Awaiting U.S. Data as America’s Covid Outbreak Gathers Steam

July 2, 2020

With the U.S. Independence Day weekend kicking off tomorrow, a slew of data will be released today featuring the monthly employment situation report and including the trade balance, factory orders, New York regional PMI, and weekly jobless insurance claims.

The holiday weekend also presents a huge risk regarding the U.S. Covid-19 crisis. There have been a number of broken new case records during the past week, including a leap of 52.2k in the past 24 hours. America’s political war has opened a whole new front between those obeying social distancing rules and those defiantly dismissing such. A bright spot in this otherwise dismal public health news was Pfizer’s revelation that a vaccine it has been testing on Covid in humans appears to be showing promising early results.

The political dynamic of Covid in the U.S. has weighed on the dollar, which slipped overnight against a number of emerging market currencies and also lost 0.7% against the kiwi, 0.3% relative to sterling, 0.2% vis-a-vis the loonie, euro and Swiss franc, and 0.1% against the Australian dollar.

Stock markets continue to trade erratically, switching direction seemingly on a day to day basis. Despite the drop of U.S. stocks late Wednesday, share prices rose today by 2.9% in Hong Kong, 2.1% in China, 1.7% in Australia, 1.4% in South Korea, 1.2% in New Zealand and India, 1.1% in Indonesia, 1.0% in Singapore and 0.9% in Taiwan. The German, French, Spanish, and Italian exchanges have each risen at least 1.0% so far, and the British Ftse is up 0.7%.

Ten-year sovereign debt yields are down 2 basis points in Germany and a basis point each in the U.K. and Japan. But the 10-year U.S. Treasury yield is unchanged. Among commodity prices, gold and oil ticked 0.2% higher.

The coronavirus outbreak has not lifted unemployment in Europe as in the United States due to the former’s ordinarily tighter social safety net. Euroland’s jobless rate in May was 7.4% versus a U.S. rate of 13.3% that month. Italian unemployment of 7.8% was somewhat higher than the euro area average, but Spain reported a sharply diminishing rate of unemployment growth. The number of jobless Spanish workers rose just 5.1k in June following increases of 26.6k in May, 282.9k in April and 302.3k in March.

Producer prices in the euro area fell 0.6% on month in May, stretching the 12-month rate of decline to 5.0%. The energy component was 2.9% lower than a year earlier, and all other items in the PPI collectively fell by 0.6%.

Romanian producer prices in June were 2.0% below a year earlier, their most deflationary extent in 46 months.

Swiss CPI inflation in June matched May’s 52-month low of minus 1.3%. Core CPI inflation was at negative 0.8% last month.

The effects of the Bank of Japan‘s stimulative monetary policy is reflected in the growth of the monetary base to 6.0% on year in June from 4.1% in the second quarter as a whole and 3.1% in the first quarter. Also, the size of the BOJ balance sheet jumped 13.2% between end-2019 and June 30th.

South Korean CPI inflation rose to zero percent in June from May’s 6-month low of -0.3%.

Consumer confidence in Thailand rose a full point for a second straight month to 49.2 last month. From 75.0 in July 2019, such had dropped every ensuing month to  April’s low of 47.2.

Australia experienced a A$ 8.025 billion trade surplus in May, resulting in a January-May surplus of A$ 34.8 billion, 37.4% wider than a year earlier.

South Africa posted its first quarterly current account surplus in 17 years during 1Q, which equaled 69.7 billion rand or roughly 1.3% of GDP.

New Zealand building permits rebounded 35.6% in May from drops of 21.7% in March and 9.9% in April.

The global manufacturing PMI index compiled by JP Morgan rose a full point in June to a 3-month high of 49.2.

U.S. motor vehicle sales remained historically depressed in June but at least 7.4% greater than the month before.

Published FOMC minutes yesterday expressed little inclination to adopt a policy of yield curve control as the Bank of Japan has been doing, but consideration is being given to defining any conditional future interest rate increases in terms of macroeconomic trends. Such a strategy was successfully employed during recovery from the last recession.

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

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