rebounded from April’s 131-month low of 41.4 to more than a 1-year high in May of 54.0.

Revised South Korean first-quarter GDP data revealed a 1.3% quarterly decline, the largest drop since late 2008, and this resulted in a 42-quarter on-year low growth rate of 1.4%. South Korean CPI inflation, meantime, dipped below zero percent to an 8-month low of -0.3%.

In New Zealand, the terms of trade (export/import price ratio) fell 0.7% last quarter, and building permits in April dropped 6.5% on month on top of a 21.7% plunge in March.

Australia’s current account surplus ballooned to a record quarterly high of A$ 8.395 billion in 1Q, and a 1.1% rise that period in corporate profits broke a string of two straight declines during the second half of 2019.

The effects of the Bank of Japan’s quantitative stimulus was reflected in the monetary base’s 3.9% on-year advance in May following a 2.3% increase in April. The central bank’s balance sheet has climbed over 15% or JPY 85.7 trillion, so far this year.

Indonesian CPI inflation slowed to a 239-month low of 2.2% last month.

Turning to Europe, British mortgage approvals in April contracted to their smallest number since at least 1993, and a GBP 7.4 billion decline in consumer credit represents a record monthly decrease there.

Britain’s Nationwide house price index slumped 1.7% on month, halving its on-year pace to 1.8%.

Czech real GDP last quarter fell 3.3% versus the final quarter of 2019 and by 2.0% compared to the first quarter of last year.

Unemployment in Austria hit 11.5% last month, up from 6.8% a year earlier. And in Spain, the jobless rate in the first quarter was 14.4%.

Swiss retail sales plummeted 14.7% on month and 19.9% on year in April. Both drops set records.

The Redbook weekly report of U.S. chain store sales showed significant continuing weakness in the final week of May. The New York regional purchasing managers index (NAPM) will be released later this morning.

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

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