Continuing Dichotomy Between Equities and Covid Spread

July 23, 2020

In the past 24 hours, the number of identified Covid-19 infections soared by 284,408 worldwide and 10,738 in the United States, and the number of associated deaths totaled 72,575 and 1,234. All four changes were greater than in the previous 24-hour period.

Japanese markets are closed today and tomorrow for Marine Day and Sports Day, respectively.

Encouraged by vaccine development progress, better corporate earnings, and confidence that expansive monetary policies will persist for as long as it takes, investors are looking beyond the Covid data. In other stock markets around the Pacific Rim, share prices rose 0.8% in Hong Kong,0.7% in Indonesia, India and Singapore, and 0.3% in Australia. European markets show gains of 0.5% in the U.K. and 0.3% in Germany and France.

The price of gold is 0.7% higher and touched an intraday high of $1,887.7 per ounce, just $29 below its all-time peak reached in 2011. WTI oil is little changed.

The ten-year U.S. Treasury and British gilt yields have edged a basis point lower, and their German counterpart has tick a basis point higher.

In overnight trading, the dollar rose 0.4% against the peso, Swiss franc and sterling and 0.1% versus the euro, kiwi, and yuan. The dollar slid 0.1% relative to the loonie and 0.2% vis-a-vis the Swiss franc. The dollar/yen relationship is unchanged.

New jobless insurance claims in the United States increased last week by 109k to 1.416 million, breaking a streak of 13 consecutive weeks in which that closely watched labor market indicator had fallen. Analysts were anticipating a similar number to that in the prior week. Continuing jobless insurance claims in the week of July 11 exceeded 16 million.

Central banks in Ukraine and Turkey left their key interest rates unchanged at 6.0% and 8.25%, respectively after scheduled policy reviews.

  • Officials at the National Bank of Ukraine had previously this year cut their rate in four steps by 650 basis points, most recently by two percentage point in June. CPI inflation of 2.4% in June is now rising but still below the 4-6% targeted range. Officials project inflation by year end at 4.7% but also revised downward their forecast of GDP growth this year to negative 6.0%. A rebound of 4% is seen next year, and a rise of the central bank interest rate is not believed likely before then.
  • The Monetary Policy Committee of the Central Bank of Turkey had cut the 1-week repo rate five times this year: 75 basis points in January, 50 bps in February, 100 bps each in March and April, and 50 bps in May. Led by accelerating food costs, CPI inflation rose to a 10-month high in June but, according to a released statement, will subside in the second half of 2020 as upward supply-side strains recede and disinflationary demand-side weakness takes command. “Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance.”

South Korea’s recession became official after today’s release of second-quarter GDP data, which revealed a 3.3% drop after the first quarter’s slide of 1.3%. The year-on-year GDP comparison swung to a drop of 2.9% from +1.4% in the prior quarter and +2.3% in the final quarter of 2019.

With Covid-19 swirling around the globe, consumer confidence and business sentiment are struggling to recoup levels before the pandemic. Consumer sentiment in Turkey this month dipped 1.7 points to a 2-month low of 60.9 in Turkey. Danish consumer confidence rose only 0.2 index points in July and at -2.9 was well below January’s reading of +4.5. German consumer confidence advanced by 9.1 points but stayed below zero for a fourth straight month. At -0.3, such was down from +9.9 last February.

The confidence of French manufacturers rose 4 index points to +82 in July, which compares with +68 in April but +102 last January. Confidence in the service sectors printed at 89.5 versus 106.1 last January, and the overall business sentiment measure was 84.7 versus 105 in February.

The Confederation of British Industries quarterly manufacturing optimism index jumped 86 index points to -1 in the current quarter, still down from +23 in the final quarter of 2019, and the CBI monthly industrial trends survey showed a 12-point rise in orders to a still very subdued -46. It was at -22 in the first month of 2020.

Norwegian business confidence printed at -10.1 last quarter, up from -17.4 in the first quarter but below +5.0 in the second quarter of 2019.

The National Australia Bank’s quarterly business confidence index deteriorated 3 points to -15 in the second quarter versus expectations of an improved -8 and was down from +5 in the second quarter of 2019.

Unemployment rose half a percentage point to 4.6% in Norway during June, highest in 44 months. Swedish unemployment advanced 0.8 percentage points to 9.8% in June, highest in 11 years. Polish unemployment last month of 6.1% was at a 16-month high.

On-year growth in Taiwanese industrial production accelerated sharply to a 3-month high of 7.3% in June, but the 12-month change in retail sales showed a drop of 1.3%.

Total and core Singapore consumer prices in June were 0.5% and 0.2% below year-earlier levels.

Still to come today: U.S. index of leading economic indicators, K.C. Fed manufacturing index, consumer confidence in Euroland, and the interest rate decision of the South African Reserve Bank.

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


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