Covid Risk and Political Uncertainty on the Market’s Mind
July 9, 2020
The global count of Covid-19 cases rose 216 thousand in the past 24 hours to roughly 12.2 million. In that span, there was a record 62 thousand rise in U.S. reported cases, even as President Trump threatened repercussions to school districts that do not reopen in the fall. The Covid death count stands just above 552 thousand worldwide and almost 135 thousand in the United States.
Around 14:00 GMT today, the U.S. Supreme Court is expected to announce a decision on whether President Trump must release his tax returns and other financial information. An NYT Op-Ed article yesterday by columnist Tom Friedman identified the release of the tax return as one of two essential conditions that the Democratic Party candidate Joe Biden should insist upon before agreeing to a debate with Mr. Trump.
Investors are also awaiting the release within the next hour of U.S. weekly jobless insurance claims data. A 15th straight increase of more than 1.3 million new claims is anticipated by analysts.
The dollar has been slip-sliding gradually in value. It lost 0.3% overnight in value against the yuan and sterling. It edged under 7.0 Chinese yuan versus more than 7.18 yuan at the start of June, and closed Wednesday at a one-month low against the euro of 1.1330.
In stock market action today in the Pacific Rim, share prices closed down 2.5% in New Zealand, 0.6% in Singapore and 0.5% in Indonesia but rose 1.4% in China, 1.1% in India and 0.4% in Japan. While the German Dax has climbed 1.1%, markets are down 0.6-0.8% in Italy, Spain and Great Britain.
10-year U.S. Treasury, German bund and British gilt yields are down a basis point today.
WTI oil settled back 0.3%, and gold is also off marginally but firm overall at $1,817.50 per ounce.
Data releases today reflect subdued inflation and some bounceback in economic activity to still very depressed levels.
Chinese CPI inflation printed at 2.5% in June, down from 5.3% on average in the first two months of 2020. Producer prices were 3.0% lower than in mid-2019.
Irish CPI inflation was negative 0.4% last month versus 1.3% in December 2019 and January 2020.
Germany’s current account surplus of EUR 6.5 billion in May was the narrowest since August 2010. Despite a 9.0% monthly recovery in merchandise exports, such were 26.8% lower than in February and down 29.7% from a year earlier. Imports fell by 21.7% year-on-year.
Japanese private domestic core orders for machinery rebounded 1.7% in May, but the April-May average was 10.8% less than the first-quarter mean. Moreover, export ports plunged 18.5% on month and 35.1% on year in May, so that total orders for machinery ended up dropping 11.0% on month and 20.3% on year.
Japanese machine tool orders in June rose to a 3-month high but were still 32% below their year-earlier level. Growth in the Japanese M2 stock of money accelerated further to a 12-month 7.2% rate of increase in June from 4.4% in April-May and 3.0% in the first quarter.
Brazilian retail sales in May rebounded 13.9% on month but were still 7.2% lower than a year earlier.
The house price balance index of the Royal Institute of British Chartered Surveyors was -15% in June after -32% in May but still considerably weaker than +29% in February.
The ANZ index of New Zealand business confidence rose to an 8-month high of -28.9 this month. Such has ranged this year from -13.2 in February to -66.6 in May. A 10.2% monthly drop in home loans in Australia during May was the fourth slide in a row.
The Central Bank of Sri Lanka became the latest monetary authority to slash interest rates. The Standing Deposit Facility and Standing Lending Facility rates were each reduced by 100 basis points to 4.5% and 5.5%, respectively. Earlier this year, cuts of 25 bps in March and April were sandwiched between 50-basis point cuts in January and May, so with today’s move the total decline so far in 2020 amounts to 250 basis points. A released statement explaining the latest policy easing says the intent is to promote bank lending, encourage a further drop in market rates, and counteract the drag from the Covid-19 pandemic. An implicit goal is to dampen upward pressure on the rupee that’s risen notably since mid-April. Sri Lanka’s trade gap has narrowed, and inflation is “subdued.”
The National Bank of Serbia‘s policy interest rate had already been cut a full percentage point earlier this year in three increments including June. That economic support complements a big fiscal expansion. Monetary officials felt that further reduction in the record low 1.25% policy rate level wasn’t warranted at its latest meeting. A released statement expects inflation of 0.7% now will creep within the 1.5-4.5% target by yearend and subsequently settle in the middle of the range.
Peruvian monetary authorities are also reviewing policy today. and there is a meeting today of the Eurogroup of finance ministers in the euro area.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Sri Lanka, China CPI and PPI, German current account, National Bank of Serbia