Economic Reopening Spreads Even as Pandemic Chugs On

June 8, 2020

Many more business establishments will be reopening on a modified basis this week in a calculated gamble that the Covid-19 pandemic doesn’t intensify unduly as a result. An additional risk for the United States is the unknown impact of the many days of street protests since the death of George Floyd. Globally reported confirmed cases of the virus now total 7.1 million people, and the death count stands at 406.6 thousand. Deaths in the United States only reached 100k on May 27 but, at 112,471, are already an eighth of the way toward 200k. The U.S. ratios of global cases (28.2%) and deaths (27.7%) have converged. The three countries with the next most number of Covid-19 deaths are Great Britain (40.5k), Brazil (37.3k) and Italy (33.9k).

The dollar opened this second week of June narrowly mixed with downticks of 0.3% against the loonie and kiwi, 0.2% versus the yen and 0.1% relative to the yuan but upticks of 0.2% versus the euro and 0.1% relative to the Swiss franc, Australian dollar and sterling.

In the Pacific Rim, share prices rose 3.1% in New Zealand, 2.5% in Indonesia, 1.7% in Singapore, 1.1% in Taiwan and 1.4% in Japan. But European stock markets show mixed results of +0.9% in Spain, 0.2% in Great Britain and +0.4% in Italy as well as losses of 0.4% in France, 0.3% in Switzerland and 0.2% in Germany.

The ten-year U.S. Treasury yields has edged back above 0.90% with a 2-basis point rise. Ten-year German bund and British gilt yields are down 2 and 1 basis points, in contrast.

WTI crude oil got an initial lift from OPEC’s agreement to maintain output cuts for an additional month through July,but the price is currently 0.5% below Friday’s closing level. The price of gold climbed 0.9% on net after a period of softness in recent weeks.

China’s trade surplus surged in May to $62.93 billion, its widest point in almost 40 year of reporting. That is up from $43.33 billion in April, 19.93 billion in Mach and a deficit of $6.9 billion combined in the first two months of this year. There was a much larger-than-expected 16.7% on-year plunge in imports in May versus a slide of just 3.3% in exports. China also reported a $10.2 billion increase in its foreign exchange reserves last month.

Japan’s current account surplus fell sharply to JPY 263 billion in April from 1.66 trillion yen a year earlier, reflecting drops of 23.0% in merchandise exports and 9.5% in imports. The seasonally adjusted JPY 252 billion current account surplus in April was 73% smaller than the surplus in March, as exports collapsed 15.4% on month versus a 0.3% dip in imports.

Other Japanese data reports today inspired some hope.

  • First-quarter GDP growth was revised to a smaller contraction of 2.2% annualized from -3.4% estimated initially. GDP was 1.7% lower than a year earlier, and the GDP price deflator posted a 0.9% on-year advance. Japan last experienced positive growth in the spring of 2019.
  • Japan’s economy watchers index improved to a 3-month high of 15.5 in May following prints of 7.9 in April and 14.2 in March. The economy watchers outlook series rebounded even more impressively to 36.5 in the latest month from 16.6 in April. That’s the best score since 41.8 in January.
  • Evidence that quantitative monetary stimulus is working can be seen in an acceleration of on-year growth in Japanese bank lending to 4.8% in May from 2.9% in April and 2.0% in the first quarter.

Several European countries reported very steep declines in April industrial production.

  • German output dived 17.9% on month (most since unification at the start of 1991) and 25.3% on year. The key capital goods industry suffered a 35.3% monthly collapse in April.
  • Czech industrial production sank 23.4% on month and 33.7% on year in April.
  • Danish industrial production dropped 5.3% on month and by 9.7% compared to April 2019.
  • Irish industrial production fell 7.4% in April, which slashed the 12-month rate of increase from a 41-month high of 23.6% in March to just 4.7% in the following month.

April-early May seems to have been the darkest economic period in Europe, and investor confidence has improved noticeably more recently. A measure of financial market confidence toward the euro area economy, the Sentix gauge, rose to negative 24.8 in June from back-to-back scores of -42.9 in March and -41.8 in May.

Ireland’s construction purchasing managers index rebounded to a 2-month high of 19.9 in May after touching a record low of 4.5 in April. Construction activity still contracted more rapidly than in all months except April and remained for below the 50 level that separates deteriorating conditions from improving ones. The construction PMI had been 50 or above prior to March.

Sweden’s current account surplus swelled to a 12-year high of SEK 80.8 billion in the first quarter. That was 31.6% wider than the surplus a year earlier.

The Bank of Uganda reduced its policy interest rate by a full percentage point to 7.0%. There was also a 100-basis point cut done in April, and the new rate level is the lowest in 9 years. “Although the measures taken by the Bank of Uganda are yet to take full effect in mitigating the adverse impact of the pandemic on the economy, it is necessary to ease the financial conditions further since inflation outlook remains benign.”

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

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