Steady Dollar with U.S. Markets Closed

July 3, 2020

The United States Independence Day holiday weekend kicked off today, and without the leadership of a U.S. trading session, overnight movements in the dollar were suppressed. The greenback is unchanged against the yen, euro and yuan, up 0.1% against the Swiss franc and sterling and down 0.3% versus the Aussie dollar, 0.2% relative to the kiwi, and 0.1% against the loonie.

In the past 24 hours, globally identified Covid-19 cases rose over 183,000, surpassing the 11.0 million milestone. In the United States, the disease has so far caused over 131.5k deaths, which is a quarter of the worldwide total. President Trump is trying to distract attention from the mounting toll of Covid-19 by doing actions to fan racial tensions in America.

Asian equity markets advanced but European share prices are lower in spite of better purchasing manager reports. The price of West Texas Intermediate crude oil dropped 1.2% and is hovering only marginally above $40.00 per barrel. Gold‘s price is little changed. 10-year German bund and Japanese JGB yields edged down a basis point.

I have two takeaways from today’s purchasing managers surveys. The first is that conditions and expectations improved during June in tandem with loosening Covid-19 restrictions but that the virus poses enormous continuing uncertainty. Even if the pandemic tracks a better case scenario, the recovery is going to be frustratingly slow as captured in this passage from Germany’s service-sector PMI:

On its current trajectory the PMI suggests the economy will see a rebound in the third quarter. However, even if the country is able to avoid a full-scale second wave of the coronavirus, the prospects of further local lockdowns and more job losses point to a bumpy road to recovery.

My second main observation involves the homogeneity of results across different reporting countries. Euroland‘s service-sector and composite PMI readings of 48.3 and 48.5 constituted four-month highs, and so did all the service and composite PMI scores of France, Spain, Italy, Germany, and Ireland. Among Euroland’s four largest economies, the range of readings ran from 46.4 to 51.7. Ireland’s readings were a bit lower but only reflecting the fact that reopening of business happened a little bit later.

Britain‘s composite and PMI readings in June were at 47.7 and 47.1 represent 4-month highs and like the aforementioned results imply a much slower rate of contraction, improved business optimism, and some input cost pressure. Likewise, the Russian composite and service PMI scores of 48.9 and 47.8 and Sweden‘s services PMI of 49.2 were also the highest since February.

Somewhat lower on the board, Japan‘s composite PMI rose from 26.5 in May to 45.0 in June, a 4-month high, but lagging manufacturing held its composite PMI to a 4-month high of 40.8. Lebanon‘s private sector PMI of 43.3 was a 4-month high, and India‘s scores of 37.8 and 33.7 represent 3-month highs. South Africa‘s private PMI reading was a 3-month high of 42.5.

China and Australia, in contrast, experienced June PMI readings above the pack. The Caixin composite PMI for China of 55.7 was a 117-month high and was associated with a 122-month service sector high of 58.4, but remember China was the first country to get the virus and the first to emerge from the outbreak. The CBA-compiled Australian service sector PMI of 53.1 was at a 19-month high, and its composite PMI reading was 52.7.

Australian¬† retail sales leaped by a record 16.9% on month in May, but that merely reversed April’s 17.7% plunge.

In Singapore, however, a 31.3% dive in retail sales in April was extended by a 21.5% further tumble in May, leaving the level of sales a whopping 52.1% below a year earlier. On-year retail sales growth in Singapore hasn’t been above zero percent since the first quarter of 2019.

Australia’s construction purchasing managers index rose 10.6 points in June but, at 35.5, still conveyed a sharp rate of deterioration. Readings of 50 separate improvement from deterioration.

Turkish CPI inflation accelerated 1.2 percentage points to a 10-month high of 12.62% in June. PPI inflation in Turkey went up 0.6 percentage points to a 2-month high of 6.17%.

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



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