Investors Spooked by Faster Proliferation of New Covid-19 Cases in the United States

June 24, 2020

The year-to-date number of reported U.S. infections, 2.424 million, has climbed somewhat more than 36k in the past 24 hours and 216 thousand from a week ago. This has created doubt that economic reopening can proceed as planned, and even supporters of President Trump are starting to lose patience that he has the right stuff to handle any serious crisis correctly.

Stock markets in the Pacific Rim closed mixed, ranging from declines of 1.6% in Indian and 0.5% in Hong Kong to gains of 1.8% in Indonesia and 1.2% in New Zealand. The Japanese and Chinese markets were little changed, but the mood turned decidedly skittish as trading shifted to Europe where share prices so far show daily declines of 2.1% in the U.K., 1.8% in Germany, 1.6% in France, and 1.4% in Spain and Italy.

While concern is focused on the U.S. failure to contain the Covid-19 outbreak, the dollar as a predominant safe haven has benefited with gains of 1.0% against the kiwi, 0.7% relative to the peso, and 0.1% versus the euro, yen and Swiss franc.

The price of WTI crude oil has dropped back 2.2%, and that of gold is 0.5% firmer.

Ten-year British gilt and German bunds rose a basis point.

In New Zealand, as expected, the central bank’s Monetary Policy Committee at a scheduled meeting left is record low Official Cash Rate unchanged at 0.25%, agreed to continue the present NZD 60 billion program of New Zealand sovereign debt purchases, and left the door open that the size of that program will be reviewed regularly and adjusted if necessary. But the sentence from the released statement that caught the market’s eye involved New Zealand’s currency: “The appreciation of New Zealand’s exchange rate has placed further pressure on export earnings.” Officials are expected the biggest GDP drop this year in over a century and a half, and inflation is lower too.

Scheduled monetary policy meetings today in Thailand and the Czech Republic also resulted in unchanged policy interest rates.

  • Officials at the Bank of Thailand, who earlier had enacted 25-basis point interest rate cuts in February, March and May to the current 0.50%, agreed unanimously that 0.50% remained an appropriate level but didn’t close the door on the possibility that monetary stimulus might be augmented later this year. Projected growth and inflation in 2020 were revised sharply lower at today’s meeting to -8.1% from -5.0% in the case of GDP and to -1.7% for inflation. Bouncebacks are assumed in 2021, but great uncertainties related to the pandemic are acknowledged.
  • The Czech National Bank’s first interest rate move of 2020 was actually a 25-basis point hike in February, but three cuts in March totaling 200 basis points lower the two-week repo rate all the way back to 0.25% where it now stands.

A quick summary of the Bank of Japan’s June Board meeting reveals fading hope of reaching 2% inflation anytime soon and rising fear of a relapse into deflation.

Overall business sentiment in France recovered to a 3-month high in June but at 77.8 remained well south of readings of 94.4 in March or 105.0 in February. Manufacturing and service-sector sentiment posted identical readings of 77.3. Construction was lower but much improved from the prior two months.

Germany’s IFO Economic Institute reported the findings of its June monthly business climate survey. At 86.2, the overall index experienced a record month-to-month increase and was at a 4-month high. Expectations underwent more improvement than perceived current conditions. Rates of contraction slowed in manufacturing, services, trade and construction, and institute officials concluded that “German business sees light at the end of the tunnel.”

Czech business sentiment improved marginally this month from May’s 21-year low but only back to April’s 73.8 level and well down from 93.1 posted in April. Consumer confidence in the Czech Republic rose to a 3-month high of 93.3, a 3-month high and 13.2 points above this year’s low in April.


Swedish business sentiment rose 9.7 points to a 3-month high of 68.6 in June. Consumer confidence printed at a 3-month high as well (84.0). Unlike most of Europe, Sweden did not induce a coma of business activity, and now it’s having a problem with rising Covid cases.

Unemployment in Norway rose to a 35-month high of 4.2% in February-April. Polish unemployment of 6.0% in May represented a 15-month high.

The final estimate of Dutch GDP in the first quarter shows a quarterly drop of 1.5%, and a swing in on-year growth from +1.6% in the final quarter of 2019 to -0.2%.

Credit Suisse’s zew expectations index of investor sentiment toward the Swiss economy jumped sharply to a 29-month high of 46.7 in June from 31.3 in May, 12.7 in April, and -45.8 in March.

South African retail sales rose 2.3% on month in March, most in 28 months and recorded an 11-month high year-on-year increase of 2.7% in March.

Japan’s revised estimate of the index of leading economic indicators (77.7) represents a 134-month low in spite of being a tad above the preliminary figure. The index of coincident economic indicators in April was revised slightly slower and represents a 126-month low.

Prices data reported today showed the largest monthly drop of Icelandic producer prices in three years and a 4-month low on-year change of +1.3%. Finnish producer prices sank 7.1% on year. A 3.0% on-year rise in South African consumer prices in April was down from 4.1% in the year through March and the lowest such advance in 178 months. Malaysian consumer prices went up 0.3% in May, but on-year inflation remained at the prior month’s negative 2.9%. Japanese corporate service prices fell 0.3% on month in May and recorded the same on-year rise (0.8%) as in April.

The FHFA U.S. house price index recorded its smallest 12-month rate of increase in April (5.5%) since January.

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

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