U.S. Urban Protests Persist but So Does Equity Rally

June 3, 2020

U.S. city protests extended last night into an eight day but became more peaceful. Moreover, investors continued to buy up stocks in anticipation of business reopening. The rise in share prices continues to be a global phenomenon and not limited to the United States. In the Pacific Rim, share prices rose Wednesday by 3.4% in Singapore, 2.9% in South Korea, 2.1% in Malaysia, 1.9% in Indonesia, 1.8% in Australia, 1.7% in Taiwan, 1.4% in Hong Kong and 1.3% in Japan. China’s market barely moved, but the German, French, Italian, Spanish, Swiss and British exchanges have each gained at least 1.0% so far today. U.S. futures are up as well.

Ten-year sovereign debt yields are also higher today, whereas the prices of commodities like oil (WTI -1.6%) and gold (-0.5%) have faltered.

The dollar is narrowly mixed, with further losses of 0.5% versus the Mexican peso, 0.3% relative to the kiwi, 0.2% vis-a-vis the euro and 0.1% against both the yen and sterling. In contrast, the dollar has risen 0.3% against the Australian dollar, 0.2% relative to the loonie and Swiss franc and 0.1% against the Chinese yuan.

Swiss real GDP contracted last quarter by the most in at least four decades and somewhat more than had been forecast. A 2.6% on-quarter slide caused the year-on-year growth rate to swing from +1.6% in the final quarter of 2019 to negative 1.3%. The drop in GDP was propelled by personal consumption and business investment but dampened by positive contributions from government spending and net foreign demand.

Australian real GDP recorded its first drop last quarter in nine years, sliding 0.3%. On-year growth slowed to 1.4% from 2.2% in the previous quarter. Personal consumption contracted for the first time since mid-1988.

Euroland’s 7.3% jobless rate in April was considerably lower than feared and just 0.2 percentage points higher than in March as well as below the 7.6% level in April 2019. National labor market releases in Germany and Italy also arrived today. German unemployment increased by 238K and to 6.3% from 5.8% in April and 5.0% in March. Italian unemployment was also at 6.3% in April, while unemployment in Ireland climbed to an 18-month high of 5.6%.

Nonetheless, Euroland’s composite and service-sector purchasing manager survey results for May are consistent with a record drop of GDP in the current quarter, perhaps of about 10%. The composite PMI printed at a 3-month high of 31.9 after April’s record low of 13.6, and the service-sector PMI was 30.5 versus 12.0 in the prior month. There are whiffs of deflation in the report as well. A separate data release for Euroland PPI inflation in April revealed a monthly slide of 2.0% and a 4.5% 12-month rate of decline.

A big takeaway from the various May PMI surveys published this week in that for the most part around the world recovery is going to be a slow process and take a number of years to return the level of economic activity to where such was prior to the Covid-19 outbreak. An exception was China, however, where the service sector purchasing managers index jumped to a 115-month high in May from 44.4 in April and February’s low point of 26.5. China’s composite PMI printed at a 103-month high of¬† 54.5 last month versus 27.5 in February. The virus surfaced initially in China, evoking quarantining measures on a scale not possible in democracies but which held down the number of reported deaths from the virus to just 4.3% of the total thus far reported in the United States.

Among the four largest economies in the euro area, the composite PMI scores in May ranged from 29.2 in Spain to 33.9 in Italy and representing 3-month highs in France, Spain and Italy and a 2-month high in Germany.

Britain’s service sector and composite PMIs for last month of 31.1 and 32.1 were also at 3-month highs but alas still far beneath the 50 level that delineates improving economic conditions from deteriorating ones. Business sentiment was negative on the whole but not as severely as in April.

Sweden’s service sector PMI only rose 1.9 points in May to a 2-month high of 40.9. Sweden’s economy hasn’t contracted as much as others because the authorities accepted a trade-off of more deaths for less stringent restrictions on social gathering.

The Russian service sector and composite purchasing managers indices bottomed out at record lows in April of 12.2 and 13.9 and then rebounded to 2-month highs in May of 35.9 and 35.0.

Japan’s services and composite PMI readings stayed below 30 in May at 26.5 and 27.8, plus the data have a considerable deflationary undertone. Japanese GDP this quarter probably will record negative growth around 10%.

India recorded even lower PMI scores than Japan in May — 12.6 for service sector activities and 14.8 for the entire composite economy. Only good thing to say about the report is that May’s readings were above April’s and thus the second lowest ever.

The CBA-compiled Australian service and composite PMIs were above April reading but below the 30 level at 26.9 and 28.1, respectively.

Hong Kong‘s private purchasing managers index climbed 7.0 index points to a 4-month high of 43.9, but Singapore’s private PMI of 27.1 unlike the aforementioned releases was weaker in May than in April.

Non-oil private purchasing manager readings in the Middle East rose to 3-month highs of 37.2 in Lebanon, 46.7 in the United Arab Emirates and 48.1 in Saudi Arabia and to a 2-month high of 40.7 in Egypt during May.

The Standard Bank-compiled PMI of South Africa fell to a record low of 32.5 in May from 35.1 in April and 48.3 at the start of 2020. In another Southern Hemisphere economy, Brazil, service  sector and overall economic conditions deteriorated almost as rapidly in May as in April. The service and composite PMI readings of 27.6 and 28.1 were the second lowest ever.

Romanian producer prices dropped 1.6% both on month and on year in April, the latter being the first 12-month decline in 41 months. Turkish PPI inflation slowed 1.2 percentage points to a 6-month low of 5.53% in May.

Canadian labor productivity leaped 3.4% last quarter and was accompanied by a 1.1% rise in unit labor costs.

The U.S. non-manufacturing purchasing managers survey will be reported later this morning, as will factory orders data.

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





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