Softer Dollar, Share Prices, and Sovereign Debt Yields

June 22, 2020

The upswing of global and U.S. Covid-19 infections accelerated over the weekend. Global cases moved above 9 million people, and U.S. deaths from the disease climbed above 122 thousand. The Trump rally in Oklahoma attracted fewer people than anticipated, in part reflecting fear of catching the virus. Street protests in American cities continued.

The dollar lost 0.7% against the euro, 0.6% relative to the kiwi, 0.4% vis-a-vis the Australian dollar, 0.3% versus sterling and 0.2% vis-a-vis the loonie and Swiss franc. One currency against which the dollar strengthened has been the yen.

Stock markets in Europe have declined so far by 1.2% in Spain, 0.7% in France and Italy, 0.6% in Switzerland and Germany and 0.4% in Great Britain. Share prices closed down 0.7% in South Korea, 1.2% in New Zealand, 0.5% in Hong Kong and Indonesia and 0.2% in Japan.

Ten-year sovereign debt yields slipped four basis points in the U.K., 3 bps in Germany and a basis point in the United States.

The price of WTI crude oil is 0.6% weaker, but gold went up 0.3%.

On the central banking front,

  • National Bank of Belarus officials held an unscheduled meeting and cut their refinancing rate by 25 basis points to 7.75%, citing lower than assumed inflation. Such was the fourth reduction since last November. The rate was cut by 50 bps in November 2019, 25 bps in February, and 75 bps last month.
  • Bank of England Governor Bailey indicated that reduction of the bank’s balance sheet will precede any initial hike in interest rates. The Bank Rate has been 0.1% since two cuts totaling 65 basis points in March.
  • China’s one-year and 5-year loan prime rates were left unchanged at 3.85% and 4.65%, respectively. Their last reductions were made in April.
  • Reserve Bank of Australia Governor Lowe made upbeat comments about underlying economic fundamentals, suggested that some slippage of the Aussie dollar would be constructive, but implied that nothing will be done policy-wise to depress the currency.

Several countries reported consumer confidence data. Danish consumer confidence rose 5.7 index points in June to a 3-month high of -3.1. Turkish consumer confidence climbed 3.1 points to 62.6 in June, a 14-month high. Dutch consumer confidence printed at a 2-month high of -27, extending a streak of negative readings going back to last last year.

The monthly CBI survey of British industrial trends revealed a 4-point rebound in the orders index to -58. May’s reading of -62 had been the weakest since October 1981 after a score of -56 in April.

Hong Kong’s current account swung into deficit last quarter (amounting to HKD 7.028 billion) for the first time since 2015 from surpluses of HKD 41.7 billion in the final quarter of 2019 and HKD 2.9 billion in the first quarter of 2019. CPI inflation in Hong Kong fell to a 4-month low of 1.5% in May.

Irish wholesale prices sank 7.4% on year in May, their largest 12-month decline in 15 months.

Retail sales traced a V-shaped pattern between April and May in Poland, as such have done in a number of economies that have begun opening up. A 13.1 drop in the earlier month was followed by a 14.5% rebound in May, resulting in a smaller-than-forecast 8.6% slide from a year earlier.

In April, household consumption in the Netherlands recorded the largest year-on-year drop (17.4%) ever.

After diving to a record low in April of -17.89, the Chicago Fed National Activity Index jumped to a record high of +2.61 in May.

U.S. existing home sales for May will be reported later this morning.

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

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