Distress Persists that Runaway U.S. Outbreak Will Constrain Recovery

June 25, 2020

America’s bad Covid-19 numbers continue to dominate world financial markets this Thursday.

China, Hong Kong and Taiwan are closed for the Dragon Boat Festival, but in other stock markets in the Pacific Rim, share prices closed with losses of 2.5% in Australia, 2.3% in South Korea, 1.5% in Singapore, 1.4% in Indonesia and 1.2% in Japan. Although key Continental European bourses show moderate advances, the British Ftse is down 0.1%, and U.S. stock futures have extended Wednesday’s rout.

Key U.S. economic data releases are awaited: revised GDP, the advanced trade deficit estimate, durable goods orders, the K.C. Fed manufacturing survey, and weekly jobless insurance claims that almost certainly will top 1 million for a thirteenth straight week.

A record 38.5k surge in new U.S. Covid-19 cases during the past 24 hours has been concentrated in the South and West. The U.S. death count is nearing 125 thousand. The fears are that U.S. hospitals could become overwhelmed with the number of new cases, and that new shelter-at-home restrictions may become necessary in some places. All this casts doubt over whether the third-quarter rebound can be sustained into the final quarter of 2020.

The dollar rose 1.0% and 0.7% overnight against the kiwi and peso, but is flat to only marginally higher in other key relationships.

Ten-year sovereign debt yields are lower. The price of WTI oil slumped 1.4% on worries that the virus will inhibit travel. Gold‘s price softened 0.2%.

Japan’s all-industry index, a monthly proxy of GDP, plunged 6.4% on month and 11.8% on year during April. Industrial production and service sector activity respectively sank 9.8% and 6.0% in April.

At the Central Bank of The Philippines, the key overnight reverse repo rate was reduced by 50 basis points to 2.25%. Such had been also cut by a half percentage point in both March and April and by 25 basis points back in February. Officials released a statement, identifying a deterioration in global GDP conditions and predicted recovery will be protracted and uneven. They remain committed to using the full range of monetary tools to counter the downturn and promote recovery.

In Turkey, by contrast, a streak of consecutive central bank rate reductions that began last July from a high of 24% was interrupted at today’s scheduled meeting of the Monetary Policy Committee. The Central Bank of Turkey’s key one-week repo rate thus remains at 8.25% instead of falling further as analysts almost universally were expecting. The statement explaining the decision observes a recent increase in core inflationary pressure but expects disinflationary pressure to resume. That is the goal, and hence caution is being exercised. But the statement leaves the impression that 8.25% is unlikely to mark a cyclical floor.

Consumer confidence in Germany improved 9.0 index points to a 3-month high in July of -9.6. That’s still down sharply compared to a reading of 9.9 in February.

Great Britain’s monthly distributive trades index rose 13 points to -37 in June. That’s a three-month high but still well below readings of +1 in February and -3 in March.

Danish retail sales soared 9.4% on month and 5.3% on year in May. Twelve-month declines of 5.0% and 2.7% had occurred in March and April.

Austrian industrial production tanked 15.1% in April to 21.4% below its year-earlier level.

Mexican retail sales plummeted 22.4% on month and 23.8% on year in April.

Wholesale turnover in South Africa fell 2.2% on month and 5.5% on year in May.

Producer prices in Spain slid another 0.2% in May, producing the greatest year-on-year drop (8.7%) in at least 44 years. And South African PPI inflation fell to at least a 7-1/2 year low of 1.2% in April from 3.3% in March and 4.5% in February.

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


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