Continuing Interplay of Covid and Economic Data

July 14, 2020

Covid-19 infestations in Texas, Florida, and California cast a big cloud on U.S. economic recovery prospects. The global Covid case and death counts climbed 204k and 4.1k in the past 24 hours.

The dollar rose overnight by 0.3% versus the Chinese yuan, 0.2% against sterling and the kiwi, and by 0.1% relative to the yen and loonie. The dollar also fell 0.5% against the peso, 0.3% vis-a-vis the Australian dollar and 0.2% against the Swiss franc and euro.

Stock markets mostly fell overnight, with drops of 1.8% in India, 1.1% in Hong Kong, 0.9% in Japan, and 0.8% in China. The German, Italian, and Spanish markets so far show losses of between 1.0% and 1.6%, and the British Ftse is 0.4% softer. It’s Bastille Day in France.

Ten-year British gilt and German bund yields are down 3 and 1 basis points. The price of WTI oil is 1.1% lower, and that of gold has dropped 0.9% and is back under $1,800 per ounce.

Tuesday has seen a pickup in the stream of reported economic data starting with a smaller-than-forecast Chinese trade surplus last month of $46.42 billion. That’s down from $62.93 billion in May when imports had fallen to 16.7% below their year-earlier level. On-year import growth in June, by contrast, improved to +2.7%. Other Chinese news overnight was made by U.S. Secretary of State Pompeo, who decried the unlawful Chinese claim on offshore resources.

Singapore real GDP plunged 41.2% between the first and second quarters at an annualized rate. The year-on-year negative growth rate exploded to 12.6% from 0.3%.

Japanese industrial production in May got revised to a drop of 8.9% from -8.4% reported initially. Shipments also plunged 8.9%, and the ratio of inventories to shipments rose 7.3% on month and soared 40.7% above the year earlier level. Between May 2019 and May 2020, industrial production, capacity utilization, and industrial shipments fell by 26.3%, 33.4%, and 26.8%.

National Australia Bank’s monthly indices of business confidence and business conditions recovered by a further 21 and 17 points to +1 and -7 in June. Their pandemic lows this year had been -65 and -34.

Indian wholesale price deflation lessened in June to -1.8% from -3.2% in May. The inflation rates of food, fuel, and manufactured goods were each higher in June than May.

German CPI inflation of 0.9% in June matched the preliminary estimate following a 44-month low of 0.6% in May. Core CPI inflation was 1.3%.

The Swiss PPI/import price index rose 0.5% in June, trimming the 12-month rate of decline to a 3-month low of 3.5%. Import prices fell 6.6% on year, and domestic producer prices were 2.0% lower.

Between mid-2019 and mid-2020, consumer prices rose 0.7% in Sweden and fell 0.3% in Spain. Finnish consumer prices were unchanged over the same 12-month interval.

The Zew Institute’s monthly index of investor sentiment toward Germany slipped more than forecast below June’s 63.4 14-year high to a 2-month low of 59.3. And the perceived current situation printed at a weaker-than-anticipated -80.9 but above May’s -83.6 level and the low of -93.5 touched in May.

Regarding the whole euro area, the Zew expectations index rose 1.0 point to a 61-month high of 59.6 in July and was associated with a current situation score of -88.7.

Although industrial production in the euro area rebounded 12.4% in May amid business reopening, the level was still 20.9% below the May 2019 level. On-year declines of production among the common currency area’s four largest economies amounted to 23.1% in Germany, 24.0% in France, 20.3% in Italy and 24.9% in Spain.

Britain’s goods and services trade surplus in May of GBP 4.296 billion was the second largest after last December’s surplus of GBP 6.87 billion. There was a merchandise trade deficit of GBP 2.81 billion in May versus a shortfall of GBP 7.49 billion in the prior month.

British industrial production rebounded 6.0% in May but was still 20% lower than a year earlier. Factory output showed a 22.8% on-year drop, and construction output was 39.7% weaker than a year earlier.

After plunged 20.3% on month in April, British monthly GDP recovered by a significantly less-than-forecast 1.8% in May, resulting in an on-year drop in March-May of 19.1%. On a brighter note, British same-store sales posted a record 10.9% on-year advance in June.

U.S. small business sentiment improved in June by 6.2 index points to a four-month high of 100.6. This year’s high point in February was 104.5.

U.S. CPI inflation increased 0.5 percentage points above May’s 4+ year low to 0.6% in June, but core inflation remained steady at 1.2%. Energy prices leaped 5.1% on month, trimming their on-year decline to 12.6%.

The National Bank of Poland’s reference rate had been slashed by 140 basis points in three steps (March, April, and May) to a record low 0.1%. It thus came as no surprise that officials left the key rate unchanged this month at 0.1% even though on-year CPI inflation is 0.8 percentage points above target. According to a released statement,  officials”will continue to purchase government securities and government-guaranteed debt securities on the secondary market as part of the structural open market operations.”

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



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